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

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In the past decade, as India has embraced reforms that have opened up and revitalized most of the developed sectors, agricultural growth has lagged, even as the rest of the economy grew by 8%-10%. On Indian cotton farms, for instance, the cost of reduced subsidies in the form of government price controls has already had disastrous effects. Unable to compete internationally on the cotton market, cotton farmers in central India, the second-biggest cotton producer after China, have spent a decade falling deeper into debt. According to government estimates, more than 160,000 farmers have killed themselves because of those debts. That's prompted the government to announce a $15 billion loan waiver for farmers in its current budget.

Inflation Is Also a Factor

Part of the reason for India's firm stand on protection for its farm sector is the crippling food-price inflation the country is facing. The cost of basic cereals, beans, and lentils has risen 25% in the past three years.

Maintaining some kind of stability in its agricultural sector is key to helping tame the nearly 11% annual inflation rate that threatens not only the current government, but also decades of meager income and nutritional gains among India's poor, says Karkade Nagraj, an agricultural expert at the Madras Institute for Development Studies. "You can't isolate what happens to Indian farmers because of WTO policies from what is happening in the world economy," he says. "With the crisis on the financial market, a huge amount of money moves to the commodity markets, leading to a commodity bubble. In a condition such as that, if you open up agriculture, then the farmers could gain, but that's not going to sustain anything for a long while."

Preoccupied with their own rural problems, Chinese and Indian policymakers have little sympathy for the U.S. and other countries that subsidize farmers. The Americans, Europeans, and Japanese are "asking weaker countries to dismantle their own protection measures without doing the same in their own countries," says Shi Yinhong, a professor of international relations at People's University in Beijing. "It's a double standard."

India, China Seem Unlikely to Back Down

The misunderstanding can go both ways, though, as people in China and India have inflated ideas about what sacrifices foreign governments can ask of their farmers. "People in developing countries don't fully understand the difficulties of advanced countries," Shi says. "They think rich countries have much more leeway to make [concessions] themselves."

And with the global economy hit by the American downturn, the credit squeeze, and high prices for oil, steel, and food, says Shi, governments on both sides of the debate are worried about risking any bold moves. That means it's even less likely India and China will back down in the current trade dispute.

Einhorn is BusinessWeek's Asia Regional Editor in Hong Kong. Srivastava is a BusinessWeek reporter in Delhi.

Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau. Srivastava reports for BusinessWeek from New Delhi.