Breakdown of WTO talks: FIEO Analysis
The President of the Federation of Indian Export Organisations–FIEO, GK Gupta has analysed the breakdown of the WTO talks as:-
Reasons:
(a) Real issue was difference in perception of developed and developing countries. The former eager to promote “commercial prosperity” as against question of subsistence of millions of farmers in latter countries
(b)The deal broke down ostensibly over the proposal to protect farmers in developing countries from a surge in imports. The compromise paper proposed that countries can go above Uruguay Round level( Bound Rates) only if imports go up by more than 40% over the average of preceding three years. India rejected the offer rightly as in such a scenario action can be taken after farmers are ruined. In respect of products like apple, the applied rate of duty is 50% while UR rate is 55%. Similarly in dairy products, applicable duty is 30% while UR rate is 40% and thus give very little flexibility to protect domestic producers.
(c) The real reason was the issue of agriculture subsidy particularly cotton subsidy amounting to US$ 3.5 billion which US was not willing to negotiate despite requests by four African cotton producing nations. Since cotton issue is politically sensitive in US which will have Presidential Election in November, US has no choice.
(d) The talks exposed once again the faultlines running through the European Union, as French President Nicolas Sarkozy rallied opposition to an emerging deal even as European Trade Commissioner Peter Mandelson was trying to negotiate it.
IMPLICATIONS:
(a) It has damaged the credibility of the multilateral system and will encourage greater reliance on regional trade deals.
(b) There will be no immediate impact on trade flows, given the long implementation periods for the measures under discussion-typically five years for developed countries and 10 for developing countries. But this month's failure could damage business sentiment.
(c) It may encourage protectionist behaviour, an important factor in the Great Depression with its accompanying mass unemployment?
(d) The talks reflected the changing balance of economic power as emerging nations in Asia and Latin America grow in influence. India is set to assume the leadership of 100 odd LDCs and developing countries. Developing countries will have greater say in future talks.
(e) India will gain in Services Negotiations in further round of discussions due to concessions already offered by US and EU.
A new administration taking over next year in Washington after November's election, changes next year in the European Union's executive Commission could also set new priorities for trade.