Has India done it Right by not Ratifying WTO’s TFA?

There has been a lot of discussion about the India’s stand regarding the WTO's Trade Facilitation Agreement (TFA) for which developed countries have been lobbying since long. India has made it clear that it will not ratify the TFA until and unless there is a concrete proposal to find out a permanent solution to its public food stock-holding issue for food security reason for ensuring access to enough food to her 1.3 billion population. Before opening the discussion we must look at the previous events.

WTO replaced GATT in 1995 resulting from The Uruguay Round with goals of free trade across the world by reducing trade barriers such as tariffs and subsidies mainly in agriculture, manufacturing and services such as banking and insurance, and to establish powerful and effective intellectual property laws. Most of these goals were aimed to benefit developed countries and MNCs at cost of developing countries and the structure of the WTO was tilted in favour of developed countries. It attracted criticism from many groups like Oxfam, Health Gap and Global Trade Watch. So to prove that WTO works towards better world, Doha Round negotiations started to complete the remaining (so called) trade reforms claiming to have an explicit focus on addressing the needs of developing countries. But again in some ways or others, the interests of the developed countries are dominating with Doha Round trying to convince developing countries to lower subsidies to agriculture and other sectors either through persuasion or pressure.

World Bank, economists and developed nations have been criticising India for providing subsidies to agriculture sector but at the same time they don’t say a single world about the huge subsidies provided by developed countries to their domestic agriculture sector.  Via U.S. farm bills, the United States spends around $20 billion every year on its farmers in direct subsidies in form of "farm income stabilisation". Similarly European Union (EU) spends around $56 billion every year on direct subsidies to the agriculture sector that is around 40% of total budget while India spent only $20 billion in 2010 on subsidies to agriculture sector.

If we look at the agriculture sectors in these countries we find that of total population less than 2% in the US, less than 6% in EU and more than 52% in India is directly dependent on agriculture for income (Chart 1). According to World Watch Institute report, the agricultural dependent population in the US and EU has decreased by 37% and 66% respectively during 1981 to 2011 while in case of India it is has increased by 50% during the same period (Chart 2). It has increased for most of developing countries like China, Brazil and Argentina etc. This clearly indicates that agriculture is far more important for developing countries than that of the developed countries and a country like India cannot afford to ignore agriculture sector where around 70% of total population is dependent on agriculture in different ways. And if a country like India is trying to protect the interests of her farmers, basically she is trying to protect the nation. But still these developed countries criticize India and other countries for providing subsidies to highly sensitive agriculture sector although these developed countries spend more money on subsidies per capita than the developing countries. Developed countries often accuse developing nations for distorted global trade and agricultural production but in fact it are that developed countries that have distorted global trade and agricultural production.

Moving to the reasons why India did not ratify the TFA even after agreeing to do so in Bali Ministerial Meet. There are around 1.3 billion people that India has to feed and at present it is the most important task in the hands of the government. So Indian Government should do everything that can help and even if it has to take tough stand at WTO negations, it must take. The proposed TFA is completely against the interests of India. The current norms for calculating subsidies limit subsidies at 10% of total value of food grain production and the base year for minimum support price is 1968-69. And any country breaching the limit of 10% would be penalized with hefty penalties. These stated norms are completely against India’s interests and its demands for amendment in the norms for calculating subsidies and change in base year to a more current base year are just as the economic profile of India has completely changed since 1968-69.

In India, inflation has been relative on higher side in comparison to developed world, the minimum support prices for different agricultural products have been consistently increasing, procurement of food grains has increased significantly because of Right to Food Act and at the same time, Indian Rupee has depreciated at higher rate against the US dollar. These factors and compulsions altogether put India into a very peculiar situation forcing her to take tough stand.

The first priority of any nation is to feed and provide with a dignified life to its citizen. Considering India’s economic profile, it is clear that it is better for India to protect the interests of its farmers and the poor even at the costs of foregoing possible benefits from TFA than creating jobs for other countries. More interestingly, the stand taken by India has been supported by International Fund for Agriculture Development, the UN body for development of agriculture. So India’s decision is not against WTO and international trade but in favour of the poor across the world.

As far as NAMA is concerned, from empirical evidences from many countries and India it is clear that it is going to hurt India’s interest in short to medium term and nothing can be exactly said about the long term. At present bound tariffs for India are on higher side and under the commitment, India has to make steep cuts in its bound tariffs in most of the sectors (mainly textile and clothing) than that of the developed countries.  This will create an imbalance in the outcome of NAMA negotiations which would be a disincentive for the manufacturing sector leading weaker domestic manufacturing sector. Already there has been irreversible damage to the MSMEs in the name of globalisation and free trade agreements. Importantly, it is expected that NAMA would further weaken the MSMEs and informal sectors like fisheries, natural rubber and animal husbandry that are vital for inclusive growth and higher employment opportunities that is important to bring down inequality. India can deal with this issue by creating a safety net for sectors that are expected to be adversely affected by lower tariffs.

For any government or economic policy, it is the interest of people and the nation that is of prime importance than the global trades and treaties. So it is natural that even if India’s stand is a setback to WTO and freer global commerce and liberalisation as well as India’s commitments for liberalisation, India must stand tough with her demands not only for the agriculture sector but also for it vital MSMEs sector. Although it is near impossible to reverse some of the commitments on bound tariffs but it can balance bound tariffs using its services sectors like telecom, IT and business services sectors. Also it is suggested that it should stick to its initial negotiating stand that the developing countries should have the flexibility not to bind certain tariff lines still considered domestically sensitive or strategically important. This would not only will be beneficial for India but also for the other developing and least developed countries and India can gain huge diplomatic gains and inroads in these countries.