India's former member of the WTO Arbitration Committee, Dr. A.V. Ganesan, thinks that it would be unsustainable for India to rely on imported food grains, and hence it is imperative that India supports its farmers to augment food production to meet the domestic demand.
"It is in the national interest to secure a permanent solution in WTO on the issue of procurement and public stockholding of food grains. It would be unsustainable for India to rely on imported food grains, as the global grain market cannot meet India’s enormous demand", according to Dr A V Ganesan, former Commerce Secretary, Government of India, and until recently a member of the WTO Arbitration Committee.
Initiating a discussion on "WTO, India and Agriculture Subsidies" at the Chennai chapter of Observer Research Foundation on December 20, 2014, Dr. Ganesan said "if India is to compete with China in import of food grains, it will send the international wheat prices soaring over the roof. Hence it is imperative that India supports its farmers to augment food production, to meet the domestic demand."
Dr. Ganesan noted that the origins of the World Trade Organization (WTO) can be traced back to the Havana Charter, 1948. The charter envisaged creating an international organisation to formulate rules for cooperation and facilitation of international trade. However, it never materialised since the US refused to ratify the charter on the grounds that it would impinge on the nation’s sovereignty in matters relating to trade and business.
Several elements of the charter, including the framework to facilitate and conduct international trade, found its way into the General Agreement on Tariffs and Trade (GATT), 1948. The GATT was a multilateral agreement centred on tariff concessions and reduction in barriers to international trade, but it did not provide for establishing an international trade organisation.
Until the Uruguay round in 1986, the scope of GATT was limited to trade in merchandise. Several key sectors such as agriculture and textile were covered by quota restrictions, and ’services’ was completely excluded from the agreement. The end of the ’Cold War’ era, following the disintegration of the Soviet Union in 1991 culminated in closer engagement among nations and brought several new elements into the Uruguay discussions. Intellectual Property Rights (IPR), services and investments were key subjects that received primacy.
Further there was a growing divergence of interest between the developing and the developed nations in matters relating to agriculture and textiles. The WTO came into existence in 1994 as an international institution, it was established to formulate multilateral trade agreements and also provide a robust dispute settlement mechanism to arbitrate trade disputes between member nations.
Rule-based organisation
Speaking of WTO, Dr. Ganesan said that it is an extremely democratic institution. WTO operates on the principle of "Single Undertaking". Under this principle any nation seeking to become a member of WTO must universally and unconditionally subscribe to all its agreements, and cannot be selective about it. Conversely, every member-nation has the right to veto any agreement or amendment, making it one of the most democratic international institutions.
WTO serves three basic functions, it provides an international platform to discuss, negotiate and evolve multilateral trade agreements, administer international trade rules and resolve trade disputes between member-nations. WTO is neither a free trade nor a fair trade institution, observed Dr. Ganesan. WTO is a rule-based organisation. It has a robust dispute-settlement body that has been administering the rules fairly.
While the appellate body consists of permanent members, the panels formed to arbitrate trade disputes are ad hoc in nature and exclude persons from member-nations that have a stake in the dispute, thus adding to the democratic character of the institution. WTO rests on four key pillars - Most Favoured Nation (MFN) status, principle of national treatment of goods and consignment, use of tariff barriers to restrict imports while phasing out quota-based restrictions, and minimisation of non-tariff barriers, ensuring that non-tariff barriers are not imposed on arbitrary rules.
Product-subsidy
In reference to the Agreement on Agriculture (AoA) in WTO, Dr. Ganesan said that the agreement allows for public stock-holding of food and domestic support for agriculture. He further differentiated between product specific, non-product and producer subsidy. Subsidies that incentivise production of a particular crop is classified as product subsidy, all other supplemental subsidies which aid agricultural production such as water and electricity subsidy is considered to be non-product subsidy.
Both these subsidies are categorised under the ’Amber Box’ subsidies in WTO, since they have a direct effect on production and trade. Product-specific domestic subsidy such as the Minimum Support Price (MSP) for procurement of wheat and rice is evaluated against an external reference price to calculate for the allowed domestic support limit, which is 10 percent of the total production value.
The external reference price is calculated at the 1986-88 price levels, which, for instance, amounts to $235 per tonne of wheat. India has challenged this calculation and if the external reference price is corrected for inflation since 1986-88 our domestic support package shall fall well below the allowed limits, Dr Ganesan said.
Speaking on the Bali "Peace Clause", Dr. Ganesan said that the Bali agreement provides only an interim relief (2013-17), protecting India from being dragged into any dispute at WTO, in matters relating to domestic support and public stock-holding. The agreement also comes with a price, requiring India to provide considerable statistics and data on the procurement procedure and prices for the various agricultural commodities.
The principal concern of the international community is the export of India’s public stock of food grains, should this enormous stock find its way into the international market at cheap prices it will severely distort the agricultural commodity market. Dr. Ganesan opined that a permanent solution agreed to by all members at WTO shall come attached with certain riders, a specific cap on the procurement or stock-holding of food grains, and a commitment from India that no part of this stock shall find its way into the international market.
Compulsory licensing
Responding to a question on IPR and compulsory licensing, Dr. Ganesan said that WTO allows for compulsory licensing provided valid circumstances existed. He further noted that WTO norms would not be a hurdle if compulsory licensing were used judicially and selectively.
The recent trend of increasing bilateral trade agreements between nations and the evolution of several regional trade groups such as the ASEAN, Mercosur, TPP, etc. has put WTO in a quagmire questioning its relevance, observed Dr. Ganesan. The democratic character of the organization banking on complete consensus makes it almost impossible to pass through multilateral trade agreements.
Despite the shortcomings and the global community’s affinity for bilateral and regional cooperation, WTO will continue to survive as the only international trade body capable of evolving multilateral trade frameworks, supported by a robust dispute-resolution mechanism, concluded Dr. Ganesan.
(This report was prepared by Deepak Vijayaraghavan, Chennai)
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