Story Of The Week

India’s Food Deal and WTO

After month’s long standoff, the World Trade Organization signed the Trade Facilitation Agreement (TFA) at a ‘special’ meeting of the WTO General Council (GC), the highest decision-making body after ministerial conferences.

It agreed to ease custom norms after accepting India’s demand to remove constraints on food stockpiling till a permanent solution is found for its food stockpiling issue.

It was also decided that a “special session” on agriculture will negotiate the permanent solution and try to arrive at a solution by December 2015. If no permanent solution for the issue of public stock-holding is agreed and adopted by the 11th Ministerial Conference (2017), the mechanism shall continue to be in place until a permanent solution is agreed and adopted.

India’s food deal

India had forced the WTO into the deepest crisis in its 20 year history, this July after it had blocked an International agreement (Trade Facilitation Agreement) on easing trade regulations. Trade Facilitation Agreement (TFA) aims to fast track movement of goods among countries by cutting down bureaucratic obligations. The problem with TFA -there is a clause that says farm subsidies cannot be more than 10 percent of the value of agricultural production. If the cap is breached, other members can challenge it and also go on to impose trade sanctions on the country.

India Opposed TFA because

India’s Food Security Act, which is binding on the government by law now, implies that the government will provide very cheap food to the most vulnerable part of the population at extremely low prices. Apart from providing subsidies to the consumers, through the public distribution system, it also provides subsidies to the producers of food grains. So it buys food grains from farmers at a minimum support price, and subsidizes inputs like electricity and fertilizer.

  • The first problem was with the 10% cap on subsidies which will not be possible for India to achieve.
  • The second problem was that even for providing subsidized food, India will have to open up its own stockpiling to international monitoring.
  • Third, it might seem unfair to developing countries to not crack down on farm subsidies that the United States provides to its farmers to the tune of more than $20 billion per year. While the  is binding the developing countries to protocols, the issue of subsidies by developed giants like US seems to be off the table.

India felt that global trade should be linked to food security that would allow developing countries more freedom to subsidize and stockpile food.

India’s food security concerns taken on board

This breakthrough came after India and the US reached an understating where the Americans assured support to India’s demand for a permanent ‘peace clause’ and, in turn, India agreed to sign the TFA, which it had vetoed in July. Under the peace clause, a WTO member gets immunity against penalty for breaching the food subsidy cap. As per the WTO norms, a developing nation can provide food subsidy of up to 10 per cent of the total farm output

Thus, this agreement will enable India to continue procurement and stocking of food grain for distribution to poor under its food security programme without attracting any kind of action from WTO members even if it breaches the 10 per cent subsidy

The Trade Facilitation Agreement (FCA) is expected to infuse $1 trillion into the global economy and create 21 million jobs, and will now be open for ratification by all 160 member countries including India for coming into effect sometime next year.

Thus, the TFA is being pushed by the US and other developed world as they seek to bolster their sagging economies through unhindered international trade by way of a uniform and easy procedure at customs.



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2 replies »

  1. Thank you for shedding light on such an important topic. Though intuitively I could feel it, but I am not explicitly clear with the fact that FTA will infuse such a huge amount ($1 trillion) and 21 mn Jobs ??? It would be great if you could explain that as well.

    • The WTO has reached a consensus on Trade facilitation agreement(TFA). Trade facilitation agreement(TFA) and Free Trade Agreement(FTA) are two different things, hence their different implications.

      Free Trade Agreement(FTA) are the agreements between the countries to eliminate tariffs, import quotas, and preferences on most (if not all) goods and services traded between the member countries. If people are also free to move between the countries, in addition to FTA, it would also be considered an open border.
      Example of FTA’s are SAFTA, NAFTA, AFTA etc.

      Trade facilitation agreement(TFA)- The Trade facilitation is about simpler, speedier and more reliable border processes, making it easier for goods and services to cross international borders.
      -It is important to understand that this is not a concession(like in FTA), but a step to boost their own domestic
      -Doing away with inefficient procedures and removing unnecessary delays will free countries from deadweight costs that make goods more expensive for domestic producers and consumers.

      As said earlier TFA will give the thrust to trade by eliminating Red-tapism, which causes hindrance in export of items, largely perishable ones. This will result in less inventory and more production without interruption. This will help an economy to serve wider markets. An increase in production will create a demand for jobs. Also the increase trade and less wastage will infuse a huge amount creating a win-win situation for the countries.

      Please revert in case of more queries….