INDIA’S NEGOTIATING STRATEGY IN INTERNATIONAL TRADE IN BIOFUELS.
Essential basis of a successful negotiation without doubt remains the determination of grounds of common interest between negotiators who try to look for signs of commonality in a myriad range of varied interest. Primary mode of successfully forwarding India’s interest at the WTO Negotiations would be the identification of certain core interests which needs to be defended at all costs. Beyond the core interest would lay areas in which there is enough room for negotiations. As international trade in biofuels becomes a definite possibility, the role of the WTO should be in accordance with its mandate to ensure conditions of free and fair trade. An Indian negotiator’s role as argued would be to properly identify the scope of India’s comparative advantage in biofuels.
Ethanol and biodiesel while by no means the only represent the primary subject of discord in international trade of biofuels. While India enjoys the position of the fourth largest manufacturer of ethanol, the statistics do not necessarily reveal that the annual quantum remains far below the first three, i.e. United States, Brazil and China. India’s national interest in trade in ethanol compared to the above three is limited. If India is to secure a stake in the biofuels trade its primary area of concentration should be biodiesels. India has an acknowledged comparative advantage in biodiesels for reason discussed below with a potential to become a major player in this market. So a negotiator defending India’s interest in the WTO negotiations should aggressively forward India’s interest in biodiesels. Such strategy should be used in conjunction with using her limited interest in ethanol as a scope for possible alliance with other developing countries such as Brazil and China. These countries stand much more to benefit from removal of protective measures in developed countries than India. This would essentially mean that India could barter her support for their cause in ethanol in exchange for their support in India’s position on biodiesels. Of course India may do well to secure some basic interest in ethanol to at the very least ensure that foreign producers do not completely replace the infant domestic ethanol industry.
India has certain distinct advantages in manufacture of biodiesel. Unlike, biodiesel manufactured in other principle jurisdictions which use edible oil and seeds, India has concentrated on non edible oil seeds as a source of biodiesel. Jatropha represents the most popular of such kind of non edible seed. The distinct advantage of jatropha is that it could be grown in areas where availability of water is low. This would mean that vast areas of waste land could be successfully diverted to the cultivation of jatropha. Advantage for India, as well as the world community is at two levels. First, biodiesel manufactured from jatropha ensures that valuable food crop is not diverted to the manufacture of fuels. Second, since the crop may be grown on wasteland, there is no need to use fertile land for such purpose. In addition with specific regard to India, farmers based in lands not suited for mainstream cultivation have a source of income from jatropha.
A negotiation strategy towards the developed countries would be directed towards bridging the differences of interest between the European Community and the United States. Such a strategy with particular reference to the European Community may be explained with a simple model. Presently the Community extends a high amount of subsidies to its biofuels manufacturers as also the input providers of this industry. The financial cost of this subsidy is borne by the European Community taxpayer. As discussed India has a comparative advantage in biodiesel. If industries based in the Community were to invest their funds in the Indian biodiesel programme, a profit generated from it would obviously be repatriated back to the Community. It would make sense for the European Community to ensure that through taxation mode or otherwise that some of the repatriated amount is used to support the agricultural farms and industry contributing towards biofuels in some way. This would ensure that support is extended to these sections not out of the Community’s own pocket but from a steady source of income. It may be noted that the European Community itself has been in favour of developing a coherent biofuels package for developing countries with a potential for biofuels as suggested in a Communication from the European Community Commission (Brussels 8.2.06, COM(2006) 34 final). While the position of biofuels in the Clean Development Mechanism of the Kyoto Protocol is still at its preliminary stage, the future may witness the Kyoto Protocol bound Community benefitting from its investment in India. The strategy discussed above would in most parts hold true for the United States as well except that unlike the Community, USA is not bound by the Kyoto Protocol.
India may well do to address a legitimate concern, i.e. spiraling prices of food crops in the event that food crops are actually used for biofuels manufacture. An artificially protected biofuels industry would be that much more willing to pay a higher amount for input usually food crop than an industry which competes with imports in the local market. Now food crop with end use in biofuels industry would fetch a better price for the input provider meaning he would allocate his produce more towards the biofuels industry. This would adversely affect the food supply, which may lead to increase in domestic prices. Subsidies if given to offset the same would also have to undergo a very strict WTO scrutiny. For this reason such nations may do well to reduce the tariffs to enable the biofuels industries to respect market standards.
A clear competing interest is represented by the present manufacturers of fossil fuel who may see a surge in international trade of biofuels as directly affecting their exports in fossil fuel. It may be well said that negotiation in this aspect may be tougher than the one witnessed in the North South divide. Saudi Arabia as one of the largest producers of fossil fuel may not find it in its national interest to promote international trade in biofuels. The key point here is to emphasize that it is an acknowledged reality that fossil fuel is an exhaustible resource and is not going to last forever. Countries which are generating a significant amount of revenue from fossil fuel today may do well to secure their future by diverting an amount of their funds towards biofuels. A proposal for cooperation in research to gauge the possibility for Saudi Arabia to emerge as a cultivator of jatropha which requires minimum water and fertility to grow may also be put on the agenda subject to scientific evidence to the contrary.
Like India, countries such as Bangladesh would also benefit from increased flow of foreign investment with regard to biofuels projects and the lowering of tariffs in the same. Geographical neighbors the two countries could be natural allies at the WTO.
The classification of biofuels as agricultural/industrial or environmental goods is an exercise already undertaken by the Committee on Trade & Environment, and therefore the Committee on Trade & Agriculture should refrain from addressing the same. It may however move towards a separate agreement on biofuels like the Information Technology Agreement to negotiate a reduction regardless of classification of the biofuels. India should push towards including separate rules on investment in the agreement. This is not without precedence with rules regarding investment on services being covered by GATS instead of TRIMS. Unreasonable distinction in the process of manufacture as a basis for differential treatment should be discouraged for as has been witnessed they often become a mode of protection. Tax credits and subsidies should also be subject to a phased reduction to restore the parity. Such reduction commitments may be enshrined in the schedule itself of individual countries.
Harmonization of interest between the developed, developing and the LDCs may ensure a successful outcome for the negotiations.
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