A few months ago at the WTO, India, along with a couple of other countries, had blocked the Trade Facilitation Agreement (TFA) because of its concern over the possibility of being challenged at the WTO over its minimum support prices, which the government equated with food security. Subsequent negotiations with the US have resulted in a formal WTO agreement allowing public stockpiling of foodgrains through MSPs without challenge from trading partners. This is a temporary fix that will remain in place until member countries are able to work out a permanent solution. At the general council of the WTO in November, representatives of member countries unanimously approved the public stockpiling agreement and the TFA. The next step for the implementation of these agreements is
ratification by each member country’s government.
The TFA aims to remove red tape in customs procedures in all 160 WTO member countries. Under this agreement, member countries will make an effort to reduce customs-related paperwork, provide more transparency in procedures, reduce clearance delays at ports, provide clearer and timely information about rules, tariffs and procedures through printed publications and the internet, institute a system of appealing customs decisions, and provide information to involved parties in case their goods are being detained at ports etc. For the implementation of these provisions in poorer countries, financial assistance will be provided, both through the WTO and the World Bank.
In today’s world, the production process of a good or service is highly fragmented, in that different tasks are performed in different locations across the world. Each task is located where it is cheapest to perform. This kind of a global production chain or network minimises the cost of production. However, it requires timely delivery of intermediate inputs from one part of the world to another. For example, radiators manufactured in Chennai have to reach Detroit on time to be attached to automobiles being assembled there. This fragmented nature of modern production makes the TFA even more important and valuable.
The TFA is also important since it is the first successful step in the WTO’s Doha Round of trade negotiations, started more than a decade ago. While the WTO has been active in dispute resolution, rule-making and bringing about optional agreements such as the one related to information technology products, the TFA is the first truly multilateral agreement after the General Agreement on Tariffs and Trade (GATT) was transformed into the WTO under the Uruguay Round. As a result of the TFA, to quote WTO director general Roberto Azevedo, the WTO’s negotiating work is “back on track”. In other words, WTO member countries can build on this success and start negotiating on agricultural protection and subsidies as well as non-agricultural market access and other developing country issues. These issues arise mainly from their dissatisfaction with limited market access in agriculture, textiles and apparel in developed countries in return for their efforts in the area of intellectual property rights protection and large tariff reductions on manufacturing imports.
While there are concerns that agricultural support remains quite high in developed countries, some commentators point out that this support has actually gone down substantially in recent years. This has been an important issue in WTO negotiations between developed and developing countries. In the pre-WTO era of the GATT, developing countries were granted tariff concessions without the need to reciprocate. These countries need to realise that they are now in a world where further negotiations will require an exchange of concessions or reciprocity. At the same time, developed countries also need to be aware that large developing countries such as Brazil, China and India can no longer be ignored or pushed around. Only if countries keep these new realities in mind can further progress be made in negotiations on issues initiated by the Doha Round.
What are the next steps for India? It is easy to be tempted, because of the slow progress of WTO trade negotiations, to change course and ink preferential trade arrangements (PTAs) or regional trade agreements. However, it is important to remember that though many of these PTAs take the form of free trade agreements (FTAs), FTAs are not exactly free trade. An FTA among a subset of WTO countries is discriminatory and protectionist with respect to countries that are outside that agreement and also diverts imports of certain products away from such non-member countries, even when they might be the most efficient producers. Also, if India were to sign an FTA with a major developed country such as the US or a group of developed countries such as the EU, it would have limited power in such negotiations. This is in sharp contrast to negotiations at the WTO, where India has greater bargaining power due to opportunities to form coalitions with countries that have common interests. Moreover, as seen in the case of the Trans-Pacific Partnership, signing an FTA with developed countries comes with accepting very stringent intellectual property rights protections as well as labour and environmental standards, which a developing country cannot really afford.