Should India exit the WTO?

Context: Indian farmers demand that India should exit the World Trade Organisation (WTO). They believe WTO rules hinder their ability to secure a legal guarantee for a minimum support price (MSP).

About World Trade Organisation

• Origin:
  • WTO came into being in 1995. 
  • WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War.
• Objective: To help trade flow smoothly, freely and predictably.
• It has 164 members, accounting for 98% of world trade.
• The WTO Secretariat is based in Geneva (Switzerland).
• Non-discrimination principles: Most-Favoured Nation and National Treatment

What is WTO’s Agreement on Agriculture (AoA)?

• Background:
  • The AoA is an international treaty of the World Trade Organisation (WTO), negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade.
  • It entered into force with the establishment of the WTO on 1 January 1995.
• What does it include: It includes the classification of subsidies by "boxes" depending on consequences of production and trade:
  • Amber Box: most directly linked to production levels.
  • Blue Box: production-limiting programmes that still distort trade. 
  • Green Box: minimal distortion. 
• While payments in the amber box had to be reduced, those in the green box were exempt from reduction commitments. 
• However, all must comply with the "fundamental requirement":
  • To cause not more than minimal distortion of trade or production
  • Must be provided through a government-funded programme that does not involve transfers from consumers or price support to producers.

Three Pillars of AoA

• Domestic support:
  • It calls for reduction in domestic subsidies that distorts free trade and fair price.
  • Under this provision, the Aggregate Measurement of Support (AMS) is to be reduced by 20% over a period of 6 years by developed countries and 13% over a period of 10 years by developing countries.
  • Under this, Subsidies are categorised into:

Green Box	Amber Box	Blue Box
Subsidies that do not distort trade, or at most cause minimal distortion. They are government-funded and must not involve price support. They also include environmental protection and regional development programmes. “Green box” subsidies are therefore allowed without limits, provided they comply with the policy-specific criteria.	All domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box as all domestic supports except those in the blue and green boxes. These include measures to support prices, or subsidies directly related to production quantities.	This is the amber box with conditions. Such conditions are designed to reduce distortion. Any support that would normally be in the amber box is placed in the blue box if the support also requires farmers to limit production. At present, there are no limits on spending on blue box subsidies.

• Market access: 
  • Market access for goods in the WTO means the conditions, tariff and non-tariff measures, agreed by members for the entry of specific goods into their markets.
  • Market access requires that tariffs fixed (like custom duties) by individual countries be cut progressively to allow free trade. 
  • It also required countries to remove non-tariff barriers and convert them to Tariff duties.
• Export subsidies:
  • Subsidy on inputs of agriculture, making export cheaper or other incentives for exports such as import duty remission etc. are included under export subsidies.
  • These can result in dumping of highly subsidized (and cheap) products in other countries and damage the domestic agriculture sector of other countries.

 AoA and MSP Challenges

• Under Agreement on Agriculture (AoA), Minimum Support Price (MSP) is categorised as a trade-distorting subsidy.
• Rationale: 
  • If countries are permitted to provide such subsidies to their farmers, it would give them an unfair advantage in the global market.
  • This would render agricultural products from other countries uncompetitive.
  • Therefore, trade-distorting subsidies like MSP are subject to specific limits.
• However, AoA has significant imbalances: Issue of External reference price (ERP)
  • ERP is an average price established based on the base years of 1986-88 against which MSP is compared to determine trade-distorting subsidies. This ERP has not been revised in decades.
  • Consequently, the gap between the MSP and the fixed ERP has widened dramatically due to inflation.
• India has been negotiating diligently at the WTO to rectify this issue but without success.

Existing Policy Flexibility within WTO Framework

• Peace Clause Utilisation: 
  • It allows India to exceed subsidy limits for rice and wheat without legal challenges.
  • Limitations: Applies only to food security programs, not all crops.
• Alternative Support Mechanisms: Income Support Schemes
  • PM-Kisan Samman Nidhi: Provides ₹6,000/year to farmers; classified as non-trade-distorting.
  • However, the 2025 Budget has failed to enhance such schemes.

Consequences of Exiting the WTO: 

• Loss of Trade Benefits:
  • National Treatment: Indian exports could face discrimination in foreign markets.
  • Most-Favoured-Nation (MFN) Status: Loss would require renegotiating bilateral FTAs, which can be:
    • Complex and Costly: Higher bureaucratic and compliance burdens.
    • Unfavourable Terms: Developed countries often impose stricter conditions in FTAs.
• Dispute Resolution Void:
  • WTO’s Dispute Settlement Mechanism provides a structured, rules-based system (e.g. India’s successful cases against the US/EU).
  • Current Crisis: Appellate Body non-operational but still more effective than FTA-based diplomacy.

WTO’s Broader Role and Global Context: 

• Beyond Agriculture:
  • Multilateral Trade Governance: Ensures non-discriminatory access to global markets for goods/services.
  • Strategic Importance for India: Critical for a developing economy reliant on exports (e.g. IT, pharmaceuticals).
• Geopolitical Imperatives:
  • US-China Rivalry: A weakened WTO enables unilateralism (e.g. US tariffs on China).
  • India’s Stake: Strengthening multilateralism curbs protectionism and safeguards developing nations.

Way Forward

• Policy Reforms within WTO:
  • Revise ERP: Lobby for inflation-adjusted reference prices.
  • Leverage Peace Clause: Expand coverage to more crops.
• Domestic Measures:
  • Boost Income Support: Enhance schemes like PM-KISAN to reduce reliance on MSP.
  • Farmer Engagement: Educate stakeholders on WTO’s benefits and collaborative reform strategies.
• Strategic WTO Engagement:
  • Strengthen Multilateralism: Advocate for appellate body revival and dispute resolution reforms.
  • Counter Protectionism: Collaborate with developing nations to uphold fair trade practices.

Trade multilateralism, the principle that the WTO represents, is the best bet for developing countries like India. It is essential to communicate clearly with farmers and involve them in this process, as they are key stakeholders.