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Monday, September 20, 2010

INDIA-CHINA BILATERAL RELATIONS

Overview
The relationship with China is a priority in Indian foreign policy. A Strategic and Cooperative Partnership for Peace and Prosperity was established in April 2005. In November 2006 the two countries agreed on a 10-pronged strategy for comprehensive development of this partnership. Prime Minister visited China from 13-15 January 2008. He was received with warmth. PM and Premier Wen Jiabao signed a joint document on “A Shared Vision for the 21st Century between the Republic of India and the people’s Republic of China”, that reflects the congruence of interests that the two countries share on regional and international issues, and our willingness to work together in those areas. This year the two countries are celebrating 60 years of establishment of Diplomatic relations.
High level exchanges
2. The two sides have continued to maintain a healthy momentum of high level exchanges, which include exchange of visits by the Foreign Ministers of the two countries in 2008; visit of UPA Chairperson to Beijing in August 2008 to attend the opening ceremony of the Olympics; the meeting of PM and the Chinese President Hu Jintao on the sidelines of SCO/BRIC summit at Yekaterinburg on 15 June 2009; meeting
between PM and Chinese Premier Wen Jiabao in Hua Hin, Thailand on the sidelines of the ASEAN/EAS Summit on 24 October 2009 and in Copenhagen on 18 December 2009 on the sidelines of the CoP-15 on Climate Change; the meeting of EAM with Chinese FM Yang Jiechi on the sidelines of EAS Ministerial Meeting at Phuket, Thailand on 22 July, 2009; their meeting on the sidelines of the Russia-India-China trilateral Foreign Ministers Meeting in Bengaluru on 27 October, 2009; and most recently CI&M’s meeting with the Chinese Commerce Minister on 19 January 2010 in Beijing.
3. Both sides have agreed that Rashtrapatiji would visit China in 2010. Dates are being worked out. On the invitation of the Chinese Foreign Minister, EAM is also scheduled to visit China this year at a mutually convenient date.
Economic and Trade Relations 4. China is now India’s largest trading partner. According to Chinese statistics, in 2008, bilateral trade reached US$ 51.8 billion-a 34% growth over 2007 with a trade deficit of USD 11.2 billion. In 2009, the annual
bilateral trade reached USD 43.27 billion, trade deficit standing at US$ 15.87 billion. In the face of the global economic crisis our bilateral trade registered a decline of 16.54% compared to the previous year, trade deficit standing at USD 15.87 billion. In the first month of 2010 the bilateral trade between the two countries reached US $ 4.6 billion with a trade deficit of US $ 0.98 billion. The two Prime Ministers mandated their Ministers of Commerce to examine the Feasibility Study on the benefits of a Regional Trading Arrangements. The 8th Ministerial level meeting of the India-China Joint Economic Group was held in Beijing on 19th January, 2010.
The two sides signed a MoU on Expansion of Trade and Economic Cooperation.
Boundary Question
5. Both sides are committed to resolving the India-China Boundary Question through peaceful negotiations and in a fair, reasonable, mutually acceptable and pro-active manner, and as a strategic objective. The Agreement on Political Parameters and Guiding Principles for the Settlement of the India-China Boundary Question was signed on 11th April, 2005. The Special Representatives of the Prime Ministers of
India and China have held 13 rounds of talks on an appropriate framework for a final package settlement covering all sectors of the India-China boundary. Both sides have reiterated that pending the resolution of this issue, peace and tranquility must be maintained in the border areas in accordance with relevant agreements signed in 1993, 1996 and 2005.
Defence Cooperation
6. Efforts to build trust and confidence between the militaries are proceeding satisfactorily. The third Annual Defence Dialogue was held in Beijing on 6 January 2010. The last joint military exercise on counterterrorism was held in Belgaum in December 2008. In November 2008 Indian Chief of Air Staff visited China and Chinese PLA Navy Chief visited India. CNS attended the International Fleet Review 2009 at Qingdao in April 2009. Deputy Chief of General Staff of Chinese PLA visited India from 1-6 December, 2009.
Cooperation in other areas
7. The two sides are also cooperating in a number of functional areas, including in finance, agriculture, water resources, energy, environment, tourism and information technology. MOUs have been signed in several fields in the past few years to strengthen our collaboration in these fields. To boost cooperation in science and technology the two countries have established an India-China Partnership in Science and Technology. This year the two countries are organizing a ‘Festival of India’ in China and a ‘Festival of China’ in India to promote greater awareness of each others’ culture. India and China also have an annual youth exchange programme. The two countries also have an Exchange Programme between Ministry of External Affairs, India and International Department of Communist Party of China under which Chief Minister of Karnataka visited China in September, 2009.
8. The two countries have also been furthering cooperation in regional and multilateral fora on global issues such as world trade negotiations and energy security. The two countries have been cooperating very closely on the climate change issue. MoS for Environment and Forest visited China in August and November, 2009 to coordinate positions with the Chinese side. During CoP-15 at Copenhagen the two Prime Ministers held bilateral consultations to ensure that the goal of developing countries in dealing with challenges of climate change were met satisfactorily and comprehensively.
(Source: Ministry of External Affairs, GOI, 2010)

India–Republic of Korea Joint Statement: Towards a Strategic Partnership

H.E. Mr. Lee Myung-bak, President of the Republic of Korea (ROK), paid a State Visit to India from 24 to 27 January 2010, at the invitation of H.E. Smt. Pratibha Devisingh Patil, President of the Republic of India.

2. The President of the ROK was accorded a ceremonial welcome at the Rashtrapati Bhawan on 25 January 2010. During the visit, President Lee met President Patil, and also held a summit meeting with Prime Minister of India, Dr. Manmohan Singh. On 26 January, President Lee will be the Chief Guest at the celebrations to mark the Republic Day of India.

3. During the summit meeting, the two leaders discussed ways to develop bilateral relations and exchanged views on regional and international issues. They expressed satisfaction on the strong development of India -ROK relations based on the "Long-term Cooperative Partnership for Peace and Prosperity" established in October 2004. Both sides welcomed the steady growth in high level exchanges and contacts between the two countries, and the expansion in various areas of bilateral relations including defence, trade, science & technology, information & communication technology, education, and culture.

4. Recognizing that the India-ROK partnership is based on the principles of common interest, mutual benefit and shared values, the two leaders agreed that there is immense scope for further enhancing bilateral relations in various areas. In this context, they also welcomed the entry into force of the Comprehensive Economic Partnership Agreement (CEPA) on 1 January 2010 as the bedrock of a new comprehensive partnership between India and the ROK. They also recognized that, as both countries are major economies in the region, the partnership has the capacity to promote regional growth, and to contribute to prosperity and economic development of Asia.

5. Referring to the common challenges that both countries face in ensuring security against non-conventional threats, the two leaders agreed on the importance of cooperating and consulting with each other in developing regional architecture in the broader Asia-Pacific region.

6. Considering that India-ROK Partnership is a factor for peace and stability in Asia as well as between the two countries, the two leaders decided to enhance bilateral relations to a Strategic Partnership. They also identified the following elements of the future relationship:

Political and Security Cooperation

7. The two leaders agreed to maintain regular contacts, including on the margins of international meetings and conferences.

8. Both sides reiterated the importance of the India-ROK Joint Commission co-chaired by the Foreign Ministers of the two countries and acknowledged the necessity of holding the Joint Commission on an annual basis. It was agreed that the sixth meeting of the Joint Commission will be held in 2010.

9. The two leaders agreed that the Foreign Policy & Security Dialogue will be raised to the level of Vice Foreign Minister, Ministry of Foreign Affairs and Trade (MOFAT) of the ROK, and Secretary (East), Ministry of External Affairs (MEA) of India. It was also agreed that the first meeting of the upgraded dialogue will be held in 2010.

10. The two leaders agreed to strengthen dialogue and exchanges in the area of defence through regular high-level military exchanges. They also agreed to explore the possibilities of joint venture cooperation in research & development, and manufacture of military equipment including through transfer of technology and co-production. It was agreed that the third meeting of the Joint Committee on Defence Logistics and Industry will be held during the first half of 2010.

11. The two leaders also agreed on the need for greater cooperation between the navies and coast guards in areas pertaining to the safety and security of international maritime traffic. They shared the view that developing long-term cooperative relations in this area will contribute to peace and stability in the Asia-Pacific region.

Economic and Trade Cooperation

12. Both sides shared the view that the CEPA will contribute to enhancing trade and investment flows between the two countries. They also reaffirmed their commitment to ensure the smooth implementation of the CEPA. It was agreed that the first meeting of the Joint Committee headed by Trade Ministers of the two countries or their representatives will be held in the second half of 2010 to review the status of the implementation of the CEPA.

13. The two leaders agreed to set a target of US$ 30 billion for bilateral trade to be achieved by 2014. They also agreed to strengthen cooperation in trade and investment, SMEs, SPS and Standards related measures, trade remedies and IPR issues.

14. Both sides agreed to enhance cooperation in the financial sector through bilateral consultations on macroeconomic policy, budget, taxation, finance, and public sector reform.

15. Noting that the expansion of mutual investment will contribute to the reciprocal economic growth of both countries, the two leaders agreed to enhance cooperation and support at the governmental level to nurture a favourable environment, including through mutual agreement on a revised Double Taxation Avoidance Convention (DTAC) before the end of 2010. The Indian side hoped that investment from the ROK into India will expand, including in the infrastructure and manufacturing sectors. In this context, referring to the project to set up a Korean industrial complex and technology zone in the State of Gujarat, the two leaders noted its potential to further accelerate the bilateral trade and investment linkages. The two leaders also recognized the need to expedite the implementation of the POSCO project in the State of Orissa. The Korean side hoped that Indian investment in the ROK will also expand. It was agreed that the fourth meeting of the India-ROK Joint Committee on Investment Promotion will be held in New Delhi in 2010.

16. Noting the important role of air transport network in promoting economic, social and cultural exchanges, the two leaders agreed to explore the possibility of enhancing air connectivity between the two countries. They also agreed to consider the early conclusion of a mutually beneficial Maritime Shipping Agreement.

Science and Technology Cooperation

17. The two leaders recognized the importance of strengthening cooperation in the field of science & technology. They welcomed the outcome of the Meeting of the Joint Committee on Science & Technology held in Seoul in December 2009 and endorsed the decision of the two sides to consider creating a dedicated fund of US$ 10 million (with a contribution of US$ 5 million by each side) to promote joint research. The two leaders also agreed that the two sides may explore the possibility of upgrading the level of the dialogue.

18. The two leaders also agreed to strengthen cooperation in the information technology sector including through the expansion of mutual investment and personnel exchanges. They also welcomed the decision of the two sides to renew the Memorandum of Understanding on Cooperation in Information Technology and Services.

19. The two leaders welcomed the signing of the MOU on cooperation in the peaceful uses of outer space between the Indian Space Research Organisation (ISRO) and the Korea Aerospace Research Institute (KARI) and expressed confidence that the MOU will facilitate strong cooperation between the two countries in this important sector.

20. The two leaders shared the view that nuclear energy can play an important role as a safe, sustainable and non-polluting source of energy. They agreed to facilitate development of a framework for bilateral civil nuclear cooperation.

Social and Cultural Cooperation

21. Recognising the need to further strengthen cultural exchanges and people to people contacts between India and the ROK, the two leaders agreed to designate the year 2011 as ‘Year of Korea’ in India and ‘Year of India’ in the ROK.

22. The Indian side also welcomed the ROK initiative to open a Korean Cultural Centre in New Delhi in 2011, which will go a long way in further promoting awareness about Korean life and culture in India.

Cooperation in the International Arena

23. The two leaders recognized the legitimate and long-term interests of both countries in the peace and prosperity of the Asia-Pacific region, and the importance of developing an open and inclusive economic regional architecture that is based on the principles of mutual benefit and shared opportunity. In this context, they affirmed that both India and the ROK have a significant role to play in such a regional architecture and agreed to maintain regular consultations and close coordination in the EAS, ARF, ACD and ASEM processes.

24. Both sides agreed to work for comprehensive United Nations reform, including Security Council expansion, with a view to enhancing its representativeness and, consequently, its effectiveness, authority and efficiency, as well as its capacity to address various challenges facing the international community.

25. The two leaders reiterated their commitment to the eradication of terrorism in all its forms and manifestations, and agreed to enhance cooperation in this area, including through information sharing.

26. Both sides also reiterated their common commitment on nuclear disarmament and the non-proliferation of weapons of mass destruction and their means of delivery.

27. The two leaders valued the G-20 as the premier forum for international economic cooperation and commended its timely and strong policy response in the crisis. They welcomed the Framework for Strong, Sustainable and Balanced Growth launched at Pittsburgh and looked forward to its implementation.

28. The two leaders welcomed the Copenhagen Accord. They reaffirmed their determination to work closely together in the negotiations both under the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol towards an Agreed Outcome to be adopted at the 16th Session of the Conference of the Parties.

29. The following agreement and MOUs were signed during the visit:

(i) Agreement on the Transfer of Sentenced Persons
(ii) MOU on Cooperation in Information Technology and Services
(iii) Programme of Cooperation in the Fields of Science and Technology for the Period 2010-2012
(iv) MOU for Cooperation in the Peaceful Uses of Outer Space

30. The two sides agreed that the State Visit of the President of the Republic of Korea to India has reflected the recent trend in expanding bilateral relations between the two countries and that this visit will provide the impetus for a new vision of friendly and cooperative relations in the years to come.

31. On behalf of the Government and the people of the Republic of Korea, President Lee Myung-bak thanked the Government and the people of India for the warm and friendly hospitality accorded to him and his delegation. President Lee extended cordial invitations to President Smt. Pratibha Devisingh Patil and Prime Minister Dr. Manmohan Singh to visit the Republic of Korea at a mutually convenient time. The invitations were accepted with appreciation. The timing of these visits will be decided through diplomatic channels.

(Source: Ministry of External Affairs, GOI;January 25, 2010)

India-Sri Lanka Joint Declaration

At the invitation of the President of India, Smt. Prathiba Devisingh Patil, the President of the Democratic Socialist Republic of Sri Lanka, Mr. Mahinda Rajapaksa, is paying a State Visit to India from 8th – 11th June 2010. The President is accompanied by Mrs. Shiranthi Rajapaksa.

2. The President of Sri Lanka was accorded a ceremonial welcome at Rashtrapathi Bhavan on 9th June 2010. During the visit, the President of Sri Lanka was received by the President of India, who hosted a banquet in his honour.

3. Finance Minister Shri. Pranab Mukherjee, External Affairs Minister Shri. S.M. Krishna, Leader of Opposition Smt. Sushma Swaraj and Chairperson of the United Progressive Alliance Smt. Sonia Gandhi called on President Mr. Mahinda Rajapaksa.

4. The President of Sri Lanka had a meeting with the Prime Minister of India, Dr. Manmohan Singh, on 9th June 2010, which was followed by delegation level talks.

5. The official discussions between the two sides were marked by friendship, mutual respect and understanding. The President of Sri Lanka and the Prime Minister of India agreed that the shared cultural and civilizational heritage of India and Sri Lanka and the extensive people-to-people interaction provided the foundation to build a vibrant and multi-faceted partnership. India-Sri Lanka relations have matured and diversified with the passage of time, encompassing all areas of contemporary relevance, including trade, services and investment, development cooperation, science and technology, culture and education.
6. In consonance with their vision of the future of the India-Sri Lanka relations, the two leaders agreed to further harness the enormous potential available for consolidating and strengthening the bilateral partnership by building on shared values and principles of democracy and pluralism, leveraging common strategic concerns and interests, enhancing connectivity between the two countries, increasing the integration of their economies, and reinforcing the institutional framework for cooperation.

7. The Prime Minister of India, Dr. Manmohan Singh, congratulated the President of Sri Lanka, Mr. Mahinda Rajapaksa, on his recent electoral victories and conveyed that the recent elections, together with the cessation of hostilities in Sri Lanka in May 2009, provided a historic opportunity for the country's leaders to address all outstanding issues in a spirit of understanding and mutual accommodation and to work towards genuine national reconciliation. The Prime Minister emphasised that a meaningful devolution package, building upon the 13th Amendment, would create the necessary conditions for a lasting political settlement. The President of Sri Lanka reiterated his determination to evolve a political settlement acceptable to all communities that would act as a catalyst to create the necessary conditions in which all the people of Sri Lanka could lead their lives in an atmosphere of peace, justice and dignity, consistent with democracy, pluralism, equal opportunity and respect for human rights. Towards this end, the President expressed his resolve to continue to implement in particular the relevant provisions of the Constitution designed to strengthen national amity and reconciliation through empowerment. In this context, he shared his ideas on conducting a broader dialogue with all parties involved. The Prime Minister of India expressed India’s constructive support for efforts that build peace and reconciliation among all communities in Sri Lanka.
8. The President of Sri Lanka expressed appreciation for India's substantial and generous assistance including through a grant of Indian Rupees 500 crore for the humanitarian relief, rehabilitation and resettlement of Internally Displaced Persons (IDPs). He noted that the steps taken by India for humanitarian assistance, including supply of family packs of food and clothing, medicines, setting up of a field hospital and an artificial limb fitment camp and for the resettlement of IDPs, including provision of shelter material, cement bags and agricultural implements and deployment of de-mining teams, were important and timely.

9. The Prime Minister of India was apprised on the measures taken by the Government of Sri Lanka to bring about a rapid and sustainable resettlement of the bulk of the IDPs. It was stated that the process of resettling the limited number still remaining in the transit facilities would be further expedited. Both leaders agreed on the urgent need for the resettlement of the remaining IDPs, along with speedy rehabilitation, reconstruction and development in the North and the East of Sri Lanka. They agreed to work closely towards this end. In this context, India’s assistance to rebuild infrastructure, including railway infrastructure, set up several Vocational Training Centres, repair and construct schools, houses, stadium and recreational facilities, supply much-needed inputs for agricultural regeneration and undertake several other projects was greatly appreciated.
10. Both leaders announced a major initiative to undertake a programme of construction of 50,000 houses for Internally Displaced Persons in the Northern and Eastern Provinces. The President of Sri Lanka warmly welcomed the offer of Indian support for this programme.

11. With regard to the task of reconstruction in northern Sri Lanka, the Prime Minister of India reiterated India’s support for various infrastructure projects. In this regard, the two leaders witnessed the signing of the contract for the reconstruction of the Madu-Talaimannar railway line by IRCON. The contract for the Medawachchiya-Madu segment of the track will be signed shortly. It was also noted that the contract for the reconstruction of the Omanthai-Pallai segment of the railway track by IRCON has already been signed. The two leaders directed that the contracts for the construction of a new signalling and tele-communication network by IRCON, and for the reconstruction of the Pallai-KKS railway line, which will be undertaken by the Sri Lanka Railway in collaboration with IRCON, also be concluded at the earliest. The work on all these construction projects will commence latest by October 2010. It was also noted that the procurement of rolling stock from India would take place in a phased manner. The Prime Minister of India and the President of Sri Lanka directed that a Steering Committee be established to oversee and facilitate the timely and successful completion of the contracted work.
12. The President of Sri Lanka expressed his appreciation for the generous and concessionary credit facilities amounting to about US$ 800 million offered by India for the railway projects in Sri Lanka. The two leaders directed that the relevant agreements on the lines of credit for requisite amounts be concluded within two months, so that there is no delay in the commencement of the projects.

13. In addition, with a view to restoring physical and cultural infrastructure and promoting normalcy in northern Sri Lanka, it was also agreed that India would extend assistance for the rehabilitation of Palaly Airport and Kankesanthurai Harbour as also help in renovating the Duraiappah Stadium and constructing a Cultural Centre in Jaffna.

14. Both leaders welcomed the involvement of Self Employed Women’s Association (SEWA) in addressing the issue of rehabilitation of war widows and witnessed the signing of the MoU on Setting Up of Women’s Trade Facilitation Centre and Community Learning Centre at Batticaloa.

15. Both leaders expressed satisfaction at the progress of work on the Colombo-Matara railway line being constructed with Indian assistance, and directed that the project be completed in a timely manner.

16. The two leaders witnessed the signing of the MoU on Small Development Project Scheme.
17. The Prime Minister of India and the President of Sri Lanka reiterated their mutual commitment to substantially enhance the range and depth of the India-Sri Lanka bilateral relationship including through greater economic integration, enhancing connectivity and other linkages and closer developmental cooperation.

18. In this context, both leaders agreed to revive the Joint Commission mechanism and hold the next meeting of the Joint Commission, co-chaired by the two Ministers of External Affairs, in the second half of 2010 in order to devise a fuller agenda of bilateral cooperation in various fields.

19. Both leaders agreed to promote dialogue on security and defence issues of relevance to their bilateral relationship, and enhance high-level military exchanges and training of military personnel as well as impart additional training in Indian institutions for the newly recruited police personnel. They agreed to institute an annual defence dialogue between the two governments.

20. Both leaders condemned terrorism in all its forms and manifestations. They also agreed to strengthen the security and legal framework of their bilateral relationship. To this end, the leaders witnessed the signing of the following Agreements:
i. Treaty on Mutual Legal Assistance on Criminal Matters; and

ii. Agreement on Transfer of Sentenced Prisoners.

21. Both leaders underlined their desire for closer economic integration to achieve the shared goals of alleviating poverty, creating wealth and bringing about progress and prosperity for the people of the two countries. In this context, they agreed to cooperate closely to nurture a favourable environment to forge closer economic and trade linkages.

22. Both leaders expressed satisfaction that bilateral trade, despite the downturn in 2009 as a result of the global economic slowdown, was already beginning to show a healthy recovery.

23. Recognizing the considerable benefits from greater economic cooperation between the two countries, the two Leaders noted the progress achieved under the India – Sri Lanka Free Trade Agreement. They agreed that it would be timely to build on this achievement through a more comprehensive framework of economic cooperation, best suited to the two countries. In this context, they directed the concerned officials of the two countries to hold intensive consultations towards developing a framework for sustainable economic partnership between the two countries and addressing outstanding issues.
24. The two leaders also agreed to launch a CEOs Forum to involve the public and private sectors in a dialogue to generate ideas to deepen and broaden the bilateral economic relationship in all its aspects and to help chart the future course of business and trade interaction between the two countries.

25. The Prime Minister of India and the President of Sri Lanka agreed that there was great potential for the further and rapid expansion of bilateral agricultural cooperation and collaboration in livestock development between the two countries. They noted that the MoU for Scientific and Technical cooperation between the Indian Council of Agriculture Research and the Sri Lanka Council for Agriculture Research Policy had yielded sound results, including in human resource development. They agreed that collaborative research and development programmes in areas such as livestock, biotechnology, the design and manufacture of agricultural and farm machinery and equipment, hybrid seed development and post harvest processing of perishable products, fruits and vegetables would further contribute to agricultural cooperation. The concerned authorities of the two countries would also cooperate in the area of weather forecasting. Towards this end, the two leaders resolved that the two countries should finalize at the earliest possible an Agreement providing for comprehensive cooperation in Agriculture.
26. The two leaders agreed to enhance cooperation in the energy sector. In this connection, they welcomed greater cooperation between the public and private sector entities and emphasised the need to cooperate further.

27. The two leaders were briefed on the progress in discussions between the National Thermal Power Corporation of India and the Ceylon Electricity Board of Sri Lanka on the establishment of a joint venture for building a 500 MW coal-fired power plant at Sampur (Trincomalee), incorporating environmentally friendly technologies, with the Government of Sri Lanka providing the requisite infrastructure support. The concerned parties have agreed to complete their discussions on the Joint Venture Agreement, the Power Purchase Agreement, the Agreement with the Board of Investment of Sri Lanka, the Implementation Agreement and other relevant arrangements within three months, so that the work on the project can commence without delay. The Sri Lankan side expressed its appreciation for the further concessionary line of credit of US$ 200 million afforded by the Government of India, to enable the Government of Sri Lanka to fulfil its commitments under the Implementation Agreement, including with regard to the construction of a jetty at Sampur and of transmission lines from Sampur to Habarana as also the initial equity of the Ceylon Electricity Board (under the Joint Venture Agreement).
28. An agreement on conducting a feasibility study for the interconnection of the Indian and Sri Lankan electricity grids was also signed on this occasion. The two leaders expressed their confidence that the agreement would make a significant contribution to enhancing India-Sri Lanka cooperation in the energy sector.

29. Recognising the need to speedily restore the traditional links between the two countries, both leaders agreed to resume the ferry services between Colombo and Tuticorin and between Talaimannar and Rameswaram. They directed their respective officials to put in place the mechanisms to start these services at an early date.

30. The two leaders agreed on establishing the Consulates General of India in Jaffna and in Hambantota to reinforce consular cooperation and friendly links between the two countries. The Prime Minister of India welcomed in this regard Sri Lanka’s interest in establishing a further Post in India, in addition to those in Chennai and in Mumbai functioning under the High Commission in New Delhi.

31. The Prime Minister of India and the President of Sri Lanka expressed satisfaction that the Joint Statement on Fishing Arrangements of October 2008, which sought to put in place practical arrangements to deal with bonafide fishermen crossing the International Maritime Boundary Line (IMBL), had led to a decrease in incidents. Both sides agreed to explore ways to strengthen the safety and security of fishermen and, in this context, directed their respective officials to revive the meetings of the bilateral Joint Working Group on Fishing. It was also decided to enhance and promote contacts between the fishermen's associations on both sides.
32. The President of Sri Lanka proposed discussions on the matter of establishing a joint information mechanism on the possibility of oil and gas fields straddling the India Sri Lanka Maritime Boundary. The Prime Minister of India assured the President of Sri Lanka that this proposal would receive the Government of India’s attention and the matter could be discussed further between the two sides.

33. Recognising that the shared cultural and civilizational links provided the bedrock of bilateral relations, the two leaders agreed that the 2600th year of the attainment of enlightenment by Lord Buddha (Sambuddhatva Jayanthi) will be commemorated through joint activities. They noted with appreciation that an International Buddhist Conference will be organized in Kandy later this year with the support of the Indian Council of Cultural Relations.

34. Both leaders also welcomed the proposal for the restoration of Tiruketheeswaram temple at Mannar to be undertaken with the assistance of the Archaeological Survey of India and the College of Architecture and Sculpture, Mamallapuram, with the involvement of the Department of Archaeology of Sri Lanka.
35. The Prime Minister of India and the President of Sri Lanka also witnessed the signature of the Programme for Cultural Cooperation for the period 2010-2013.

36. Recognising the immense potential that exists in the two countries to tap knowledge as a key driver of economic and social advancement, the two leaders agreed that both countries should enhance links in the educational sector as a core component of their bilateral engagement. In this context, the two leaders announced the launching of an “India-Sri Lanka Knowledge Initiative”.

37. Under this Initiative, the two leaders welcomed the proposal of the University of Colombo to establish a Centre for Contemporary Indian Studies with the support of the Government of India.

38. The two leaders further welcomed the recent inauguration in Kandy of the Sri Lanka-India Centre for English Language Training (SLICELT) as part of the President's Initiative on English and Information Technology. A distance learning network linking the English and Foreign Language University, Hyderabad and SLICELT will be established to enable training of master trainers and teachers in Sri Lanka and upgrading their skills. It was agreed to expand SLICELT further by establishing provincial and regional centres with Indian assistance.
39. The other elements of the Knowledge Initiative agreed upon by the two leaders include the following:

• India announced an expansion of its scholarship programmes in Sri Lanka, including increasing their numbers, introducing new scholarship schemes, addressing special needs of Northern and Eastern Sri Lanka and upcountry areas and ensuring wider outreach throughout the country.

• Both sides agreed to promote linkages between Indian and Sri Lankan universities and institutions of higher learning.

• India responded positively to the request of Sri Lanka to extend technical assistance to the Ten Year Presidential Initiative to steer Sri Lanka towards a Trilingual Society by 2020.

• Both sides agreed to collaborate in the establishment of a research institute on agriculture in the Northern Province of Sri Lanka.

40. Both leaders agreed to promote the use of space technology for a variety of societal services using Indian satellites. For this purpose, the Indian side will extend bandwidth to set up satellite-interactive terminals in Sri Lanka.
41. Welcoming the growing connectivity between the two countries, the two leaders called for greater cooperation in tourism and promotion of people-to-people contacts, especially between the youth of India and Sri Lanka.

42. The leaders reiterated the importance of continuing to work together in the regional and international fora given their increasing convergence of views on a range of issues.

43. Recalling the deliberations at the 16th SAARC Summit in Thimphu, the two leaders agreed to work towards the full realization of the vision of the Thimphu Silver Jubilee Declaration.

44. The two sides also agreed that current global challenges require the reinvigoration of multilateralism, including through the strengthening of the UN system. In this context, Sri Lanka reiterated its position that the UN Security Council reform process should facilitate India's legitimate claim for a permanent seat in the UN Security Council and reaffirmed her support for the candidature of India as a permanent member of an expanded UN Security Council. Sri Lanka's support to India's candidature for a non-permanent seat on the UN Security Council for 2011-12 was also reiterated.

45. Both leaders expressed their satisfaction at the outcome of the State Visit by the President of Sri Lanka to India, which provided further testimony to the continuing excellent relations between the two countries. The President of Sri Lanka also invited the President of India and the Prime Minister of India to pay early visits to Sri Lanka. The invitations were accepted with appreciation.

(Source: Ministry of External Affairs, GOI; June 09, 2010)

Saturday, September 18, 2010

How WB, IMF got India to adopt reforms in 1991

It’s open to the public now. Declassified documents from the World Bank show how it and the International Monetary Fund chivvied and cajoled India into economic liberalisation in the summer of 1991. Significantly, it blamed the poor macroeconomic policies under the Congress regime of the 1980s for India’s eventual external sector debacle.

The new Congress government with finance minister Manmohan Singh was presented a stark choice by the two institutions. It will either have to undertake reforms that will promise the needed external support, or brace itself for a “disorderly and painful” transition that will significantly reduce growth for years to come.

The World Bank informed the government of PV Narasimha Rao, sworn in after a tumultuous year, that “the only real options (for India) are whether the adjustment is made in the context of an orderly, growth-oriented adjustment program with external financial support, or through a disorderly and painful process that will leave the country cut off from international capital markets for years to come and significantly reduce its growth”.

About the successive Indira Gandhi and then Rajiv Gandhi-led Congress governments of the eighties, the documents say: “Poor macroeconomic policies throughout most of the 1980s had led to unsustainable fiscal and external imbalances”.

The papers make clear how keenly the Bretton Woods institutions tracked the political developments in India during that period to assess whether India could stomach the economic reforms, which would change the economic and even the political history of this country. It advised the government that “successful implementation of an appropriate programme of stabilisation and reform will require adept political as well as technocratic management”.

Simultaneously, it assures the government about what to expect. “Restoration of rapid growth after a period of stabilisation will quickly ease transitional costs and ameliorate longer term problems”.

The documents, part of the Country Economic Memorandas prepared by the World Bank, usually as background papers to pitch for international aid to India, were absolutely accurate about the problems facing the Indian economy.

The papers make it clear that the Bank was aware of the magnitude of the changes which had to come within the government — of reinventing itself, within industry — to take the first steps to face up to global competition and the society, which will have to bear the adjustment costs including job losses.

For instance, when the term of the Congress government was about to end in late 1995, the Bank made an analysis of the political situation, which turned out to be correct. “There seems to be agreement among political analysts that the reforms initiated in 1991 will not be reversed, as demonstrated by the reform plans and actions in states with non-Congress Party governments”.

It therefore notes, “We do not expect political development(s) to interfere with the medium-term structural reform process started in 1991. However, there are some fiscal risks (which) may lead us to reconsider the timing of some operations.” It adds, in another para, “as attention shifts to national elections, the pace of reforms may slow temporarily in the pre-election period. Finally, administrative decisions essential for the processing of projects may be delayed. A hiatus may thus develop in next year’s lending programme”.

As events turned out, the Narasimha Rao government was replaced by the United Front government, which though short-lived, continued with the direction of the reforms. But in anticipation, after earmarking $8.1 billion mostly as soft loan for the next three year period, the Washington-based institution said it could go down to “as little as $2.3 billion”.

Underlying this strategy was a clear understanding that it will give out loans, which at that time India badly needed only after it satisfied itself about achieving results. “The best loan is the loan that has not been made until the basis for its effective use is established.”

Returning to the pitch for reforms, the Bank assessed that Indian government would have a tough time to sell the reforms to its people.

“Support for such (reforms) is growing in India but is held back by fears of the social and political costs of adjustment coupled with as yet incomplete public understanding of the depth of the economic crisis now confronting the country.”

India landed in an acute balance of payments crisis in 1991 with forex reserves down to cover for just seven weeks of imports, when it turned to the IMF and the Bank for support. The support programme mounted by the two, also wrote in a fundamental transformation of the centrally planned economy to a market-driven one, whittled down the role of the government, cut trade barriers and encouraged foreign investment into the economy.

According to the Bank and IMF, the balance of payments crisis was brought on when India ramped up exports to the erstwhile Soviet Union by 50% in 1990-91 at the cost of trade with hard currency areas. This “made it attractive for the Soviet Union to import Indian goods (in some cases for re-export),” and “was an important factor in the decline of India’s foreign exchange reserves”.

The other was the debt waiver for small farmers that shaved off nearly 1% from the GDP, almost equivalent to the oil shock from the Gulf crisis.

The bank, therefore, recommended and pushed through reforms focused on five key areas of investment and trade regimes, the financial sector, taxation, and public enterprises. “They effectively ended four decades of central planning, significantly shifted resource allocation decisions from the public sector to the private sector and markets, and started integrating the country into the world economy”.

(By Subhomoy Bhattacharya, Financial Express, September 17, 2010)

RBI's Mid-Quarter Monetary Policy Review: September 2010

Monetary Measures
On the basis of the Reserve Bank’s assessment of macroeconomic situation, it has been decided to:
• increase the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.75 per cent to 6.0 per cent with immediate effect.
• increase the reverse repo rate under the LAF by 50 basis points from 4.5 per cent to 5.0 per cent with immediate effect.
The Global Scenario
The Reserve Bank’s First Quarter Review of Monetary Policy on July 27, 2010 expressed concerns over the global outlook. Indicators of economic activity in advanced economies continue to suggest that the recovery is slowing and that the second half of 2010 will post slower growth than the first, although expectations have generally not been revised downwards since end-July. Belying earlier apprehensions, Europe has demonstrated remarkable resilience in the face of the sovereign debt pressures that severely threatened the recovery a few months ago. The European Central Bank has revised its forecast for second-half growth upwards. China, after showing some signs of slowdown in the second quarter of 2010, appears to have bounced back, with industrial production and trade numbers reviving sharply.
Overall, even as the global environment continues to be a cause for caution, the big picture has not worsened significantly since July.
The Domestic Scenario
Growth in Q1 of 2010-11 was estimated at 8.8 per cent. Although some of this is attributable to a favourable base effect, the growth rate indicates that the recovery is consolidating and the economy is rapidly converging to its trend rate of growth. The index of industrial production (IIP) showed some slippage in the last month of the quarter (June 2010) with the revised numbers showing growth to be a relatively sluggish 5.8 per cent. The trend was sharply reversed in July, with growth surging to 13.8 per cent, led by capital goods, which grew by 63 per cent. Although the year-on-year growth rate for the first four months of the year remains robust at 11.4 per cent, the high volatility over the past two months raises some doubts about how effectively the index reflects the underlying momentum in the industrial sector.
Growth prospects in agriculture have clearly been boosted by the monsoon, which, by virtue of substantial replenishment of reservoirs and ground water, will also
contribute to a good rabi harvest. Virtually all leading indicators of service sector activity point to sustained growth.
Inflation remains the dominant concern in macroeconomic management. The published wholesale price index (WPI) inflation rate for August 2010 was based on the new series (base year: 2004-05=100) for the first time. The new series has better coverage of items and the manufacturing products group has a slightly higher weight. Both the old and the new series, however, indicate similar broad trend of inflation. For instance, average monthly WPI inflation for Q1 of 2010-11, based on either series, is in double digits. However, the monthly average of WPI inflation for Q1 of 2010-11 under the new series at 10.6 per cent was about 50 basis points lower than the rate of 11.1 per cent under the old series. In July 2010, there was a slight moderation in the provisional WPI inflation under both the series. There has been further moderation in the provisional WPI inflation to 8.5 per cent in August from 9.8 per cent in July 2010 as per the new series. The direction of the inflation rate movement is consistent with the Reserve Bank’s projection made in the July review, though the magnitude could be slightly different.
Inferences from both the series are similar. Essentially, inflation rates have reached a plateau, but are likely to remain at unacceptably high levels for some months. While prices of food articles, which according to the new series, rose by over 14 per cent in August, are still contributing to the pressure, about two-thirds of the August inflation can be attributed to items other than food articles and products. Notwithstanding slight moderation in August 2010, the headline inflation remains significantly above the trend of 5.0–5.5 per cent in the 2000s. There is, therefore, need for continued policy response to contain inflation and anchor inflationary expectation.
Another aspect of the concern with inflation is its implications for real interest rates. The policy actions taken over the past three quarters have been partly motivated by the need to end the prevalence of negative real interest rates. This was sought to be accomplished by a combination of increasing policy rates in a non-disruptive manner and declining inflation rates. Both factors are at work, but the process is still incomplete. One important consequence of negative real rates is that banks have seen a deceleration of deposit growth, as savers look for higher returns elsewhere. If bank credit is not to become a constraint to growth, real rates need to move in the direction of encouraging bank deposits.
With reference to government finances, the fiscal deficit appears to be conforming to the estimates made in the Union Budget for 2010-11. Higher than expected realisations on 3G and broadband wireless access (BWA) auctions combined with buoyant tax revenues have virtually eliminated the risk of the fiscal deficit overshooting the targeted 5.5 per cent, even after the supplementary demand for grants is taken into account. This will help stabilise market expectations of liquidity and interest rate movements.
Liquidity has been a significant factor in monetary policy considerations in recent months. The lead-up to the July policy review saw the liquidity situation transit from a large surplus to a mainly deficit one, making the repo rate the operative policy rate. Consequent on this transition, the transmission from policy rates to market rates has strengthened, with 40 banks raising their deposit rates and 26 raising their lending rates. These circumstances are expected to prevail, maintaining the repo rate as the effective policy rate and sustaining the strength of the transmission mechanism.
On the external front, the continuing sluggishness of the global economy constrains export growth while the strong domestic recovery has increased demand for imports. As a result, the trade deficit, and with it the current account deficit, are widening. In its July policy review, the Reserve Bank had highlighted the risks associated with a widening current account deficit in the face of increasingly volatile capital inflows. The apparent stabilisation in advanced economies visible over the past few weeks appears to have improved global investor sentiment, resulting in a steady increase in capital inflows into EMEs, including India. If this trend continues, the risks on the external front will clearly abate despite exports remaining sluggish.
Overall, our assessment is that growth remains steady, though the recent volatility in industrial production raises some concerns. Inflation also appears to have stopped accelerating though the rate may remain high for some months. The early signs of a downturn in non-food manufacturing inflation suggest that recent monetary actions are having an impact on both inflationary expectations and demand in a non-disruptive way. Should the global situation stabilise, it will help contain volatility in capital flows. But the flip side of that will be possible firming of commodity prices and consequent inflationary pressures.
Expected Outcome
The measures undertaken in this review should:
• contain inflation and anchor inflationary expectations without disrupting growth.
• reduce the volatility in overnight call money rates, thereby strengthening the monetary transmission mechanism.
• continue the process of normalisation of the monetary policy instruments.
The Reserve Bank’s rate and liquidity actions since October 2009 have been driven by two considerations: normalisation of the monetary policy stance as the crisis abated and inflation management. The Reserve Bank believes that the tightening that has been carried out over this period has taken the monetary situation close to normal. Consequently, the role of normalisation as a motivation for further actions is likely to be less important. Current and expected macroeconomic conditions will be the more important considerations going forward. The Reserve Bank will continue to monitor these conditions, particularly the price situation, and take further action as warranted.
(Source: Reserve Bank of India, September 16, 2010)

Food inflation: Are Centre, RBI helpless?

The good news from the Reserve Bank’s mid-quarter monetary policy review is that inflation is moderating, though still too high for comfort. It is significantly above the 5-5.5 per cent that prevailed in the early part of this century. The latest figures indicate it still hovers around 8.5 per cent. While these are just numbers, the underlying truth is that millions of people continue to be victims of this high inflation. Among them, though, workers in the organised sector are comparatively better off — in the past two days the government has doled out significant benefits to them in the form of a higher interest rate on provident fund, which will benefit 50 million workers, and also raised its employees’ dearness allowance, to compensate to some extent for rising prices. Those with deposits in banks will also benefit as the banks are expected to hike their deposit interest rates. The banks will have to raise interest rates anyway, and not just due to the signal sent by the RBI on Thursday. While the organised working class as well as the rich stand to gain, what will happen to the 79.71 million workers employed in the non-agricultural sector? Of these, 39.74 million workers are in rural areas and 39.97 million in urban areas; 70.21 million are full-time workers, while 9.5 million get part-time work. They constitute around 92 per cent of the country’s total workforce, and contribute over 60 per cent to the net domestic product. They also contribute three-fourths of the savings of the household sector. There are also millions of others in the unorganised sector who are totally unprotected from the vicissitudes of rising prices. Who will provide them a cushion against high prices? They are left to the vagaries of rising prices — their pain, suffering and deprivation are not reflected in the 8.5 per cent inflation figure, and there is little or no official attention directed at their plight. In the overall inflation figure, food prices are the highest at around 14 per cent. All that the government says is that food prices will moderate because of the good monsoon. We have been hearing this refrain since last year, when food prices hit the roof. Everybody in authority — from the finance minister to the honchos of the Planning Commission — kept insisting that prices would moderate once the rabi crop comes in, which later got shifted to the kharif crop, and still later to a good monsoon. A whole year has passed. The sad truth is that nothing that the RBI has done or can do will really impact food inflation significantly, a point which was conceded by the Planning Commission deputy chairman on Thursday. Besides the routine excuses trotted out on why food prices are high due to the demand-supply position, bad crops, high global prices etc, what is not talked about is speculation, hoarding and some wrong government policies — by the agriculture ministry in particular. There is only a half-hearted attempt to increase the area under irrigation, or increase the cropping area for pulses. It is a shame that a trillion-dollar economy has to depend solely on the monsoon to feed its people. Is all this talk about food security just a pie in the sky dangled before an unsuspecting people to show that the government cares?
But then, what does one say of a government that would rather have `50,000 crore worth of foodgrain rotting than distribute it to the poorest of the poor in 150 districts of India.
(Deccan Chronicle,September 18,2010)

India and the World Bank

World Bank
Since inception in 1944, the World Bank has expanded from a single institution to a closely associated group of five development institutions. Its mission evolved from the International Bank for Reconstruction and Development (IBRD) as facilitator of post-war reconstruction and development to the present day mandate of worldwide poverty alleviation in close coordination with our affiliate, the International Development Association, and other members of the World Bank Group, the International Finance Corporation (IFC), the Multilateral Guarantee Agency (MIGA), and the International Centre for the Settlement of Investment Disputes (ICSID).
Apart from reconstruction, World Bank’s activities include:
* poverty reduction and the sustainable growth in the poorest countries, especially in Africa;
* solutions to the special challenges of post-conflict countries and fragile states;
* development solutions with customized services as well as financing for middle-income countries;
* regional and global issues that cross national borders--climate change, infectious diseases, and trade;
* greater development and opportunity in the Arab world;
* pulling together the best global knowledge to support development.
At today's World Bank, poverty reduction through an inclusive and sustainable globalization remains the overarching goal of its work. The World Bank's two closely affiliated entities—the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)—provide low or no interest loans (credits) and grants to countries that have unfavorable or no access to international credit markets.

* Fund Generation
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in the world's financial markets. While IBRD earns a small margin on this lending, the greater proportion of its income comes from lending out its own capital. This capital consists of reserves built up over the years and money paid in from the Bank's 185 member country shareholders. IBRD’s income also pays for World Bank operating expenses and has contributed to IDA and debt relief.
IDA is the world's largest source of interest-free loans and grant assistance to the poorest countries. IDA's funds are replenished every three years by 40 donor countries. Additional funds are regenerated through repayments of loan principal on 35-to-40-year, no-interest loans, which are then available for re-lending. IDA accounts for more than 40% of our lending.
* Loans
Through the IBRD and IDA, World Bank offers two basic types of loans and credits: investment operations and development policy operations.
Countries use investment operations for goods, works and services in support of economic and social development projects in a broad range of economic and social sectors. Development policy operations (formerly known as adjustment loans) provide quick-disbursing financing to support a country’s policy and institutional reforms.
Each borrower’s project proposal is assessed to ensure that the project is economically, financially, socially and environmentally sound. During loan negotiations, the Bank and borrower agree on the development objectives, outputs, performance indicators and implementation plan, as well as a loan disbursement schedule. While it supervises the implementation of each loan and evaluate its results, the borrower implements the project or program according to the agreed terms.
IDA long term loans (credits) are interest free but do carry a small service charge of 0.75 percent on funds paid out. IDA commitment fees range from zero to 0.5 percent on undisbursed credit balances. For FY09 commitment fees have been set at 0.0 percent.
* Trust Funds and Grants
Donor governments and a broad array of private and public institutions make deposits in Trust funds that are housed at the World Bank. These donor resources are leveraged for a broad range of development initiatives. The initiatives vary significantly in size and complexity, ranging from multibillion dollar arrangements—such as Carbon Finance; the Global Environment Facility; the Heavily Indebted Poor Countries Initiative; and the Global Fund to Fight AIDS, Tuberculosis, and Malaria—to much smaller and simpler freestanding ones.
The Bank also mobilizes external resources for IDA concessionary financing and grants, as well as funds for non-lending technical assistance and advisory activities to meet the special needs of developing countries, and for co-financing of projects and programs.
Direct World Bank grants to civil society organizations emphasize broad-based stakeholder participation in development, and aim to strengthen the voice and influence of poor and marginalized groups in the development process.
IDA grants—which are either funded directly or managed through partnerships—have been used to:
o Relieve the debt burden of heavily indebted poor countries
o Improve sanitation and water supplies
o Support vaccination and immunization programs to reduce the incidence of communicable diseases like malaria
o Combat the HIV/AIDS pandemic
o Support civil society organizations
o Create initiatives to cut the emission of greenhouse gases
See how these grants have made a difference at IDA at Work. Visit the Grants website for more information.
* Analytic and Advisory Services
While World Bank is best known as a financier, another of our roles is to provide analysis, advice and information to our member countries so they can deliver the lasting economic and social improvements their people need. We do this in various ways. One is through economic research and data collection on broad issues such as the environment, poverty, trade and globalization Another is through country-specific, non-lending activities such as economic and sector work, where it evaluate a country's economic prospects by examining its banking systems and financial markets, as well as trade, infrastructure, poverty and social safety net issues, for example.
It also draws upon the resources of our knowledge bank to educate clients so they can equip themselves to solve their development problems and promote economic growth. By knowledge bank it mean the wealth of contacts, knowledge, information and experience we've acquired over the years, country by country and project by project, in our development work. Our ultimate aim is to encourage the knowledge revolution in developing countries.
These are only some of the ways our analyses, advice and knowledge are made available to our client countries, their government and development professionals, and the public:
o Poverty Assessments
o Public Expenditure Reviews
o Country Economic Reports
o Sector Reports
o Topics in Development
* Capacity Building
Another core Bank function is to increase the capabilities of our partners, the people in developing countries, and our own staff —to help them acquire the knowledge and skills they need to provide technical assistance, improve government performance and delivery of services, promote economic growth and sustain poverty reduction programs.
The International Development Association (IDA) is the part of the World Bank that helps the world’s poorest countries. Established in 1960, IDA aims to reduce poverty by providing interest-free credits and grants for programs that boost economic growth, reduce inequalities and improve people’s living conditions.
IDA is one of the largest sources of assistance for the world’s 79 poorest countries, 39 of which are in Africa. It is the single largest source of donor funds for basic social services in the poorest countries.
IDA lends money (known as credits) on concessional terms. This means that IDA credits have no interest charge and repayments are stretched over 35 to 40 years, including a 10-year grace period. IDA also provides grants to countries at risk of debt distress.
Since its inception, IDA credits and grants have totaled US$207 billion, averaging US$14 billion a year in recent years and directing the largest share, about 50 percent, to Africa.

The World Bank Program in India
To support India long-term vision of a country free of poverty and exclusion, the World Bank Group’s Country Strategy for India for FY 2009-2012 (CAS) is closely aligned with India’s Eleventh Plan. It focuses predominantly on supporting the fast-track development of much-needed infrastructure to spur investment and generate employment, and on providing additional support to the seven poorest states to achieve higher standards of living for their people.

The World Bank is currently working on several large projects in crucial infrastructure areas including:
.
• Dedicated Freight Corridor ($2.7 bn IBRD)
• Ganga River Basin Authority ($1bn IDA)
• Rural Roads II ($1.5 bn IDA)
• National Highways ($1 bn IBRD)
• National Urban Development Program, JNNURM ($1bn IDA)
.
More specifically, the World Bank’s support to India includes:

1. Achieving Rapid and Inclusive Growth
Lagging States: While India’s higher-income states have successfully reduced poverty to levels comparable with the richer Latin American countries, its seven poorest states - Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh - are lagging behind. These states are home to more than half of India’s poor. It will be essential for these States to kick-start development by becoming attractive investment destinations, and improving social services to raise the standards of living of their people. Reforms have started in all these States; in many the Bank is an active partner. The World Bank’s Development Policy Lending (DPL) – to Andhra Pradesh, Karnataka and Orissa and more recently to Bihar, and Himachal Pradesh – are helping states to implement reforms and spreading the lessons of success. The Bank continues to fund and support the implementation of the Government of India’s reform program for short term rural credit cooperatives, which are a crucial link for channeling agricultural credit to millions of farmers. The World Bank also continues to provide technical assistance to the Government of India for improving its traditional agricultural insurance program as well as for the relatively recent weather indexed insurance for farmers.
Financial Sector Development and Support to Small and Medium Enterprises (SME): In September 2009, the World Bank agreed to extend budgetary support of $2 billion to the Government of India in support of its economic stimulus measures to counter the effects of the global financial crisis. This included the injection of capital into some public sector banks to help ensure the expansion of credit, including to SMEs, infrastructure and the rural economy. Further, in April 2009, the World Bank provided additional financing of $400 million to the Small Industries Development Corporation of India (SIDBI) to assist India's SME sector through the financial crisis.
Agricultural and Rural Development: Some two-thirds of India’s people depend on rural employment for a living. In 2007/08, agricultural growth touched 4.9% facilitated by a good monsoon, greater production of high-value crops, an increase in the minimum support prices for grains, and the rise in global prices for agricultural products. However, in the last two years, the agriculture sector grew at only about 2.5-3% on account of lower rainfall and the worst drought since 2002/03. Going forward, it will be essential for India to build a productive, competitive, and diversified agricultural sector and facilitate rural, non-farm entrepreneurship. Encouraging policies that promote competition in agricultural marketing will ensure that farmers receive better prices. World Bank support to the sector includes:
* Raising agricultural productivity: In a number of states, the World Bank is improving soil and water conservation on degraded lands, rehabilitating and modernizing surface irrigation systems (Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh), reviving traditional rain water harvesting systems, and assisting farmers to diversify crops and reclaim saline lands. The Bank is also working to raise agricultural productivity by linking public research organizations and farmers to promote the use of agricultural innovations.
* Improving rural livelihoods: Rural livelihoods projects support the empowerment of the rural poor and the development of their livelihoods. Projects are ongoing in a number of states including Andhra Pradesh, Chattisgarh, and Tamil Nadu, with new projects commencing in Orissa, Bihar and Madhya Pradesh.
* Upgrading rural water supply and sanitation: The Bank is also working to improve the quality of life in the rural areas by improving water supply and sanitation. Since 1991, World Bank support has helped India first pilot and then scale up a rural water supply and sanitation services (RWSS) reform program. Bank support to three states (Maharashtra, Karnataka, and Uttar Pradesh) has been followed by support to Kerala, Uttarakhand, Punjab, and Andhra Pradesh, and further support to Karnataka and Maharashtra. In all, the Bank will soon have provided over $1 billion in support to the sector, benefiting 20 million rural people so far.
2. Improving Infrastructure
Infrastructure: India’s rapidly growing economy has been placing huge demands on power supply, roads, railways, ports and transportation systems. But, infrastructure bottlenecks have been eroding the country’s competitiveness. Increases in power generation during the Tenth Plan period fell short of target; when the economy was growing at a rapid 8% a year, power supply grew at only 4%. And, although the national highway network doubled in size between 1997 and 2007 – almost 35,000 kms were added during this period – soaring demand has far outstripped supply. Urban infrastructure is a severe constraint to the expansion of key centers of growth, while weaknesses in basic rural infrastructure—from roads to electrification—have constrained the growth of the rural economy. World Bank support to the sector includes:
Improving Infrastructure: To help India continue to expand its critical infrastructure, the World Bank has, in September 2009, agreed to extend $1.195 billion to the India Infrastructure Finance Company Limited (IIFCL) to help finance private-public partnerships in infrastructure, especially in the roads, power and ports sectors.
Power: The World Bank has supported India in building its largest hydropower plant at Nathpa Jhakri in Himachal Pradesh and is now helping the country augment the supply of hydropower. Support for the 412 MW run-of-the-river Rampur Hydropower plant on the Satluj river in Himachal Pradesh is ongoing. Two other hydropower projects are in the pipeline; a 444 MW project on the Alakananda river in Chamoli district in Uttarakhand, and the other at Luhri, further downstream from Rampur in Himachal Pradesh. The Bank is also supporting the efficient transmission and distribution of power to consumers. It has helped Powergrid, the national power transmission agency, to emerge as a world class agency. In September 2009, the World Bank extended a loan of $1 billion to Powergrid to strengthen and expand five transmission systems in the northern, western and southern regions of the country. At the state level, improvements in transmission and distribution are being supported in Haryana and Maharashtra.
Transport: In the transport sector, the World Bank has supported the states of Gujarat and Andhra Pradesh to upgrade their state highways. It is now helping to upgrade rail and road connectivity in Mumbai; improve state highways in Andhra Pradesh, Himachal Pradesh, Mizoram, Kerala, Orissa, Punjab, Tamil Nadu and Uttar Pradesh; construct a section of the Golden Quadrilateral in Uttar Pradesh and Bihar; and upgrade rural roads in select districts of Himachal Pradesh, Rajasthan, Jharkhand and Uttar Pradesh. The Bank is also supporting the improvement of urban transport in the cities of Pune and Pimpri-Chinchwad in Maharastra, Indore in Madhya Pradesh, Mysore in Karnataka and Naya Raipur in Chattisgarh.
Urban Development: India’s growing cities and towns face major challenges in creating adequate infrastructure including in the transportation, communications, solid waste, water, and power sectors. The World Bank is helping streamline urban transport in Mumbai and improve the delivery of urban civic services in Tamil Nadu, Karnataka, and Andhra Pradesh. It has recently supported a successful pilot to provide continuous, reliable water supply in three urban areas in Karnataka. If economic growth is not to be constrained, it will be essential for India to make faster progress in urban development by investing in public goods and services, including through the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).
3. Ensuring Sustainable Development
India’s remarkable economic growth has been clouded by a degrading environment. The country is also very vulnerable to climate change on account of its high levels of population density, poverty, stressed ecological systems, and a substantial dependence on natural resources of much of India’s population. The following areas will thus require long-term vision and urgent action:
* Protecting India’s fragile environment - air, water, forests and bio-diversity - in the face of the rising pressures created by economic success
* Adapting to climate change and the growing scarcity of water
* Coping with accelerating urbanization through strengthened urban governance and environmental management
* Improving energy efficiency and ensuring adequate energy supplies
The World Bank is in the process of articulating a vision for an environmentally sustainable future for India (India 2030), and has projects in the pipeline to support the National Ganga River Basin Authority and industrial pollution management. Support to the sector includes:
Water: Climate change could impact India more than most other countries, and its impact will most likely be felt first and foremost in the water sector. The World Bank has therefore piloted a new Drought Adaptation Initiative in Andhra Pradesh that will help farmers adapt to warmer and more drought-like conditions. An Integrated Coastal Zone Management Project that seeks to protect India's coastal areas while also ensuring the livelihoods of the people living along the coastline is in the pipeline. The Bank has also completed studies on groundwater resources and low carbon growth.
Energy: The World Bank is also supporting India in its efforts to increase the generation of clean energy. It is helping the country to tap the hydropower resources in the Himalayan region, as well as supporting the rehabilitation of old and inefficient coal-fired power plants so that they produce more energy with the same amount of fuel, reducing their carbon emissions. The Bank is also helping to strengthen power transmission networks to ensure that the power produced reaches consumers efficiently and losses in transmission are reduced. It is also seeking to expand its support for the promotion of energy efficiency in various sectors ranging from small and medium enterprise, to chillers. .
4. Increasing the Effectiveness of Service Delivery
Most public programs suffer from varying degrees of ineffectiveness, poor targeting, and wastage of resources. In the current economic climate, India will have to dramatically improve the impact of every rupee spent. The World Bank is working with the Government of India to improve the delivery of key public services through systemic governance and institutional reforms of public sector service providers, decentralization of responsibilities, promoting effective systems of transparency and accountability, effective monitoring of service delivery, and expanding the role of non-state service providers. World Bank support to the sector includes:
Elementary Education: India has made huge progress in getting more children, especially girls, into primary school. Since 2001, the government’s flagship elementary education program, the Sarva Shiksha Abhiyan, has helped to bring some 20 million children into school, most of whom are first-generation learners. The gender gap has reduced and more children are transitioning from primary to upper primary school. Many of India’s states are now either approaching universal primary enrollment or have already achieved it. According to the Government, less than 5 million children between the ages of 6 and14 now remain out of school. The program is now focusing on bringing the hardest-to-reach children into primary school, raising access to upper primary education and improving retention and learning outcomes.
World Bank support in the mid-1990s helped India pioneer new initiatives to bring children into school. Since 2003, Bank support to the SSA has played an important role in scaling up the program to the hardest-to-reach communities, improve the quality of learning, and assess learning outcomes. Between 2003 and 2007, the World Bank contributed $500 million of the total program cost of $3.5 billion. Between 2008 and 2010, domestic funding of over $9 billion for the program was complemented by another $600 million in Bank support. Bank evaluations and research provide recommendations for further improvements. These include studies on financing elementary education, teacher absenteeism, instructional time and quality in primary education and the impact of information sharing with village education committees, inclusive education for children with disabilities, comparisons between private and public schooling in UP, AP and MP, and incentives to improve quality.
Secondary Education: With the success of the Sarva Shiksha Abhiyan in significantly improving enrolment and retention at the elementary level, the need for universalizing secondary education has gained in importance as a means to break the poverty cycle and achieve social justice. The World Bank is preparing to support the Government of India’s new centrally sponsored scheme for secondary education, Rashtriya Madhyamik Shiksha Abhiyan (RMSA), with an estimated US$ 650 million. The support is largely based on an analysis of secondary education published in 2009 (Vol 1; & Vol 2) which focused on strategies to improve access to secondary education as well as equity, management and quality issues. The World Bank has also conducted research into the feasibility of expanding public private partnerships at the secondary level. It has supported workshops on the role of information and communication technologies at the secondary level.
Skills: Equally important is the building of skills among India’s rapidly rising work force, whose ranks are joined by some 8-9 million new entrants each year. Presently, nearly 44 % of India’s labor force is illiterate, only 17 % has secondary schooling, and enrollment in higher education is a mere 11%. Moreover, the quality of most graduates is poor and employers offer very little upgrading of skills; only 16% of Indian manufacturers offer in-service training compared to over 90% in China. To help produce engineers of international standards, the World Bank has supported improvements in the quality of education in engineering institutes in 13 states. Another project which aims to improve the quality and relevance of vocational education is now supporting 400 Industrial Training Institutes (ITIs) to become centers of excellence in technical skills that are in demand. Much of this support is based on research conducted by the World Bank on improving the vocational education and training system for skill development in India.
Health: The health sector in India presents a mixed picture. Despite continuous improvements in health indicators, progress is slow and has not matched the impressive gains in economic growth during the past decade. While there is no single measure of health system performance, India compares poorly with other countries of similar levels of economic development. Infant mortality and maternal mortality rates are declining, but slowly. Despite the largest child nutrition program in the world, child malnutrition rates have remained unchanged for nearly two decades, with 43% of India’s children underweight. Tuberculosis, malaria, polio and dengue fever still remain a serious threat in a number of States, and although the prevalence of HIV has reduced, it still poses a significant burden. Inadequate access to effective and good quality health services of a large proportion of the population largely accounts for the slow improvement in health outcomes. Thus, to help India achieve the MDGs for health, the World Bank increasingly focuses on improving governance and accountability in the delivery of health services.
Ongoing Bank projects support national programs for disease control - such as kala azar, polio and malaria, HIV/AIDS, and TB. They also support child nutrition and reproductive and child health programs. Other projects are working to strengthen state-level systems for rural healthcare (Rajasthan, Tamil Nadu, Karnataka), as well as national programs for food and drug regulation, and disease surveillance. The Bank has previously successfully supported India in eliminating leprosy as a national health problem, and in bringing the WHO- recommended DOTS TB treatment to all districts in the country.
Safety Nets: The global economic crisis has lent new urgency to strengthening safety nets for the poor and vulnerable. The World Bank is in the process of extending support to the Government of India for the Rastriya Swasthya Bima Yojana - or National Health Insurance Scheme - to expand and improve the effectiveness of health insurance for households below the poverty line. World Bank support will help these households cope with major health shocks by increasing their access to medical care and improving the quality of care through reforms in management, institutional development, and the strengthening monitoring and evaluation under the scheme. The effective implementation of the scheme would benefit the people through better health and reduced poverty. Once the project is completed, it is expected that the number of beneficiaries receiving treatment under the program would reach around half a million per annum.
Lending:
At the end of June 2010, the Bank group had 75 active projects with a net commitment of about $21.4 billion.

Friday, September 17, 2010

WTO Agreements on Agriculture

INTRODUCTION

After over 7 years of negotiations the Uruguay Round multilateral trade negotiations were concluded on December 15, 1993 and were formally ratified in April 1994 at Marrakesh, Morrocco. The WTO Agreement on Agriculture was one of the many agreements which were negotiated during the Uruguay Round.

The implementation of the Agreement on Agriculture started with effect from 1.1.1995. As per the provisions of the Agreement, the developed countries would complete their reduction commitments within 6 years, i.e., by the year 2000, whereas the commitments of the developing countries would be completed within 10 years, i.e., by the year 2004. The least developed countries are not required to make any reductions.

The products which are included within the purview of this agreement are what are normally considered as part of agriculture except that it excludes fishery and forestry products as well as rubber, jute, sisal, abaca and coir.

SALIENT FEATURES

The WTO Agreement on Agriculture contains provisions in 3 broad areas of agriculture and trade policy : market access, domestic support and export subsidies.

Market Access

This includes tariffication, tariff reduction and access opportunities. Tariffication means that all non-tariff barriers such as quotas, variable levies, minimum import prices, discretionary licensing, state trading measures, voluntary restraint agreements etc. need to be abolished and converted into an equivalent tariff. Ordinary tariffs including those resulting from their tariffication are to be reduced by an average of 36% with minimum rate of reduction of 15% for each tariff item over a 6 year period. Developing countries are required to reduce tariffs by 24% in 10 years. Developing countries as were maintaining Quantitative Restrictions due to balance of payment problems, were allowed to offer ceiling bindings instead of tariffication.

Special safeguard provision allows the imposition of additional duties when there are either import surges above a particular level or particularly low import prices as compared to 1986-88 levels.

It has also been stipulated that minimum access equal to 3% of domestic consumption in 1986-88 will have to be established for the year 1995 rising to 5% at the end of the implementation period.

Domestic Support

For domestic support policies, subject to reduction commitments, the total support given in 1986-88, measured by the Total Aggregate Measure of Support (total AMS), should be reduced by 20% in developed countries (13.3% in developing countries). Reduction commitments refer to total levels of support and not to individual commodities. Policies which amount to domestic support both under the product specific and non product specific categories at less than 5% of the value of production for developed countries and less than 10% for developing countries are also excluded from any reduction commitments. Policies which have no or at most minimal, trade distorting effects on production are excluded from any reduction commitments (‘Green Box’-Annex 2 of the Agreement on Agriculture www.wto.org. The list of exempted green box policies includes such policies which provide services or benefits to agriculture or the rural community, public stock-holding for food security purposes, domestic food aid and certain de-coupled payments to producers including direct payments to production limiting programmes, provided certain conditions are met.

Special and Differential Treatment provisions are also available for developing country members. These include purchases for and sales from food security stocks at administered prices provided that the subsidy to producers is included in calculation of AMS. Developing countries are permitted untargeted subsidised food distribution to meet requirements of the urban and rural poor. Also excluded for developing countries are investment subsidies that are generally available to agriculture and agricultural input subsidies generally available to low income and resource poor farmers in these countries.

Export Subsidies

The Agreement contains provisions regarding members commitment to reduce Export Subsidies. Developed countries are required to reduce their export subsidy expenditure by 36% and volume by 21% in 6 years, in equal installment (from 1986 –1990 levels). For developing countries the percentage cuts are 24% and 14% respectively in equal annual installment over 10 years. The Agreement also specifies that for products not subject to export subsidy reduction commitments, no such subsidies can be granted in the future.

INDIA'S COMMITMENTS

Market Access

As India was maintaining Quantitative Restrictions due to balance of payments reasons(which is a GATT consistent measure), it did not have to undertake any commitments in regard to market access. The only commitment India has undertaken is to bind its primary agricultural products at 100%; processed foods at 150% and edible oils at 300%. Of course, for some agricultural products like skimmed milk powder, maize, rice, spelt wheat, millets etc. which had been bound at zero or at low bound rates, negotiations under Article XXVIII of GATT were successfully completed in December, 1999, and the bound rates have been raised substantially.

Domestic Support

India does not provide any product specific support other than market price support. During the reference period (1986-88 ), India had market price support programmes for 22 products, out of which 19 are included in our list of commitments filed under GATT. The products are - rice, wheat, bajra, jawar, maize, barley, gram, groundnut, rapeseed, toria, cotton, Soyabean (yellow), Soyabean (black), urad, moong, tur, tobacco, jute, and sugarcane. The total product specific AMS was (-) Rs.24,442 crores during the base period. The negative figure arises from the fact that during the base period, except for tobacco and sugarcane, international prices of all products was higher than domestic prices, and the product specific AMS is to be calculated by subtracting the domestic price from the international price and then multiplying the resultant figure by the quantity of production.

Non-product specific subsidy is calculated by taking into account subsidies given for fertilizers, water, seeds, credit and electricity. During the reference period, the total non-product specific AMS was Rs.4581 crores. Taking both product specific and non-product specific AMS into account, the total AMS was (-) Rs.19,869 crores i.e. about (-) 18% of the value of total agricultural output.

Since our total AMS is negative and that too by a huge magnitude, the question of our undertaking reduction commitments did not arise. As such, we have not undertaken any commitment in our schedule filed under GATT. The calculations for the marketing year 1995-96 show the product specific AMS figure as (-) 38.47% and non-product specific AMS as 7.52% of the total value of production. We can further deduct from these calculations the domestic support extended to low income and resource poor farmers provided under Article 6 of the Agreement on Agriculture. This still keeps our aggregate AMS below the de minimis level of 10%.

Export Subsidies

In India, exporters of agricultural commodities do not get any direct subsidy. The only subsidies available to them are in the form of (a) exemption of export profit from income tax under section 80-HHC of the Income Tax Act and this is also not one of the listed subsidies as the entire income from Agriculture is exempt from Income Tax per se. (b) subsidies on cost of freight on export shipments of certain products like fruits, vegetables and floricultural products. We have in fact indicated in our schedule of commitments that India reserves the right to take recourse to subsidies (such as, cash compensatory support) during the implementation period.




Revised on 4.7.2001
MANDATED NEGOTIATIONS

Article 20 of the Agreement on Agriculture (AoA) (www.wto.org) mandates that negotiations for continuing the reform process in agriculture will be initiated one year before the end of the implementation period. As the implementation period for developed countries culminated at the end of the year 2000, the negotiations on the Agreement on Agriculture have begun in January 2000.

These negotiations are being conducted in special sessions of the WTO Committee on Agriculture (COA) at Geneva. The following are the broad parameters for carrying out negotiations:

Experience of member countries in implementation of reduction commitments till date;

The effects of reduction commitments on World Trade in Agriculture;

Non trade concerns, special and differential treatment to developing country members and the objective of establishing a fair and market oriented agricultural trading system; and

Identifying further commitments necessary to achieve the long-term objectives of the Agreement.

During extensive deliberations in the WTO Committee on Agriculture and in the General Council, member countries had agreed to broadly adhere to the mandate of Article 20 of the Agreement. In pursuance of the same, in the first phase of the negotiations, members have submitted 47 negotiating proposals, which were discussed in Seven Special Sessions of the CoA. With the approval of the Cabinet Committee on WTO Matters, India also submitted its negotiating proposals to the WTO on 15th January 2001, in the areas of market access, domestic support, export competition and food security. These proposals were drawn up and drafted based on inputs received from wide ranging consultations with various stakeholders and keeping in view India’s objectives in the negotiations, which are to protect its food and livelihood security concerns and to protect all domestic policy measures taken for poverty alleviation, rural development and rural employment as also to create opportunities for expansion of agricultural exports by securing meaningful market access in developed countries. India also co-sponsored two papers, one on "Market Access" along with 11 other developing countries and another on "Export Credits for Agricultural Products" along with 9 other countries/group of countries.

India & World Trade Organization (WTO)

State of Play on Agriculture Negotiations in the Doha Round WTO



I. Agriculture

The agriculture negotiations apply to the products covered under the Agreement on Agriculture (AOA) of the World Trade Organisation (WTO), namely, all basic agricultural products, the products derived from them and all processed agricultural products. This also includes wines, spirits, tobacco products, fibres such as cotton, wool and silk and raw animal skins for leather production. Fish and fish products and forestry products are not included.

The three main elements or “pillars” of the Agreement on Agriculture (AOA) and the negotiations are: (i) market access, (ii) domestic support and (iii) export competition. The Doha Ministerial Declaration of November 2001 committed Members to comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support. Special and differential treatment for developing Members is also intended to be an integral part of the modalities.

The Chair of the Committee on Agriculture (Special Session) brought out a fourth revision of draft modalities for agriculture on 6 December 2008. Discussions on this text began in September 2009. From July 2009, the Chair has been conduction discussions along two tracks: namely, data requirements for implementing modalities and issues bracketed or otherwise annotated in the draft agriculture modalities text issued on 6 December 2008. The discussions in the first track are aimed at identifying the base data that needs to be annexed with modalities and devising the formats in which this data will be presented.

The main elements of the draft agriculture proposals are summarized below:

II. MARKET ACCESS

The customs tariff is the duty charged on the import of any good into the domestic territory of a country. The negotiations at the WTO are on bound customs tariffs, which are the ceiling rates notified to the WTO, while the tariffs which are actually applied by the customs authorities on imports into a country are the applied customs tariffs. The applied tariffs cannot ordinarily exceed the bound customs tariffs in the WTO Member countries.

Developed countries would have to reduce their bound tariffs in equal annual instalments over five years with an overall minimum average cut of 54%. Developing countries would have to reduce their final bound tariffs in equal annual instalments over ten years undertaking a maximum overall average cut of 36%.

Both developed and developing Members would have the flexibility to designate an appropriate number of tariff lines as Sensitive Products, on which they would undertake lower tariff cuts. Even for these products, however, there has to be “substantial improvement” in market access, and so the smaller cuts would have to be offset by tariff quotas allowing greater access for imports. The three issues being negotiated, therefore, are the number of Sensitive Products, the tariff cuts they are to take and the compensatory access through tariff quotas.

While this flexibility is available to both developing and developed countries, it is particularly important for developed countries to be able to protect their commercially sensitive tariff lines.

III. Special Products

This is a special and differential treatment provision that allows developing countries some flexibility in the tariff cuts that they are required to make on a designated number of products. This is critical for countries such as India to meet their food and livelihood security concerns and rural development needs.

The revised draft modalities of 6 December 2008 propose an SP entitlement of 12% of agricultural tariff lines. The average tariff cut on SPs is proposed as 11%, including 5% of total tariff lines at zero cuts.

IV. Special Safeguard Mechanism

This is another special and differential treatment provision exclusively for developing countries that gives them the right to have recourse to a Special Safeguard Mechanism (SSM) based on import quantity and price triggers. The SSM is important for developing countries in order to protect their poor and vulnerable farmers from the adverse effects of an import surge or price fall.

The safeguard duties under the proposed SSM would be triggered by either an import quantity trigger or a price trigger. The trigger for invoking the SSM determines when the safeguard duty can be imposed. If the import quantity trigger is set too high, the SSM loses all efficacy because it can then only be used in the most exceptional circumstances. The same holds true if the price trigger is set too low.

The main issues being discussed are: (a) the trigger: i.e. when the mechanism would be applicable; (b) the size of the remedy: i.e. how high overall duties can go above the MFN tariff; and (c) duration of the remedy and whether safeguard duties could be applied in consecutive years. In July 2008, discussion was essentially centred on the second part, namely, the circumstances in which the pre-Doha bound rates could be breached. Exporting countries wanted an initial trigger of 40% i.e imports had to be at least 140% of the previous period imports before the country would impose a safeguard duty. The G-33 (and India) argued that this was far too high a trigger, effectively denying them recourse to the SSM.

Unreasonable restrictions on the SSM in terms of very high triggers and inadequate remedies defeat the very objective of protecting poor, vulnerable farmers in developing countries. Given its objectives, it must be a simple and effective mechanism. The exporting countries on the other hand are seeking to ensure market access into developing countries by trying to limit such provisions. The G-33 coalition has been striving to ensure an effective safeguard instrument.

The G-33 has circulated a set of documents in the WTO. These documents call for refocusing discussions on the development dimension of the measure and offer a response based on the Group’s technical analysis to various restrictive elements being proposed by the SSM opponents.

V. Tariff Capping

This is primarily a developed country concern, particularly some countries belonging to the G-10, namely, Japan, Iceland, Switzerland and Norway. These countries impose prohibitively high tariffs on their agricultural products. Tariff capping would bring down these very high tariffs, over and above what would be required by the tariff reduction formula. While these developed countries are not prepared to accept this, on the other hand, on industrial goods, the Swiss coefficient in the tariff reduction formula limits all new bound tariffs to levels below the coefficient (except for the products under flexibilities).

VI.Tariff Simplification

This is an entirely developed country concern, particularly for the EU, Norway, Switzerland and Canada. These countries use a large number of non-ad valorem (NAV) tariffs on their agricultural imports. Developing countries, on the other hand, rely predominantly on ad valorem (AV) duties. NAV duties act as an additional layer of non-transparent protection. As these are used mainly by developed countries, they act as a barrier to market access for developing country exports. In contrast, in the case of industrial goods, the draft modalities propose 100% tariff simplification.

VII. Tropical and Diversification Products and long-standing preferences

The mandate of the Doha Round committed Members to addressing the issue of achieving the fullest liberalisation of trade in tropical agricultural products. The draft modalities, accordingly, propose faster and deeper cuts on such products. In the WTO agriculture negotiations, the proponents are 10 Latin American countries (the Tropical Products Group). They want the EU, US, Switzerland, Japan and some of the other developed country importers to take faster and deeper cuts on tropical products.

The mandate also recognized the importance of longstanding preferences and said that the issue of preference erosion would be addressed. As per the modalities being discussed, the tariffs on products in an agreed list, on which certain countries have been accorded preferences in imports, would be cut over a longer period and/or take lower cuts. The proponents here are countries belonging to the African-Caribbean-Pacific (ACP) Group.

The two groups involved thus have competing interests. While the Tropical Products Group want faster and deeper liberalization, the ACP Group is seeking to protect its preference margins.

Discussions in the WTO on this subject are focused on two aspects: (i) the methodology for reducing tariffs on tropical products and preference products and (ii) deciding on the number of products to be included in each list. These discussions have, however, taken place mainly amongst the EU, US, the Tropical Products Group and the ACP Group.

While India is not a member of the Tropical Products Group, India too has export interests in many of the products and has been demanding that the matter should be discussed in a more transparent manner amongst the larger WTO membership. India has also been negotiating to protect its own interests in tropical product exports.

Progress on the subject was closely linked with an agreement relating to the import of a particular tariff line of bananas. On 15 December 2009, an agreement was signed amongst the ACP, the EU and the Tropical Products Group, namely, the “Geneva Agreement on Trade in Bananas”. As per the Agreement, the EU shall maintain an MFN tariff-only regime for the importation of bananas. Thus, there will be no more quotas for the ACP countries. The EU will:

· cut its MFN import tariff on bananas in eight stages, from the current rate of €176/tonne to €114/tonne in 2017 at the earliest; and

· make the biggest cut first, by €28/tonne to €148/per tonne, once all parties sign the deal.

In return, Latin American countries will:

· not demand further cuts in the framework of the Doha Round of talks on global trade once it resumes;

· settle several legal disputes pending against the EU at the WTO, some dating back as far as 1993.
Once the European Parliament gives its consent to the deal, the EU will bind its new tariff schedule – meaning it commits not to raise tariffs above the new rates. The conclusion of the Banana deal signals that rapid progress will also be made on Tropical Products and Preference Erosion.

VIII. DOMESTIC SUPPORT

The Agreement on Agriculture distinguishes between support programmes that stimulate production directly, and those that are considered to have no direct effect. Domestic support that has a direct effect on production and trade has to be cut back.

The draft modalities propose cuts in the Overall Trade-distorting Domestic Support (OTDS) as well as cuts or caps on the individual categories of domestic support, referred to as Amber Box, Blue Box and Green Box support.

The current proposal is for a 70% cut in OTDS by the US and 80% by the EU. A 70% cut brings US OTDS to about US$ 14.5 billion, from their current ceiling of US$ 48.2 billion. This is still well above their estimated applied level of US$ 7 billion in 2007.

IX. Cotton

This issue is of prime importance to Burkina Faso, Benin, Mali and Chad (the Cotton 4). The C-4 proposal on the table implies an 82.2% cut in domestic support for cotton by the US.

Apart from the C-4, it is of significance to Brazil and India also, both major exporters of cotton. In India, cotton is also a politically sensitive subject. This issue has seen very little multilateral discussion at the WTO.

X. EXPORT COMPETITION

In terms of the draft proposals of 6 December 2008 , developed countries are required to eliminate all forms of export subsidies by 2013. Developing countries have to do so by 2016.

Under the WTO’s Agreement on Agriculture, developing countries had the flexibility to provide certain subsidies, such as subsidising of export marketing costs, internal and international transport and freight charges etc. According to the current proposals, this provision would continue to be available to developing countries till 2021 i.e. 5 years beyond the year 2016 when they would be required to phase out all other forms of export subsidies.

India’s Priorities in the Agriculture Negotiations

Safeguarding the interests of low income and resource poor agricultural producers remains paramount for India. In this context, the following issues are vital:

· Overall tariff reductions on bound rates of not more than 36%;

· Self-designation of an appropriate number of Special Products guided by indicators based on the three fundamental and agreed criteria of food security, livelihood security, and rural development needs;

· An operational and effective Special Safeguard Mechanism to check against global price dips and import surges, which is more flexible than the existing special safeguard available mainly to developed countries;

· Substantial and effective cuts in OTDS by the US and the EC and tighter disciplines on product-specific limits on AMS and the Blue Box;

· Simplification of non-ad valorem tariffs on agricultural products, by the developed countries, as has already been done by developing countries;

· Capping of tariffs on agricultural products, over and above the tariff reduction formula, to address the issue of some very high tariffs imposed by some developed countries on agricultural products; and

· Safeguarding India’s export interests in the negotiations on tropical products and preference erosion.

India has been working constructively with her coalition partners in developing country groupings such as the G-20 and the G-33 in order to achieve an outcome in the agricultural negotiations that would fully reflect the level of ambition of the Doha mandate and the interests of developing countries.

(Source: Ministry of Commerce,GOI)