Why India is playing spoilsport at the WTO

06 August 2014

Last December at the World Trade Organization meeting in Bali, the Indian government—then run by the UPA—agreed to sign the Trade Facilitation Agreement (TFA), which was being hailed as a landmark in trade reforms. But the new NDA government has, surprisingly, backtracked from that commitment. As a result, the TFA has now missed its planned deadline of 31 July 2014.

The TFA aims to facilitate smoother international trade by simplifying customs processes and making them uniform for all 160 WTO member nations. It includes a wide range of provisions for expediting the movement, release and clearance of goods by ensuring that customs authorities and other related authorities of member nations will employ very similar forms and procedures. It also contains provisions that allow for special treatment for developing and least-developed countries, aimed at helping them implement the agreement.

If customs processes are unified and simplified, there could be huge benefits for the world economy—estimates suggest that it could enable the creation of an additional $1 trillion in global GDP and create 21 million new jobs across the world. This would be a boost of over 1 percent to the global GDP simply via the reduction of red tape.

India’s refusal to sign on the dotted line has, therefore, caused alarm and disappointment. In the seven months since Bali, quite a few countries have already started to make their customs procedures TFA compliant.

The reason for the change in policy is that the Indian government now wants a fast, favourable reworking of the WTO rules on agricultural subsidies before it signs the TFA. India’s vast and expanding food procurement and distribution programme may well be in violation of the current statutes. It is using the TFA as a bargaining tool in demanding a review of the WTO food subsidy norms, though these are, in fact, not directly linked to the TFA.

Devangshu Datta is a regular contributor to leading finance and business publications.