International Affairs

Locking Horns with the World Trade Organization

Ever since India attained Independence in 1947, there has rarely been an incident where India had locked horns with any of the much powerful countries or international organizations. That is, until India refused to sign the WTO’s Trade Facilitation Agreement last month.

India has been a part of the World Trade Organisation since January 1st, 1995, which, is soon after the Narsimha Rao – led administration adopted the famous trade relaxation norms known as Liberalization, Globalization and Privatization or “LPG” reforms. With these reforms and the new membership, India became a good and viable option to facilitate all kinds of trade activities due to its geographical location, cheap labor, weak economy, dense population and a weak government on a global platform. There is no doubt to the fact that India carved its own niche on the global platform once it adopted the LPG reforms but it has been almost 20 years since, the situation is only slightly better. A very significant part of the population is still below poverty line, the economy is not very promisingly and the labor force is still one of the biggest resources the country has. Perhaps the biggest change seen wasn’t until early this year: the new government.

The Agreement

The three main pillars of the Trade Facilitation Agreement reached at Bali in 2013 between the 159 trade ministers who had gathered there were: trade facilitation, agriculture including the G-33 (group of developing countries) proposal on public stock holding for food security purposes and a package for the least developed countries.[1]

The Trade Facilitation Agreement aims to fast track any trade activity among nations by cutting down bureaucratic obligations.[2] The issue pertains to a clause in scripted in the Agreement that states that farm subsidies cannot be more than 10% of the value of agricultural production. If this 10% cap is exceeded or breached other members have the authority to challenge it and impose trade sanctions on the said country. The agreement may increase the global output by $1 trillion.

The Issue

This clause could turn out to be very harmful for all developing countries and not just India as with the solutions offered by countries that are more developed and without the subsidies the food security can be harmed in a manner that only developing countries can understand.

In Bali, India agreed to the TFA on grounds that interim relief would be provided to all developing nations until a solution is worked upon and no legal sanctions can be imposed until 2017 by which time a solution would have been found. However, if the subsidies affect the prices of imports and exports or lead to trade distortions, interim relief will not be applicable.

Indian Prime Minister Narendra Modi reported dissatisfaction with the progress on food security issues pertaining to India at the WTO. It was due to this lack of progress for finding a permanent solution that India refused to adopt the Trade Facilitation Agreement by 31st July 2014, the deadline set by the WTO.

Reactions on India’s Stance

For the first time India made an assertion in no uncertain terms. This led many countries including U.S. to have shivers run down their spine. India’s demurral met with harsh critiques from all over the world. Trade officials at WTO headquarters in Geneva thought that this might dampen WTO’s Doha Round of trade negotiations as well.

The U.S. Ambassador warned in his speech that “we are extremely discouraged that a small handful of members in this organization are ready to walk away from their commitments at Bali, to kill the Bali agreement, to kill the power of that good faith and goodwill we all shared, to flip the lights in this building back to dark.”[3]

In Bali last year, the agreement was considered a done deal and the failure to reach it now will not only affect India but also the entire multilateral trading system embodied by the which had slowly losing its relevance.[4] In years past WTO had seen a series of nothing but stalled negotiations mostly because in order to struck a deal all 160 members have to agree or so to say each of the 160 members have a right to veto. The deal at Bali breathed a new life in the WTO but the stand taken by India has given a huge blow to the organization.

Is This Modi’s Masterstroke?

India is world’s 10th largest country as per GDP and 3rd as per purchasing power parity (PPP). Additionally, it is one of the most important country of the G-20 and a member of the BRICS. Thus, a country like India cannot be ruled out at the global platform and has a great influence in world politics. With India’s economy, agriculture forms 18 per cent of the GDP whereas it is 1 per cent for the US. Still US gives $23 billion as direct subsidies to farmers.

India lags behind because of the lack of policy reforms. The governments in the past have been criticized on a regular basis as this proves to be a challenge for international groups to enter the Indian market. It is therefore difficult to give up the interests of the large segment of people who have survived through subsidies.

Even though policy reforms are on the cards, Narendra Modi realizes that there are countries like China, Japan and South Korea that are keen on investing in India making it out of question for US or its allies to disregard India. In his election campaigns Modi repeated emphasized that he wants skill and technology development in agriculture sector along with the over all development of the farmers.

With this decision, Modi- led government has proved once again that their foremost priority are the citizens of India and that given India’s position even if U.S. of its allies threaten to act against India, there will still be countries keen on engaging and investing in India.

To conclude one can say developed countries can blame India for this failure but in reality it is the failure of trade diplomacy. The weakening of WTO is not good news for India or developing countries either but India it was necessary for India to prove its influence on the world platform, something that the previous government failed at miserably.

 

About the Author

Tarang- ImageTarang Nagar

A student of Symbiosis Law School, Noida she has an aptitude for public speaking and likes reading. She has an inclination towards International Law, affairs and economics. When she manages to get spare time she is daydreaming about travelling all over the world.  She is a big novel and movie buff. She has a special interest in taxation law and wants to pursue the same in the future.

 

Endnotes

[1]http://www.livemint.com/Opinion/937J6cjegFCcJYDEcyzNzI/Indias-fiction-of-victory-at-Bali.html?utm_source=copy

[2]http://www.dnaindia.com/money/report-why-is-india-not-agreeing-to-the-wto-trade-facilitation-agreement-2005181

[3] http://in.mobile.reuters.com/article/idINKBN0FU1O820140725?irpc=932

[4] http://www.thehindu.com/opinion/columns/C_R_L__Narasimhan/india-plays-spoilsport-at-wto/article6277656.ece

Leave a Reply