For the time being, India under the new government may have succeeded in blocking the global agreement on Trade Facilitation agreed under the Doha round of the WTO in its Ministerial held in Bali in December 2013, but will it help the country economically in the long term as well as its credibility as a global negotiator.
India worries that once the trade facilitation agreement will be enforced, the food security issue will be side-lined. However, this decision by India to veto the trade facilitation agreement has isolated her in the WTO, with even support from China, Brazil and some African countries dwindling away. As quoted by ICC Secretary General John Danilovich, "countries that see this agreement as a key to modernise trade rules have already planned to push ahead excluding India from the agreement".
India could soon fall victim to own decision as it might lose its credibility as a negotiator by blocking the Trade facilitation agreement, because sooner or later the agreement will be set in place either with or without India being part of the agreement.
The signing of the Agreement would have resulted in a first global trade reform agreement in the history of WTO. Trade Facilitation Agreement is a trade protocol which contains provision for faster and more efficient customs procedures through effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues which also contains provision for technical assistance and capacity building in this area.
2 The main aim of the Trade Facilitation Agreement is to give a boost to international trade between various countries by addressing the blockages hindering the trade.
The proponents of Trade Facilitation Agreement see a potential to add $ 1 trillion to global GDP and add the capacity to generate 21 million jobs. India maintained its bull headed approach because of two issues -- food security and stockpiling of food grains. The collapse of the trade facilitation deal could invite trade disputes against India. India presently is involved in the food procurement programme and provides minimum support price as well as subsidy to its farmers. It also provide subsidized food to lakhs of below poverty line (BPL) families through its public distribution system.
3 What concerns India is that the new agreement by the World Trade Organisation (WTO) has sealed the value of food subsidies at 10 percent of the total food production. Home to about 25% of hungry people in the world, India finds the new limitation of 10% food subsidies unjustified as it will make availability of food difficult for the poor . India also wishes to negotiate a permanent solution on the issue of public stock holding for food security at the WTO.
However, excessive food procurement and stockpiling through liberal increases in the minimum support prices, in addition to subsidies and bonuses offered by States and unrestricted purchase of grains, results in a huge burden on the fiscal health of the country. It is not seen as a good policy for economic growth. Past experiences have shown that this kind of policies have unnecessarily resulted in the bloating-up of the government’s grain ceiling to a level which cannot be managed, leading to massive increment in the food subsidy bill.
Expectedly, India’s decision has been criticised by US commerce secretary Penny Pritzker, as it would have significant ramifications for the completion of the Doha round and questions the efficacy of the multilateral system. Since US has a major stake in WTO, India’s reluctance might go against her and the proposed investment plans by the US in India might suffer even though the US considers India a destination with full of business opportunities. The US have expressed its willingness to extend $1.7 trillion for infrastructure between now and 2020 to help India increase and sustain its growth rate. Also, the US had put forward pilot projects in areas related to energy, water, ports, airport and smarter cities by the IBM, Dow Chemicals and Cisco, implying the desire of American businesses to partner with Indian business leaders
4 . Moreover, India-US partnership had also assured to assist in solving issues related to visa and intellectual property right which hampers the interests of Indian IT companies and professionals in the US. However, it remains to be seen whether the US will still go ahead with its support of India after its tough stance on not signing the trade facilitation agreement. Therefore, there seemed to be little reasoning behind blocking such an important agreement over an agriculture subsidy issue. India has only much to lose while the gain is very little when trade facilitation has emerged as a serious concern in today’s world.
The Trade Facilitation Agreement seeks to cut red tape and relax custom rules to smoothen cross- border commerce flow. According to an UNCTAD estimate, the custom rules are very tedious and on an average, about 20-30 different parties are involved in transactions which add to the cost and time. Therefore, smoothening of trade flow requires infrastructure improvement, investments in automation, computerisation and improvement in documentation processes and key to this is the Trade Facilitation Agreement. Although these measures will add up to the substantial costs, the agreement holds up the provision for providing international assistance to developing nations such that the expenses can be offset. Trade facilitation is expected to help in impairing export competitiveness of goods produced by developing countries. Also, it promises to encourage many small and medium-sized enterprises that have not been able to participate in international trade because of red tape. Few Indian industrialists have also shown interest in the agreement as it will enhance business. In such a scenario, India’s blocking of the deal is being termed as an unjustified step.
Signing the Agreement would have been favourable for India, especially in the backdrop of India-US business prospects. The new government needs to be judicious while strategising and taking necessary steps in bringing reforms in the domestic policies pertaining to food stockpiling and subsidy programme.
If India continues to act rigid, it will result in the failure of the Doha round and bring misfortunes for small countries and tragic outcomes for all the members of WTO. India shouldn’t get carried away and link its food security and subsidy issues to the Trade Facilitation deal, and instead should take a balanced approach.
1. Researchers at the Observer Research Foundation, New Delhi.
2. World Trade Organization
3.
http://www.business-standard.com/article/opinion/india-plays-spoiler-114071501353_1.html
4.
http://timesofindia.indiatimes.com/business/india-business/US-disappointed-with-Indias-WTO-stand-Penny-Pritzker-US-commerce-secretary/articleshow/39330950.cms
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