India and the WTO

India and the WTO

Subject: Economy

Section: External Sector

Why in news?

• India wanted public stockholding to be moved to the ‘green box’ (subsidies that are permissible). At the outset, there was a compromise that there would be a peace clause. India and others who avail of public stockholding will not be dragged to dispute settlement until a permanent solution is found.
• As of now, US opposed this and EU is ready for negotiations.

Why EU and US are against it and developing countries favours it?

The issue of finding a permanent solution to the public stockholding programmes for food security purposes is important for developing countries like India as it provides support measures and procures rice from farmers at MSP (minimum support price) and sells at cheaper rates to poor populations for food security.

Developed countries term these support measures as trade distorting subsidies and they are against these programmes of public stockholding of food.

About World Trade Organization (WTO)

• The WTO is an intergovernmental organization that is concerned with the regulation of international trade between nations.
• The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994.
• It replaced the General Agreement on Tariffs and Trade (GATT), which commenced in 1948.
• It is the largest international economic organization in the world.

Functions of WTO

• The WTO deals with the regulation of trade in goods, services and intellectual property between participating countries.
• It provides a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments.

Working Principles of the WTO

The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of “trade policy.” Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO:

1. Non-discrimination:It has two major components: the most favored nation (MFN) rule and the national treatment policy. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members. National treatment means that imported goods should be treated no less favorably than domestically produced goods.
2. Reciprocity:It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule and a desire to obtain better access to foreign markets.
3. Binding and enforceable commitments:The tariff commitments made by WTO members in multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish “ceiling bindings”: a country can change its bindings, but only after negotiating with its trading partners.
4. Transparency:The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO.
5. Safety values:In specific circumstances, governments are able to restrict trade. The WTO’s agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health.

The Agreement on Agriculture (AoA) came into effect with the establishment of the WTO at the beginning of 1995. The AoA has three central concepts, or “pillars”: domestic support, market access and export subsidies

Domestic Support – It refers to subsidies such guaranteed Minimum Price or Input subsidies which are direct and product specific. Under this, Subsidies are categorized into 3 boxes

1. Green Box– Subsidies which are no or least market distorting includes measures decoupled from output such as income-support payments (decoupled income support), safety – net programs, payments under environmental programs, and agricultural research and-development subsidies
2. Blue Box– Only ‘Production limiting Subsidies’ under this are allowed. They cover payments based on acreage, yield, or number of livestock in a base year
3. Amber Box– These include subsidies which are trade distorting and need to be curbed.