U.S., India Move WTO’s Trade Agreement Forward

On Thursday Nov. 13, U.S. Trade Representative (USTR) Michael Froman released a statement announcing that the U.S. and India reached a breakthrough compromise on India’s food subsidies, paving the way for the World Trade Organization (WTO) to implement the stalled Trade Facilitation Agreement (TFA) that was reached last December. This agreement would be the first multilateral trade deal to be concluded since the WTO’s inception two decades ago, which reflects shared understandings regarding the WTO’s work on food security and reaffirms its standing as a negotiating forum.

India buys grains–in large quantities at above market prices– to support impoverished farmers and stockpiles it for food security purposes. While the Indian government sees this as essential to ensuring food security for those in poverty, it has been criticized as being ineffective and encourages overproduction. According to WTO regulations, subsidizing more than ten percent of the total value of the grain produced distorts the trade market, but India has been pressing to eliminate that cap, indicating that it negatively impacts specific food security programs maintained by some developing countries. However, other countries are concerned that India’s over production of grain might cause a surplus in the world trade market, thus causing prices to drop significantly for other producers.

The WTO members initially reached an agreement last December in Bali to authorize a temporary exemption for developing countries to not be penalized for providing higher levels of subsidies until a permanent solution was negotiated by 2017. In July, however, India led a small group of countries that stalled the deal, pressing their concerns about food security, and the need for stronger clarity of the exemption in the agreement regarding how WTO member countries could react to massive food stock holdings as well as further guarantees of protection from legal challenges beyond the 2017 deadline. This new deal seeks to address these concerns over the ambiguity with the Bali agreement.

According to the statement, during their bilateral summit in September, President Barack Obama and India’s Prime Minister Narendra Modi held discussions on the issue of trade facilitation and food security for developing countries. The two nations agreed that the TFA should be implemented without conditions, and that WTO member countries would not challenge food security programs under WTO dispute settlement procedures until a permanent solution had been agreed and adopted. It also sets the course for intensified work and negotiations to arrive at such a permanent solution.

The agreement must now be presented for consideration by the full WTO membership in order to finalize decision making in the near future. If this approach is approved by the full WTO membership, it will allow for full multilateral implementation of the TFA, providing vast opportunities for all member countries by reducing trade costs and red tape to ease the flow of goods and services across borders.

This agreement comes on the heels of other announcements that there is further momentum building in the trade arena, such as: the U.S. and China reaching a breakthrough in negotiations on expanding the Information Technology Agreement, and the reported progress being made on the Trans-Pacific Partnership (TPP) to bring negotiations near finalization. At a critical juncture for economic recovery, these deals provide a major boost global trade.