- Prologue
- WTO: Structure and functions
- Tariff and Non-Tariff Barriers to Trade
- WTO agreements
- Agreement on Agriculture (AoA)
- 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 bank | Cheap loans for development projects in third world |
IMF | Balance of payment and Exchange rates |
GATT |
|
MinisterialConference |
|
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GeneralCouncil |
has two bodies, with separate chairmen
|
DirectorGeneral |
|
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 Barrier | If US President Obama imposes 56% custom duty on Indian Cars. |
---|---|
Non-Tariff Barrier | If Obama tries to restrict entry of Indian cars without imposing heavy taxes on Indian cars, for example
|
- 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) |
---|---|
Food Products |
|
WTO agreements
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.
|
|
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.
T5: Policy review | T6: plurilateral agreements |
Periodically, WTO carries out audit/inspection/review of the trade policy of member states and gives them constructive feedback. | Not signed by all countries:
|
~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 it’ll stay in news due to 10% food subsidy issue)
Agreement on Agriculture (AoA)
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 keep vote bank happy | mostly by first world, to keep their MNC-corporatized farmer lobby happy. |
to increase food production, food security | to capture “Foreign market” by flooding their cheaper products |
India doesn’t 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 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 doesn’t wish to completely STOP subsides, because it is impractical anyways!
Box | subsidies |
---|---|
GREEN |
|
BLUE |
|
AMBER |
|
Amber box: De Minimus limits
Q. Explain De-Minimus limits in WTO’s agreement on agriculture. Why is India opposed to it? (200 words)
- Under WTO’s 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 they’re L.D.C=> they’ve no “AUKAAT” to give truckload of subsidies anyways.
Why is India opposed?
- 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 doesn’t consider inflation factor.
- So, if India has to limit its (Amber box) agro. subsides to a non-inflation adjusted 86’s 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
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 agreement |
|
LDC exports |
|
food stockholding |
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- 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 it’d 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?
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
They’ll get financial and technical help to comply with above rules.
LEVEL | body to implement Trade facilitation agreement |
---|---|
NATIONAL |
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INTERNATIONAL |
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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 |
deadline to sign TFA | 2014, July, 31stBut India refused. |
Agreement becomes effective from | 2015 |
~280 words. But in exam, all points can’t recalled so it’ll automatically “FIT” the 200 words limit!
Why Modi opposed Trade Facilitation Agreement
Q. Why has India refused to sign Trade Facilitation agreement? (200 words)
- WTO’s Trade Facilitation agreement (TFA) aims reduce the redtape and bureaucratic hassles in customs clearance and thereby facilitate international trade.
- But, TFA maintains that it doesn’t “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 they’ll put sanctions on us, soon as Peace-clause “temporary” deadline is over in 2017!
- And yet, we’ll 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.
~220 words
thanks a lotttt!!!!!! sir….waiting so patiently…
mrunal sir- abhi aur article bache hai kya prelims ke liye ??
will you publish sci-tech compilation before prelims? please reply…just inform yes/no…
No, he has already clarified
mind blowing. awe-inspiring…speechless…
thank you once again…
Great sir. …thanx a ton
Sir, please confirm the time period, for which we need to revise the current affairs ?
Sir, please confirm the time period, for which we need to revise the current affairs ? For prelims – 24th August
majaa aa gaya bhaiya jee ko@@@@@@@@
Sir I was looking for an article like this for a clear understanding.U have done a great job sir……Outstanding…..
bas karo abhi pre k baad hi dena koi article
difficulty in understanding amber box subsidy case here!! :-(, can anyone explain.
understood after complete reading :-)
i am ankit kumar shukla
i talk to I A s preavius exam 2016
i perpaer
Appreciated all ur efforts Sir
Thanks
amazing article!!
mrunal sir,
it is very imp topic for this year pre and mains and thnx for clearing all the doubt regarding the topic
sir i like the way u explain the thing from d scratch
u r working hard thnx sir
superb sir,,,hats off to ur Mrunalistic approach.., sir pls explain amber box subsidy case again..
Sir, thanks a lot for all the efforts…. :)
Wonderful explantion sir….thanx a lot
sir please write down something to boost up our morale
its very stressfull,,,just mugging up, mugging up,,,,,,
Sir, after prelims kindly upload the current affairs of the gap period. That’ll be really helpful. If it is possible. Thanks a lot for the survey & for everything UPSC. for guiding us & also scolding us(though indirectly) you are like a parent cum teacher to all of us aspirants who shun coaching & follow you & your saying like a desciple. Hope we can add quality to your hard work. & in future (even now) can contribute atleast our share. Good luck to all the aspirants of CSE 2014. May Almighty Allah bless us all. Ameen. thank you again Sir.
THANK YOU MRUNAL SIR.
nice efforts… thanks for all article…!?!?!
thanks a lot just no words
thanks a lot
The main reason that the earth experiences highest temperatures in the
subtropics in the northern hemisphere rather than at the equator is :
(a) Subtropical areas tend to have less cloud cover than equatorial
areas.
(b) Subtropical areas have longer day hours in the summer than the
equatorial.
Pls clarify a, a&b, b
both a n b
@ B+ve
Correct : a – because if you have read of “horse latitudes” , they are also called sub-tropical ridge and in this area Hadley cell circulation and ferrel cell circulation ( these two are air circulation cycle just the same way as walker cell) and due to combination of these two cells “descending” arm over mostly 30-38 degree latitude(sub-tropical areas) both in northern and southern hemisphere), there is always a high pressure zone over that area due to which “very less” or “No cloud” formation occurs and hence direct penetration of sun’s rays and hence max temp are recorded and most deserts of the world fall in this arid areas .
hope you got ur answer together with explanation.
@MAHARAJ
Thanks! For the subtropical zone both options are correct so got confused that its a or both.
cheers!
a.
Geography (NCERT): Fundamentals of Physical Geography.
Ch. 9, page. 80
though this thing is mentioned in every basic book..but it stops till subsidence of air..and no mention is made of ‘no cloud formation’,
though subsidence feature could be linked to cloud formation from other topics studied- cloud formation/conduction etc..
i think the origin of trade facilitation is singapore ministerial conference in 1996
a should be the answer. subtropical areas never experience direct sun rays. They always have slanting rays , so having longer day hours won’t raise temp much. If longer day hours could contribute much then north pole should have warmest because it receives light for 6 months at a stretch.
one can use elimination approach – since sub tropics never get straight sunrays they can never have longer day than tropics..left with only option a.
@HRITI
In northern hemisphere as you move from lower latitude to higher latitude the length of day increases
yes ans is ‘a’ but your logic needs to revisit
wow Mrunal Sir, your style of explaining things is simply superb. I have been trying to understand the concepts and your this one Article has struck the right note. Thanks a lot… Sir.
superb article che …………….sir avu ne evu upload karta rejo to majaaa avi jashe.
thanks!!!!!!!!!!!!!!!!!
Sir please explain point 1 of why Modi gov refuses to sign TFA .