The World Trade Organization (WTO) headquartered at Geneva came into being on 1 Jan 1995. It is a 160-member trade body established by the Uruguay Round of negotiations (1986-94) to act as a forum for trade negotiations. The Ministerial Conference of the World Trade Organization is the top most decision making body for trade related matters concerning member nations and is conducted in every two years. All decisions regarding multilateral trade agreements between member countries and customs unions fall under its purview (WTO website). The last Ministerial Conference (9th) was concluded at Bali, Indonesia. It was hailed as a victory for the Indian contingent because the talks allowed India and other developing nations to provide subsidies on staple food crops without threat of punitive action. It provided a four-year window (up to 2017) for safeguarding minimum support prices to farmers against World Trade Organization caps till a permanent solution is reached. It also allowed developing nations to stockpile food grains to provide food security to the poorest of their populations (Jagran Josh, 07 Dec 2013). Another major achievement of the Bali Ministerial conference was the decision by member nations to sign the Trade Facilitation Agreement by 31 July 2014 (Matt Siegel and Tom Miles for Reuters, 1 Aug 2014). This was billed as one of the most successful round of talks, the Bali round sought to simplify and streamline customs procedures across the globe through the implementation of the Trade Facilitation Agreement.
Benefits accruing from trade facilitation agreement
The Trade Facilitation Agreement is a major multilateral trade agreement, much larger than the multilateral agreements like the Trans Pacific and Trans Atlantic initiatives of the US. If successfully concluded, it will give a much needed impetus to the sagging global economy. Experts estimate a boost of almost a trillion dollars to global trade due to this customs deal (Raymond & Peter for the Wall Street Journal, 31 July 2014). The deal is expected to generate more than 21 million jobs, 18 of which would be in developing countries (ICC Website, 22 Apr 2013). The agreement would effectively cut transaction costs which would majorly improve the competitiveness of the domestic industry. As a result, many small and medium enterprises will be able to enter world trade for the first time and world prices for essential goods will be kept under control. It is also a pro-poor agreement because it contains provisions which prevent perishable goods from getting stuck-up at the border. Thus, massive food wastage can be avoided. The Trade Facilitation Agreement is clearly the first initiative to successfully conclude the Doha Round of talks. Other multilateral agreements pertaining to agricultural reform will be left in limbo if this one fails.
Why is India blocking the trade deal?
India’s objections to ratifying the trade deal stems from its domestic commitment in the form of the Food Security Bill passed in 2013 (Abhirup Bhunia and Geethanjali Nataraj for Observer Research Foundation, 15 Jan 2014). The Government of India is committed to maintaining huge stockpiles of food grains as well as providing subsidies on staple food grains under this Act. Given the continuous rise in prices, the Indian government has been forced to revise the minimum support prices to farmers from time to time. Hence, it fears that the 10% cap on subsidies may be breached (PTI, 2014). Therefore, India wants the subsidies on food grains to be counted in the “Green Box”, i.e., these subsidies should not be subject to any limitations under the World Trade Organization. India also does not want any constraints to be placed on the limit of food grains stockpile it maintains to ensure food security. Moreover, India wants an assurance that if a permanent solution is not worked out, the interim agreement on food stocks should extend beyond the 2017 deadline. Another important issue is that India wants the base year for calculating food stocks to be changed to the average of the last three years instead of 1986 to 1988 (Terry Atlas and Andrew MacAskill for Bloomberg, 31 July 2014). If India signs the deal it will lose the authority to include other agricultural products like lentils under the subsidy list. Thus, it will not be able to adopt a health program aimed at tackling malnourishment (Abhirup Bhunia and Geethanjali Nataraj for Observer Research Foundation, 15 Jan 2014).
Future repercussions of India’s stance
With India refusing to ratify the deal, the Trade Facilitation Agreement has missed the 31 July deadline (Gabriel for Deutsche Welle, 1 Aug 2014). The developed nations of the world are livid at India jeopardizing the deal. There is a distinct possibility for countries like United States, European Union, Australia, Japan, Canada and Norway to move ahead with the agreement without India (Matt Siegel and Tom Miles for Reuters, 1 Aug 2014). Though legal action against India is not imminent, a plurilateral agreement that excludes India is definitely not the best thing for India and is a step down for the World Trade Organization as well. India also may not be regarded as a serious partner for the regional trade agreements, namely the Regional Comprehensive Economic Partnership and the Trans Pacific Partnership (Economist Gary Hufbauer in an interview to Deutsche Welle, 1 Aug 2014). In fact, countries like China and Brazil have already notified the World Trade Organization of their intentions to implement the agreement immediately (David Brunnstrom and Tom Miles for Reuters, 1 Aug 2014). India remains isolated in the global stage and with countries like Bolivia, Cuba and Venezuela supporting it the picture is very grim indeed (Bloomberg View, 28 July 2014).
Huge wastage of food grains in India
India has drawn flak from the US and several Western powers for its bull headed attitude which has resulted in the Trade Facilitation Agreement not being ratified on 31 July 2014. Those who are gunning for India believe that India’s food security program results in criminal waste of huge stockpiles of food grains. India wastes nearly 20 million tones of food grains every year due to its poor storage facilities and infrastructure, unpardonable in a nation where millions live below the poverty line. Reuters. On the issue of subsidies, they believe that India’s subsidies are well below the 10% of the total production in the country. They assert that any other issue could have been resolved by a proactive government in the four-year window provided by the Bali Agreement. Moreover, the 31 July deadline is not sacrosanct. Once the one-month summer break is over and the members convene again a compromise may be worked out by September. India believes that the Trade Facilitation Agreement which will majorly benefit the developed nations should run parallel to an agreement on food stocks which is in the interest of the poorer nations (Asit Ranjan Mishra for Live Mint and The Wall Street Journal, 01 Aug 2014).
- Abhirup, B. & Geethanjali, N., Analysis. Available at: http://orfonline.org/cms/sites/orfonline/modules/analysis/AnalysisDetail.html?cmaid=61789&mmacmaid=61790 [Accessed August 2, 2014].
- Asit, M.R., India sticks to stand as WTO talks collapse – Livemint. Available at: http://www.livemint.com/Politics/fUtNZM1P5EWwz8cgRZl6jN/WTO-talks-fail-over-Indias-protection-of-food-subsidies.html [Accessed August 2, 2014].
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- PTI, 2014. Won’t compromise interest of farmers at WTO: govt – Hindustan Times. The Hindustan Times. Available at: http://www.hindustantimes.com/india-news/india-not-to-compromise-interest-of-farmers-at-wto-sitharaman/article1-1248549.aspx [Accessed August 28, 2014].
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