Info Service on WTO and Trade Issues (Sept14/01)
15 September 2014
Third World Network
WTO upside down - trade facilitation vs agriculture
Published in SUNS #7871 dated 9 September 2014
Geneva, 8 Sep (D Ravi Kanth*) -- "A ripe pear ready to be plucked"
at the World Trade Organisation (WTO) is being delayed because of
India. The ripe pear is the 21st century version of the "Open
Door Policy" embodying the new Trade Facilitation Agreement (TFA).
The United States (US) and its partners in the industrialised world
have invested considerable negotiating capital in the TFA since 1996.
Their new trade narrative of global value chains (GVCs) as being vehicles
for enhanced market access in industrial goods and services in developing
countries will hinge on how rapidly the TFA is implemented.
But India has come in their way because it first wants reform of archaic
rules in the WTO's Agreement on Agriculture (AoA) before the adoption
of the Trade Facilitation (TF) protocol to commence implementation
of the new agreement by July 2015. The stand-off between India and
the US over agriculture has created an impasse for the time being.
It symbolises, in some ways, the battle between the unfinished reform
in the rules and disciplines on trade in agriculture, and attempts
to foist a new trade agenda through the comprehensive TFA. It exposes
the outright opposition from the US to reform the Uruguay Round (UR)
disciplines in agriculture which accommodate decades of trade-distorting
policies and practices by the rich countries.
(The UR of negotiations of the General Agreement on Tariffs and Trade
was conducted during 1986-93, finalised and signed in 1994 and came
into force on 1 January 1995 under the new WTO.)
The UR disciplines brought agriculture into the multilateral trading
system negotiations. The AoA which incorporated the UR rules is a
special arrangement worked out neatly between the European Union (EU)
and the US.
The two largest farm subsidisers wrapped up the AoA in what is called
the 1993 Blair House Agreement after they resolved their differences
on export subsidies and what they gave as domestic support. They sheltered
their billion dollar domestic subsidy programmes under income support/income
insurance/income loss compensation programmes, in the supposedly non-distorting
Green Box subsidies, which were exempted under WTO rules from reduction.
(In the WTO, what is given as a producer subsidy is considered as
distorting and is required to be reduced or eliminated while what
is given as income support is considered non-distorting and is not
required to be reduced.)
BOXES OF SUBSIDIES
The EU, the US, and other industrialised countries offered what are
called outright trade-distorting (producer subsidies) through the
Amber Box, and production-limiting payments in Blue Box. The US also
provides what are called counter-cyclical payments to support their
farmers when prices drop below a targeted price in so-called New Blue
Box (which was agreed in the Doha negotiations but the disciplines
are not finalised). In addition, the two trade majors continue to
provide export subsidies and export credits (which are prohibited
under the Agreement on Subsidies and Countervailing Measures) to their
farmers who would dump their products.
Little wonder that the cotton glut created by the US, and the dairy
and butter mountains by the EU have created enormous adverse effects
on other farm exporting countries. The UR understanding enabled them
to continue to use tariff barriers such as opaque customs duties,
high tariffs, and tariff peaks for farm products. The EU and the US
also created a special due restraint ("Peace Clause") in
the UR agreement to safeguard their trade-distorting farm programmes
for 10 years from any legal disputes arising from subsidies and countervailing
measure violations that apply to industrial products.
The developing and the poorest countries, including India, were, however,
mere bystanders in the UR negotiations on agriculture. They were silent
participants in setting the new rules for bringing agriculture into
the trading system. Also, the developing countries did not provide
large-scale subsidy payments like the US, the EU, Japan, Canada, Switzerland
Developing countries such as India, Indonesia, Kenya and Nigeria,
for example, did not list any Amber Box or Blue Box subsidy entitlements
in their UR commitments. These countries with massive populations
that were still dependent on agriculture could only provide what is
called de minimis support up to a minuscule 10% of the value of production
of a particular crop.
In the 1994 AoA, the provision for "public stockholding for food
security purposes" in developing countries (such as India's stocks
for release through the public distribution system (PDS)) was included
in the Green Box which is exempt from reduction commitments but it
was treated as a subsidy and had to be included in assessment of the
aggregate measure of support (AMS), which if it crossed 10% of the
total value of production had to be reduced.
The crucial Footnote 3 in the AoA which covered public stockholding
programmes says the stocks for food security purposes are those "acquired
and released at administrative prices, provided that the difference
between the acquisition price and the external reference price (ERP)
is accounted for in the AMS". The ERP "shall be based on
the years 1986 to 1988 and shall generally be the actual price used
for determining payment rates" for the calculation of AMS.
It remains a puzzle as to why this rule was incorporated for public
stockholding programmes for food security in developing countries
that are otherwise covered in the Green Box payments. Was it a surreptitious
design then to force commitments on developing countries in the future,
which India and other developing countries agreed to without being
aware of the implications?
BURDEN OF 1986-88 ERP
The calculation of de minimis support is based on a set of parameters
in which the ERP prevailing in 1986-88 plays a crucial role. This
effectively determines whether a country is within its overall limit
or has breached the WTO disciplines on trade-distorting subsidies.
Thus, India's current minimum support prices are only slightly higher
than the current market prices, but as far as the WTO is concerned
they appear much higher because of the AoA requirement that administered
prices under which the government buys must be compared not to the
current prices but to the average international prices in 1986-88.
The ERP for rice or wheat is close to one-sixth of the current market
prices. The ERP of rice notified by India to the WTO is Rs 3.52 per
kg while the minimum support price was Rs 19.65 per kg, in 2012, resulting
in a whopping subsidy of Rs 16.13 per kg under the strange provisions
of the UR agreement.
The PDS has expanded substantially over the years with an increase
in the population and on account of the sustained inflation in prices.
The National Food Security Programme could expand it further. But
all this is in jeopardy because of the archaic UR rules. In 2005,
when the peace clause applicable to the EU and US disputes came to
an end, the WTO Appellate Body ruled against the cotton subsidies
provided by the US and sugar subsidies by the EU. It found that the
subsidies, including some of the Green Box support measures - provided
by these two champions of global free trade - lead to distortions
in the global farm trade.
The UR rules framed by the leading subsidisers of the world cry out
for reform but they cannot be touched because the real elephant in
the room does not want to change them. Moreover, after the AoA came
into force, the big subsidisers of the UR cleverly resorted in the
past decade to what is called box-shifting by moving their payments
from the most-trade-distorting Amber Box and minimally-trade-distorting
Blue Box to the Green Box over the last 10 years to avoid any legal
"The WTO's ‘Green Box' which is meant to hold non-trade-distorting
subsidies, is now home to about $120 billion of the $130 billion in
nutrition programmes and farm supports", says Timothy A Wise,
an academic at Global Development and Environment Institute at Tufts
University. "This dwarfs India's commitments", he argues,
in his 2013 article, "Why WTO needs a Hypocrisy Clause"
(Wise, Timothy A (2013): "Why the WTO Needs a Hypocrisy Clause",
But much water has flown into the Lake Leman on the banks of the WTO
since the launch of the Doha Round in 2001 to reform the UR rules.
With agriculture as its driving force, the Doha Development Agenda
(DDA) covers several other issues for further reform. The DDA includes
the implementation issues arising from the UR agreements, reduction
of tariffs in industrial goods, removal of barriers to movement of
natural persons, substantial changes in anti-dumping rules, environment,
and the four controversial "Singapore" issues such as investment,
competition policy, government procurement, and trade facilitation.
FRAMEWORK FOR AGRICULTURE
Two chairs of Doha agriculture negotiating bodies - Tim Groser and
Crawford Falconer from New Zealand - had, through painstaking efforts
in 2004-08, created a solid framework as part of the negotiations.
The December 2008 draft modalities for agriculture provided clear
landing zones for a progressive reduction of trade-distorting domestic
subsidies as well as phase-out of export subsidies and credits, differentiated
commitments for reducing farm tariffs (including an architecture for
tariff rate quotas and sensitive products), improvements in special
and differential flexibilities for special products, special safeguard
mechanisms for enabling developing countries to head off unforeseen
surges in imports and so on.
Based on sustained negotiations, the author of the December 2008 modalities,
Crawford Falconer, corrected the historic error in the UR rules with
regards to public stockholding programmes. Falconer offered a clean
text implying that there are no differences among members on these
programmes. The December 2008 modalities proposed: "Acquisition
of stocks of foodstuffs by developing country members with the objective
of supporting low-income or resource-poor producers shall not be required
to be accounted for in the AMS."
Further, "the acquisition of foodstuffs at subsidised prices
when procured generally from low-income or resource-poor producers
in developing countries with the objective of fighting hunger and
rural poverty, as well as the provision of foodstuffs at subsidised
prices with the objective of meeting food requirements of urban and
rural poor in developing countries on a regular basis at reasonable
prices shall be considered to be in conformity with the provisions
of this paragraph. This is understood to mean, inter alia, that where
such programmes referred to in this footnote and paragraph 4 above,
including those in relation to lowering prices to more reasonable
levels, involve also the arrangements referred to in footnote 5 to
paragraph 4, there is no requirement for the difference between the
acquisition price and the external reference price to be accounted
for in the AMS" (Annex B: Public Stockholding Programs for Food
Security Purposes, December 2008 Revised Draft Modalities, 2008).
In short, in the December 2008 modalities there is a clear low-hanging
fruit on public stockholding programmes for food security that could
have been easily harvested to allow the developing countries to continue
with their programmes without interruption. But the US opposed the
modalities on the ground that they undermined market access by providing
special loopholes and flexibilities for developing countries. Washington
then put a padlock on the reform of agriculture based on the 2008
FOCUS ON TRADE FACILITATION
If this is how things have evolved in agriculture, different standards
are used when it comes to the controversial issue of TF. After fierce
opposition from developing countries, the subject of TF was dropped
from the Doha agenda at the WTO's Cancun ministerial meeting in 2003.
But the US and the EU and their allies in this area were able to bring
TF back to the DDA in the July 2004 Framework Agreement by promising
substantial technical and financial assistance for implementation
of comprehensive reforms of customs provisions and administration.
The Colorado Group under the leadership of the US forced members at
the WTO to address wholesale changes in three Articles of GATT regarding
TF, covering freedom of transit (Article V), fees and formalities
connected with importation and exportation (Article VIII), and publication
and administration of trade regulations (Article X).
The underlying objective of these changes was to expedite movement
of goods for pharmaceutical companies and courier services, release
and clearance of goods without hurdles, including goods in transit,
create smooth transit movement of goods through the territory of other
members, harmonise border procedures (formalities and charges), prompt
publication of trade laws and regulations, and put in place uniform,
impartial and reasonable administration.
The ultimate goal is to reduce trading costs and facilitate trade
for exporters which, in turn, results in import facilitation in the
destination market. Effectively, the TF deal is a comprehensive market
Even though there were some 800 square brackets (implying no agreement
among members) in the TF draft in 2011, a clean text and agreement
were hammered out within two years. But during the same period (2011-13),
developing countries were denied correction of an archaic rule in
the AoA which if done would have addressed the issue of public stockholding
programmes not enjoying exemption. India, which is an active member
of the G-33 farm coalition, demanded that either the ERP be updated
to reflect current global prices or the current minimum support price
be deflated to bring it to the 1986-88 levels.
Herein lies the rub: the much-needed reform, including in the clauses
of the public stockholding programmes for food security, based on
the December 2008 draft modalities was jettisoned, while a brand new
agreement on TF involving comprehensive changes was worked out on
a war footing. That shows the play of power politics and plutocracy
in a supposedly member-driven organisation called the WTO.
Indeed, there was a sea change in the negotiations between the eighth
and ninth ministerial meetings of the WTO in 2011 and December 2013
(the latter held in Bali, Indonesia), respectively. Effectively, the
trade majors led by the US succeeded in imposing a new dynamic between
these two ministerial meetings wherein the principle of reciprocity
- which is the hallmark of mercantile trade negotiations based on
give and take - was effectively buried.
While the developing countries were forced to accept the TF agreement,
the industrialised countries chose to undertake no commitments for
nine decisions in the Bali package covering issues in agriculture
and development, including the public stockholding programmes for
At Bali, the developing and poor countries secured only "best
endeavour outcomes" from the industrialised countries - i e,
promises to do their best - in their areas of interest. In agriculture,
the Bali best-endeavour results include general services (such as
land rehabilitation, soil conservation and resource management, drought
management and flood control), an understanding on tariff rate quota
administration, export competition, and a weak programme to address
the phase-out of cotton subsidies.
The developmental outcomes cover non-binding outcomes on preferential
rules of origin for the export of industrial goods by the poorest
countries, an operationalisation of waiver on preferential treatment
to service suppliers in the least-developed countries (LDCs), duty-free
and quota-free market access for LDCs, and a monitoring mechanism
for special and differential treatment flexibilities.
The run-up to the Bali meeting as well as proceedings at the conference
brought to the fore the use of divide-and- rule practices to ensure
that the developing and poorest countries were prevented from adopting
common positions on issues such as TF, public stockholding programmes
for food security, cotton, the duty-free and quota-free market access.
The new director general of the WTO, Roberto Carvalho de Azevedo,
played his part by creating a peculiar environment of scare-mongering
and fear-psychosis among members to ensure success at the Bali meeting.
Azevedo brought about a common understanding between the coordinators
of the African Group, the Africa, Caribbean and Pacific (ACP) and
the LDCs (least-developed countries), with the US and the EU over
the TF text, particularly Section II which concerned special and differential
treatment flexibilities. With the developing countries being neatly
divided, each country was left to its own to fight the battle at Bali.
So India remained without much support from developing and LDCs on
the issue of public stockholding programmes for food security, one
that actually concerns over a dozen countries in the South. The Manmohan
Singh government and its commerce minister, Anand Sharma, were also
responsible for not adopting a coherent strategy before the Bali meeting.
During a visit to Washington in July 2013, Sharma readily agreed to
a TF without securing a measurable reciprocal concession for the public
stockholding programmes. The minister assiduously followed a policy
of not crossing swords with the US though India was likely to face
serious constraints on the new National Food Security Programme. Sharma
wanted his negotiators in Geneva not to ruffle any feathers with the
US during the critical phase of negotiations.
At Bali, Sharma panicked when he found that there are only a few countries
led by South Africa that were willing to support India on the food
security issue. China which would have been the biggest beneficiary
of India's proposal on public stockholding programmes was not willing
to support India.
Unlike his predecessor Kamal Nath, who would have stood firm in the
face of intense opposition from the US as was the case in 2008 informal
ministerial meeting, Sharma was only negotiating with the WTO director
general who was conveying the US positions. After an exchange of initial
proposals, there was a face-to-face negotiation between the US, India,
the Indonesian chair of the conference, and the WTO director general.
During that meeting, the US Trade Representative accepted the language
proposed by India that "in the interim, until a permanent solution
is found" members would refrain from challenging the public stockholding
programmes for traditional staple food crops. The interim period would
last for four years till 2017 by when the WTO members are supposed
to finalise a permanent solution.
In return, the US managed to insert strong language that stocks procured
under public stockholding programmes "do not distort trade or
adversely affect the food security of other Members". Washington
also ensured that there would be no explicit protection from the disciplines
in the SCM agreement unlike the protection that was there in the UR
peace clause that the US and EU enjoyed during 1995-2004.
Without securing a cast-iron guarantee on the public stockholding
programmes and by signing an agreement that was riddled with intrusive
and difficult conditions, Sharma yet meekly agreed to give up India's
opposition to several contentious provisions in the TF text.
IMBALANCE IN BALI
That the Bali package is imbalanced and asymmetrical with no legally-binding
outcomes in agriculture and development pillars which are essential
for developing countries is written into the declaration. That it
is also tilted in favour of the TFA with binding disciplines comes
out as clearly as day and night. Indeed, work on the implementation
of the TFA, particularly the TF protocol, progressed at a brisk pace
at the WTO after the Bali meeting while the issues in agriculture
and development in the package, including on food security, took a
Against this backdrop, India's course correction involving the demand
for a permanent solution on support for public stockholding programmes
before the adoption of the TF protocol on 25 July has come as a rude
shock to the US and other industrialised countries. New Delhi's demand,
though not in line with what it had agreed to at the Bali meeting,
has put paid to a grand design of hidden plans that the trade majors,
including China, were wanting to embark on after the summer break
India is right to press for a permanent peace clause on the extent
of support for its public stockholding programmes now as it would
at least provide some parity in exchange for undertaking costly commitments
on trade facilitation.
By not joining the consensus on the adoption of the TF protocol, India
retained its crucial negotiating leverage for the time being. It has
also delayed the implementation of a grand strategy of the trade majors
to pursue new agreements such as market access for industrial goods,
investment, environmental goods, services, logistics, and ultimately
[* D Ravi Kanth (email@example.com)
is a journalist based in Geneva who writes on developments at the
World Trade Organisation and other multilateral institutions. This
article was first published in the Economic & Political Weekly
Vol - XLIX No. 36, 6 September 2014 and is being reproduced here with
permission. It can be found at http://www.epw.in/commentary/wto-upside-down.html]