WTO: Why India and China Said No to U.S.

Trade talks broke down July 29 as India and China refused to bow to U.S. demands on agricultural subsidies

by Bruce Einhorn and Mehul Srivastava

Indian farmers clean the paddy on farm land in Singur, some 50 kms north of Kolkata. DESHAKALYAN CHOWDHURY/AFP/Getty Images

It's not often that China and India find themselves on the same side. They're the world's most populous countries and have two of the fastest-growing economies, but one is ruled by a communist regime, the other by an unruly coalition government. They don't see eye to eye about relations with the U.S. China has been a longtime supporter of Pakistan, India's bitter rival. And Indians look enviously at China's manufacturing strength, while Chinese want to replicate India's IT services success.

Following the collapse of the latest global trade talks, though, the two Asian giants find themselves in the same boat. The negotiations over the World Trade Organization's Doha Round of trade liberalization came to an inglorious halt July 29 amid disagreements about agricultural subsidies. The U.S. blames what it sees as intransigence on the part of India and China. Other nations are scolding New Delhi and Beijing, too. For instance, rather than concentrating on helping to address global concerns, India and China "focused too much on their own interests," Japan's Chief Cabinet Secretary Nobutaka Machimura told a news conference on July 30.

Rural Unrest Threatens India and China

The criticism may sting, but the two Asian giants aren't likely to succumb to overseas pressure. Both countries enjoy high economic growth, thanks to overseas demand for their manufacturing and outsourcing services. At the same time, Indian and Chinese leaders also have to worry about economic hardship in the countryside, where hundreds of millions of farmers have struggled to compete against imports from the U.S. and other countries.

China, for instance, has been trying to alleviate pain in the countryside for several years. The economy in the country's well-off coastal provinces has boomed, leaving behind rural areas home to some 500 million people (BusinessWeek.com, 2/16/07). When it comes to competing against American agribusiness, "Chinese household farmers are very weak," says Wang Yong, associate professor and director of Peking University's Center for International Political Economy in Beijing.

Certainly, Chinese farmers are not able to supply all of the country's needs. Imports of soybeans, a staple of the Chinese diet, surged 53% last year, to $11.5 billion, according to statistics from China's Agriculture Ministry. Total agricultural imports for 2007 amounted to $41 billion, a 28% increase over the previous year. While Beijing has taken some measures to ease the burden on local farmers by reducing taxes, the imbalance still worries leaders such as President Hu Jintao and Premier Wen Jiabao, who have talked frequently about the need to boost development in rural areas. "The government faces very serious pressure from farmers," says Wang.

Indian Farm Subsidies: A Political Crutch

The pressure is even more acute for the Indian government. While Beijing's leaders have to worry about potential unrest in the countryside, officials in New Delhi have to confront a genuine rural revolt. The Naxalites, a violent Maoist insurgent movement based in rural parts of eastern and central India, have targeted poor farmers for recruiting (BusinessWeek, 5/7/08).

The government has other reasons to be concerned about unhappy farmers. For India's Congress-led coalition, farm subsidies remain a crucial electoral crutch. Nearly 70% of the population lives in the countryside and the vast majority of Indians derive their income directly or indirectly from farming, even though agriculture makes up less than a fifth of India's almost trillion-dollar economy. "If the government were to agree to something which will kill our agricultural sector, then their political futures will be finished," says MS Swaminathan, the director of India's National Commision on Farmers, who led the country's green revolution in the 1970s. "Already, agriculture has been neglected in India, and that affects about 700 million people.