Indias victory at WTO

Vijay Rajmohan

On 27th November, 2014, World Trade Organisations General Council

came and took a decision that ..until a permanent solution is agreed and
adopted, and provided that the conditions set out in paragraphs 3 to 6 of the
Bali Decision are met, Members shall not challenge through the WTO
Dispute Settlement Mechanism, compliance of a developing Member
with its obligations under Articles 6.3 and 7.2(b) of the Agreement on
Agriculture (AoA) in relation to support provided for traditional staple
food crops in pursuance of public stockholding programmes for food
security purposes ...
Following this decision, two other decisions were taken by the General
Council, operationalising the Trade Facilitation Agreement (TFA) and to
engage constructively on the Bali Ministerial decisions including the work
program on the remaining Doha Development Agenda issues.
There was relief all around, WTOs Director General, Azevedo declared
that this is a very important moment for the WTO. Countries were relieved,
developed countries which were anxious that TFA may not get through the
multilateral process and they may be pulled into a prolonged exercise to rope
in individual countries through bilateral and plurilateral processes were
naturally happy, many developing countries who were hitherto unsure and
feeling weak to stand up to the pressures from developed countries were
stunned.
While others are relieved that the impasse at WTO has been broken,
India has all the reasons to be jubilant. Probably after its Non-aligned
movement (NAM) days, India has shot up the world stage and has been seen
as a strong player and natural leader of the developing countries. While
during the hay days of NAM India was seen as politically strong, it was weak
on other important fronts, technology and economy. However, the present
India has already been put on a different bracket by the world with regard to
its prowess on Economy and Technology is concerned. This development in

WTO has the potential to change the perceptions about India with regard to it
being conscious of its immense power it holds.
While the world realizes Indias potential victory and emergence, it is
we, Indians who need to be again and again told about our strengths and
achievements. When I posted the WTO development in a Whatsapp group
comprising mainly of civil servants, a friend of mine who is presently
Additional Commissioner in Customs & Central Excise was unconvinced. it is
just a deadline extension, what is so big about it? was the gist of his chat in
the group. We need to realize that it is not another simple extension. To
understand it, let us first understand the complexity and perils of the
situation faced by us before this development, let us see a bit of
International Trade history as well in the process.
As most of us would be aware, WTO which came into effect in 1995
was preceded by GATT, the General Agreement of Tariffs and Trade which
came into effect in 1948. The primary aim of these is to ensure that trade
flows across the world as smoothly, predictably and freely as possible. The
aim is achieved by reducing the trade barriers across the world, tariff and
non-tariff. Though many countries were involved, two countries played a
major role in the process. One is United Kingdom and the other is USA.
What prompted these countries to this noble objective? As it happens
with most of the charity, the purpose behind this was enlightened self
interest. It was UK which first understood in 19 th century that reduction of
trade barriers across the world would improve the prosperity of its citizens.
Being a forerunner in the Industrial production and modern technologies, UK
was right in that conclusion. USA subsequently realized this after the great
depression of 1930s when USA realized that its raising of tariff rates has
resulted in retaliatory measures by other countries and when the barriers
rose everywhere, it lost more.
Can we then say that the liberalization in International Trade is only to
the benefit of a few developed countries, as we used to think during our
college days? Definitely no! The smooth flow of international trade and the
reduction of mutual mistrust and retaliatory measures by countries through a
multilateral platform like WTO has definitely improved the lives of billions
across the world as evident from various studies on this issue by eminent
economists cutting across ideologies and countries. By rejecting to join a
multilateral platform and cocooning oneself, nobody gains and probably this
wisdom has resulted in 160 countries which account for 96% of World Trade

being part of WTO. However, this is not the focus of this article, let us come
down to the main issue.
One of the important but hotly contested aspects of improving
international trade is the Agriculture trade. On the one hand there were
these historical insecurities with regard to food security of countries which
had to rely on import of food under humiliating conditions to feed its hungry
citizens, there were serious moves by the countries were net exporters of
agricultural commodities to strengthen their position or to further enhance
their reach (in technical terms, market access). Thus, despite all these pulls
and pressures, Agreement on Agriculture (AoA) was negotiated during the
Uruguay round and finally came into force with the establishment of the WTO
in 1995.
One of the three pillars of this AoA, which is of paramount importance
to India is the domestic support meaning thereby the subsidies that cause
distortion of trade or production of agricultural commodities should be
minimal. Similarly, in due course of time, attention also was given to the
stockpiling of food grains by countries which was considered to be harmful to
the farmers elsewhere. There was a peace clause in AoA which guaranteed
that till 2003 no disputes or challenges on agricultural subsidies would be
raised. While these noble terms are floated, basically the hard fact remains
that India, which was a net importer of food grains once, is a net exporter of
food grains now. India has emerged as the biggest exporter of rice in 2013
and as per International Trade Statistics of 2013, Indias share in world
agricultural trade during 2012 was 1.1% positive, that is, while its imports
were US $ 25.7 billion(1.5% of world agricultural trade), its export of
agricultural produce was at US $ 42.4 billion(2.6% of world agricultural
trade).
In pursuance of the Doha Development Agenda which commenced in
2001, agricultural negotiations are taking place for 13 years now without any
result in sight. Indias concerns on Agriculture were hitherto primarily on the
OTDS (Overall Trade-distorting Domestic Support) as well as cuts or caps on
the individual categories of domestic support, referred to as Amber Box, Blue
Box and Green Box support. Basically these boxes denote the varied levels of
acceptance for the domestic support extended by governments, while green
denotes go, blue doesnt involve any negative reaction as long as the de
minimis norm of support being limited to 10% of the value of the product
(for developing countries) is not breached, Amber box contains support

mechanisms extended by a Government that are considered as harmful to

the International trade and farmers elsewhere.
Bali changed the dynamics. In the ministerial conference at Bali, India
was forced to bargain for a peace clause on capping its domestic support for
agricultural produce and public stockpiling of food grains due to the fact that
Indias rice and wheat subsidies were already nearing the de minimis limits
(around 9%). The bargaining chip was the TFA or Trade Facilitation
Agreement which was aggressively lobbied for by the developed nations. The
TFA ensures smooth flow of international trade by simplifying and
automating the customs procedures through information technology tools
like online filing systems through electronic data interface etc. India, as an
intelligent negotiator used this TFA as a bargaining chip since the gains to
the developed countries through TFA would be more when compared to
countries like India and that if this opportunity was left, India doesnt have
any other chip in hand to force the developed countries understand its
concerns about food security for its poor.
Through the peace clause agreed to in Bali, India was assured of not
being hauled up before WTOs dispute settlement mechanism and the
resultant threat of trade sanctions by countries till 2017 by which time India
should come to an agreement on its support mechanism and stockpiling. The
new government when assumed charge in May realized to its peril that in
another 3 years India has to cap its subsidies at 10% of the value of
agricultural produce as the base period was 1986-88. Hence, despite no real
raise in subsidies, Government would approaching the limits set by WTO and
this pressure could thwart genuine negotiations for an amicable settlement
on the issue of agricultural subsidies before WTO.
It is common sense for us all Indians who face this real life situation
often - you are in a hurry to go to railway station and stop an auto-rickshaw
by the roadside, if the autorickshaw wala realizes that you are running out of
time to reach the railway station or hospital, would he ever agree to the fare
on your terms? No! Now, with the peace clause in place for an indefinite
period of time, India is at a formidable position to negotiate the cap on
subsidies and issue of public stockpiling at its own terms terms that would
not put the food security act in peril, terms that would not force us to
reconsider subsidies under the threat of trade sanctions by other countries,
terms that would not make us kneel before others.

I as many other Indians consider that we need to review our policies on

food subsidies and stockpiling. Not only the quantum, but also the manner in
which these are administered, the policies relating to them in an overall
atmosphere of empathy for our poor brethren and also on curbing wastage
and corruption which has crept into these systems despite their noble
objectives. Recently I organized an online interaction with the MBA students
of Amrita School of Business, Coimbatore with a friend of mine and senior
colleague, at UNESCAP. Most of the students were concerned about the
economic well being of the country with the subsidies and with the problems
in food storage. My colleague was answering the queries of students from
Bangkok through skype. He paused and asked them simple questions do
you think that our poor need food grains at affordable prices? Do you realize
the poor citizen would be exploited by traders without a government
mechanism to give food grains at administered prices? Do you realize the
problem of not having enough stockpiles? Students unanimously answered
yes.
The recent decision by WTO to indefinitely extend the peace clause has
ensured all these for the people of our country. This is one of the foremost
aspect of the many sides to this victory which the Government of India has
achieved.

Vijay Rajmohan is a mid career civil servant on sabbatical, pursuing

PhD in Economics, focusing on WTOs Government Procurement Agreement.