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US-India food deal and the WTO

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A villager in Charch, Madhya Pradesh, washes wheat she acquired through the government’s food subsidy program.

FT | Nov 15 2014

US-India food deal and the WTO

By Kavaljit Singh of Madhyam

After months of stalemate, India and the US have agreed to resolve their differences over food stock holdings, opening the way for future implementation of the Trade Facilitation Agreement at the World Trade Organization – the biggest trade deal in the WTO’s entire history.

The two countries have reportedly agreed that a “peace clause” – which protects member countries that breach farm subsidy caps under the Agreement on Agriculture from being challenged at the WTO – will continue indefinitely until a permanent solution is found. The US agreed to Indian demands to rewrite the peace clause to give adequate protection to such member countries.

In July 2014, India had refused to ratify the TFA on the grounds that the text of the WTO’s Bali Ministerial Declaration was not clear on whether the country could continue its food subsidy programme beyond 2017. India wants to modify the text to ensure that the interim pact on food subsidies reached in Bali extends beyond 2017, in case no permanent solution is reached.

India will share its proposal at the WTO’s General Council at its meeting next month in Geneva. New Delhi hopes its agreement with the US will put new pressure on those WTO members that had disproved its concerns earlier.

Food security is a politically sensitive issue in India, which is home to more than a quarter of the world’s hungry. The right to food is enshrined in the Indian Constitution and New Delhi spends more than $60bn a year on price support subsidies to farmers, input subsidies and public food distribution. Although India has not yet breached subsidy caps, the government is concerned about a possible breach in the case of wheat and rice in the near future.

For the past many years, India has been demanding a review of the outdated farm subsidy rules of the WTO, which base subsidy calculation on reference prices of 1986-88 while food prices have increased manifold since then. It is interesting to note that this issue was taken up at the Bali Ministerial Conference in December 2013 only after it was linked with the trade facilitation agreement.

Nevertheless, the timing of this bilateral breakthrough is very important. This deal came on the eve of the G20 Summit in Brisbane where leaders are expected to discuss the progress on the post-Bali work programme, especially the TFA. Undoubtedly, the agreement has rescued the WTO from potential irrelevance after repeated failures of multilateral trade talks since 2008 besides the growing proliferation of bilateral and plurilateral agreements throughout the world. In sum, it has added a new momentum to multilateral trade negotiations at the WTO.

Politically speaking, the bilateral agreement with India could be seen as the third major victory for US President Barack Obama, following the US-China pact to cut tariffs on IT products and an agreement with China on carbon emissions signed this week. By securing these agreements, Obama has firmly asserted the leadership of the US in advancing the global trade agenda.

Prime Minister Narendra Modi is likely to portray this pact as a major victory at home and at his first G20 Summit in Brisbane. It is a win-win situation for both political leaders as they initiated this process during Modi’s visit to Washington in September 2014.

What chance of success? After all, it is an agreement between just two member countries of the WTO. Of course, there is no guarantee that the other 158 members (especially the European Union and an Australia-led group of more than two dozen countries) will accept this bilateral agreement and fall in line. As they had no say in deliberations between India and the US, they may question the sanctity of such bilateral deals.

Some may even question whether a bilateral deal is the best approach to resolve differences over farm subsidy issues at the WTO – the legal and institutional framework of the multilateral trading system. So a degree of scepticism is obviously warranted.

Kavaljit Singh is director of Madhyam, a policy research institute based in New Delhi.

 source: Beyond Brics