Big diplomatic victory: India rejoices as US takes a u-turn on WTO; Washington backs stand on food security

Economic Times, November 14, 2014
India, which had held out against signing the Trade Facilitation Agreement in July, regards the shift in the US stance as a big diplomatic victory.

Hours after US President Barack Obama told Prime Minister Narendra Modithat he was “a man of action” at an Asean dinner in Myanmar, Washington backed India’s much-criticised stand on food security at the World Trade Organization, marking a breakthrough that means a historic accord can now move forward.

India, which had held out against signing the Trade Facilitation Agreement in July, regards the shift in the US stance as a big diplomatic victory.

Under the agreement reached with the US after hectic parleys in the early hours of Thursday, WTO nations won’t challenge food security programmes of fellow members until a permanent solution has been found and adopted on food stocks, something on which India had refused to budge. The July meeting took place a little over a month after the Modi government took charge following the general election victory.

India is now expected to endorse the Trade Facilitation Agreement (TFA), a global plan to lower customs barriers that’s expected to add $1 trillion to the global economy.

The move will revive multilateral trade negotiations that seemed dead after India’s unrelenting stand on the food security issue.

At the time, India was isolated and had to face worldwide condemnation for standing in the way of one of the biggest deals brokered at the two-decade-old WTO, and one that had been arrived at after long and painful negotiations.

“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,” said trade minister Nirmala Sitharaman, announcing the development in Delhi on Thursday. A US statement offered further details. “Efforts to put the TFA in place were dealt a setback in July, when a small group of countries, led by India, raised concerns about the status of the WTO’s work on food security issues and blocked consensus on implementing the TFA,” US Trade Representative Michael Froman said in the release. “We have overcome that delay and now have agreement with India to move forward with full implementation.”

The Indian government, acutely aware that it risked getting left behind if other countries went ahead and signed the deal, feels vindicated by its earlier intransigence, trade experts said. They added that poor nations, unwilling to take a similar stand publicly as they were nervous of richcountry annoyance, were also happy that India’s position had been accepted, a point that Sitharaman also made.

“Implementation of the rest of the Bali decisions will give some comfort to the developing countries and LDCs (least developed countries), even though most of the nonbinding decisions do not hold out the promise of substantial gains for these countries,” she said. “We will continue to work for the implementation of the Bali package and the DDA (Doha Development Agenda).” Progress on achieving the breakthrough came during Modi’s visit to the US in September, when he apprised Obama about the country’s food security concerns given its large number of poor people and making it clear that India was not at all opposed to the TFA. India had been concerned that ambiguous wording in the agreement left unclear whether countries that breached stock and subsidy limits could be vulnerable to legal action from other WTO member nations. Those fears seem to have been addressed and the WTO general council is now set to endorse the agreement.

“India has had its way with what it had proposed on July 31,” said Anwarul Hoda, former deputy director general, World Trade Organization. “One would normally expect that to agree on making the peace clause permanent, the US would insist on additional conditions, but it appears that they have gone ahead on the basis of the same draft, which is India’s victory.” Hoda is currently chair professor at the Indian Council for Research on International Economic Relations (Icrier).

WTO director general Roberto Azevedo applauded the India-US agreement on the key Bali issues. “This breakthrough represents a significant step in efforts to get the Bali package and the multilateral trading system back on track,” Azevedo said. “It will now be important to consult with all WTO members so that we can collectively resolve the current impasse as quickly as possible.”

There were risks in holding up the deal, but India has been able to strike a balance, said Pradeep S Mehta, secretary general, CUTS International, a consumer advocacy group. “It is a victory for the Indian government, no doubt. If the deal goes through in WTO, it will be a big support to the LDCs as well, who kept quiet all through.” Work on the LDC package will also pick up pace, said Abhijit Das of the Centre for WTO Studies. In December 2013, 160 WTO members agreed to a legally binding TFA at Bali, a key demand of the rich countries, whereas developing nations only got temporary relief for their food security concerns in the form of a four-year peace clause, under which no country could be sued for breaching the 10% subsidy cap.

India held off from signing, saying the entire Bali trade package, which included the issue of food stocks, had to be agreed at one go. It said the accord was imperfect and argued that once the TFA was signed there would be no urgency on resolving the food security issue. Thus, developing countries could face action for subsidies after the peace clause ran out in 2017.

“The Bali agreement was imperfect. That imperfection had to be corrected. The US has now openly accepted our position. A course correction was what we wanted, and today we are moving forward in a constructive manner,” Sitharaman said. “We have convinced the American government about the legitimacy of India’s stand in July.”

India will now float the proposal to the general council to be taken up at its next meeting in December. “The first step is for GC to consider the proposal India is putting forward. Though the meeting is scheduled in December, we will love to have it at the earliest,” said Sitharaman.

India is confident that its proposal will get support at the WTO. “It is an Indian proposal,” said the minister. “Now the US will certainly help in shepherding this proposal as the differences we had have been discussed.”

The domestic support disclosure made by India at WTO showed that the country was close to breaching the minimum permitted subsidy limit for rice, creating a rationale for it to push for a permanent solution. In the permanent solution for public stockpiling, India has sought amendment of what it says are outdated WTO norms for calculation of farm subsidies based on 1986-88 prices, since these have increased manifold globally since then. Inflation in India has soared 650% during the period.

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