WTO- Free Trade Agreement  and India’s stand

Finally the WTO adopted the first worldwide trade reform in its history, after years of stalemate and months of deadlock. This is the first major trade pact reached by WTO ever since it came into existence in 1995. India and the United States have resolved their differences on public stock-holding of food.

Since the Doha Round, India has taken a more proactive and offensive position against the unilateral trade policies of the developed countries specially in agriculture because it is the livelihood of about 700 million farmers of India and any change in market access and farm subsidies at the international level will have a drastic effect on this community.

A Trade Facilitation Agreement (TFA) known as the “Bali Package” was reached by all members on 7 December 2013. In Bali, member countries had signed two major deals on trade facilitation and food security. TFA is a trade protocol aiming to facilitate international trade between various countries and remove the hurdles, if any. The TFA aims to fast track any movement of goods among countries by cutting down bureaucratic obligations, easing custom norms, reducing paper work and documentation and cutting transaction cost for traders. The deal was to come into force by August 2015.

WTO argues that if the developing countries continue to give prices to farmers which are higher than the market prices, it might harm the poor farmers in other parts of the world. India made clear that it will support the TFA only if there is permanent protection of the Minimum Support Price (MSP) of developing countries. India had negotiated a peace clause in Bali, a four-year window under which no country could be dragged to dispute for breaching the subsidy cap.

At its last meeting at Geneva on 31st July, the WTO members failed to agree on TFA. India’s strong stand on food security has threatened to derail the first multilateral trade agreement. Developed countries like UK, Germany, Finland, Austria, Switzerland, Sweden and the European Commission expressed concerns over non-implementation of the TFA. They complained that India is going back on its promise made at Bali last December where it was agreed that the TFA will be made a WTO rule by 31 July. At Bali, it had forced a big concession from the United States and European Union, that India could stockpile food at subsidised prices. The arrangement was temporary, but the WTO agreed to work towards a permanent solution within four years, by the end of 2017.

Diplomats in Geneva described India’s position as ‘hostage-taking’ and ‘suicidal’. India’s veto may be the beginning of the end for the WTO. They said that India has been a backer of world trade reform but now it blocked a deal which could add $1 trillion to global GDP and also could generate 21 million jobs, 18 million of them in developing countries. WTO chief  Roberto Azevedo expressed serious concerns over the fate of Bali package. He said that WTO members agreed to implement the decisions taken in Bali last year and they also agreed to adopt a work programme, by the end of this year, to deal with the remaining issues of the Doha Round.

The United States and Pakistan raised the questions on India’s farm trade policies,such as its land holding laws and the subsidy mechanism. Data released by India has showed that between 2000-01 and 2010-11, the proportion of land with marginal and small farmers has increased, while the population of those with large farms decreaed. US and Pakistan have sought detailed data, arguing that India is the largest rice exporter in the world. Pakistan  accused that farmers of  rice and wheat in India are getting double subsidy-  subsidized inputs such as power and fertilizer as well as MSP.

India has its concern about food subsidy and stockpile of food grains and wants it to be addressed first before signing the TFA. India has asked WTO to amend norms for calculating agriculture subsidies so that the country could continue to procure foodgrains from farmers at minimum support price and sell them to poor at cheaper rates without violating norms. India fears that agreeing to the TFA could compromise its own food security. The current WTO norms limit the value of food subsidies at 10 per cent of the total value of food grain production. In India’s case it is cereals and pulses. The amount of such subsidies is calculated on the external reference prices of 1986-88. India has demanded that the year be changed to a more recent period, taking into consideration the rise in food prices and rate of inflation. India has experienced an inflation of 650 per cent since 1986-88. If inflation is taken into account, subsidies will be negative. G-33 too has sought a revision of base to a more recent year or the incorporation of inflation.

India has never demanded elimination of the 10 per cent ceiling. As per WTO rule, if the 10 per cent cap is breached, other members can challenge it and also go on to impose trade sanctions on the country. India agreed to the TFA in Bali only under the condition that interim relief would be provided to the developing nations. It said that no legal actions or sanctions would be imposed on the developing nations till 2017, by which time a solution would be worked out among the nations.

The US and other developed countries have been accusing that India is not notifying its agriculture subsidies because it has breached the 10 per cent cap. Now India has filed the notification to the WTO for seven years (2004-2005 to 2010-2011). According to a WTO filing, India is well below and within the limit of 10 per cent for all its major crops. India has given a total farm subsidy of $56 billion, of which trade distorting subsidy amounts to only $13.8 billion for 23 commodities, including rice and wheat. In case of wheat, the subsidy is negative one per cent. It suggested that rather than paying farmers too much for their crop, it had in fact paid them too little. The food subsidy for rice during 2010-11 worked out to be only around 6 per cent of the total output of the commodity in value terms. Although India is safe for the moment, there is a possibility of breaching the 10% ceiling. India has argued that this ceiling is not in line with current market reality as it assumes the price prevalent in 1986-88.

The government support to farmers in developed countries is way ahead of what developing countries can even afford to provide. United States provide more than $120 billion per year to its 2 million farmers as agriculture subsidy, where as India gives only its one tenth ie $12 billion to its 500 million farmers, which is also home to about 25 percent of the world’s poor people. India’s food programme is largely domestic so it doesn’t distort or affect the global food trade. Moreover, India will have to open up its own stockpiling to international monitoring, after implementation of FTA.

The World Trade Organization (WTO) officially commenced on 1 January 1995, replacing the General Agreement on Tariffs and Trade (GATT). WTO frames the new global trade rules for international trade. India joined the WTO since its inception in 1995. WTO has been playing a very important role in India’s foreign trade as both the growth rate of exports and imports has risen after the WTO. WTO created prospects for developing countries like India to avail of greater trade opportunities but in spite of special provisions for developing counties, there are imbalances under certain provisions. Until the conclusion of the Uruguay Round, the United States and the European Union have been dominating multilateral trade negotiations.

Many countries in Asia and Africa are following a Minimum Support Price (MSP) regime, in favour of securing the interests of 80% of the world’s poor. Food security of these poor was at stake by the stand taken by developed countries. The agreement, provides for continuing the “MSP” policy, which is a lifeline for millions of poor farmers. As per the agreement, the WTO nations have committed to ease customs norms to facilitate trade. At the same time, WTO members have agreed to work out a permanent solution by December 2015. The agreement means the WTO will introduce new standards for customs checks and border procedures.

[author image=”http://www.aapkatimes.com/wp-content/uploads/2014/10/Chinmay_Khare.jpg” ]I am Chinmay Khare pursuing B.A.(Hons.) Economics from Jamia Millia Islamia,New Delhi[/author]