Charting around Asia
India and the WTO
by John Needham, The Daniel Code Report | August 6, 2008
PrintNothing Fair about Fair Trade
India and China were at the forefront of current round Doha negotiations held in Geneva in July. The main objective of these negotiations has been to lower trade barriers thereby purporting to permit free trade among all members of the World Trade Organisation.
The Round began with a ministerial-level meeting in Doha in November 2001 and was followed by other ministerial meetings in Cancún, Mexico (2003) and Hong Kong (2005). Other negotiations took place in Geneva (2004, 2006, 2008), Paris (2005) and Potsdam, Germany (2007). The expression “free trade” when used by WTO of course means anything but free trade. In this latest epic disaster which is akin to watching a slow motion replay of the last hours of the Titanic on perpetual loop, the reality of WTO negotiations was again apparent; that is each country pursues its own national interests while cloaking its urge to exploit others in stilted bureaucratese.
The death of these negotiations has been announced on at least three previous occasions but I guess the lure of another tax payer funded junket at always exotic locations just burns in the hearts of trade ministers and trade commissioners alike. Hence none of its participants want to acknowledge the death of this party and a quorum for the next knees up is always assured.
The sticking point in the Doha negotiations has always been agriculture. In many advanced societies agriculture commands a political rump that exercises political influence quite out of proportion to its economic and social importance. Some of the best examples come from Australia which represents itself as a “free trade” country at WTO negotiations; New Zealand which is always to the fore in demanding more access for its farmers to flog their produce to developing countries; Ireland which has the most informed electorate in Europe (they were the only country allowed a vote on the Lisbon Treaty) and France, which pioneered the art of agricultural socialism.
The final driver of trade liberalisation is always society and politics. At the end, the doable is about political will. For the latest failure of these trade negotiations, the blame has been laid squarely on India:
Facing an election next year, Kamal Nath, the Indian Minister for Commerce and Industry, demanded a “special safeguard mechanism”for the 600 million small farmers who had crucially swung support to the ruling Congress Party at the last election. Nath wanted protection for certain agricultural products, notably pepper and oilseeds, that would allow India to impose punitive tariff increases in the event of import surges. India was opposed not only by the United States and the EU but by developing nations in Latin America, including Brazil, Uruguay and Argentina, which see Asia as an important potential export market for meat, grain and oilseeds. India was supported by China, which also has a large farming base and it wanted protection for its rice and soya bean farmers.
These photos are from the BBC story “Indian Family”. It continues: Two-thirds of India's one-billion-plus population are farmers. Most have very little land. Many have none and work for others. Shabnarayan Jhanjharia is a farmer in Jatheri village in Haryana state, not far from Delhi. The 72-year-old heads a family of 12. All but one of his children work on the four-acre farm.
That should set the stage.
The Prosecution and the Defense
It’s hard for a reasonable man to take the assertions for untrammeled globalisation seriously. It is a truly shallow and specious argument. I have always had the view that it represented the triumph of structure over common sense with the media’s constant harrumphing of its unstated benefits. For this latest round I defy you to succinctly put each major player’s basic negotiating position. It is mired in modals, summary papers and blue boxes. So absent the arguments which are basically venality and greed masquerading as economic sense (now there’s an oxymoron), let’s look at the proponents.
For the defense (India) we have a still largely agrarian/peasant rural sector much of which is subsistence agriculture or one step removed from it. Nearly a billion people are totally dependent on favourable monsoon rains and the rice paddy culture. Little technology, no infrastructure and more dependent than ever on government support.
For the prosecution we have the following worthies: European Union, home of the mother of market distorting trade subsidies, the Common Agricultural Policy. Commenting recently on the workings of the European agricultural handouts, Alan Matthews, Professor of European Agricultural Policy at Trinity College, Dublin said that direct payments from the European Union to Irish farmers remained static in 2007, averaging €16,346 and contributing 84% of average farm income. In addition, around 42 per cent of Irish farmers have an off-farm job and 82 per cent of farms have off-farm income from either the farmer or spouse. Thus the income obtained from farming - the element affected by a WTO outcome - only accounts for about 8 per cent, on average, of farm household income. Given recent farm sales in Meath at over 30,000 Euros per acre or a bit over $46,000 per acre, it must be a good business this EU farming!
Let’s look at a couple of the other proponents closer to home Australia and New Zealand. Australia holds a singular position as it is one of the official negotiators on behalf of the prosecution and presents itself as a “free trade” country. After decades of rule by the National (Country) Party rump of the coalition parties, trade in Australian agricultural products is about as unfair as one can imagine. Hidden subsidies spring from government funded trade and marketing initiatives, untold billions in publicly funded infrastructure for farmers, including the imminent final destruction of the massive Murray-Darling river system, by far the country’s largest, as political mate after mate has pumped and harvested the river to extinction. What’s the cost of destroying the nations largest river system? Another hidden subsidy. It doesn’t matter sport. The taxpayers will have to pay. From today’s Australian Newspaper:
THE federal Government's $50 million water buyback will return less than 10megalitres to the Murray River this year - the equivalent of just 10 Olympic swimming pools - prompting claims the scheme is ineffective and cannot avert an ecological disaster. This year's 10-megalitre return to the river is a fraction of the predicted 23,000 megalitres expected to be put back into the system each year through the buyback and has been dismissed as inadequate by water experts. And the Rudd Government has been accused of buying the cheapest water allocations, which are generally the least secure and which have returned, in some cases, zero water to the river. Wentworth Group scientist Peter Cosier labelled as "insignificant" the water returned to the river so far this year and said the full $3 billion allocated to the federal government buyback over the next decade should be spent in one massive purchase.
Unfortunately for the new Labour government, they have been handed responsibility for this debacle. Incoming governments love blaming their predecessors for all ills, many years after their ascension. In this case it is certainly true.
Tiny New Zealand which always likes to strut its green credentials dispatched its Trade Minister to oversee the important negotiations. Agriculture is responsible for producing 37 percent of global methane emissions, a gas that is 23 times more potent than CO2 when it comes to global warming. And much of this gas comes from the burps of ruminating animals such as cows and sheep. In New Zealand agriculture accounts for almost 50% of the country’s greenhouse gas emissions yet farmers bear none of the cost. This is a hidden subsidy equivalent to half the $4.5 billion that the planned emissions tax will raise. Farmers are exempt from the present plan until 2013 and nobody has spelled out what proportion if any they will then bear. Don’t hold your breath for the present plan to ever be enacted.
Better still New Zealand’s giant dairy industry persuaded the government to bypass all its own competition legislation and allow a farmers co-op monopoly for dairy products in the country and effectively a singe desk industry marketing status. Why are monopolies bad? Because consumers pay the cost. That’s why NZ the land of milk and cheese has the highest dairy prices in the world. $18 for a kilo of cheese. Great fun monopolies so long as you are on the right side as Microsoft and others can attest. For the purposes of this argument, what is the trade distorting cost of allowing this dairy monopoly in NZ and the quasi monopoly that it has leveraged itself into in Australia? Huge. And now the meat and sheep guys want the same deal and why wouldn’t they. NZ dairy returns are at record highs with farm prices almost as silly as those enjoyed in Europe.
Can you see how ludicrous it really is for the richest and most cosseted farmers in the world to be trying to make ever further raids on undeveloped or developing country markets? 
The legacy and hidden structural benefits that prosecuting countries enjoy make any concept of a level playing field asinine. Tariff arguments are mere semantics compared to the institutionalized benefits that the prosecutors clients already enjoy.
Don’t be confused by the bureaucratic and political spin. The economic babble of efficiencies in global trade puts those pushing the cause in the same category as all those NZ dairy cows-large emitters of gas.
The bottom line for all subsidies, hidden or otherwise is reflected in the market price of agricultural land. With prices of $10,000 to $30,000 per acre prevailing across much of the parts of the world pushing the prosecution case, it is apparent that the market values those subsidies highly. Compare those prices with agricultural land in India and you have a clear answer.
Finger pointing
With most of the world pointing the finger of blame for the latest Doha round collapse, squarely at India and China, The China View newspaper managed, with a bit of fumbling from the NZ trade envoy, to dismiss China from the suit and shift the blame to US and India:
Perhaps the frankest outburst of what countries really want from WTO negotiations came from Jimmy Hoffa the leader of the Teamsters Union:
"The time is now for new trade policies that do not kill our jobs and destroy our middle class. Our trade policies must provide access to other countries’ markets and protect our resources and our jobs at home. That benefits all workers—not just the CEOs of multinational corporations." Official Statement of Teamsters General President Jim Hoffa. 28 July 2008
Crystal clear Jim. You want access to other countries resources to exploit while protecting your resources and your jobs. And there’s the rub sport. That’s really what everyone else on the prosecution team wants as well but is too mealy mouthed to say!
Indian Economy
In January India appeared to be in excellent shape. Annual GDP growth was close to 9 per cent, corporate profitability had risen by 20 per cent in a year and the stock market had surged 50 per cent. India was not immune to the joys of global investors and the liquidity storm that pumped asset values to ridiculous heights. Although Bombay's benchmark Sensex index has lost 40 per cent of its value and foreign investors are fleeing the market, this is against a backdrop of the market rising from 3000 to 21000 since 2003.
Melbourne’s The Age: The bad news has been unrelenting. The rupee has plunged amid fears that India's fiscal deficit is spiraling out of control. In response, the country's fragile coalition Government has made massive populist handouts in the run-up to a general election that must be held before May. Fitch, the ratings agency, recently downgraded the outlook on India's sovereign debt, taking it only one step from junk status. Goldman Sachs has just lowered its GDP growth forecast for 2008 to 7.5 per cent - a rude awakening for a nation that was gunning for double figures. In the teeth of this downturn, interest rates were increased for the third time in two months, to 9 per cent, a move that will further dent the spending power of India's beleaguered consumers.
There is little chance of the Reserve Bank of India softening its new ultra-hawkish stance soon, either. Inflation is running at close to 12 per cent, more than double the unofficial 5.5 per cent target and up threefold since the start of the year.
Reuters reports: India may extend the ban on futures trading in soy oil, rubber, chickpea and potato when it expires next month, and is expected to retain export curbs on rice and wheat for at least three months. India has banned several farm futures and restricted food exports, hoping the moves would help contain inflation, which has risen to a 13-year high of nearly 12 per cent.
Public sector lender Punjab National Bank on Wednesday announced an increase of up to one per cent in the Prime Lending rate to 14 per cent. Private sector Axis Bank also hiked its PLR by 0.5 per cent to 15.75 per cent, which would came into effect on Wednesday.
Moody's Investors Service says that the risks confronting India's economy have grown, but not yet to the extent that the government's Baa3 foreign currency and Ba2 local currency ratings are threatened.
Political issues play a role in India's fiscal problems, the report says. The government's fiscal difficulties relate partly to its inability to raise retail fuel prices and reduce the growing, off-budget fiscal cost of reimbursing downstream oil companies as part of its subsidies program.
International Charts
London’s FTSE index missed its Danielcode number at 5078 by just 7 points and is now rallying in sympathy with US markets into its DC retracements.
Hong Kong’s Hang Seng Index rallied from its July low into its Daniel number target near 23380 and has now been turned back again. Optimists will see a higher low in place. But only optimists!
Korea’s Kospi index made a nice hit on its Daniel number at 1500 but has since been unable to reach the minimum expected rally point at 1644. This has been the strongest of the Asian indices but the present position of this market is indicating more weakness.
India’s NIFTY 50 index, the child of the National Stock Exchange at Mumbai (formerly Bombay) is in the same position as the other major Indian index the SENSEX. This market turned where it should at its DC number and is now rallying into the standard 50% retracement. Large indices love doing 50% retracements. You should always have this range marked on your charts. The simplest part of the Danielcode, it is for time, times and a half, tells us to always watch for equal ranges and half the range. They are the most common fractals in Equity indices and forex charts.
China’s Shanghai Composite turned where it should and has recovered a higher Daniel number at 2738. Its hold on that level looks precarious and might be just a goodwill legacy likely to expire shortly after the games conclude. Lower numbers await.
The Nikkei is ticking over its Daniel numbers with the precision of a well oiled machine which it undoubtedly is. The March low was just 30 points from its DC target and the 11 week rally that ensued took it to near 14590, the 50% retracement of the old range. There it is again. It is now bouncing between minor Daniel number sequences as shown.
Australia’s SPI 200 index retraced only 29.7% in its last rally. Fast markets retrace 29.7% then 37.5% so the SPI is telling us it is still a fast market going down. There is also a break of the old swing on the chart so the outlook is grim unless this latest piece of chart damage is reversed immediately.
Indian Farming Life
To wrap up our thoughts on India today and add a somber note to what is otherwise another expensive junket by our political masters and their henchmen, the institutional bureaucrats, Bloomberg reports that a government report in July 2007. found that repeated crop failures because of inadequate irrigation led to as many as 86,922 indebted Indian farmers committing suicide between 2002 and 2005.
Is it really so important for wealthy countries to exploit others in this fashion. Do they really want the pepper and oil seed markets of India so badly. Or is it just as the President of Ireland’s Chamber of Commerce said. “It is really about the 93% of the economy that is represented by services”. This worthy wanted increased access to India very badly indeed. Who is he you ask? None other than the Irish CEO for Microsoft. Another monopoly exploiter. He would have been right at home with the NZ dairy representatives in Geneva. My friend Vivek who lives near my birthplace of Bangalore (haven’t they changed that name yet) and is in the IT business would have some interesting views on that.
I hope dear readers that this tomb has exposed the prosecution’s arguments as self serving, vacuous, untrue and morally corrupt. They come with “dirty hands” as we used to say in the Equity Courts many years ago. The equitable doctrine always prevailed. I doubt if today’s Lawyers even know what that phrase means. Certainly the WTO doesn’t.
For the Indian Minister for Commerce and Industry Kamal Nath, if all you said for the defense was no, you let them off too lightly. Give me a call next time these vultures are circling and I will write your brief.
Now that would be fun!
I invite you to visit the Danielcode Online to learn more about this enigmatic market sequence, the Danielcode. For FSO readers we maintain a number of free charts including the Asian indices and some unusual binomial charts of Gold and the HUI index. These are of particular interest to investors who are involved in longer term decisions about their present or future Gold holdings.
CAUTION-The Daniel numbers on these charts are from historic sequences that may not be current at the time of publication. They are appended for historic interest only. Do NOT use these numbers to trade markets. Current Daniel sequence numbers for most currency crosses are available to subscribers at the Danielcode website.
Copyright © 2008 John Needham
Asia Editorial Archive
John Needham is a Sydney Lawyer and Financial Consultant. He publishes The Danielcode Report and writes occasionally on other markets. He lives with his family in Australia and New Zealand.
“The fox knows many things, but the hedgehog knows one big thing. A Hedgehog Concept is not a goal, intention or strategy to be the best. It is an understanding of what you can be best at. The distinction is absolutely crucial”. ~ Isaiah Berlin, The Hedgehog and the Fox
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