India-US pact will boost world trade

The agreement between India and the US over farm subsidies has cleared the way for the implementation the World Trade Organisation’s (WTO) Trade Facilitation Agreement (TFA).

It was India’s refusal to sign the agreement in the absence of an assurance that the country’s food security programme would not be adversely impacted by the WTO norms on subsidy that had held up the TFA. India was accused of being a deal-breaker because WTO agreements require endorsement by all member countries. The US was the most critical of the Indian position. There is good sense on both sides in reaching a compromise now, though all the details of the solution are yet to be made public. The world trade body’s general council is to meet next month and it is expected that both agreements will be endorsed then. 

India’s grouse was that the rules under the WTO’s Agreement on Agriculture (AA) would affect its food grain public procurement and stockholding programme because of the limits they imposed on subsidies. The rule was unfair and unrealistic because its method of calculating subsidies was on the basis of prices that prevailed in 1986-88. There was insufficient provision for inflation. The rules wanted the procurement price paid to the farmers not to exceed 10 per cent of the value of the output.

India felt the subsidies involved in procurement and supply of food grains would be challenged as a trade distorting measure under the rules. The peace clause agreed upon during the Bali ministerial meet of the WTO was seen as only a temporary reprieve for four years as it was possible for any country to demand punitive measures against the country if the issue was not resolved by then.

The latest agreement makes the peace clause permanent and India will not face any legal threat on the issue of subsidies at any time. The AA rules may have to be renegotiated in the light of the new agreement.

 However, there is a view that the impact of the AA rules would not have been as bad as projected in view of the new policy of direct transfer of subsidies. 

The TFA will reduce transaction costs and liberalise procedures and give a big boost to world trade. India, with an increasing share of trade in its GDP, will certainly gain from that. This is also the first major WTO agreement, it keeps the world body relevant and is good for India because the growing trend among many countries to create trade blocs in the absence of a multilateral trade agreement would have otherwise hurt the country. 

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