Explained: India And WTO Tussle on TFA

On Friday, India took a strong stand and threatened to block a worldwide reform of custom rules, which some estimates say could add $1 trillion to the global economy and create 21 million jobs.

The move has prompted a US warning that its demands could kill global trade reform efforts.

It happened at the WTO meeting in Geneva where diplomats from the 160 member countries had arrived to rubber stamp a deal on “trade facilitation” that was agreed at talks in Bali last December in the WTO’s first ever global trade agreement.

India wanted to ensure food security for the country and that’s why the Narendra Modi led government parted its ways with the old UPA policy. So, in an 11th-hour intervention, India demanded a halt to the trade facilitation timetable until the end of the year and said a permanent WTO deal on food stockpiling must be in place at the same time, well ahead of an agreed 2017 target date.

“My delegation is of the view that the adoption of the TF (trade facilitation) Protocol be postponed till a permanent solution on public stockholding for food security is found,” Indian Ambassador Anjali Prasad told the WTO meeting.

The ultimatum revived doubts about the future of the WTO as a negotiating body, and many diplomats said Delhi’s stance could derail the whole process of world trade liberalization. “It is no use to sugar coat the consequences of such action or to pretend that there would be business as usual in the aftermath,” U.S. Ambassador Michael Punke said.

“Today we are extremely discouraged that a small handful of members in this organization are ready to walk away from their commitments at Bali, to kill the Bali agreement, to kill the power of that good faith and goodwill we all shared, to flip the lights in this building back to dark,” he said in a statement.

So what is this Trade Facilitation Agreement (TFA)?

It is an agreement to fast track any movement of goods among countries by cutting down bureaucratic obligations.

What is the problem?

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.

Then why did India agreed to it in the first place?

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?

As said earlier, India is concerned about the food security. India’s Food Security Act provides for cheap food to the vulnerable population. Also, the government buys food grains from farmers at a minimum support price, and subsidizes inputs like electricity and fertilizer.

The 10% cap of subsidies will not be easy for India to achieve. Also, for providing subsidized 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.

In addition to all this, 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.

Hope India’s tough stand bears some wonderful fruits.