After months of stalemate, India and the US have agreed to resolve their differences over food stockholdings which would open the way for future implementation of the Trade Facili-tation Agreement (TFA) of the WTO—the biggest trade deal in its entire history.
On November 13, 2014, Nirmala Sitharaman, India's Minister of State for Commerce and Industry, issued a statement announcing a bilateral agreement with the US. “We are extremely happy that India and the US have successfully resolved their differences relating to the issue of public stockholding for food security purposes in the WTO in a manner that addresses our concerns. This will end the impasse at the WTO and also open the way for implementation of the Trade Facilitation Agree-ment. We are confident that the membership will take the matter forward in the WTO in a constructive spirit,” she said.
The US Trade Representative, Michael Froman, also welcomed this agreement with India which “reflects shared understandings regarding the WTO's work on food security”. However, both countries have refused to share the finer details of the agreement. Hence, one cannot analyse the pros and cons of the agreement at this moment.
The Peace Clause
According to media reports, the two countries have agreed that the peace clause—which protects member-countries (breaching farm subsidy caps under the Agreement on Agriculture) from being challenged under other WTO agreements—will continue indefinitely till a permanent solution is found by the WTO. The US has agreed to India's demand to rewrite the entire peace clause of the Bali Agreement so that it gives adequate protection to member-countries against legal challenge in case farm subsidy caps are breached.
In July 2014, India had refused to ratify the TFA on the ground that the text of Bali Ministerial Declaration is not clear whether the country could continue its food subsidy programme beyond 2017. India wants to modify the text to ensure that the interim agreement arrived in Bali extends beyond 2017, in case no permanent solution on food security is reached.
India will share its proposal at the WTO's General Council at its upcoming meeting (scheduled in December 2014) in Geneva. The Indian Government expects that this agreement with the US would put new pressure on those member-countries of the WTO who had disproved its concerns earlier. The government expects that the General Council would endorse its proposed rewording of the peace clause and thereafter multilateral talks on implementing the TFA and amending the Agreement on Agriculture would proceed ahead.
The Importance of National Food Security
Food security is a politically sensitive issue as more than a quarter of the world's hungry live in India. The right to food is enshrined in the Indian Constitution and New Delhi spends more than $ 60 billion annually on price support to farmers, input subsidies and public food distribution system. The government views stockpiling as an important component of its food security programme. Although India has not yet breached subsidy caps, the government is duly concerned over the possible breach of caps 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 in this country and elsewhere 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 to the Trade Facilitation Agreement.
The Timing
Nevertheless, the timing of this bilateral breakthrough is very important. This deal came just two days before the G-20 Summit in Brisbane (Australia) where leaders were expected to discuss the progress on the post-Bali work programme (especially the TFA) of the WTO. Undoubtedly, this deal has rescued the World Trade Organisation from potential irrelevance after the 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 the 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 and attempted to silence his critics at home.
The Prime Minister, Narendra Modi, has portrayed this pact as a major victory at home and at his first G-20 Summit in Brisbane. It is a win-win situation for both political leaders as they together initiated this process during Modi's visit to Washington in September 2014.
Still Some Questions
What chance of success at the WTO? After all, it is an agreement between just two member-countries of the WTO. Of course, there is no guarantee that the rest 158 members of the WTO (especially the European Union and an Australia-led group of more than two dozen countries) may accept India's proposal to modify the Bali Agreement text and fall in line. As these member-countries had no say in the delibe-rations between India and the US, they may question the sanctity of such bilateral deals without their knowledge and participation.
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. Hence, some scepticism is obviously warranted.
Kavaljit Singh is the Director of Madhyam, a policy research institute based in New Delhi. The Madhyam website is www.madhyam.org.in