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Opinion Rather than withdraw from WTO, India should strengthen trade multilateralism

This will ensure that multilateral checks and balances continue to function and help curb rising protectionism

It is also important to note that the WTO encompasses more than just agricultural trade.

February 13, 2025 07:35 AM IST First published on: Feb 13, 2025 at 07:35 AM IST

A recurring demand from a section of Indian farmers is that India should exit the World Trade Organisation (WTO). They believe WTO rules hinder their ability to secure a legal guarantee for a minimum support price (MSP). Under the WTO’s Agreement on Agriculture (AoA), MSP is categorised as a trade-distorting subsidy. The rationale is that if countries are permitted to provide such subsidies to their farmers, it would give them an unfair advantage in the global market, rendering agricultural products from other countries uncompetitive. As a result, trade-distorting subsidies like MSP are subject to specific limits.

The AoA has significant imbalances. The external reference price (ERP) — an average price established based on the base years of 1986-88 against which MSP is compared to determine trade-distorting subsidies — has not been revised in decades. Consequently, the gap between the MSP and the fixed ERP has widened dramatically due to inflation. India has been negotiating diligently at the WTO to rectify this issue but without success. Exiting the WTO, which can be accomplished by providing a six-month notice under Article XV of the WTO agreement, would legally allow India to set any MSP for as many crops as it wishes. Whether this approach would be fiscally feasible is uncertain. However, regardless of that, is this a sufficient reason for India to exit the WTO? The answer is a resounding no.

Within the existing imperfect AoA, India already has some policy leeway to support farmers through higher MSP, especially for crops like wheat and rice, thanks to a peace clause. This clause prevents legal challenges against trade-distorting subsidies like price support, even if they exceed permissible limits. Additionally, India’s farmers can be supported through other policy instruments, such as income support, which do not qualify as a trade-distorting subsidy under the AoA. Schemes like the Pradhan Mantri Kisan Samman Nidhi, which provides farmers with an annual income support of Rs 6,000 can be enhanced. Unfortunately, the 2025 budget missed the bus on this point.

It is also important to note that the WTO encompasses more than just agricultural trade. It plays a crucial role in international trade law, aiming to create a level playing field for all countries by safeguarding their goods and services against discrimination in export markets. If India were to leave the WTO, its exports would lose national treatment (ensuring no discrimination between imported and domestic products) and most-favoured-nation treatment (which ensures no discrimination between trading partners). India would then need to negotiate numerous bilateral or free trade agreements (FTAs) — a process that would be complicated, elevate bureaucratic costs, and harm businesses excessively. Moreover, FTAs typically present more stringent terms than those of the WTO, particularly when they involve a developing country negotiating with a developed country.

Another critical aspect of the WTO is that it provides a relatively sophisticated mechanism for resolving trade disputes. Although its appellate function is currently non-operational, this system is generally more effective than the diplomacy-based dispute resolution offered by other trade agreements. If other countries fail to adhere to their international trade law obligations toward India, Delhi can challenge such actions at the WTO, as it has successfully done numerous times over the past three decades. If India were to exit the WTO, this recourse would be eliminated. Given that India is not a member of any major FTA, remaining in the WTO is even more crucial for Indian goods and services to access export markets.

The WTO is currently facing a significant crisis, especially with the US turning its back on it. A weakened WTO will enable the US to act unilaterally to confront the economic challenges posed by China. During such a critical time of rising trade protectionism, India should not withdraw but instead work to strengthen the WTO. This will ensure that multilateral checks and balances continue to function and help curb rising protectionism. Trade multilateralism — the principle that the WTO represents — is the best bet for developing countries like India. It is essential to communicate clearly with farmers and involve them in this process, as they are key stakeholders.

The writer is professor and director, Centre for International Investment and Trade Laws, Jindal Global Law School. Views are personal