M.J. Akbar's Interview with Kamal Nath

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M.J. Akbar's Interview with Kamal Nath - Union Minister for Commerce & Industry

At the recently concluded WTO meeting in Geneva, member nations adopted a framework agreement to slash billions of dollars in farm subsidies, create more open industrial markets and revive stalled global trade talks, said Union minister for commerce and industry, Kamal Nath who represented India in Geneva, in an interview aired on CNBC TV-18’s Encounter.

Excerpts:

Q: This round (of WTO talks at Geneva) has been described as historic, that’s propaganda, isn’t it?
A: Historic would be I think a very strong word to use for it, but it really gets the WTO system, the world trading system as envisaged in the WTO, it helps it to move forward. And in that forward movement the experience gained in the first round in the 10 years that will end in 2005, it is a very important input.

Q: What has happened since Cancun that you can call it successful?
A: In Cancun, there were certain things on the table. Number one, agriculture. We have this great artificiality of agricultural prices. WTO is about free trade, free markets, level playing fields. But then you have the OECD countries, the developed countries, giving $300 billion of aid, assistance and support to their farmers and then those farm products, those agricultural products are looking for market access in developing countries...

Q: They are being dumped on the rest of the world. Why don’t you use the term?
A: Absolutely, it’s dumping. Anything which is artificial price, a price which is not market driven, is dumping. And that’s what they were seeking: market access into developing countries.

Q: Why would you suddenly want to trust the west? Let’s take from Doha onwards. In Doha they gave us promises, in Cancun they went back on all the promises. Why should you take their word for it in Geneva?
A: Well, they moved forward. They agreed on elimination of export subsidies. They agreed on substantial reduction on domestic support, and market access with certain conditionalities. So I think it was realised that the whole process, the WTO process is going to collapse if the developed world didn’t move forward.

Q: You know, all you have done in Geneva is really established the framework. The modalities are yet to be fought over and they will be fought over very bitterly.
A: Absolutely, this is a framework agreement which lays down the criteria and principles. Out of this will flow the modalities.

Q: So what are the next steps now, when you come to the practical negotiating aspects of it? They have only agreed to reduce their subsidies by 20%.
A: They agreed to eliminate subsidies starting with 20% in the first year. Now every round is 10 years. We’ve been through 1995 to 2005, which will be over next year. The next round which was supposed to start from 2005 will not start from 2005, it will start from 2006. But we must understand that on the other hand, where goods are concerned, where services are concerned, those are also issues which need to be addressed. And in balance, the developed countries by agreeing to eliminate subsidies have moved forward in comprehending that the developing countries are not going to lie back.

Q: Kamal, the fact remains that the differences are so huge. We are talking about America raising its subsidies to its own farmers by something like $80 billion in one year. Now they have taken the subsidies to an atrocious high. And from there they are willing to come down. It reminds me of the supermarket where you are given a sale after the shopkeeper has doubled his price. Then he brings it down by 20%.
A: Akbar, the fact is this, that in 1985 we decided to engage ourselves in the world trading order. The eventual question becomes, are we participants in the world trading order or not? Or do we isolate ourselves? Now having decided to engage ourselves, having decided to be a part of WTO, obviously we have to see that our defensive interests are defended and our offensive interests, that is our export interests, are made as aggressive as possible, without any blockage or market access for our product.

Q: What have you brought back from Geneva for the Indian farmer? Specifically.
A: Very specifically, the desire and attempt by developed countries to bring an irrational, an unreal price and enter the Indian market — that is not going to happen. Number two, the domestic support in export subsidy which is being reduced will, in future, give a chance to the Indian farmer... When we are in a position to become offensive ... because we have a net grain surplus and with 600 million people of our country involved in agriculture, it is important that we also look at an offensive situation in the future. Now both these concerns have been adequately addressed.

Q: When you say that you have these surpluses, what can the farmer do in the future which will make him richer through his surpluses?
A: First let me take the defence mechanism. Today we are subsistence farming. If our market is going to be flooded with goods which have unreal price, that farmer whose subsistence is that, is out of business. On the other hand, by protecting him against an onslaught of exports at unreal prices, he is secure. Then on the offensive side, by reduction which is going to happen in the next 10 years — which is a commitment in the framework agreement — by elimination of export subsidy, real prices prevail. So the Indian farmer can compete with the US farmer, but can’t compete with the US government.

Q: India has 600 million people living off agriculture and our total subsidies to this huge population, 60% of our population, amount to no more than $5 billion. It is far less than what we are actually allowed by a WTO order. Why does your budget not show any increase in subsidy? Even to take it up to what you can do, 10%.
A: It’s resources. We don’t have that budget. We don’t have the funds. They have the funds and we don’t have the funds to provide this subsidy.

Q: If the same budget says Rs 1,600 crores for civil aviation and Rs 80 crores for irrigation or Rs 100 crores for irrigation. Why cannot the Indian farmer get more out of the budget rather than the urban class or the salaried class eating up most of it?
A: I think the present government in its first pronouncement has said that we are going to look into rural India. That’s where the demands, that’s where the purchasing power has to increase to create a balanced economic equation.

Q: The West wants us, as quid pro quo, to reduce tariffs on the industrial products.
A: Certainly, on goods. It suits us, because we must be a country with a huge manufacturing base. Our real objective is greater economic activity which leads to greater employment.

Q: That doesn’t mean we have to allow American products at lower prices.
A: No, we are not allowing them. In fact, today even with the 10, 15, 20% of duties we have, we are finding that India has been able to unleash its manufacturing abilities, its intellect, in terms of design, in terms of management, in getting into the international markets.

Q: There is pressure also from the west on the service sector and 50% of India’s GDP comes from the service sector. How are you going to tackle that?
A: Well, in the four modes; where our BPOs are concerned and then in the transnational movements, we are trying to give it a push. It has to happen, we want the pillar of services to move along with the same intensity as it moves for goods. That is a very integral part of this framework agreement.

Q: One of the key and perhaps astonishing facts of Cancun was the extraordinary cooperation shown between India and China, and India, China, Brazil. That in fact led to what is now the G-20, G-21. Was there similar cooperation this time around with China?
A: There have always been formations in global trade. G-20 is a group with disparate interests. That’s why it gives it more credibility. So any paper that the G-20 produced had much more credibility than a paper by a group of similar interests. So it worked very closely together. I interacted with all of them. Whether it’s the G-20 or the G-19. India is not merely expressing its own concerns. When India speaks, India also speaks for the underdeveloped countries of Africa, of Asia, of South America.

Q: But there was a split in this formation, on the tariff cuts on industrial products, wasn’t it? Countries like China and Malaysia were ready to accept the western stance because it suited them.
A: Well, I don’t think it was a question of tariff cuts. Some of the countries, developing countries need high tariffs because they are a revenue resource. For India and some of the other countries, customs tariffs are not necessarily a revenue resource. So our flexibilities on cutting tariffs are much more than those countries. Obviously we have different perceptions, but we brought in a language which takes care of both these concerns.

Q: How? Specifically.
A: Higher duties. Our concern is that the higher band where the duties are very high will have deeper cuts. We have no problem with that. We want that our products aren’t brought from those markets. At the same time, the total average cuts should not exceed a certain amount.

Q: All right. And what about the famous Singapore issues? How were they resolved and how have you managed to prevent...
A: They were contentious issues. There was one issue that suits us that is trade facilitation which means customs...

Q: There was no other issue? Trade facilitation was never an issue. I presume transparency is also never an issue.
A: But three of those issues which were disputed by other countries, we said these have to go up on the table and those have gone up on the table. What we wanted, trade facilitation is on the table. We moved forward on that.

Q: You mean control, investigations and monitoring of foreign investments have gone off the table?
A: Foreign investment is a policy to be decided by India. Not sitting in the WTO headquarters in Geneva. This is our sovereign right. If in the name of making rules of foreign investments developed countries ... or any country wants to control investment policy in India, I am afraid that’s not on.

Q: But that exactly was the basis of the famous paper produced by America in EU. Wasn’t it? That they must control foreign investment...
A: That’s what’s thrown out in the Geneva framework.

Q: And how did the Americans accept that?
A: I think it is a point of conveying it to them that these are ground realities. These are issues which can’t be shoved down the throats of countries and what you cannot shove down, what you can rationally argue, what you can rationally convince, works.

Q: What was your personal interaction with the American representative?
A: Good. Bob Zoellick is a very experienced man, he is a very sharp person. We did have some difficult moments.

Q: Could you describe one of those difficult moments? Or maybe two.A: Well, when I told him that we need a window of special products, he said, why do you need a window? I said, if I don’t have a window, I’m afraid, Bob, I don’t move ahead. He said, this is an excuse to have another window just to block exports into India. I said, that’s your perception, because you don’t understand it. And then when I took a stand, that there is no purpose going further, he said, we need to reflect on this. I said, you better reflect, I have done my reflection. And we closed the meeting. After some time, we resumed the meeting. And he said, well, let’s try and do it like this, but then you won’t do that... Anyway, that was the way that we were able to build it.

Q: So America actually surrendered to your blackmail.
A: I am not saying surrendering to blackmail.

Q: Whitemail.
A: Well, I think America understood that this is it. I said that I have my script and I am going to go out and say that the developed countries are looking for market access into countries with subsistence farming, with artificial prices. They want to dump. And this doesn’t work. This is not what the WTO stands for.

Q: What did you give the Americans in return?
A: I don’t think we gave anything. We did agree that instead of eliminating domestic support which is specific, if they would like, specially to the countries which are not looking for access into India... If countries want to protect their meadows with cows in them and they give domestic support, but they are not using that domestic support to subsidise their products into India, that’s okay with me. But I say what was on the table in Cancun and what is the framework now, there is a big difference. We have improved upon it. I am not trying to singularly take credit of this. I’d say that over the months the momentum which we have built up... But at the end of the day, it is being signed now.

Q: The LDCs who were a problem for us, in Cancun, how did they react? Bangladesh...
A: Well, LDCs have very special situations because they have these preferential treatments specially now in garments. When this Multi-Fibre Agreement ends, and from January 1 it is a quota-free regime... Bangladesh and Tanzania and whatever countries that are there, they are obviously feeling that their level of preferences is going down. So they brought in this concept. I think LDCs have a valid point. But at the end of the day, it all has to be determined by market forces. You can support a country. (But) that is not sustainable trade.

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