Counterproductive rigidity

World Trade Organisation (WTO) members have failed to adopt a trade facilitation agreement (TFA) aimed at simplification of their customs procedures, thanks to India clubbing the signing of this deal with a ‘permanent solution’ addressing its concerns over farm subsidies and public stockholding of grain for food security purposes. India, no doubt, is justified in demanding a revision in the method for computation of subsidies under the WTO’s Agreement on Agriculture (AoA). A wheat farmer, for instance, is considered to receive a subsidy if the procurement price paid to him by the Government is above the world ‘reference price’. But the latter is fixed at 1986-87 levels, when global wheat prices were $130-140 a tonne, as against $300-310 now. The current minimum support price of ₹1,400/quintal or $233/tonne, thus, amounts to the Indian farmer getting a ‘subsidy’ of over $100, using the AoA formula. If today’s world prices are taken — which is how any subsidy computation should be — our farmers are actually subsidising the Government!

These concerns, however, were acknowledged at the WTO’s Ministerial Conference at Bali in December. The Bali ministerial had provided for a four-year ‘peace clause’, during which no country would be legally barred from implementing public stockholding programmes for food security even if the subsidy resulting from it (based on 1986-87 world ‘reference’ prices) breaches the AoA-imposed caps. Further, it was clearly stated that a ‘permanent solution’ to the food security issue — and, by extension, the farm subsidy computation formula — would be found during this interim period. That being the case, India’s insistence that this ‘permanent solution’ be in place at the same time as the TFA being inked — well ahead of the 2017 target set at Bali — seems somewhat unreasonable. True, in doing so, it has made a strong point about the need to overhaul the existing AoA rules on farm subsidies, besides signalling no compromise with regard to the interests of the country’s low-income consumers and resource-poor farmers. But in the process, the July 31 deadline for wrapping up the TFA has passed — which is most unfortunate.

Having made its point, India now needs to demonstrate that it is equally committed to an open, rules-based multilateral trading system under WTO’s auspices. Standardisation of customs rules, which will minimise documentation requirements and delays in clearance of goods at ports/border posts, is only part of this process of promoting global trade. The TFA would be the first big trade reform since the WTO’s establishment in 1995. We know how a twelve-fold increase in India’s exports and imports in the last 19 years has been beneficial for overall growth and incomes in the country. A TFA can only further the gains from trade – which is why packaging it with a ‘permanent’ deal on farm subsidies/food security can ultimately prove counterproductive.

COMMENT NOW