Does India-US pact on food security matter?

The question is whether a bilateral deal is the best way to resolve differences over farm subsidy issues at WTO.

After months of stalemate, India and the US have agreed to resolve their differences over food stock holdings which would open the way for future implementation of Trade Facilitation Agreement (TFA) of the WTO – the biggest trade deal in its entire history.

On November 13, 2014, Minister of State for Commerce Nirmala Sitharaman issued a statement announcing a bilateral agreement with the US. “We are extremely happy that India and the US have successfully resolved our 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 open the way for implementation of the TFA. We are confident that the membership will take the matter forward in the WTO in a constructive spirit,” she said.

US Trade Representative Michael Froman also welcomed the agreement 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.

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.

In July 2014, India had refused to ratify the TFA on the grounds 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 pact arrived in Bali extends beyond 2017, in case no permanent solution on food security is reached.

India will share its proposal at 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 WTO who had disproved its concerns earlier. The government expects that the General Council would endorse its proposal on peace clause and thereafter multilateral talks on implementing the TFA and amending the Agreement on Agriculture would proceed ahead.

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 subsidy to farmers as well as on public food distribution system. 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 India and elsewhere since then. It is interesting to note that this issue was taken up at Bali Ministerial Conference in December 2013 only after it was linked with TFA.

Nevertheless, the timing of this bilateral breakthrough is very important. This deal came just two days before the G20 Summit in Brisbane. Undoubtedly, this deal 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.

Obama’s victory
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 and has attempted to silence his critics at home.

Prime Minister Narendra Modi is likely to portray this pact as a major victory at home. 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 at 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 this bilateral agreement and fall in line. As these member-countries had no say in deliberations 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.

(The writer is Director of Madhyam, a policy research institute based in New Delhi)