Column: The WTO imbroglio

Written by Nilanjan Banik | Updated: Aug 13 2014, 07:35am hrs
The recent India-US spat at the World Trade Organization (WTO) over signing trade facilitation agreements to ease worldwide customs rules has eroded the much-touted success of the Bali WTO ministerial meet. At the Bali ministerial (held in December 2013), world leaders focused on a small set of issues related to trade facilitation and food security, instead of the omnibus agenda that encompasses the original Doha Development Round. Negotiations on the full Doha Development Round have stalled over disagreement on a number of major issues, such as agriculture, industrial tariffs, non-tariff barriers (NTBs), services, and trade remedies. Trade punters thought the Bali WTO ministerial was successful as it focused on a subset of the larger trade agenda, with India initially going along with most breakthroughs. India is now declining to sign the trade facilitation agreement without a parallel agreement allowing developing countries more freedom to subsidise and store food, which are important from the welfare perspective. There are two aspects of this deadlocktrade facilitation and agreement on agriculture (AOA).

Trade facilitation means undertaking measures that will improve the regulatory interface between government bodies and traders at the international borders. Signing the agreement to ease custom procedures is expected to add $1 trillion to the global GDP and 21 million more jobs to the world economy. India feels signing only this agreement will put issues concerning agriculture in the backbench.

The most significant differences are between developed nations led by the European Union (EU), the US and Japan, and the major developing countries led and represented mainly by Brazil, China, India, South Korea, and South Africa, over the formers maintenance of agricultural subsidiesseen to operate effectively as trade barriers. Developing nations including India wants subsidies given by the developed countries to their farmers and processed food manufacturers (items such as beef, poultry, etc) to be reduced.

During the ministerial meet at Bali, the main issue was how to undertake measures to reduce domestic subsidies given to agriculture by 20% from the aggregate monetary levels prevailing in 1986-88. For countries like India, whose levels of subsidies were lower than 10% of the value of production (both on a product-specific and non-product-specific basis) the obligation was that the aggregate monetary levels of support would not exceed 10% limit in the future. For members with programmes of market price support, the subsidy in a particular year is to be calculated on the basis of difference between the fixed external reference price based on the years 1986-88 and the applied administrative price in that year. The thinking at that time was that, in view of the high levels of support in the major industrialised countries, normal rates of inflation should be allowed to erode the aggregate monetary levels of support, so as to obtain an effective reduction higher than the committed level of 20%.

The US and the EU want big developing economies, such as China and India, to open up their markets in industrial goods as well as farm products in return for reducing subsidies on agriculture items. They are also not in favour of India and other developing countries procuring farm output from farmers through Minimum Support Price (MSP). In contrast, the developing countries rallied for the inclusion of two sets of amendments in the AOA, which in their view, were necessary for addressing food security concerns in their jurisdictions. The first of these amendments was aimed at allowing developing countries to make payments on specific activities to promote rural development and poverty alleviation without being subjected to any disciplines introduced by the AOA. A second set of amendments is to modify the existing provisions relating to public stockholding for food security purposes. The first of these said that developing countries should be allowed to acquire food stocks for supporting low income producers and the cost of doing so will not be accounted for in their total subsidies bill. Secondly, when developing countries acquire food products from resource poor producers to fight rural poverty, and for providing food to urban and rural poor at subsidised prices, the difference between MSP and the external reference price has to be excluded from aggregate measure of support. This will allow developing countries to support livelihoods of poor farmers and, at the same time, address their food security concerns. It is to be noted, that the subsidies in the form of cheaper fertilisers, bank loans, etc, that government provides to its farmers in India, and subsidies on each individual crop which are less than 10% of its value of production are allowed under AOA.

India fears signing the trade facilitation agreement will undermine the issues related to AOA.

The author is with Mahindra Ecole Centrale, Hyderabad