India and Gobal South - 4 | PSIR Optional for UPSC (Notes) PDF Download

India and World Trade Organisation (WTO)

India's Position at WTO MC13: Public Stockholding for Food Security

• At the upcoming 13th Ministerial Conference (MC13) of the World Trade Organisation (WTO) in February 2024, India is advocating for a permanent solution to the issue of public stockholding for food security. This topic is crucial for ensuring that countries can maintain sufficient food supplies and support their farmers.
• During the ministerial-level meeting, India aims to address the importance of public stockholding in safeguarding food security and stabilizing agricultural markets. The goal is to establish a lasting framework that allows countries to manage their food stocks effectively without facing trade restrictions.

World Trade Organisation (WTO)

• The WTO is the only global organization that focuses on the rules of trade between nations.
• It operates based on various agreements that are negotiated and signed by member countries and then ratified by their parliaments.

Historical Background Of WTO

• The World Trade Organization (WTO) began its work on January 1, 1995, based on the Marrakesh Agreement signed by 124 countries on April 15, 1994.
• The WTO took over from the General Agreement on Tariffs and Trade (GATT), which started in 1948.
• Many of the issues the WTO addresses come from earlier trade discussions, particularly the Uruguay Round (1986-1994).

Marrakesh Agreement

• Officially called the Agreement establishing the WTO.
• Signed by 123 countries in Marrakesh, Morocco, on April 15, 1994.
• Resulted from eight years of global trade negotiations.
• Led to the formation of the WTO, replacing GATT.

Functions Of WTO

• Promoting Free Trade: Establishes and upholds trade rules such as non-discrimination and transparency while reducing barriers like tariffs and quotas.
• Resolving Trade Disputes: Provides a legal framework and process for peacefully settling trade disputes, along with a platform for negotiations and mediations between trading partners.
• Supporting Economic Development: Integrates developing countries into the global trading system, offering special provisions and flexibilities known as special and differential treatment provisions.
• Engaging in Global Cooperation: The WTO collaborates with other international organizations like the IMF and World Bank to address broader economic challenges such as poverty reduction.

Organisational Structure Of WTO

• Ministerial Conference: The top decision-making body of the WTO, which meets at least every two years.
• General Council: Oversees the daily operations of the WTO and meets regularly in Geneva. It also functions as the Trade Negotiations Committee, the Dispute Settlement Body, and the Trade Policy Review Body.
• Dispute Settlement Panels: Set up to investigate specific trade disputes between WTO members and provide reports with findings and recommendations.
• Appellate Body: Reviews appeals from decisions made by WTO dispute settlement panels. Its decisions are crucial for interpreting and maintaining WTO rules.

Ministerial Conference 0f WTO

The WTO Ministerial Conference: A Key Event in Global Trade

• The World Trade Organization (WTO) Ministerial Conference is a crucial event for its operations. So far, the WTO has held 12 ministerial conferences.
• The 12th conference took place from June 12 to 17, 2022, at the WTO headquarters in Geneva. It was chaired by Timur Suleimenov, the Deputy Chief of Staff to the President of Kazakhstan.
• The 13th Ministerial Conference is scheduled to be held in Abu Dhabi from February 26 to 29, 2024. It will be chaired by Dr. Thani bin Ahmed Al Zeyoudi, the Minister of State for Foreign Trade of the United Arab Emirates.

Major Agreements Of WTO

General Agreement on Tariffs and Trade (GATT)

• Established in 1947 by 23 countries post-World War II.
• Aimed at lowering tariffs and trade barriers to encourage international trade.
• Its shortcomings led to the Uruguay Round talks, resulting in the formation of the WTO in 1995.

Agreement on Agriculture (AoA)

• An international treaty under the WTO.
• Goal: To minimize government support and subsidies for domestic agricultural producers.
• Comprised of three main components:
• Domestic Support: Focuses on reducing domestic subsidies that disrupt free trade and fair pricing. It includes three types of subsidies:
  
• Market Access: Refers to the agreed conditions, including tariffs and non-tariff measures, for allowing specific goods into member countries' markets.
• Export Subsidies: Government support that lowers export costs, such as input subsidies and remission of import duties.

General Agreement on Trade in Services (GATS)

• A WTO treaty effective from January 1995, following the Uruguay Round.
• Extends the multilateral trading system to services, similar to how GATT covers merchandise trade.
• Covers most service sectors, requiring member countries to open their markets and treat foreign service providers fairly.

Agreement on Trade-Related Investment Measures (TRIMS)

• Negotiated during the Uruguay Round, applicable only to measures affecting trade in goods.
• Recognizes the trade-restrictive and distorting effects of certain investment measures.
• Prohibits measures that violate GATT provisions on national treatment and quantitative restrictions.

Principles Governing WTO Agreements

• No Discrimination: Treat foreign and domestic firms equally.
• Most Favoured Nation Rule (MFN): Prohibits discrimination between trading partners, requiring equal treatment for all WTO members.
• National Treatment Policy: Prohibits discrimination against imported products in favor of domestically produced goods.
• Predictability and Transparency: Ensures clear and predictable trading conditions.
• Special and Differential Treatment: Provides flexibility to developing nations.
• Promoting Open Economy: Encourages reduction of tariffs and non-tariff barriers.
• Free and Fair Trade: Supports fair trading practices.

Significance Of WTO

WTO Membership and Impact

• The World Trade Organization (WTO) has 164 member countries that together represent over 98% of global trade. Currently,22 countries are in the process of joining the WTO.

Promotion of Free Trade

• The WTO has played a crucial role in reducing tariffs and other trade barriers since its establishment. This has led to a significant increase in global trade flows and has contributed to overall economic growth.

Dispute Settlement Mechanism

• The WTO offers a legal framework for resolving trade disputes between member countries. This mechanism helps to maintain trade stability and prevent trade wars.

Support for Developing Countries

• The WTO provides special provisions and technical assistance to help developing countries integrate into the global trading system effectively.

Issues at WTO

Issues with Public Stockholding:

• Distort Trade: The WTO argues that Public Stockholding (PSH) programmes distort trade, particularly when applied without restrictions.

Public Stockholding Explained: Public Stockholding is a policy where the government buys and stores food staples to ensure their availability at affordable prices. Many developing countries use this strategy to address food crises caused by price fluctuations and food insecurity.

• Example: The Minimum Support Price (MSP) scheme is an example of Public Stockholding.
• Current WTO Rules: The Agreement on Agriculture (AoA) restricts PSH programs to 10% of a country’s production intended for domestic consumption.

About G33 Countries: The G33, or Friends of Special Products in agriculture, is a group of developing and least developed countries.

It includes 48 member nations such as China, Cuba, India, Indonesia, Nigeria, and Pakistan.

• Objection by G33 Countries: The G33 countries criticize the WTO’s outdated method for calculating subsidy levels, arguing that it doesn’t consider inflation.
• Outdated Methodology: The subsidy calculation method used by the WTO is based on the price index from 1986-88, failing to account for inflation.

Peace Clause: The Peace Clause was established during the 9th ministerial conference in Bali, Indonesia, in 2013.

• Peace Clause Explained: It allows developing countries to exceed the 10 percent subsidy ceiling without facing legal repercussions from other WTO members.

Issues with the Peace Clause: The Peace Clause is controversial because some developed countries believe it gives developing nations an unfair advantage, potentially leading to trade distortions. Others argue it is essential for developing countries to ensure food security.

• Flexibility in Rules-Based Order: The WTO is a rules-based organization, and the Peace Clause is seen as a deviation from those rules. The flexibility offered by the Peace Clause has created conflicts of interest between developed and developing nations.

Issues with Agricultural Subsidies Framework: There are several challenges within the agricultural subsidies framework.

• Subjectivity in Green Box Subsidies: The classification of subsidies into the Green Box, which are considered to cause minimal trade distortion, introduces subjectivity. Different interpretations of what constitutes "minimal" can lead to disputes and tensions between countries.
• Lack of Transparency in Calculations: The criteria and calculations used to determine Green Box eligibility lack transparency, making the process unclear.
• Developing Country Exemptions: While developing countries enjoy higher limits for Amber Box subsidies, this can create an uneven playing field for developed nations. Concerns about fairness arise as these exemptions may distort competition and trade dynamics.

About the Appellate Body: The Appellate Body, established in 1995, is a standing body of seven members, each serving a limited four-year term.

• Function of the Appellate Body: Its main role is to hear appeals from dispute reports issued by panels in cases brought by WTO member countries.
• US Obstructionism: Since 2019, the United States has blocked the appointment of new members to the Appellate Body, hindering the effectiveness of the Dispute Settlement Mechanism.
• WTO Toothlessness: Without a functioning Appellate Body, countries can easily evade compliance with panel rulings, weakening the WTO’s dispute resolution process.
• De-Judicialization: The US’s push to de-judicialize its international trade relations raises concerns about the full restoration of the Appellate Body.
• Special Safeguard Mechanism (SSM): The SSM is a tool designed to address import surges that may threaten agricultural production in developing countries.
• Current AoA Design: Under the current Agreement on Agriculture (AoA) design, only 39 members, mainly developed countries, can utilize Special Safeguards (SSGs).
• Objective of SSM: The aim of the SSM is to extend similar protective measures to developing countries.

Criticism of WTO

Bias Towards Developed Nations and Corporations:

• High agricultural subsidies in developed countries.
• Intellectual property rules that restrict access to essential medicines.
• Limited flexibility for developing nations to implement their own development policies.

Lack of Transparency and Accountability:

• The complexity and cost of the dispute settlement system make it difficult to hold powerful members accountable.
• This raises concerns about the credibility of transparency and accountability in the WTO.

Undermining National Sovereignty:

• Some WTO rules are seen as infringing on national sovereignty by limiting governments' ability to regulate their economies and protect their markets.
• For example, there are conflicts between WTO rules and the agriculture subsidies that developing nations want to implement.

Way Forward

1. Modification of formula to calculate food subsidy cap: India proposed changes to how the food subsidy cap is calculated and suggested including programs started after 2013 under the 'Peace Clause.'
2. Updation of the external reference price (ERP): India stressed the importance of updating the ERP from the 1986-88 levels to reflect current market rates and accounting for inflation when determining the MSP ceiling.
3. Three-year average price of a crop: This involves calculating the three-year average price of a crop based on the previous five years, excluding the highest and lowest prices.
4. Subsidy calculations: These should be based on actual procurement rather than including all eligible production.
5. Allowing PSH Programs: Public stockholding programs aimed at food security should be allowed and considered compliant with WTO rules under specific conditions, such as not distorting trade or harming the food security interests of other members.
6. Special Safeguard Mechanism: Countries should have the right to protect their domestic markets from dumping through the Special Safeguard Mechanism.
7. Joining MPIA: Developing countries could join the EU-led MPIA for ad hoc appellate review, though it lacks the binding nature and predictability of the original Appellate Body.