World Trade Organisation and India - Part 2

February 28, 2018

Before starting with the second lecture in this series, please go through the first lecture at this link -

Part I (Click here)

Part 3 (Click here)

Part 4 (Click here)

The two terms that create most of the confusion for aspirants are "Most Favoured nation" and "National Treatment". So, firstly, we will understand them before moving on to the various areas of agreements and other important details.

Most Favoured Nation Concept:

  1. The common misunderstanding with MFN Concept is that country X if it gives MFN status to Y, it means X will give greater priority to Y when it needs to import anything. This is the basic premise due to which MFN Status is a big issue between India and Pakistan as India has given MFN status to Pakistan but Pakistan has not reciprocated in the same way. 

  2. MFN Concept refers to the principle of non-discrimination where all countries give MFN status to all other nations and this MFN status is enforced by WTO.

 

National Treatment:

  1. While MFN status is the principle for non-discrimination between trading partners. National treatment refers to providing imports the same treatment as products developed domestically. This is against the protectionist policies of nations. The recent solar panel case in WTO where USA sued India for its domestic content policies is a case under the National treatment clause.

Areas of Agreement under WTO:

  1. Agriculture

  2. Goods

  3. Services

  4. Intellectual Property Rights

  5. Investment Measures.

 

Criticisms of WTO after its inception in 1992:

  1. Imbalanced growth.

  2. Widening of North-South divide and rise in Inequalities.

  3. Adverse impact on Agricultural sector.

  4. Jobless growth.

 Doha Round of Talks:

These round of talks were started in the Doha ministerial, 2001 under which the concerns of both developed and developing countries were taken into consideration under Doha Development Agenda.


Issues under Doha Development Agenda:

  1. Agriculture

  2. Non-Agricultural Market access (NAMA)

  3. Service sector

  4. Intellectual Property rights

  5. Trade and Development

  6. Trade and Environment

  7. Singapore Issues: These included-

    • Trade facilitation.

    • Government Procurement.

    • Competition policies.

    • Trade and Investment.

Singapore issues are of primary interest to the developed countries while the remaining issues are of primary concern to Developing nations.  Doha development agenda is discussed under "Doha Format" which calls for single undertaking i.e. All agreements come into effect at the same time and not separately.

Agreement on Agriculture:

  1. Agricultural agreement have 3 pillars:

    • Market Access

    • Elimination of export subsidies.

    • Domestic support.

  2. Reasons for controversy over Agricultural agreements.

    • Dependence:

      • In developed nations, only 4% of the population is dependent on agriculture whereas in developing countries, majority of the population (70%) is dependent on agriculture.

    • Contribution to GDP:

      • In developed nations, there is only marginal contribution of agriculture to GDP whereas in developing nations, the contribution of agriculture to GDP is significant.

    • Technological factors:

      • Developed nations have advanced technologies which help them with improved productivity, whereas developing countries have to cope up with environmental vagaries for farming leading to low productivity. This is followed with low capital investment and absence of quality infrastructure. Agriculture in developing nations is largely for sustenance whereas in developed nations it is a means of commerce. 

  3. Impact of WTO on Agriculture:

    • There has been a remarkable shift from cereals to cash crops and thus have impacted food security.

    • Agriculture has become more vulnerable to price volatility in international market in the post WTO world.

    • Many experts have correlated Farmer suicides and rural indebtedness to WTO policies.

    • WTO has not led to increased market access for developing nations due to the non-tarriff barriers imposed by the developed nations on imports. 

  4. Agricultural Subsidies:

     

    • Subsidies are trade distorting activity and thus WTO believes in elimination of subsidies. Under Agreement on Agriculture, Subsidies have been classified into three groups or boxes:

  5. Principle of Differential Treatment : De minimis limits:

    • Developed countries cannot give support to their farmers beyond 5% of total value of agricultural produce.

    • Developing countries cannot give more than 10% of the value of total agricultural produce as per 1986-88 prices.

       

  6.  Issue with Food Security Act:

    • ​Context:

      • Due to Food Security Act, India violated WTO rules as Government procurement for food programme falls under Amber box subsidies and due to the scale of the Act and procurement at administered prices, we violated Di minimis limits.

      • However, for a country as wide as India which suffers from wide-scale poverty, it becomes imperative for us to provide subsidies for alleviating poverty. It also shows our commitment to Sustainable development goals which seek to eradicate Hunger.

    • Food Security Condition of India:

      • As per State of Food Security and Nutrition in the World 2017 report which is published by UN:

        • India is home to 23.4% of World's hungry.

        • 51.4% of women in India are anaemic.

        • 38.4% of Child in India are stunted.

        • 14.5% of Indian population is undernourished.

        • 190.7 million people go hungry everyday.

        • 3000 children in India die every day from poor diet related illness.

    • Objections of Developed nations to Food Security Act:

      • Government should procure at market price as they apprehend that Government will create buffer stock which will be later dumped in foreign markets.

      • In case of deficit of food grains, India should go for import from North to fulfil their requirements.

      • India should move towards direct benefit transfer instead of food distribution in kind.

    • Approach of Indian government:

      • There should be revision of de minimis limits as per the new prices after taking inflation into account.

      • Government procurement programmes of developing countries for food security should be kept under Green box.

      • Note: Shanta Kumar Committee on Food Security and FCI reform had recommended to reduce the scale of Food security Act to make it better targeted and also need to reform Food Corporation of India to make it more efficient.

    • Final Verdict till date:

      • Bali Package has provided us with a "peace clause" under which no action will be taken in WTO against India and attempts will be made to reach a consensus by December 2015. If no decision is reached, peace clause will continue. The peace clause is still continuing till date.

(Other provisions related to agriculture like Market access, July Package etc will be taken up in next lecture along with other topics related to NAMA, Services etc. All the best till then)

 

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