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http://mrunal.org/2014/08/explained-wto-bali-summit-trade-facilitation-agreement-tfa-de-minimus-level-india-modi-objection.html

[Economy] WTO: Bali Summit, Trade Facilitation Agreement (TFA),

De-minimus level, 10% Subsidy Limit, Why Modi Opposed?
10 months
Ago

1. Prologue
2. WTO: Structure and functions
3. Tariff and Non-Tariff Barriers to Trade
4. WTO agreements
5. Agreement on Agriculture (AoA)
1. Green. Blue and Amber subsidies
2. Amber box: De Minimus limits
6. What is Bali summit and Peace clause?
7. What is Trade Facilitation Agreement?
8. Why Modi opposed Trade Facilitation Agreement

Prologue
Consider this a Fork of the Economic Survey chapter 9 on Agriculture and food production.

WTO: Structure and functions

Q. Write a note on origin, structure and functions of WTO? 200 words
1944: Bretton Woods summit leads to birth of three institutions
Institution

KEY IDEA

World
bank

Cheap loans for development projects in third world

IMF

Balance of payment and Exchange rates

GATT

To reduce barriers to international trade.

Bretton Woods wanted to setup an international trade organization (ITO) but USA did not ratify.
Thus, GATT was born as a stopgap arrangement.
General Agreement on Tariffs and Trade.
GATTs Uruguay round of talks => Marrakesh Treaty94=> World trade organization (WTO)
born in 1995, India founding member.

WTO structure
Supreme Decision Making body
160 members, Latest member Yemen (Capital: Sanaa)
Meets once every two years,
deliberates on trade agreements
MinisterialConference

Appoints Director general

day to day Decision Making body

Meets regularly at Geneva.
implements decision of ministerial conferences
Has Representative from each member state.
has two bodies, with separate chairmen
1. Dispute settlement body
2. Trade policy review body

GeneralCouncil

Below general council, there are Committees on individual agreements and

annexes- Anti dumping, Subsidies & countervailing measures (SCM) etc.

Roberto Azevdo
Appointed by ministerial conference
Has four years term.
DirectorGeneral

heads the Secretariat at Geneva

WTO Functions
1. Ensure the developing countries benefit from world trade, especially the least Developed countries.

2. Reduce barriers to international trade both tariff barriers and non-tariff barriers.
3. Get the members Enter into multilateral trade agreements to achieve above objectives.
4. Provide forum for negotiation and dispute settlement for the members, if the agreements are violated.
5. Cooperate with UN, World and IMF for a global economic policy that improves livelihood, protects environment
and promotes sustainable Development.

Tariff and Non-Tariff Barriers to Trade

All countries want to protect domestic industries and prevent entry of foreign players. So, they create two types of
barriers to International trade:
Tariff
Barrier

If US President Obama imposes 56% custom duty on Indian Cars.

If Obama tries to restrict entry of Indian cars without imposing heavy taxes on Indian cars, for example
1. Subsidies: Giving free electricity to Detroit car manufacturers. OR If American residents buy
American made cars, Obama administration will pay 50% of your vehicle insurance premium, and
so on.
2. Public Procurement: Making rule that only American companies can fillup tender for new sarkaari
cars.

NonTariff
Barrier

3. Other obstacles like not giving custom clearance quickly. Putting quota on each exporter country
and so on.

World Trade organization (WTO) aims to reduce such tariff and non-tariff barriers to international trade.
But what if China starts manufacturing cheap cars with poor breaks, bad steering and carcinogenic paint. Can
Obama ban such dangerous foreign products? Does WTO permit that?
Yes, WTO made two special agreements for safety:
Non-food products

Technical Barriers to Trade Agreement (TBT)

Sanitary and Phytosanitary Measures Agreement (SPS)

Food Products

WTO agreements

EU had banned Indian Alphonso under this provision.

Gist of the whole controversy surrounding India, WTO and TFA

Q. Write a note on WTO agreements 200 words

Five categories of agreements (or 6, depending on which book you refer!)
T1: Goods
1. General Agreement on Tariffs and Trade (GATT)
2. Agreements on
1. Agriculture
2. Textile
3. Antidumping

3. Safety / quality checks related

1. Sanitary and phytosanitary agreement (SPS)
2. Technical barriers to trade (TBT)
4. Trade related investment measures (TRIMS)
5. Subsidies and countervailing measures (SCM)
T2: Services
General Agreement on Trade in Services (GATS)
To ensure that services import/export enjoys the same principles of free and fair trade, just like the trade in
goods.
T3: IPR
Trade related intellectual property rights (TRIPS)
Protects seven categories of IPR viz.

1. copyrights

5. industrial designs

2. patents

6. integrated circuit layout-designs

3. trademarks

7. Trade secrets

4. Geographical indicators

T4: Dispute settlement

to enforce the trade agreements and commitments made by individual member country
once a complaint is filed, first, the parties are allowed to sort the issue through mutual consultation
If that fails, formal adjudication by an expert panel.
T5: Policy review

T6: plurilateral
agreements

Periodically, WTO carries out audit/inspection/review of the trade policy of member states
and gives them constructive feedback.

Not signed by all

countries:
1. Civil aircrafts
2. government
procurement
3. Dairy Products
4. Bovine meat

~204 words
WTO has many other agreements but hard to memorize and fit into a 200 word answer anyways.
For exams in 2014-17, the important agreement is AoA. (Because itll stay in news due to 10% food subsidy issue)

Agreement on Agriculture (AoA)

WTOs Agreement on agriculture (AoA) has three pillars

Pillar

What they want from member states?

1.Market access

reduce import duties

2.export competition

reduce export subsidies

3.domestic support

reduce Amber box subsides

AoA classifies subsidies into two parts:

DOMESTIC SUBSIDY

EXPORT SUBSIDIES

mostly by third world to keep help farmers

and keep vote bank happy

mostly by first world, to keep their MNC-corporatized farmer lobby

happy.

to increase food production, food security

to capture Foreign market by flooding their cheaper products

India doesnt give much export subsidies to farmers- except a
select horticulture and floriculture Items

AoA further classifies them into 3 parts

AoA wants members to reduce export subsides

1. GREEN

developed countries: cut by 36%

2. BLUE

Developing: by 24%

3. AMBER (WTO wants to reduce these

subsidies)

Least developed: not applicable.

Green blue and Amber subsidies

Just like traffic signal has three colors: green (GO), orange (caution) and red (STOP).
Similarly, WTO classifies DOMESTIC AGRICULTURE subsides into three categories: green (GO), blue and
amber (reduce).
There is no RED box meaning WTO doesnt wish to completely STOP subsides, because it is impractical
anyways!
Box
GREEN

subsidies
Subsidies that dont disrupt trade balance OR
Only cause minimum damage to trade balance.
E.g. agriculture research-development, extension services, farmer training programs, pest-disease
control program, flood/drought relief money paid to farmers etc.
WTO Limit: nothing. Governments can give as much as they want.

BLUE

Amber type Subsidies that aim to limit production.

Subsidies that dont increase with production. For example subsidies linked with acreage or
number of animals.
Very few countries use blue box- Iceland, Norway, Slovenia etc.
WTO limit: Nothing.

AMBER

Subsidies that disturb trade balance like, subsidies on fertilizers, seeds, power and irrigation.
They distort trade balance because they encourage excessive production,therefore given
countrys product becomes cheaper than others, in the international market.
WTO limits: yes- explained below

Amber box: De Minimus limits

Q. Explain De-Minimus limits in WTOs agreement on agriculture. Why is India opposed to it? (200 words)
Under WTOs agreement on agriculture (AoA), domestic-subsidies are classified into three groups: Green, Blue
and Amber.
Amber box subsidies create trade distortion because they encourage excessive production e.g. fertilizers,
seeds, electricity and irrigation subsidies.
Therefore, WTO wants to limit the amber box subsidies.

De Minimus is the Minimal amounts of Amber box subsides permitted by WTO, even though they distort trade.
De minimus limits are calculated on the agriculture production of the given member state in 1986-88.
Country

De-Minimus: Amber box subsides quota

Developed

5% of agriculture production in 1986-88

Developing

10%

Least developed

Exempted.**

** Besides if theyre L.D.C=> theyve no AUKAAT to give truckload of subsidies anyways.

Why is India opposed?

India fears itll have to cut down its food subsidy to comply with WTOs De-minimus level

1. In 1986: USA agriculture production was far ahead of India. So, their 5% De-minimus quota will be far bigger
than our 10% quota (in absolute figures).
2. Input costs have skyrocketed in these decades. But, De-minimus doesnt consider inflation factor.
3. So, if India has to limit its (Amber box) agro. subsides to a non-inflation adjusted 86s production, we cannot
continue the MSP to farmers or food security to poors.
4. These subsidized foodgrains are meant for feeding the poors only, they do not distort international trade.
~190 words

Indias subsidy Expenditure in Crores (Rs.)

Subsidy component

RE-2013

BE-2014

Food

92000

115000

Petroleum

85480

63427

Fertilizer

67971

72970

Ranking 2013: Food > Petroleum > Fertilizer

Ranking 2014: Food > Fertilizer > Petroleum

What is Bali summit and Peace clause?

Q. What is hell is Bali Package and Peace clause? (200 words)
December 2013: 9th WTO ministerial conference held at Bali, Indonesia
Bali Package is the collection of three prime outcomes of this summit.
Trade facilitation
agreement
LDC exports

food stockholding

To cut down the red tape in customs clearance

Exporters from Least developing countries, will get Duty free, quota free (DFQF)
access to markets in foreign countries.

this lead to peace clause, explained below

as per the original Agreement on agriculture (AoA), the developed and developing countries have to keep their
Amber box subsidies within De-minimus level i.e. 5% and 10% of their agriculture production in 1986-88
respectively.
India opposed this base year and limits, because itd make impossible to implement the food security programs
for the poor and MSP for the farmers.
Therefore, as a measure of temporary relief, Bali summit enacted a peace clause for the AoA
Salient features of Peace Clause
No member, can drag any developing country to Dispute settlement mechanism of WTO.
for violation of De-minimus limits in AoA
Provided that the said developing country
1. is paying subsidies for staple foodcrops
for public stockholding program
For food security purpose.
2. is providing annual information of its food security Program to WTO.
3. Permanent solution will be taken no later than 11 th ministerial conference i.e. at December 2017.
~215 words.

What is Trade Facilitation Agreement?

Manniram is happy knowing that Modi has refused to sign TFA!

Q. Write a note on the salient features of Trade facilitation agreement (200 words)
ORIGIN

9th WTO ministerial conference held at Bali, Indonesia in 2013

AIM

reduce red tapes and bureaucratic hassles in customs clearance

Under TFA, Every member:

1. Will have to publish a detailed list of procedure for import-export, fees, inspection rules, penalties etc.
2. Minimize the proof documents and clearance required for customs clearance.
3. Make all the information available on INTERNET to foreign traders, governments and interested parties
4. Provide electronic payment of fees, duties, taxes.
5. Setup a single window mechanism to help trader submits all documents at a single point- preferably online.
6. Trader should be notified immediately, If goods are detained at customs.
7. Provide faster customs clearance to perishable goods (Fruits, veggies, flowers).
8. Member must not ask foreign traders to compulsorily route their applications/fees via local customs
brokers/middlemen.
9. Give Advance ruling, as and where applicable. (Recall advance ruling provision on taxes, under Budget-2014.)
Least developed countries
Theyll get financial and technical help to comply with above rules.
New Bodies under TFA
LEVEL
NATIONAL

body to implement Trade facilitation agreement

Every nation will have to setup a Committee on Trade Facilitation.
itll implement this agreement and coordination with the international body

INTERNATIONAL

WTO will setup a Committee on Trade Facilitation

all members can participate
Itll will provide dispute settlement for violation of any provisions under this agreement.
will elect its separate chairman
Will meet at least once every year, review agreement every four years.

Benefits of TFA:
A simplified customs clearance mechanism will boost international trade, and thereby it will
will increase in global GDP

$1 trillion (~Rs 60 lakh crore)

will create more jobs

21 million

Deadlines under TFA

deadline to sign TFA

2014, July, 31 stBut India refused.

Agreement becomes effective from

2015

~280 words. But in exam, all points cant recalled so itll automatically FIT the 200 words limit!

Why Modi opposed Trade Facilitation Agreement

Q. Why has India refused to sign Trade Facilitation agreement? (200 words)
WTOs Trade Facilitation agreement (TFA) aims reduce the redtape and bureaucratic hassles in customs
clearance and thereby facilitate international trade.
But, TFA maintains that it doesnt diminish the rights and obligations of members under other agreements of
WTO.
For example, under the Agreement on Agriculture (AoA) if a developing country is giving Amber box subsidies
beyond 10% of its national agriculture production (base year 1986), THEN other members will be justified in
putting trade sanction or WTO-complaint against the said country.
2013: In Bali Summit, the then UPA Government agreed to sign TFA, after WTO Peace clause, which gave
temporary exemption to developing countries from 10% de-minimus provision until 2017.
2014: Change of regime,
Modi Government has refused to sign TFA before deadline (31 st July 2014), because:
1. Once India has signed TFA, the developed countries may stonewall her demands for a rational change in base
year and ceiling limits on agro. Subsidies.
2. Then India will have to cut down agro. Subsidies in MSP and food security programs, else theyll put sanctions
on us, soon as Peace-clause temporary deadline is over in 2017!
3. And yet, well have to keep giving them easy customs clearance because we signed the TFA!
Therefore, Government has decided to use TFA signature as a Bargaining Chip for a permanent solution of food
subsidies issue.
~220 words