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TFA India

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16 views3 pages

TFA India

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adishourie.909
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India will not support trade facilitation agreement at the WTO

July 25, 2014

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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