Story Of The Week

WTO Trade Facilitation Agreement failure: Is India’s stand justified?

July 31, 2014 could have been gone down in WTO’s history as one of the most prominent date in terms of results, had its member countries agreed upon set of issues, broadly known as the Bali package. But one of its member countries, India, decided to play the spoilsport and the deal fell through. Whether India’s stand is justified or not remains to be seen but first let’s have a look at some of key facts –

What Is The Trade Facilitation Agreement?                                                                                  

The Trade Facilitation Agreement, or TFA, part of long running Doha round of trade negotiations, was formulated in December 2013 during the ninth ministerial conference of the WTO in Bali, Indonesia. The overall package is known as Bali package. It comprised of three main components: trade facilitation, agriculture, and development issues, with the latter two widely seen by many developing countries as being necessary to balance the trade facilitation component.

The TFA, through a worldwide reform of duties and tariffs, and a reduction in red tape at international borders, aims to ease trade relations between countries.

According to some estimates, the TFA could add $1 trillion in new trade globally and create 20 million new jobs worldwide.

The WTO-imposed deadline to sign the protocol by the 160 member countries was July 31, 2014 following which it was meant to come into effect from July 2015.

Why India is opposing it

India’s food security act, which was passed by its parliament last year, involves providing subsidized food grains to a large chunk of the country’s population, a considerable number of which lives below the poverty line. To achieve this, the Indian government buys rice and wheat from farmers in enormous quantities at prices greater than the market rate.

India, on its part, says that it is an important part of its efforts to ensure food security for the nation as this is the only way to ensure that required quantity demand is met.

However, the TFA caps yearly subsidies in developing countries at 10 percent of the value of agricultural production. This has put India at risk of violating the WTO rules.

Adding to the woes is the fact that the 10% cap is calculated based on 1986-88 prices when the prices of food grains were much lower. So the cap needs to be modified taking into account the current prices of food grains.

India has opposed this limit and demanded a parallel pact, which would facilitate developing countries to continue subsidizing and stockpiling food so as to ensure food security for nation as a whole.

A major concern for India is that even for providing subsidized food, it will have to open up its own stockpiling to international monitoring. It will not be able to add protein heavy grains like say, lentils, if it wants to.

Also a fact which has not been highlighted much is that while the WTO is binding the developing countries to protocols, the issue of subsidies by developed giants like US, which provides its farmers subsidies to the tune of more than $20 billion per year to five crops: wheat, rice, soy, corn and cotton, seems to be off the table. Hence, when the overproduction from these subsidies gets dumped in world markets, their cost is much less than what an average Indian farmer offers, which itself explains the high rate of suicides in India’s cotton farmers as they are not able to get right price for their produce which results in non-payment of debts.

While a temporary solution was worked out in Bali — WTO members agreed to not file complaints against India’s food-subsidy program until a permanent solution is worked out by December 2017 — the new government in India, has demanded a more immediate solution, preferably by the end of 2014, in exchange for signing the TFA.

The outcome

The Bali package was one of the most important package since, if it had been passed, it would have become first comprehensive agreement in the history of WTO since its inception in 1995.

Its failure puts a question mark on the very much existence of WTO, since it was formed to facilitate the international trade but till date, it hasn’t been able to come up with a single agreement. This , despite the fact that all its member countries had previously committed on a concrete outcome for Bali negotiations.

“This is not just another delay which we can simply ignore.” That is what the WTO Director General Roberto Azevedo told the member countries’ trade negotiators.

Many countries were contemplating of going ahead with the deal without India but the feasibility of doing so is in doubt since it would have required as would have required an amendment to the existing WTO treaty which would have required all member countries approval including India.

Looking across the economy, the largest beneficiaries of trade facilitation reforms tend to be small- and medium-sized enterprises, which are too often deterred from trading internationally due to complex customs requirements. Put in these terms, the business case for this trade deal is compelling. Having said so, the interest of developing nations like India, simply cannot be ignored. It’s a duty of every government to first think in interest of its native population and then focus on global interest. If developed countries like US, Australia think that India is unnecessarily creating hindrance by bringing in personal interest, then rather than criticizing India they should focus on coming up with a workable solution which is acceptable to one and all. This way, It will ensure consensus and speedy addressal other pending issues of Doha negotiations.


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