India’s success at WTO

Cover Story : India’s success at WTO 

Intro: Despite enormous pressure from the developed world, especially the US, India has registered a major diplomatic victory by successfully blocking the Trade Facilitation Agreement (TFA) in Geneva on 31st July 2014 night to ensure food and livelihood security for millions of farmers in India.

India's policy of using subsidies as a political tool was coming in its way of negotiating a deal for global trade which actually would have benefitted its farmers. New Delhi had stated that it won’t sign the trade protocol crafted in Bali last December unless adequate progress is made in resolving the question of subsidies for food producers. And this was marrying the prospects of meeting the July-end deadline for ratification of the trade facilitation pact – the first consensus-based multilateral agreement reached by the WTO since the launch of the Doha round of parleys in 2001.
The trade facilitation pact aims to smooth cross-border commerce by binding countries to relax their customs rules and end red tape. They will need to amend some domestic laws, improve infrastructure at ports, put in place systems for faster Custom clearances, and invest in automation, computerisation and improved documentation processes. This will involve substantial costs. However, the agreement has provisions for international assistance to developing nations to partly offset these expenses.

What is TFA? The first major global Trade Facilitation Agreement (TFA), through which, WTO ministers had already agreed the global reform of customs procedures known as “trade facilitation” in Bali, Indonesia, December 2013; The main objective was to fast track any movement of goods among countries by cutting down bureaucratic obligations; According to a clause of the agreement, farm subsidies cannot be more than 10 percent of the value of agricultural production, if the cap is breached, other members impose trade sanctions on the country. 31 July 2014 was the deadline to ratify the treaty by the members with 1 year timeframe of actual implementation. Why India Opposed It? The first problem is with the 10% cap on subsidies which would have jeopardized India’s sovereignty to provide minimum support prices to the farmers; The Food Security Bill makes it mandatory for the government to provide subsidised food-The peace clause of TFA would have blocked these provisions; Another main issue was of uneven competition and indirect subsidies provided by the developed countries, especially the US, to their farmers. The Way Out? Address India’s concern and include permanent clause for ensuring Food Security; OR Collapse of the multilateral deal. Developed countries can still push for the TFA but they would not like to isolate India and lose the large market access.

The ticklish issue however remains about the negotiations of agriculture subsidies India had, under the previous regime consented to approve the treaty after the developed countries agreed to find a permanent solution within four years on disputes around food procurement and stockholding subsidies. The WTO does not permit farm subsidies of more than 10 per cent of the value of production. In foodgrain, India might with its high procurement prices and the new food security law breach this ceiling though it has agreed to refrain from challenging any country even if it breached the subsidy limit of 10 per cent of the value of food output till an enduring solution emerged. The major concern raised by the developed countries is that most of the excess production of wheat from India finds its way in the world market and distorts the prices.

Now, Narendra Modi government has gone back on the promise of finding a solution to the procurement and subsidies issue. A strong case that India has used as a tool not to take the talks further is that the trade distorting measures of developed countries displace the agriculture exports of developing countries by suppressing world prices and directly effect farm income. The often cited example by the Indian negotiators is that the US has reneged on the commitment of subsidies by giving a huge increase in agriculture subsidies leading to the violation of the spirit of agreement.
India is also of the view that the new pact is tilted towards developed countries and if the development round is to bring widespread benefits to people living in developing countries and if there is to be widespread support for the continuing agenda for trade reform and liberalisation the developed world must make a stronger commitment than it has in the past to giving assistance to the developing world. Assistance is required not only to help bear the often large costs associated with trade reform, but also to enable developing countries to avail themselves of the new opportunities provided by a more integrated global economy.
Much of India's view has got to do with the 2003 meeting in Cancun- Mexico which ended abruptly without any agreement on the main issues due to irreconcilable differences between the developed and the developing countries after which there have been calls for reassessment of the direction of global trade negotiation. Developing countries are of the view that no agreement is better than a bad agreement even though the US and EU maintained that the developing countries were the ultimate losers.
India has stood its ground stating that no agreement can be made by rushing along without redressing the imbalances of the past . Though some progress was made addressing the concerns about the manner in which the negotiations were conducted, the failure to address these concerns fully generated the further worry that the developing countries would somehow be strongly armed in the end into an agreement that was disadvantageous to them. This fear has led to countries like India getting into bilateral or regional agreements like the one with Japan, Isreal, China etc. However, US has not been able to successfully develop any bilateral trade agreement with any major developing country.
But the ones who will really miss the opportunity to trade are the exporters who are of the view that the treaty will enable them to enter new markets – which many of them are unable to do currently, because of complicated and costly procedures. Unsurprisingly, therefore, a sizable section of Indian industry has welcomed this accord, and does not want Indian government to block it purely because of political agenda.
As regards the subsidies India has not made prudent choices about the support it gives its farmers by announcing over the top support prices and then giving additional subsidies in the form of fertilisers, free power, irrigation facilities, besides storing the produce which in itself is a costly business. For this India has to break free from the socialist mould of 'economy of shortages' and identify those farmers who cannot afford costly production rather than giving it to all the farmers. Maybe it can categorize subsidies by the size of the farms and give it to only those farmers who have land holding below a certain level.
It will take a good enough task for the agriculture and food ministry to identify such farmers and provide them with a targetted subsidy. This way the issue will be addressed in a more effective manner and also reach poor farmers who are anyways out of the subsidy ambit purely because of subsistence agriculture being carried out by them.
This will also answer the issue of small farmers who because of their limited resources are prevented from taking advantage of the liberalised markets unless state support and credit reaches them timely and efficiently. A relook to size down the bloated grain coffers which have reached unmanageable levels and exploded the food subsidy bill thereby harming the domestic fiscal health is needed. New Delhi has to realise that reciprocity is not the only issue of negotiation during this beneficial process of trade negotiations.
-Bhagyashree Pande (The writer is a senior journalist)