US challenges Indian agro-subsidies

The United States has issued a counter-notification at the World Trade Organisation challenging India’s official figures. The US has alleged that India gives farmers more subsidies than what is allowed by the WTO. The notification, filed on the 4th May, is the first ever in the global trade body.

Background

The World Trade Organisation is a global intergovernmental organisation dealing with the rules of trade between nations. The WTO commenced in January 1995 and is the world’s major trade regulatory body. 123 countries were signatories to the original Marrakesh Agreement on which the organisation was formed. The WTO was the successor to the General Agreement on Tariffs and Trade (GATT). Today, the WTO has almost 150 members, accounting for 97% of world trade. The WTO assists in negotiating trade agreements, settling trade disputes between members, and supporting the needs of developing countries.

US president Donald Trump has faced controversy for pushing to change the WTO, stating that the organization is exploiting the American economy and businesses. He added that the WTO is the reason for the emergence of China as a global economic power. The US has proposed WTO reforms that would punish members for violating basic rules, mainly targeted at China.

India-US trade

The US has traditionally enjoyed relatively warm ties with India. In 2017, the two countries traded in goods worth over $70 billion. Indian Prime Minister Narendra Modi visited America in 2017 after Trump assumed power. However, Trump has also complained about the US’s trade ties. In February 2018, Trump praised PM Modi but also said that the US was “getting nothing” from the trading partnership between the two nations.

In 2015, India lost a case at the WTO regarding a ban on agricultural products because of concerns related to Avian Influenza (bird flu). The organisation ruled that the Indian ban on import of poultry, meat, eggs and live pigs from the US was “inconsistent” with international norms. The US consequently petitioned for sanctions against India as compensation in 2016. India also lost a WTO dispute against the US on certain measures relating to solar cells and modules. President Trump has specifically criticised India’s import duty on Harley-Davidson motorbikes.

The United States has been accused of a protectionist stance following the 25% steel and aluminium import tariffs imposed by the Trump administration earlier this year. Washington and Beijing have imposed a series of tariffs against each other, raising fears of a global trade war. Read more on India’s response to these tariffs here.

Analysis

Analysis

The United States has issued a statement at the WTO claiming that India has supported its wheat and rice farmers above permitted WTO levels. “It appears that India provides market price support (MPS) for wheat and rice vastly in excess of what it has reported to the WTO,” the U.S. statement said. “India’s apparent MPS for wheat appears to have been over 60% of the value of production in each of the last four years for which India has notified data. It’s apparent MPS for rice appears to have been over 70%.”

WTO rules state a limit of 10%. The US report was based on payments for 2010/11 to 2013/14, which are the last years notified at the WTO. The organisation allows members to make counter-notifications if "it feels that a notification by another Member is either incomplete or incorrect."

"India represents a massive market and we want greater access for US products, but India must be transparent about their practices," said US Agriculture Secretary Sonny Perdue. India is one of the largest agricultural exporters in the world. Its agricultural exports increased by 22% from 2010 to 2014.

In March 2018, the US also launched a trade challenge against most of India’s export subsidy programs at the WTO, after Trump threatened to impose disciplinary duties on countries that export more to the US than they import from it. The US argued that the programs give Indian companies an unfair advantage. “USTR will continue to hold our trading partners accountable by vigorously enforcing U.S. rights under our trade agreements and by promoting fair and reciprocal trade through all available tools, including the WTO,” said US Trade Representative Robert Lighthizer.

Assessment

Our assessment is that this allegation could have serious consequences for India’s international image. It is important for New Delhi to ensure that figures disclosed to international organisations are accurate. As stated previously, we believe that such disputes may not be likely to affect the long-term trajectory of a bilateral trade partnership. However, given the current economic and geopolitical scenario, India may seek to diversify its trade relationships to prevent dependency on any particular nation.