Reforms have always been one of the most crucial gears to pull an economy out of any financial fiasco. The massive economic decline of 2008 necessitated the need for economic policy reforms together with the safety nets to ensure that the social objectives such as food security and health are by no means sidelined. This argument should possibly lead you to a conclusion that economic reform and social policies essentially are the two components of India’s current reform package. The two being complements, need to be taken forward simultaneously. Food security is thus, one of the crucial objectives that need an urgent care. It is imperative to note that food security not just caters to the needs of the consumers below the poverty line but also encompasses the needs of the farmers without which the growth might unduly be industry favoring.
The ruling government had taken a firm stance and in the backdrop of the same, claiming lack of sufficient progress on food security measures India, had refused to adopt the World Trade Organization’s Trade Facilitation Agreement (TFA).
Trade Facilitation Agreement is basically a trade protocol that has been designed to spur and do away with the stumbling blocks to free international trade. It is believed that this agreement has the potential to boost the global GDP by $1 trillion and generate 21 million jobs by slashing red tape and streamlining procedures. Despite the urgency of such an agreement, India continued to maintain its bullheaded approach, thus giving a strong message of its commitment to food security.
This resulted in India, blocking the implementation of the Bali agreement by refusing to ratify the TFA till its concerns over finding a permanent solution to the issue of food security and public stockholding were addressed. The argument which the developing countries (particularly India) had put forth is that the WTO rule that caps subsidies to the farmers at 10% of the total value of agricultural produce is obsolete as it is based on 1986-88 prices.
India’s Concerns
India is all the more concerned about it because the playing field is quite tilted against India. Under the WTO Agreement on Agriculture, the domestic subsidies have been classified into three categories; green, blue and amber. So while the amber box subsidies are those which create trade distortions, as they encourage production through farm subsidies to fertilizers, seeds, electricity and irrigation. The minimal amount of subsidy under this category has been capped at 5% and 10% for the developed and the developing countries. At the 2013 Bali summit India, led by the UPA government, had agreed to sign the TFA under a ‘peace clause’ that gave the developing countries an exemption from the 10% provision until 2017.
However, the concerns of developing countries couldn’t have been possibly addressed with a temporary measure like the peace clause. One, given the fact that there has been a huge variation in the prices and the currency value since the base year which has been taken as 1986-87, India’s argument for base year correction is quite logical and hence justified. Secondly, given the present trends, the domestic prices of most of the commodities are more or less at par with the international standards, this takes the substance out of the oft-repeated argument that India will dump its cheap agro-products in the international market. Additionally, the developed countries have moved their trade distorting measures from the amber box to the green box because the latter is protected from the legal challenges at the WTO. The EU, for instance, has slashed its amber box subsidies from euro 50 billion in 1995 to euro 8.7 billion in 2009, while its green box subsidies have shot up from euro 18.7 billion in 1995 to a whopping euro 83 billion in 2012, accounting for 19 per cent of total farm revenues.
As for the US, its green box payouts have increased from $46 billion in 1995 to $120.5 billion in 2010. The United Nations’ Millennium Development Goals to eradicate extreme poverty and hunger stands on the foundation of the food security legislation. And for most of the developing countries food security is a livelihood issue
India-US Agreement
This November finally saw an end to this deadlock with the US reaching an agreement with India on public stockpiling of food.
As part of a revised proposal, India and the US have agreed for an indefinite “peace clause” on food security until a permanent solution is found. This is subject to a review by all the WTO members (as WTO works on the consensus principle), for the full implementation of all the elements of the stalled Bali Package, including the much awaited Trade facilitation Agreement.
Though India’s opposition to the TFA was not received well by the trade community but the fact that it clearly sends across the message that issue of food security is paramount for India, certainly justifies the opposition. On the flipside it also brings forth the fact that developed countries like US still continue to have an overwhelming presence in WTO. It has the potential to broker deals in the organization and assert influence to negotiate the stalled agreements.
This also raises concerns over the future of WTO as an organization. Its inability to put the TFA in place by the demarked deadline has sparked pessimism about the same. So while the 160-member, Geneva-based might survive as a body for facilitating trade liberalization, smaller groups of like-minded assertive nations will continue to reform and update the trade rules amongst themselves.
“Without a serious shakeup, the WTO’s future looks like that of the League of Nations,” said Simon Evenett, a professor at the Swiss Institute for International Economics. “Perhaps ultimately that’s what some governments want.“
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