Prime Minister Narendra Modi’s meeting with US President Barack Obama achieved a number of positive results. One of them has been movement from the United States regarding India’s position at the World Trade Organisation on the issue of food security, linked to public stockholdings of foodgrain. Those who know the WTO see this as a major accommodation on the part of the United States, and hope that this could be important in getting the stalled WTO system to start moving again. India should clinch this success in its negotiation and help move the system ahead.
The background to this situation is important to understand how significant this change has been. Last December, WTO member states and the world of commerce had hailed the results of the WTO Ministerial meeting at Bali. WTO Director General Roberto Azevedo pointed out that for the first time, the WTO had been able to get a negotiated result and the system was at last moving ahead.
Soon after this result, Finance Minister Arun Jaitley, then Leader of the Opposition, had pointed out a legal lacuna that was not clear to several persons, including a number at the WTO. The respite earned through the Bali package, he showed, was only a four-year window. India needed a permanent waiver in order to develop a permanent solution to the food security issue. This was a position emphasised by India in its discussions at the WTO, insisting that it was crucial to negotiate a permanent solution which would adjust the reference price from 1986-88 used to calculate subsidies to such programmes.
Insisting on such a permanent waiver, India decided not to agree to the Trade Facilitation package that was to be implemented in end-July 2014. India said it was not against Trade Facilitation, but wanted its own food security concerns to be reflected in equal terms. This was a very strong position and was criticised by many, both from the developed and developing world.
The United States was prominent amongst those. Together with many, it emphasised the point that negotiated results at Bali should not now be re-opened. The widely held view was that the Bali decision had provided for a four-year period to address this issue and India’s insistence on a major change and immediate consideration of an additional aspect was a breach of the Bali package. Nonetheless, India stuck to its insistence on a permanent waiver in the face of a large body of opinion that did not agree with its position.
Together with the deadline for the Trade Facilitation result to be accepted, the end-July date was also important for the WTO system to consider the post-Bali agenda. India’s strong position prompted the United States to agree on July 31 that an informal statement by the Chair of the General Council (the highest decision-making Body at the WTO) could be made that the waiver was permanent. India did not find it good enough, saying such a statement would lack legal certainty. Both sides had strong positions, and the WTO process broke down. There has been a major impasse since then.
The common view was that the maximum concession that the United States could give had been provided in July, and now the system was in its deepest crisis ever. Given that mega-regional negotiations are being negotiated by the United States in the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership, its interest in the WTO was seen as waning. About 120 countries have only the WTO system to guarantee a level playing field in trade. Lack of agreement was seen as fragmenting the world of trade rules and the end of the multilateral system that has been important for growth in trade and incomes since its inception after the Second World War. In fact, many have considered moving on to limited agreements within or outside the WTO, which would exclude several countries from the results of new rules and thus possible trade and investment opportunities.
This situation required the highest political intervention and statesmanship, with both sides being sensitive to each other’s concerns. Provided this was possible, it bears emphasis that India should be sensitive to the value of the WTO system once its important objective of getting the above-mentioned permanent waiver is achieved. That moment has now come after the key meeting of Prime Minister Modi and President Obama.
In the recent past, the United States has made a major concession and agreed that a WTO General Council Decision can be made for a permanent waiver, thus providing legal certainty for the change in the Bali package. This would address the lacuna pointed out last December by Mr Jaitley, and now being strongly emphasised by Mr Modi. It would provide a basis to negotiate the change in the reference price of 1986-88 that is used to calculate the subsidy levels, a point emphasised by India’s commerce minister in Parliament this year. It is a positive move from the US to provide India with what it has been seeking, and the meeting of Messrs Modi and Obama has paved the way for averting a major crisis for the trading system.
From the Indian side, however, there is still uncertainty and some sources suggest that India has now increased the scope of its demand. That would strengthen the momentum for plurilateral and divisive agreements and the fallout for India would not be positive. India is not part of the large mega-regionals that would define many of the key rules of the game.
The multilateral trading system is important also to ensure that a large number of countries excluded from mega-regionals, but important for India, have the possibility of maintaining their economic opportunities through trade and investment. Moreover, India has the possibility of getting what it was seeking — a permanent waiver. With this change, India can negotiate whatever it wants without the concerns it had earlier. It is time for India now to reap the rewards of the gains through this revised Bali package and give momentum to the post-Bali programme.