Credit portal




Why is India not agreeing to the WTO trade facilitation agreement

India has made its stance clear that it will not easily give in to pressure from the Western world over trade protocols of the World Trade Organisation, as was also discussed during the talks in Bali in December 2013. India fears that agreeing to the trade facilitation agreement (TFA) could compromise its own food security.

What is the TFA?

The TFA aims to fast track any movement of goods among countries by cutting down bureaucratic obligations. The problem with TFA runs in 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.

The developing countries would have a problem with the solutions offered by the developed countries as without the subsidies the food security of the developing nations could be seriously harmed. India agreed to the TFA in Bali only under the condition that interim relief would be provided to the developing nations. It said 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. However, this interim relief would not be applicable if such subsidies would lead to trade distortions, by which one means, that prices of exports and imports cannot be affected by this.

Why is India opposed to TFA?

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 subsidises inputs

like electricity and fertiliser.

The first problem is with the 10% cap on subsidies which will not be possible for India to achieve. 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 has to be updated taking into account the present prices of foodgrains.

The second problem is that even for providing subsidised food, India 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, due to riders in the peace clause.

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 WTO is binding the developing countries to protocols, the issue of subsidies by developed giants like US seems to be off the table.

What does India want?

India now wants a permanent solution to the issue of public stock holding of foodgrains. G33 members including China have supported India's stand on the ability to subsidise agricultural production and distribute it to the poor at low cost.

Why does WTO have a problem with high subsidies?

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. It also says the deal could add $1 trillion to global gross domestic product and 21 million jobs, by cutting down red tapes. Also according to media reports, the developed world wants the issue of food security to be delinked from the TFA, and could be discussed later.

Note: This story was originally published on 25 July, 2014.

Category: Bank

Similar articles: