Prologue

WTO: Structure and functions

Tariff and Non-Tariff Barriers to Trade
WTO agreements
Agreement on Agriculture (AoA)
Green. Blue and Amber subsidies
Amber box: De Minimus limits
What is Bali summit and Peace clause?
What is Trade Facilitation Agreement?
Why Modi opposed Trade Facilitation Agreement
Prologue
Consider this a Fork of the Economic Survey chapter 9 on Agriculture and food production.
WTO: Structure and functions
Q. Write a note on origin, structure and functions of WTO? 200 words
1944: Bretton Woods summit leads to birth of three institutions
Institution KEY IDEA
World
Cheap loans for development projects in third world
bank
IMF
Balance of payment and Exchange rates
To reduce barriers to international trade.
Bretton Woods wanted to setup an international trade organization (ITO) but USA did not ratify.
Thus, GATT was born as a stopgap arrangement.
GATT
General Agreement on Tariffs and Trade.
GATTs Uruguay round of talks => Marrakesh Treaty94=> World trade organization (WTO) born in 1995,
India founding member.

WTO structure
Supreme Decision Making body
160 members, Latest member Yemen (Capital: Sanaa)
MinisterialConferenc
Meets once every two years,
e
deliberates on trade agreements
Appoints Director general
GeneralCouncil
day to day Decision Making body
Meets regularly at Geneva.
implements decision of ministerial conferences

DirectorGeneral

Has Representative from each member state.

has two bodies, with separate chairmen
Dispute settlement body
Trade policy review body
Below general council, there are Committees on individual agreements and annexes- Anti dumping,
Subsidies & countervailing measures (SCM) etc.
Roberto Azevdo
Appointed by ministerial conference
Has four years term.
heads the Secretariat at Geneva

WTO Functions
Ensure the developing countries benefit from world trade, especially the least Developed countries.
Reduce barriers to international trade both tariff barriers and non-tariff barriers.
Get the members Enter into multilateral trade agreements to achieve above objectives.
Provide forum for negotiation and dispute settlement for the members, if the agreements are violated.
Cooperate with UN, World and IMF for a global economic policy that improves livelihood, protects environment and
promotes sustainable Development.
Tariff and Non-Tariff Barriers to Trade
All countries want to protect domestic industries and prevent entry of foreign players. So, they create two types of barriers
to International trade:
Tariff
If US President Obama imposes 56% custom duty on Indian Cars.
Barrier
If Obama tries to restrict entry of Indian cars without imposing heavy taxes on Indian cars, for example
Subsidies: Giving free electricity to Detroit car manufacturers. OR If American residents buy American made
Non-Tariff
cars, Obama administration will pay 50% of your vehicle insurance premium, and so on.
Barrier
Public Procurement: Making rule that only American companies can fillup tender for new sarkaari cars.
Other obstacles like not giving custom clearance quickly. Putting quota on each exporter country and so on.
World Trade organization (WTO) aims to reduce such tariff and non-tariff barriers to international trade.
But what if China starts manufacturing cheap cars with poor breaks, bad steering and carcinogenic paint. Can Obama ban
such dangerous foreign products? Does WTO permit that?
Yes, WTO made two special agreements for safety:
Non-food products
Technical Barriers to Trade Agreement (TBT)
Sanitary and Phytosanitary Measures Agreement (SPS)
Food Products
EU had banned Indian Alphonso under this provision.
WTO agreements

Gist of the whole controversy surrounding India, WTO and TFA

Q. Write a note on WTO agreements 200 words
Five categories of agreements (or 6, depending on which book you refer!)
T1: Goods
General Agreement on Tariffs and Trade (GATT)
Agreements on
Agriculture
Textile
Antidumping
Safety / quality checks related
Sanitary and phytosanitary agreement (SPS)
Technical barriers to trade (TBT)
Trade related investment measures (TRIMS)
Subsidies and countervailing measures (SCM)
T2: Services
General Agreement on Trade in Services (GATS)
To ensure that services import/export enjoys the same principles of free and fair trade, just like the trade in goods.
T3: IPR
Trade related intellectual property rights (TRIPS)
Protects seven categories of IPR viz.
copyrights
industrial designs
patents
integrated circuit layout-designs
trademarks
Trade secrets
Geographical indicators
T4: Dispute settlement
to enforce the trade agreements and commitments made by individual member country
once a complaint is filed, first, the parties are allowed to sort the issue through mutual consultation
If that fails, formal adjudication by an expert panel.
T6: plurilateral
T5: Policy review
agreements
Not signed by all
countries:
Civil aircrafts
Periodically, WTO carries out audit/inspection/review of the trade policy of member states and gives
government
them constructive feedback.
procurement
Dairy Products
Bovine meat
~204 words
WTO has many other agreements but hard to memorize and fit into a 200 word answer anyways.
For exams in 2014-17, the important agreement is AoA. (Because itll stay in news due to 10% food subsidy issue)
Agreement on Agriculture (AoA)

WTOs Agreement on agriculture (AoA) has three pillars

Pillar
What they want from member states?
1.Market access
reduce import duties
2.export competition
reduce export subsidies
3.domestic support
reduce Amber box subsides
AoA classifies subsidies into two parts:
DOMESTIC SUBSIDY
EXPORT SUBSIDIES
mostly by third world to keep help farmers and
mostly by first world, to keep their MNC-corporatized farmer lobby
keep vote bank happy
happy.

to increase food production, food security

to capture Foreign market by flooding their cheaper products

India doesnt give much export subsidies to farmers- except a select
horticulture and floriculture Items
AoA further classifies them into 3 parts
AoA wants members to reduce export subsides
GREEN
developed countries: cut by 36%
BLUE
Developing: by 24%
AMBER (WTO wants to reduce these subsidies) Least developed: not applicable.
Green blue and Amber subsidies
Just like traffic signal has three colors: green (GO), orange (caution) and red (STOP).
Similarly, WTO classifies DOMESTIC AGRICULTURE subsides into three categories: green (GO), blue and amber
(reduce).
There is no RED box meaning WTO doesnt wish to completely STOP subsides, because it is impractical anyways!
Box
subsidies
Subsidies that dont disrupt trade balance OR
Only cause minimum damage to trade balance.
GREEN E.g. agriculture research-development, extension services, farmer training programs, pest-disease control program,
flood/drought relief money paid to farmers etc.
WTO Limit: nothing. Governments can give as much as they want.
Amber type Subsidies that aim to limit production.
Subsidies that dont increase with production. For example subsidies linked with acreage or number of animals.
BLUE
Very few countries use blue box- Iceland, Norway, Slovenia etc.
WTO limit: Nothing.
Subsidies that disturb trade balance like, subsidies on fertilizers, seeds, power and irrigation.
AMBE They distort trade balance because they encourage excessive production,therefore given countrys product becomes
R
cheaper than others, in the international market.
WTO limits: yes- explained below
Amber box: De Minimus limits
Q. Explain De-Minimus limits in WTOs agreement on agriculture. Why is India opposed to it? (200 words)
Under WTOs agreement on agriculture (AoA), domestic-subsidies are classified into three groups: Green, Blue and Amber.
Amber box subsidies create trade distortion because they encourage excessive production e.g. fertilizers, seeds, electricity
and irrigation subsidies.
Therefore, WTO wants to limit the amber box subsidies.
De Minimus is the Minimal amounts of Amber box subsides permitted by WTO, even though they distort trade.
De minimus limits are calculated on the agriculture production of the given member state in 1986-88.
Country
De-Minimus: Amber box subsides quota
Developed
5% of agriculture production in 1986-88
Developing
10%
Least developed
Exempted.**
** Besides if theyre L.D.C=> theyve no AUKAAT to give truckload of subsidies anyways.
Why is India opposed?

India fears itll have to cut down its food subsidy to comply with WTOs De-minimus level
In 1986: USA agriculture production was far ahead of India. So, their 5% De-minimus quota will be far bigger than our 10%
quota (in absolute figures).
Input costs have skyrocketed in these decades. But, De-minimus doesnt consider inflation factor.
So, if India has to limit its (Amber box) agro. subsides to a non-inflation adjusted 86s production, we cannot continue the
MSP to farmers or food security to poors.
These subsidized foodgrains are meant for feeding the poors only, they do not distort international trade.
~190 words
Indias subsidy Expenditure in Crores (Rs.)
Subsidy component
RE-2013
BE-2014
Food
92000
115000
Petroleum
85480
63427
Fertilizer
67971
72970
Ranking 2013: Food > Petroleum > Fertilizer
Ranking 2014: Food > Fertilizer > Petroleum
What is Bali summit and Peace clause?
Q. What is hell is Bali Package and Peace clause? (200 words)
December 2013: 9th WTO ministerial conference held at Bali, Indonesia
Bali Package is the collection of three prime outcomes of this summit.
Trade facilitation
To cut down the red tape in customs clearance
agreement
Exporters from Least developing countries, will get Duty free, quota free (DFQF) access to
LDC exports
markets in foreign countries.
food stockholding
this lead to peace clause, explained below
as per the original Agreement on agriculture (AoA), the developed and developing countries have to keep their Amber box
subsidies within De-minimus level i.e. 5% and 10% of their agriculture production in 1986-88 respectively.

India opposed this base year and limits, because itd make impossible to implement the food security programs for the poor
and MSP for the farmers.
Therefore, as a measure of temporary relief, Bali summit enacted a peace clause for the AoA
Salient features of Peace Clause
No member, can drag any developing country to Dispute settlement mechanism of WTO.
for violation of De-minimus limits in AoA
Provided that the said developing country
is paying subsidies for staple foodcrops
for public stockholding program
For food security purpose.
is providing annual information of its food security Program to WTO.
Permanent solution will be taken no later than 11th ministerial conference i.e. at December 2017.
~215 words.
What is Trade Facilitation Agreement?

Manniram is happy knowing that Modi has refused to sign TFA!

Q. Write a note on the salient features of Trade facilitation agreement (200 words)
ORIGIN
9th WTO ministerial conference held at Bali, Indonesia in 2013
AIM
reduce red tapes and bureaucratic hassles in customs clearance
Under TFA, Every member:
Will have to publish a detailed list of procedure for import-export, fees, inspection rules, penalties etc.
Minimize the proof documents and clearance required for customs clearance.
Make all the information available on INTERNET to foreign traders, governments and interested parties
Provide electronic payment of fees, duties, taxes.
Setup a single window mechanism to help trader submits all documents at a single point- preferably online.
Trader should be notified immediately, If goods are detained at customs.
Provide faster customs clearance to perishable goods (Fruits, veggies, flowers).
Member must not ask foreign traders to compulsorily route their applications/fees via local customs brokers/middlemen.
Give Advance ruling, as and where applicable. (Recall advance ruling provision on taxes, under Budget-2014.)
Least developed countries
Theyll get financial and technical help to comply with above rules.
New Bodies under TFA
LEVEL
body to implement Trade facilitation agreement
Every nation will have to setup a Committee on Trade Facilitation.
NATIONAL
itll implement this agreement and coordination with the international body
WTO will setup a Committee on Trade Facilitation
all members can participate
INTERNATIONAL Itll will provide dispute settlement for violation of any provisions under this agreement.
will elect its separate chairman
Will meet at least once every year, review agreement every four years.
Benefits of TFA:
A simplified customs clearance mechanism will boost international trade, and thereby it will
will increase in global GDP
$1 trillion (~Rs 60 lakh crore)
will create more jobs
21 million
Deadlines under TFA
deadline to sign TFA
Agreement becomes effective from

2014, July, 31stBut India refused.

2015

~280 words. But in exam, all points cant recalled so itll automatically FIT the 200 words limit!
Why Modi opposed Trade Facilitation Agreement
Q. Why has India refused to sign Trade Facilitation agreement? (200 words)
WTOs Trade Facilitation agreement (TFA) aims reduce the redtape and bureaucratic hassles in customs clearance and
thereby facilitate international trade.
But, TFA maintains that it doesnt diminish the rights and obligations of members under other agreements of WTO.
For example, under the Agreement on Agriculture (AoA) if a developing country is giving Amber box subsidies beyond 10%
of its national agriculture production (base year 1986), THEN other members will be justified in putting trade sanction or
WTO-complaint against the said country.
2013: In Bali Summit, the then UPA Government agreed to sign TFA, after WTO Peace clause, which gave temporary
exemption to developing countries from 10% de-minimus provision until 2017.
2014: Change of regime,
Modi Government has refused to sign TFA before deadline (31st July 2014), because:
Once India has signed TFA, the developed countries may stonewall her demands for a rational change in base year and
ceiling limits on agro. Subsidies.
Then India will have to cut down agro. Subsidies in MSP and food security programs, else theyll put sanctions on us, soon
as Peace-clause temporary deadline is over in 2017!
And yet, well have to keep giving them easy customs clearance because we signed the TFA!
Therefore, Government has decided to use TFA signature as a Bargaining Chip for a permanent solution of food subsidies
issue.