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India decided against signing WTO's Trade Facilitation Agreement

Jul 25, 2014 15:32 IST

India on 24 July 2014 decided against signing Trade Facilitation Agreement (TFA) of the World Trade Organisation (WTO). The decision was taken at the meeting of the General Council of the 160-member WTO Geneva, Switzerland.

The decision of India to not sign the TFA protocol was taken in the backdrop of Narendra Modi government’s stand that India will not agree to a critical trade pact of WTO until India’s food security concerns are addressed.

India’s demand at WTO

  • India want a concrete framework on finding a permanent solution for its public stock holding issue that is critical to providing food security to millions in India.
  • Further India is also asking or a change in the base year (1986) for calculating the food subsidies.

Developed Countries response

  • Conclude the protocol on TFA by 31 July 2014
  • Issue of public stockholding can be discussed and an agreement can be reach upon by 2017

The reason for India’s demand

Under the WTO Agreement on Agricultural (AoA) subsidies, a developing country like India can only provide 10 percent of the total value of foodgrain production as subsidy. However, the subsidy is calculated at a base year price of 1986 rather than current prices.

Due to calculation of subsidy with 1986-88 prices, the subsidy provided under the Food Security Bill of Government of India exceeds the WTO limit of 10 percent. This, the developed countries argue, distorts trade.

But when seen in the context of current prices based subsidy calculation and the subsidy provided by the US, the argument of the developed countries seems to be futile. For instance, the US gives about 120 billion US dollars (7.2 lakh crore rupees) as agriculture subsidy as compared to India's 12 billion US dollars (72000 crore rupees).

G-33 food security proposal and India

G-33 group of developing countries including India at the Bali Ministerial Conference in December 2013  proposed acquisition of food stocks by developing countries with a clear aim of protecting food security initiatives from the ambit of subsidies.

The G33 proposals also raised the fact that even the grossly disfavouring 10 percent subsidy limit was calculated on the basis of a fixed reference price of 1986-88, when prices were substantially lower.

The intense negotiation by G-33 at Bali finally led to developed countries agreeing to the Bali package.

Bali Package

Bali package allows India and other developing countries to subsidise food staples without the risk of legal challenges as long as they do not distort international trade. It also provided for a interim Peace Clause.

Peace Clause

The Peace Clause provides for four year interim period starting from December 2013 during which all the issues related to food security will be addressed and a permanent solution will be reached by 2017.

However, the Peace Clause comes with many conditions like India can be taken to WTO’s dispute settlement body once the four year period ends in 2017. Moreover, the Anti-Circumvention/Safeguard clause stipulates that counties using this clause shall ensure that stocks procured under such programs do not distort trade.

This is fundamentally against India’s system of minimum support prices and direct procurement that sustain both its PDS as well as farming.

Trade Facilitation Agreement (TFA)

The TFA aims at simplifying customs procedure, increasing transparency and reducing transactions cost so as to allow unhindered trade. It was agreed at Bali that TFA will be formally implemented in 2015.

The TFA is being pushed by the US and other developed nations because they seek to bolster their sagging economies.

According to estimates, the implementation of TFA could add 1 trillion US dollars (60 lakh crore rupees) to the world economy and create 21 million jobs.

The Fallout of India’s Stand

The negative stand of India means that TFA protocol may not meet the deadline of 31 July 2014 set at the Bali Ministerial Conference in December 2013.  This is because India's stand is crucial without its approval WTO could not adopt protocol on TFA.

It may risk undermining the first major accord in the WTO’s 19-year history. Besides, from Indian economy viewpoint, this may lead to negative sentiments among foreign investors who thought that Modi led government would be more pro-business.

Furthermore, it may lead to developed countries abandoning the global trade body, WTO, and seek their own free trade policies which are far more ambitious. In fact, the US and EU have started negotiating with smaller countries in this direction.

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