Stockpiling in India and the trade facilitation agreement

By Amartya Menon

The recent decision of the WTO to keep negotiations for a permanent solution to the public stockpiling issue independent of other issues will come as a relief to Nirmala Sitharaman and the Indian government. Having extended the peace clause for developing nations, the WTO has cleared the way for the passing of its trade facilitation agreement, the first major global trade legislation  in nineteen years since its inception.

In 2001, The Doha Round of the WTO – more popularly known as the Doha Development Agenda – was launched with the aim of liberalizing politically sensitive areas of trade such as agriculture and intellectual property. The negotiations set out to introduce major reforms in international trade through the implementation of lower trade barriers and revised trade rules. Under this round of talks, on 7 December 2013, the Ninth Ministerial Conference of the World Trade Organization was held in Bali. The primary focus of this meet was to introduce protocol that would modernize trade infrastructure and ease regulations.

The recent past has seen the WTO struggling to justify its relevance, having introduced no significant trade rules since its inception nearly two decades ago. The Bali agreement carried the promise of progress in the right direction and a validation of the organization’s existence. In this respect, substantial strides were taken in various areas of international trade from trade facilitation and aid for trade to preferential treatment and market access for LDCs. What they did not anticipate was India’s steadfast resolve on the issue of public stockpiling of food, a hurdle with far larger implications.

At present, under its Food Security Bill, the Indian government pays its farmers above market prices for grain produce. It then sells the same grain at subsidized rates through its public distribution system (PDS). Over the last decade, the government has procured a far greater quantity of grain than it has dispensed through the PDS. Stocks have grown to quantities far larger than required to keep price volatility in check. It is this that members of the WTO are strongly opposed to, contesting that when India floods the international market with surplus grain in the form of cheap exports, it will distort global prices, harming producers from other poor countries. There are WTO agreements in place that make India vulnerable to attack in the form of trade cases from other members.

Anticipating legal action and the resulting setbacks to its food security program, India was forced to take advantage of the WTO’s consensus principle, blocking the trade facilitation agreement and plunging the trade organization into an impasse. Recognizing the imminent threat to its very existence, the WTO introduced a ‘peace clause’ for a period of four years (ending 2017), providing developing countries with legal security that prevented them from being challenged under existing WTO agreements. Despite this temporary solution, there were whispers claiming that some countries could create a separate deal that excluded India, putting increased pressure on Asia’s third-largest economy.

It is with this background in mind that the latest development in negotiations assumes an even greater significance. Realizing that the implications of not passing the trade agreement greatly outweigh allowing India to continue its subsidy policy, the United States and WTO have extended the ‘peace clause’ indefinitely. By maintaining the two issues as independent, India can now ratify the trade-facilitation agreement, allowing the WTO to finally pass its first landmark legislation. Furthermore, having set itself a deadline of December 2015 to arrive at a permanent solution to the stockpiling issue, the WTO has made clear that it does not intend on letting the issue linger. In the meanwhile, India can carry forward its food security program unhindered while the WTO can bring into operation its trade-facilitation agreement, leaving both parties happy, for the time being at least.

Amartya Menon is an intern at the Takshashila Institution.

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