India will not support trade facilitation agreement at the WTO

Upholding its earlier stance, India will not support a pact on Trade Facilitation Agreement (TFA) at the World Trade Organisation (WTO) till its concerns related to subsidies given for food procurement and food aid is suitably addressed. WTO members are expected to sign the protocol for an agreement on trade facilitation by July 31, 2014 as per the consensus reached by WTO trade ministers in a meeting in Bali in December 2013.

What is the Trade Facilitation Agreement (TFA)?

The Trade Facilitation Agreement (TFA) targets to steadfast any drive of goods amongst nations by cutting down administrative compulsions. The Trade Facilitation Agreement (TFA), being pushed by several developed nations, will place commitments on all WTO members to modify their border infrastructure and procedures to facilitate movement of goods.

What is the problem with Trade Facilitation Agreement (TFA)?

The difficulty with Trade Facilitation Agreement (TFA) runs in a clause that says farm subsidies cannot be more than 10% of the value of agricultural production. If the limit is violated, other participants can contest it and also go on to levy trade sanctions on the nation. The developing nations would have a difficulty with the solutions offered by the developed nations as without the subsidies the food security of the developing nations could be genuinely damaged.

Why is India opposed to Trade Facilitation Agreement (TFA)?

India’s Food Security Act, by law is now obligatory on the government and provides that the government will deliver food to the weaker sections of the society at very low prices. Apart from offering subsidies to the consumers, via the PDS (Public Distribution System), it also offers subsidies to the producers of food grains. Thus, Government purchases food grains from farmers at a MSP (Minimum Support Price), and subsidizes inputs like Electricity, Fertiliser, etc.

  • Problem-1: The 10% cap on subsidies will not be feasible for India to accomplish. Also, the 10% cap is computed based on 1986-88 prices when the prices of food grains were much lower. Thus, the cap has to be revised on the basis of present prices of food-grains.
  • Problem-2: For offering subsidized food, India will have to open up its own stock stores to international supervision. Also, India will be unable to add protein/ heavy grains viz. say, lentils, etc. even if it wishes to, owing to riders in the peace clause.
  • Problem-3: It appears biased as US offers farm subsidies to its farmers to the tune of more than $20 billion per year. While the WTO is binding the developing nations to protocols, the issue of subsidies by developed nations like US appears to be kept off the table.

What does India want?

India now wants a permanent solution to the issue of public stock holding of food-grains. G33 members including China have supported India’s stand on the ability to subsidize agricultural production and distribute it to the poor at low cost. India settled to the TFA in Bali only under the condition that interim relief would be offered to the developing countries. India held that till 2017 no legal action/ sanction(s) would be imposed on the developing countries, by which time a solution would be chalked out amongst the nations.

Nevertheless, this interim relief would not be applicable if such subsidies would lead to trade distortions i.e. the prices of imports and exports cannot be affected by this. Recently, India clarified in a WTO meeting on trade facilitation that it may not be able to support Trade Facilitation Agreement (TFA) at present as there was not much progress on the issue of addressing concerns related to subsidies given for public procurement of food-grains and food aid.

The Bali Ministerial declaration had provided just a short-term relief to developing nations against action by other countries in case it surpassed the current cap on agriculture subsidies (10% of total production). It is worth recalling that in 2013 India decided not to agree to the ‘Peace Clause’ for agriculture subsidies that the World Trade Organization (WTO) Director-General Roberto Azevedo had proposed for Bali talks. India will not agree to any deal until it is clear that the proposed interim solution will be available till a permanent solution to the issue of India’s Minimum Support Prices (MSP) transgressing the WTO norms has been found and agreed to. India fears that fears that the temporary solution might be difficult to implement as it is riddled with numerous conditions including submission of various data related to production and subsidies.

What was the ‘Peace Clause’ offered by the WTO?

India wants to implement its Food Security Scheme by providing food entitlements at subsidized rates to 2/3rd of its population. To realize this, the government will have to procure a huge quantity of grains from farmers. The government procures grains at certain MSPs. However, WTO norms under the Agreement on Agriculture may hamper the plan as the rules set a subsidy cap of 10% of the value of production for developing countries. India is already inching closer to that limit. If India breaches that limit it would create dispute and may be dragged to the WTO Disputes Settlement Body. The ‘Peace Clause’ proposed by the WTO general-secretary offers an interim solution by allowing the developing countries to offer subsidies to farmers that are currently prohibited under WTO norms. The clause will restrict other WTO members from seeking penalties and facilitating the government to procure grains at MSPs and sell them at subsidized rates through Public Distribution System (PDS).

What is the problem with the “Peace Clause”?

There is catch in this ‘Peace Clause’: While developing countries can provide WTO-prohibited subsidies to farmers without inviting any dispute under the Agreement on Agriculture, developed countries will have the right to drag these countries to the WTO Disputes Settlement Body, under the Agreement on Subsidies and Countervailing Measures. This would render the peace clause null-and-void. There is also lack of clarity on when the proposed Peace Clause will expire and in case there arrives no solution or agreement at the eleventh Ministerial conference, the protection from the Peace Clause will end and its extension will be have to be renegotiated — a contingency India doesn’t want.

Why WTO has a problem with high subsidies offered by developing nations?

WTO contends that:-

  1. If developing nations continue giving prices which are higher than the market prices, to their farmers, it might damage the poor farmers in other parts of the world.
  2. The deal could add $1 trillion to global GDP (Gross Domestic Product) and 21 million jobs, by removing the red tapes.
  3. The developed world wants the issue of food security to be dis-associated from the TFA.

What is Minimum Support Price?

The Minimum Support Price (MSP) Scheme is a scheme of the Government of India (GOI) to safeguard the interests of the farmers. Under this Scheme the GOI declares the minimum support Prices of various agricultural produces and assures the farmers that their agricultural produce will be purchased at the MSP, thereby preventing its distress sale. The Food Corporation of India (FCI) acts as the Nodal Agency of the GOI.



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