Nov 19, 2014

India-US deal on food security in WTO: Postponing the search for a permanent solution

Just a few weeks back, as the Maharashtra Assembly election results poured in, Uddhav Thakre knew the crucial role Shiv Sena will play in the formation of the Maharashtra government. It was being presumed that Uddhav Thakre would be the next deputy Chief Minister in the new coalition government.

But the moment NCP announced unconditional support to the BJP, Shiv Sena lost the plot. Uddhav Thakre’s bargaining power was reduced to zero. Shiv Sena now sits in the Opposition.

You will ask me why am I narrating from the Maharashtra’s political theatre that the nation has already been a witness to when I am trying to understand the reasons behind all the enthusiasm that has been generated with India managing to seal the deal on food security with the United States at the World Trade Organisation (WTO). As we read in the newspapers, the deadlock over the signing of the landmark Trade  Facilitation Agreement has been broken with India and the US claiming to have “successfully resolved” their differences on the issue of minimum support price to Indian farmers.

Let’s first try to understand what has been achieved. Commerce Minister Nirmala Sitaraman said: “We are happy that India and US have successfully resolved their differences related to the issue of public stockholding for food security purposes at WTO in a manner that addresses our concerns.” At the same time, the minister announced that show would not be making any information publicly available before it is presented to the WTO General Council scheduled to meet on Dec 10-11.

If accepted by the General Council, the bilateral agreement will pave the way for the launch of the Trade Facilitation Agreement (TFA) which aims at making simple the cumbersome custom processes, reducing costs and administrative charges in moving goods across countries, thereby making imports quick and easy. This is where the commercial interest of the rich developed countries lie and all out efforts therefore were to bypass India’s objections on first finding a permanent solution to its food security concerns.

To put it simply, the impasse over the multi-billion dollar opening that is expected once the TFA comes into force is now removed. The TFA will come into existence, latest by mid-2015, once all the diplomatic formalities are completed.

India has therefore managed to postpone the permanent solution it was looking for to the vexed issue of paying adequate food prices to its 600 million farmers which is directly linked to ensuring food security for 840 million poor people. But more importantly, like the fate of Shiv Sena in Maharashtra Assembly, India too has lost the bargaining power in the international trade forum.  

The international desperation to finding a solution to India’s concern over food security was directly linked to the launching of Trade Facilitation Agreement. But once the TFA comes into existence, India’s defiant stand on protecting its food subsidies will get dissipated.

I am not saying that what India has managed to wrest from the US is not quite a step forward. After all, the Peace Clause – the period in which no member country can challenge India’s food subsidies at the Dispute Panel – has been extended from the originally agreed period of four years at the Bali WTO Ministerial in Dec 2013 to an indefinite period until a permanent solution regarding this issue has been agreed and accepted. In other words, India can go on paying farmers a minimum support price regardless of the WTO condition of keeping it within the 10 per cent permissible limit allowed as part of the Aggregate Measure of Support under the Agreement on Agriculture.

For the time being it means the US has stepped down from its arrogance and double standards in protecting the massive subsidies that it pays to its minuscule farming population but challenging the subsidy support India or for that matter other developing countries give to their small and marginal farmers constituting bulk of the farming populations. But this may perhaps be because of the larger economic interest for the US that presently lies in aggressively pushing for its exports in the developing countries. As former WTO Director General Pascal Lamy had once remarked: “For all practical purposes, the TFA will for all practical purposes mean lowering the import tariffs in developing countries by another 10 per cent.”

Nirmala Sitaraman has acknowledged that the India-US deal will end the impasse at the WTO and open the way for the implementation of trade facilitation agreement. Since the issue of food security was linked to the approval for trade facilitation agreement, I would have thought the best option for India was to find a permanent solution before making any commitment on signing the trade facilitation treaty. Now with the bargaining power gone, India may not get what it wanted. A sword of Damocles will continue to hang whether we like it or not.

Prime Minister Narendra Modi had demonstrated political astuteness by standing firm on India’s question of seeking a permanent solution to its food security concerns by refusing to endorse trade facilitation by July 31. The deadline was breached and India was accused of stalling the international trade negotiations. But Prime Minister stood his ground, and rightly so. He in fact remarked that it was important for him to protect the national interests rather than look for some articles in the foreign media applauding him for going with the global stream.

The issue at stake is the minimum support price that India pays to its farmers. According to WTO, India is allowed to provide a maximum of 10 per cent of the total value of a crop as minimum support price. In case rice, against the permissible limit of 10 per cent, India provides 24 per cent. In case of wheat, it is fast approaching the 10 per cent deadline. Indian price support to farmers is actually hurting the commercial interests of US agricultural exporters. Nearly 33 such export federations are pressuring the US government not to allow any further rise in MSP for Indian farmers. They are keen that Indian farmers will be forced to get out of agriculture once farming become economically viable thereby turning India into a major food importing country. #

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