Three Key Issues Before the 13th Ministerial Conference of the WTO
Later this month, Trade Ministers of the World Trade Organization (WTO) would meet for their 13th Ministerial Conference (MC13) in Abu Dhabi at a time when the multilateral trading system is losing its existential battle. This “ruled-based organisation” mandated to ensure orderly conduct of global trade through a set of rules that were mostly negotiated before 1990 when the organisation had less than 100 members. Over the past four and a half decades, the needs and aspirations of members in the realm of trade have changed beyond recognition as the global economy has undergone significant changes. Several of these changes were triggered by economic downturns, which altered the economic orientation of major economies and turned them more internally oriented. In the run-up to MC13, WTO membership is facing the daunting task of making the multilateral trading system respond to the needs of the contemporary world, especially those of the developing countries.
Given these changing global dynamics, multilateral trade rules, which economists consider the best option for conducting trade, need to be constantly reviewed and updated. Equally important is the need to ensure that agreed rules are effectively enforced to maintain the credibility of the institution. The founders of the WTO had foreseen this imperative by putting in place a robust dispute settlement body (DSB), by far the best among all multilateral organisations. As the adage goes, the WTO’s DSB has “teeth that can bite”, thus keeping membership honest to their commitments. Unfortunately, both arms of the WTO, negotiating arm that would have helped update the rules and the DSB have become dysfunctional.
At the end of the fourth Ministerial Conference held in Doha, 2001, Trade Ministers agreed to comprehensively review the agreements finalised during the Uruguay Round negotiations. The Doha Development Agenda (DDA) reflected the demands of developing countries that the Uruguay Round Agreements must be rebalanced to reflect their development needs. But after more 15 years, the DDA was abandoned, and the negotiating arm of the WTO was taken over by the dominant economies who formed “clubs of the willing” to initiate discussions on new issues that suited their interests. An organisation that is mandated to undertake negotiations only when there is consensus among the members for so doing is now witnessing engagements between a subset of its members on issues such as e-commerce and investment facilitation. South Africa and India, two economies that were not among the participants, have repeatedly pointed out that these processes violate the core principles of multilateralism.
The Trump Administration dealt a death blow to the DSB by refusing to appoint new members to the Appellate Body that hears appeals against the decisions of the dispute settlement panels. The Appellate Body is the most critical part of the DSB, because its rulings on disputes between members are final and binding. Erring members must amend their laws and policies to bring them in conformity with WTO rules. Now that the Appellate Body is non-existent, members can indulge in flagrant violations of WTO disciplines. Thus, the multilateral trade rules are dead in water.
It is a travesty that WTO members are not reflecting on these systemic problems plaguing the organisation. As of now, members are engaging in issue-based discussions that include new issues such as electronic commerce and investment facilitation, and two other issues, namely, adoption of subsidy disciplines for the fisheries sector and review of the disciplines on agriculture, both of which are vitally important for India. This paper analyses issues relating to agriculture, fisheries subsidies, and the proposed Agreement on Investment Facilitation for Development.
I. Unresolved Issues in Agriculture
Of the disciplines introduced through the Agreement on Agriculture (AoA), the one on domestic support, covering all forms of subsidies except export subsidies, has been the most contentious because they are focused on removing several forms of policy support for increasing domestic agricultural production. The target of domestic support disciplines is the two traditional forms of subsidies that farmers have enjoyed, namely price support measures and input subsidies. Since the United States systematically began providing subsidies in 1933 through the enactment of the Farm Laws, countries across the development spectrum have supported agriculture to ensure domestic food security. Countries such as India continue to extend subsidies for food security as well as to ensure livelihood security to a larger share of the workforce that directly or indirectly remains dependent on agriculture.
With its explicit focus on removing the more prominent forms of subsidies, the domestic support disciplines ignore the critical objective of food security, which has been referred to in the preamble of the AoA as a “non-trade concern”. There are no provisions in the Agreement that operationalises “non-trade concerns”. Since the establishment of the WTO in 1995, developing countries have argued for substantial amendments to the AoA. The Doha Ministerial Declaration, the first and most expansive articulation by WTO members to review the AoA, recognised the special character of agriculture in developing countries. The Ministers agreed “that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the Schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development.”
However, this comprehensive review of AoA was taken off the agenda in 2017. Since then, advanced countries have consistently pushed for reviewing the AoA to limit the possibility of using agricultural subsidies to enhance domestic food security and livelihoods thus reinforcing the existing provisions of the Agreement. Such an exercise is afoot in the run-up to MC13.
The review of the AoA includes a component that is critically important to India. Since the beginning of the previous decade, WTO members have been discussing the issue of public stockholding for food security purposes, the basis of India’s public distribution system (PDS). For India, the significance of this issue increased manifold after the then government decided to implement the National Food Security Act (NFSA) to provide subsidised food grains to two-thirds of the country’s population. However, the implementation of the NFSA is covered by the subsidies’ disciplines of the AoA, which stipulates that WTO members must limit their value of subsidies provided to crops and for inputs to 10% of their value of agricultural production. According to the AoA, subsidies for individual commodities are differences between their current administered prices, or market price support and the international prices prevailing during 1986-88 (called “fixed external reference price”), while input subsidies are budgetary outlays. Although this formula defies all economic logic, the subsidies for most crops provided by India remained below the 10% threshold, as did the overall level of subsidies.
This situation changed after the introduction of the NFSA, as the AoA requires WTO members to include the differences between prices at which food grains for PDS are acquired and their external reference prices as subsidies. This meant that India’s total subsidies would be above the 10% threshold, thus preventing the government from implementing the NFSA. India has consistently argued that the subsidies’ discipline must be amended by either updating the external reference price and/or allowing countries to account for inflation while calculating their subsidies. However, India’s arguments have not been accepted yet.
There is no immediate threat to the future of the PDS, as no WTO member can challenge India for granting subsidies above the 10% threshold because of a “peace clause” that was agreed upon in 2013. But when the “peace clause” was agreed, it was also decided that WTO members would negotiate on an Agreement for a permanent solution for PSH by 2017. Even after six years have lapsed, there has been no agreement amongst WTO members on the “permanent solution” and none is expected in MC13 since the United States has opposed a ministerial decision on this issue in Abu Dhabi.
This leaves the Damocles’ sword hanging over one of India’s largest welfare programmes, to which the government recently gave a new lease of life by extending it until December 2028. However, one of the adverse implications of the “peace clause” is that it prevents India from exporting grains from publicly held stocks. In the WTO’s Committee on Agriculture, which oversees the Agreement on Agriculture, several countries have been seeking clarifications from India as to whether the food grains procured by the government and held in buffer stocks are eventually finding their way into the international market. The contention of these countries is that India is dumping subsidised grains into global markets.
Most countries raising the red flag against India’s exports are advanced countries that have supported the operations of their large companies that dominate the global grain markets. Thus, when large subsidisers are dominating the global market for grains, there is therefore a strong case for India to argue for the removal of the export restriction condition in the “peace clause”. More importantly, this issue must be resolved in the interests of the net food-importing countries, for if India is prevented from exporting, global food shortages would worsen.
II. A Problematic Agreement on Fisheries Subsidies
The Agreement on Fisheries Subsidies was concluded in 2022 at the conclusion of the MC12. The Agreement will come into effect after two-thirds of the WTO’s membership (or 110 members) formally accept the Protocol of the Agreement on Fisheries Subsidies by depositing an “instrument of acceptance” with the WTO. To date, 30 members have accepted this protocol. Currently, members are negotiating outstanding issues to make recommendations for additional provisions that would further enhance the “disciplines” of the Agreement.
India has a strong economic and moral position on the issue of reining-in fisheries subsidies. India’s consistent position has been that while it is important to eliminate subsidies granted to commercial interests, which threaten global fish stocks, there must be a window for continuing subsidies to smaller fisherfolk who have usually followed environmentally sustainable practices. Continuance of subsidies is also vital for protecting the livelihoods of small fisherfolk.
The Agreement on Fisheries Subsidies does not reflect India’s concerns. The Agreement enables developing countries to provide subsidies for two years to vessels or operators engaged in illegal, unreported, and unregulated (IUU) fishing or for fishing or fishing-related activities regarding overfished stock, up to and within their respective exclusive economic zones (EEZs). What happens to the future of subsidies to fisherfolk beyond the two years is left uncertain, since there is no other provision in the agreement that guarantees special and differential treatment (S&DT) to developing countries, using which India can grant subsidies.
This issue assumes importance on account of a provision in the fisheries subsidies’ agreement, which states as follows: “A Member shall take special care and exercise due restraint when granting subsidies to fishing or fishing related activities regarding stocks the status of which is unknown”. This implies that subsidies granted for fishing and fishing activities other than IUUs and “overfished stock” have also been put under the scanner in the agreement. While small fisherfolk in India neither engage in IUUs nor in fishing activities involving “overfished stock”, the above-mentioned provision in the fisheries subsidies’ agreement could prove to be an impediment towards continued provisioning of subsidies to the fisheries sector. The reason for this is that the mood in the WTO is to deny China and India the benefits of S&DT provisions, using which subsidies to small fisherfolk could be continued. For this reason, the inclusion of S&DT provisions in future negotiations is problematic.
In the run-up to MC13, additional disciplines on “fishing or fishing related activities that contribute to overcapacity or overfishing” are being proposed that seek to limit the S&DT provisions only to the developing or least developed countries (LDCs) which have a very small share of the annual global volume of marine capture.
As in the previous WTO Ministerial Conferences, India’s principal objective would be to ensure that the decisions taken in Abu Dhabi do not cause excessive harm to its small farmers and fishing communities. Expectations that multilateral trade rules can support a country’s development endeavours are passé.
III. The Proposed Agreement on Investment Facilitation for Development
MC13 could see the adoption of the first plurilateral agreement[1] since the establishment of the WTO with the adoption of the Agreement on Investment Facilitation for Development (IFD Agreement). One of the most significant aspects of this proposed agreement is the leverage that the WTO DG Ms Ngozi Okonjo-Iweala has used, particularly in the final General Council meeting prior to MC13, to get the support of members like India who have opposed the agreement on both substantive and procedural grounds[2].
The initial steps for negotiating the IFD Agreement were taken in early 2017 by the MIKTA (Mexico, Indonesia, Korea, Turkey, and Australia), who argued that given the dynamic links between trade, investment, and development, there [was] a need for greater coherence in trade and investment policy”. Though supportive of a more extensive process for integrating investment within the multilateral trading system, the MIKTA argued that “investment facilitation could be a good starting point for discussions [on investment] to complement the … Trade Facilitation Agreement and [the] discussions on trade facilitation for services”. In the course of their discussions, the so-called Friends of Investment Facilitation for Development proposed the inclusion of issues such as improving regulatory transparency and predictability, streamlining, speeding up administrative procedures, enhancing international cooperation, and addressing the needs of developing Members. They argued that it was essential to ensure that developing countries receive larger inflows of foreign direct investment (FDI).
The proponents of the IFD Agreement clarified that their initiative would not deal with market access, investment protection and investor-state dispute settlement. Thus, a group of countries took the initiative to include substantive provisions relating to investment in the WTO when there was no consensus among the members of the agreement to exclude substantial issues relating to investment from the negotiating mandate, but there was also no consensus among the members to negotiate the IFD Agreement.
Support for including investment facilitation in the WTO grew, and by the end of the inconclusive Buenos Aires Ministerial Conference in December 2017, 42 WTO members had endorsed the Joint Ministerial Statement on Investment Facilitation for Development. This was among several Joint Statement Initiatives (JSIs) taken by groups of WTO members to develop rules in areas that are currently excluded from multilateral trade rules. Besides IFD, JSIs were taken in e-commerce, micro, small and medium-sized enterprises and on domestic regulation in services trade.
The objective of the proponents was to develop a multilateral framework on investment facilitation to improve the transparency and predictability of investment measures, streamline and speed up administrative procedures and requirements, and enhance international cooperation, information sharing, the exchange of best practices, and relations with relevant stakeholders, including dispute prevention. They argued that this framework would create a more transparent, efficient, and predictable environment to facilitate cross-border investment flows. Thus, investment facilitation for development was an investor-focused framework to be adopted by recipients (mostly developing countries) to encourage larger flows of foreign investment.
Support for the IFD Agreement has grown, with 85 members participating in the negotiations in 2021, and according to the WTO Secretariat, 95 members are currently engaged. However, the IFD Agreement faces a strong challenge from several countries, including South Africa, India, and the United States. South Africa and India have questioned the legality of the JSIs, arguing that these initiatives violate the provisions of the Marrakesh Agreement Establishing the World Trade Organization. They pointed out that “the fundamental requirement for multilateralism /consensus-based decision-making is enshrined and reiterated at several places in the Marrakesh Agreement” and therefore, “any attempt to introduce new rules resulting from the JSI negotiations into the WTO … will be detrimental to the functioning of rule based multilateral trading system”. In contrast, the United States has kept out of the negotiations on IFD Agreement without adducing any reason whatsoever.
Text-based negotiations on the IFD Agreement were concluded in July 2023 and the legal review was completed in November 2023. Although the final text was circulated among all WTO members, the later part of the IFD Agreement negotiations were conducted in complete secrecy. The WTO Secretariat provides a brief summary of this plurilateral agreement, which provides an understanding of the possible nature of this proposed plurilateral agreement.
(i) Understanding the IFD Agreement
Besides being the first plurilateral agreement to be negotiated after the establishment of the WTO, the IFD Agreement has another “first”. It is the first time that substantial issues regarding investment will be included in the rules of the WTO in a comprehensive manner. To date, WTO rules have not substantially influenced foreign investment policies, barring two exceptions. The first is the Agreement on Trade Related Investment Measures (TRIMS), which does not allow governments to regulate foreign investors in three ways. First, by making it mandatory to use imported products for an amount related to the volume or value of the local products that it exports. Second, by insisting on the use of domestic products in the production process. Third, imposing export obligations on a foreign company. The second exception is the General Agreement on Trade in Services, which includes provisions for regulating the operations of foreign service providers in a WTO member country.
The purported objective of the IFD Agreement is the create a “more transparent, efficient and investment-friendly business climate – by making it easier for investors to invest, conduct their day-to-day business and to expand their existing investments” The proposed Agreement would also enable “host and home governments to work cooperatively and in mutually beneficial ways to facilitate not only more, but also more sustainable investment” (emphasis added). Sustainable investment has also been referred to as “higher-quality investment” that is deemed to be a form of investment which can deliver “sustainable development”. This objective is to be met through two sets of provisions, on responsible business conduct and measures against corruption. It may be pointed out that “responsible business conduct” and “measures against corruption” are included in the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, which in turn, are part of the OECD Declaration on International Investment and Multinational Enterprises. The most recent amendments to the Guidelines in 2023 have made them more extensive through the incorporation of due diligence guidelines that include, among other elements, human rights, encompassing workers’ rights as well. In other words, the IFD Agreement is a major step towards making non-OECD countries adopt the OECD countries’ framework for dealing with foreign investment, and the acceptance of what are considered as “global benchmarks”.
The IFD Agreement will not deal with the substantial investment policies of the host countries, but will make investment policies more transparent and efficient. The provisions would apply to FDI, though discussions on expanding the scope to include other forms of investments are continuing, given the interests of the capital-exporting advanced countries in this regard. The proposed agreement explicitly excludes issues such as market access, investment protection, and investor-state dispute settlement (ISDS). Government procurement and certain subsidies are also excluded from the scope of the IFD.
The main provisions included in the IFD Agreement are on transparency of investment measures, streamlining and speeding-up investment-related authorisations and procedures, enhancing international cooperation, information sharing, and the exchange of best practices. The beneficiaries of the agreement, according to WTO members backing it, will be low- and middle-income countries who would be able to attract not just more, but also better and higher-quality FDI investment that could contribute to sustainable development.
The IFD Agreement includes provisions on ‘Special and Differential Treatment’ that are modelled on those contained in the Trade Facilitation Agreement (TFA). These provisions state that the extent and timing of the implementation of the IFD Agreement shall depend on the capacities of developing countries and LDCs. Where a member lacks the necessary capacity to implement the Agreement, they will not be required to do so until the implementation capacity has been acquired. The IFD Agreement also underlines the need for technical assistance and capacity building to help these countries implement and benefit from the agreement. This implies that not all developing countries and LDCs may have the necessary capacities or infrastructure to implement the IFD Agreement at present and would have to make considerable investments to ensure that their investment policies can be implemented in conformity with the provisions of the Agreement.
How should the IFD Agreement be assessed from the perspective of developing countries? The proposed agreement raises the bar regarding the policies that these largely capital-importing countries have adopted for dealing with FDI. Although the IFD Agreement excludes market access, this is almost a non-issue, given that governments in almost all countries do not impose any significant barrier on foreign investors after three decades of liberalisation of FDI policies. The Agreement is intended to plug an important gap in host country policies that foreign investors have often spoken about, namely, making the host country governments more accountable through the implementation of provisions relating to transparency and due diligence. As mentioned earlier, the implementation of such provisions would require substantial investments in developing countries: whether such investments would be commensurate with their gains in the form of higher FDI inflows for most low-income countries and LDCs is the key issue. These are substantial issues that have not been discussed, and they should have been addressed before the IFD Agreement is adopted.
Though India has rejected the JSIs, including the one on e-commerce, there would undoubtedly be significant pressure to join the IFD Agreement. However, given the plethora of obligations that host country governments would have to accept, India must weigh its options carefully.
IV. Concluding Observations
MC13 could well be a watershed moment for the WTO, as it could be the first time that a plurilateral agreement, namely, the Investment Facilitation for Development (IFD) Agreement is included in the list of covered agreements since the establishment of the organisation in 1995. This agreement is likely to be adopted in MC13, despite opposition from several prominent developing countries, including India and South Africa.
India will be disappointed that a permanent solution to the vexed issue of public stockholding is not yet in sight. A permanent solution would have provided policy certainty to the implementation of the National Food Security Act. The country’s poor would then have been assured that their access to subsidised food would not be undermined by WTO rules.
Negotiations on the fisheries subsidies’ agreement are continuing on outstanding issues, with a view to enhancing the disciplines of the agreement. Several provisions of this agreement are not in the long-term interests of India’s small fisherfolk and therefore, India’s efforts must be directed at ensuring that the expected harm from the agreement can be minimised.
Notes and References
[1] As opposed to multilateral agreements that include the entire membership of the WTO, plurilateral agreements are agreements among a subset of members. There are currently two plurilateral agreements, namely, the Agreement on Government Procurement and the Agreement on Trade in Civil Aircraft originally adopted in 1979 and 1980 respectively. These are included in Annex 4 of the Marrakesh Agreement Establishing the WTO. Though a plurilateral agreement is between a subset of WTO members, decision to initiate such an agreement is taken by the entire membership. In this regard, the Marrakesh Agreement states: “The Ministerial Conference, upon the request of the Members parties to a trade agreement, may decide exclusively by consensus to add that agreement to Annex 4”.
[2] Kanth, D. Ravi. 2024. WTO: DG takes on India, South Africa over controversial IFD for MC13. SUNS. 9947. 16 February.
Biswajit Dhar is a former Professor at Jawaharlal Nehru University and presently a Distinguished Professor at Council for Social Development, New Delhi.
Image courtesy of WTO