By: Devashish Mitra
At the WTO, India just vetoed the Trade Facilitation Agreement that it had agreed on six months ago along with 159 other countries. The reason being given by the Indian government is food security and concern for the poor in a country that has more than a quarter of the world’s poor. In order to understand what India just did and whether it makes sense, we need to know the answers to a number of questions. What is the TFA and what does it try to achieve? How can India have the power to veto something that affects 160 countries (almost the entire world)? How is food security affected by this agreement? Why did India accept the TFA in the first place in Bali if it wasn’t in its interests to do so? In addition, there are questions about India’s current policies themselves — whether they are efficient or distortionary.
The TFA is about removing red tape from customs procedures in all 160 member countries of the WTO. It aims at reducing customs-related paperwork, making customs procedures more transparent, reducing customs clearance delays at ports, providing clearer and timely information about customs rules, tariffs and procedures through printed publications and the internet, establishing a system of appealing customs decisions, and provisioning for information to be shared with involved parties in case their goods are being detained at ports etc.
In the age of the internet, most of these things can be done quite cheaply. Also, for the implementation of these provisions in the poorer countries, financial assistance would be provided, both through the WTO and the World Bank. It is difficult to imagine how any sensible government could be opposed to these changes, which are primarily aimed at reducing friction in the movement of goods across countries and increasing their flow by minimising inefficiencies and increasing transparency in the “governance” of international trade. It is especially shocking when opposition to such an agreement comes from a government whose motto is “minimum government, maximum governance” and given that over the last few decades trade has been the main engine of growth and has lifted millions out of poverty, especially in China and India.
So what is the problem with the TFA with respect to food security? The government of India guarantees farmers a minimum support price which is higher than the market price, and sells foodgrain to consumers at a price much lower than the market price through its public distribution system. Developing countries are allowed a margin of up to 10 per cent between the MSP and the world market price for their domestic procurement policies to be consistent with their WTO obligations, to which they had agreed in 1994 at the Uruguay round of trade negotiations. The prices being used to calculate …continued »