[Economy] WTO: Bali Summit, Trade Facilitation Agreement (TFA), De-minimus level, 10% Subsidy Limit,

Why Modi Opposed?

Maths: Fast-track RajeshReasoning: MK PandeyEnglish: SP Bakshi
1.

Prologue

2.

WTO: Structure and functions

3.

Tariff and Non-Tariff Barriers to Trade

4.

WTO agreements

5.

Agreement on Agriculture (AoA)

1.

Green. Blue and Amber subsidies

2.

Amber box: De Minimus limits

6.

What is Bali summit and Peace clause?

7.

What is Trade Facilitation Agreement?

8.

Why Modi opposed Trade Facilitation Agreement

Prologue
Consider this a Fork of the Economic Survey chapter 9 on Agriculture and food production.
WTO: Structure and functions
Q. Write a note on origin, structure and functions of WTO? 200 words
1944: Bretton Woods summit leads to birth of three institutions

Institutio
n

KEY IDEA

World bank

Cheap loans for development projects in third world

IMF

Balance of payment and Exchange rates

GATT

To reduce barriers to international trade.

Bretton Woods wanted to setup an international trade organization (ITO) but USA did not
ratify.

Thus, GATT was born as a stopgap arrangement.

General Agreement on Tariffs and Trade.

GATTs Uruguay round of talks => Marrakesh Treaty94=> World trade organization
(WTO) born in 1995, India founding member.

WTO structure

MinisterialConferenc
e

Supreme Decision Making body

160 members, Latest member Yemen (Capital: Sanaa)

Meets once every two years,

deliberates on trade agreements

Appoints Director general

GeneralCouncil

day to day Decision Making body

Meets regularly at Geneva.

implements decision of ministerial conferences

Has Representative from each member state.

has two bodies, with separate chairmen

1.

Dispute settlement body

2.

Trade policy review body

Below general council, there are Committees on individual agreements and

annexes- Anti dumping, Subsidies & countervailing measures (SCM) etc.

Roberto Azevdo

Appointed by ministerial conference

Has four years term.

heads the Secretariat at Geneva

DirectorGeneral

WTO Functions
1.

Ensure the developing countries benefit from world trade, especially the least Developed
countries.

2.

Reduce barriers to international trade both tariff barriers and non-tariff barriers.

3.

Get the members Enter into multilateral trade agreements to achieve above objectives.

4.

Provide forum for negotiation and dispute settlement for the members, if the agreements are
violated.

5.

Cooperate with UN, World and IMF for a global economic policy that improves livelihood, protects
environment and promotes sustainable Development.

Tariff and Non-Tariff Barriers to Trade

All countries want to protect domestic industries and prevent entry of foreign players. So, they create two
types of barriers to International trade:

Tariff
Barrier

If US President Obama imposes 56% custom duty on Indian Cars.

If Obama tries to restrict entry of Indian cars without imposing heavy taxes on Indian cars, for
example

NonTariff
Barrier

1.

Subsidies: Giving free electricity to Detroit car manufacturers. OR If American residents

buy American made cars, Obama administration will pay 50% of your vehicle insurance
premium, and so on.

2.

Public Procurement: Making rule that only American companies can fillup tender for
new sarkaari cars.

3.

Other obstacles like not giving custom clearance quickly. Putting quota on each exporter
country and so on.

World Trade organization (WTO) aims to reduce such tariff and non-tariff barriers to international
trade.

But what if China starts manufacturing cheap cars with poor breaks, bad steering and
carcinogenic paint. Can Obama ban such dangerous foreign products? Does WTO permit that?

Yes, WTO made two special agreements for safety:

Non-food products

Technical Barriers to Trade Agreement (TBT)

Food Products

Sanitary and Phytosanitary Measures Agreement (SPS)

EU had banned Indian Alphonso under this provision.

WTO agreements

GIST OF THE WHOLE CONTROVERSY SURROUNDING INDIA, WTO AND TFA

Q. Write a note on WTO agreements 200 words

Five categories of agreements (or 6, depending on which book you refer!)

T1: Goods
1.

General Agreement on Tariffs and Trade (GATT)

2.

Agreements on
a.

Agriculture

b.

Textile

c.

Antidumping

3.

Safety / quality checks related

a.

Sanitary and phytosanitary agreement (SPS)

b.

Technical barriers to trade (TBT)

4.

Trade related investment measures (TRIMS)

5.

Subsidies and countervailing measures (SCM)

T2: Services

General Agreement on Trade in Services (GATS)

To ensure that services import/export enjoys the same principles of free and fair trade, just like
the trade in goods.

T3: IPR

Trade related intellectual property rights (TRIPS)

Protects seven categories of IPR viz.

1.

copyrights

2.

patents

3.

trademarks

4.

Geographical indicators

industrial designs

integrated circuit layout-designs

Trade secrets

T4: Dispute settlement

to enforce the trade agreements and commitments made by individual member country

once a complaint is filed, first, the parties are allowed to sort the issue through mutual
consultation
If that fails, formal adjudication by an expert panel.

T5: Policy review

T6: plurilateral
agreements

Not signed by all

countries:

Periodically, WTO carries out audit/inspection/review of the trade policy of member states
and gives them constructive feedback.

1.

Civil
aircrafts

2.

governmen
t procurement

3.

Dairy
Products

4.

Bovine
meat

~204 words
WTO has many other agreements but hard to memorize and fit into a 200 word answer anyways.
For exams in 2014-17, the important agreement is AoA. (Because itll stay in news due to 10% food
subsidy issue)
Agreement on Agriculture (AoA)

WTOs Agreement on agriculture (AoA) has three pillars

Pillar

What they want from member states?

1.Market access

reduce import duties

2.export competition

reduce export subsidies

3.domestic support

reduce Amber box subsides

AoA classifies subsidies into two parts:

DOMESTIC SUBSIDY

EXPORT SUBSIDIES

mostly by third world to keep help farmers

and keep vote bank happy

mostly by first world, to keep their MNC-corporatized farmer

lobby happy.

to increase food production, food security

to capture Foreign market by flooding their cheaper products

India doesnt give much export subsidies to farmers- except a

select horticulture and floriculture Items

AoA further classifies them into 3 parts

AoA wants members to reduce export subsides

1.

GREEN

developed countries: cut by 36%

2.

BLUE

Developing: by 24%

Least developed: not applicable.

3.

AMBER (WTO wants to reduce

these subsidies)

Green blue and Amber subsidies

Just like traffic signal has three colors: green (GO), orange (caution) and red (STOP).

Similarly, WTO classifies DOMESTIC AGRICULTURE subsides into three categories: green
(GO), blue and amber (reduce).

There is no RED box meaning WTO doesnt wish to completely STOP subsides, because it is
impractical anyways!
Box

GREEN

subsidies

Subsidies that dont disrupt trade balance OR

Only cause minimum damage to trade balance.

E.g. agriculture research-development, extension services, farmer training programs, pestdisease control program, flood/drought relief money paid to farmers etc.

WTO Limit: nothing. Governments can give as much as they want.

Amber type Subsidies that aim to limit production.

BLUE

Subsidies that dont increase with production. For example subsidies linked with acreage or
number of animals.

Very few countries use blue box- Iceland, Norway, Slovenia etc.

WTO limit: Nothing.

Subsidies that disturb trade balance like, subsidies on fertilizers, seeds, power and irrigation.

AMBE
R

They distort trade balance because they encourage excessive production,therefore given
countrys product becomes cheaper than others, in the international market.
WTO limits: yes- explained below

Amber box: De Minimus limits

Q. Explain De-Minimus limits in WTOs agreement on agriculture. Why is India opposed to it? (200
words)

Under WTOs agreement on agriculture (AoA), domestic-subsidies are classified into three
groups: Green, Blue and Amber.

Amber box subsidies create trade distortion because they encourage excessive production e.g.
fertilizers, seeds, electricity and irrigation subsidies.

Therefore, WTO wants to limit the amber box subsidies.

De Minimus is the Minimal amounts of Amber box subsides permitted by WTO, even though they
distort trade.

De minimus limits are calculated on the agriculture production of the given member state in 198688.
Country

De-Minimus: Amber box subsides quota

Developed

5% of agriculture production in 1986-88

Developing

10%

Least developed

Exempted.**

** Besides if theyre L.D.C=> theyve no AUKAAT to give truckload of subsidies anyways.

Why is India opposed?

INDIA FEARS ITLL HAVE TO CUT DOWN ITS FOOD SUBSIDY TO COMPLY WITH WTOS DEMINIMUS LEVEL
1.

2.

In 1986: USA agriculture production was far ahead of India. So, their 5% De-minimus quota will
be far bigger than our 10% quota (in absolute figures).
Input costs have skyrocketed in these decades. But, De-minimus doesnt consider inflation factor.

3.

So, if India has to limit its (Amber box) agro. subsides to a non-inflation adjusted 86s production,
we cannot continue the MSP to farmers or food security to poors.

4.

These subsidized foodgrains are meant for feeding the poors only, they do not distort
international trade

Indias subsidy Expenditure in Crores (Rs.)

Subsidy component

RE-2013

BE-2014

Food

92000

115000

Petroleum

85480

63427

Fertilizer

67971

72970

Ranking 2013: Food > Petroleum > Fertilizer

Ranking 2014: Food > Fertilizer > Petroleum
What is Bali summit and Peace clause?
Q. What is hell is Bali Package and Peace clause? (200 words)

December 2013: 9th WTO ministerial conference held at Bali, Indonesia

Bali Package is the collection of three prime outcomes of this summit.

Trade facilitation
agreement

LDC exports

food stockholding

To cut down the red tape in customs clearance

Exporters from Least developing countries, will get Duty free, quota free (DFQF)
access to markets in foreign countries.

this lead to peace clause, explained below

as per the original Agreement on agriculture (AoA), the developed and developing countries have
to keep their Amber box subsidies within De-minimus level i.e. 5% and 10% of their agriculture
production in 1986-88 respectively.

India opposed this base year and limits, because itd make impossible to implement the food
security programs for the poor and MSP for the farmers.

Therefore, as a measure of temporary relief, Bali summit enacted a peace clause for the AoA

Salient features of Peace Clause

No member, can drag any developing country to Dispute settlement mechanism of WTO.

for violation of De-minimus limits in AoA

Provided that the said developing country

1.

is paying subsidies for staple foodcrops

for public stockholding program

For food security purpose.

2.

is providing annual information of its food security Program to WTO.

3.

Permanent solution will be taken no later than 11th ministerial conference i.e. at December 2017.

~215 words.

What is Trade Facilitation Agreement?

MANNIRAM IS HAPPY KNOWING THAT MODI HAS REFUSED TO SIGN TFA!

Q. Write a note on the salient features of Trade facilitation agreement (200 words)

ORIGIN

9th WTO ministerial conference held at Bali, Indonesia in 2013

AIM

reduce red tapes and bureaucratic hassles in customs clearance

Under TFA, Every member:

1.

Will have to publish a detailed list of procedure for import-export, fees, inspection rules, penalties
etc.

2.
3.

4.
5.

Minimize the proof documents and clearance required for customs clearance.
Make all the information available on INTERNET to foreign traders, governments and interested
parties
Provide electronic payment of fees, duties, taxes.
Setup a single window mechanism to help trader submits all documents at a single pointpreferably online.

6.

Trader should be notified immediately, If goods are detained at customs.

7.

Provide faster customs clearance to perishable goods (Fruits, veggies, flowers).

8.

Member must not ask foreign traders to compulsorily route their applications/fees via local
customs brokers/middlemen.

9.

Give Advance ruling, as and where applicable. (Recall advance ruling provision on taxes, under
Budget-2014.)

Least developed countries

Theyll get financial and technical help to comply with above rules.
New Bodies under TFA

LEVEL

body to implement Trade facilitation agreement

NATIONAL

Every nation will have to setup a Committee on Trade Facilitation.

itll implement this agreement and coordination with the international body

WTO will setup a Committee on Trade Facilitation

all members can participate

INTERNATIONAL

Itll will provide dispute settlement for violation of any provisions under this
agreement.

will elect its separate chairman

Will meet at least once every year, review agreement every four years.

Benefits of TFA:
A simplified customs clearance mechanism will boost international trade, and thereby it will

will increase in global GDP

$1 trillion (~Rs 60 lakh crore)

will create more jobs

21 million

Deadlines under TFA

deadline to sign TFA

2014, July, 31stBut India refused.

Agreement becomes effective from

2015

~280 words. But in exam, all points cant recalled so itll automatically FIT the 200 words limit!
Why Modi opposed Trade Facilitation Agreement
Q. Why has India refused to sign Trade Facilitation agreement? (200 words)

WTOs Trade Facilitation agreement (TFA) aims reduce the redtape and bureaucratic hassles in
customs clearance and thereby facilitate international trade.

But, TFA maintains that it doesnt diminish the rights and obligations of members under other
agreements of WTO.

For example, under the Agreement on Agriculture (AoA) if a developing country is giving Amber
box subsidies beyond 10% of its national agriculture production (base year 1986), THEN other
members will be justified in putting trade sanction or WTO-complaint against the said country.

2013: In Bali Summit, the then UPA Government agreed to sign TFA, after WTO Peace clause,
which gave temporary exemption to developing countries from 10% de-minimus provision until 2017.

2014: Change of regime,

Modi Government has refused to sign TFA before deadline (31 st July 2014), because:
1.

Once India has signed TFA, the developed countries may stonewall her demands for a rational
change in base year and ceiling limits on agro. Subsidies.

2.

Then India will have to cut down agro. Subsidies in MSP and food security programs, else theyll
put sanctions on us, soon as Peace-clause temporary deadline is over in 2017!

3.

And yet, well have to keep giving them easy customs clearance because we signed the TFA!

Therefore, Government has decided to use TFA signature as a Bargaining Chip for a permanent solution
of food subsidies issue