Wednesday, November 19, 2014




India has issued a statement on 13.11.2014 that there is an understanding  reached with USA  for inclusion of “perpetual peace clause” in place of interim “peace clause up to 2017” agreed for India at WTO’s Bali conference of December 2013. With this development, Indian understanding is that no legal action for penalties can be initiated against India by WTO members if India violates WTO conditions on Food Security and subsidies on Public stocks holdings; and that USA is now expected to garner support on the basis of this perpetual peace clause with other members for signing of TFA (Trade Facilitation Agreement) on multilateral basis at WTO by December 2014, which was deferred in July 2014.
Though the text of understanding reached between USA and India is still not available, transcript of press conference of USTR (United States Trade Representative) Ambassador Michael  Froman  of 13.11.2014, on the website, mentions “The agreement consists of two basic elements. First is a specific agreement to move forward with the full and immediate implementation of the WTO Trade Facilitation Agreement. And second, there’s an understanding about “specific” food security programs agreed to in the Bali accord. We eliminated any ambiguity in Bali about the duration of the “so-called Peace Clause”, provided that food stockpiling programs meet the agreed upon conditions in Bali.” ( ).
USTR statement is explicit that the USA has merely sorted out the “ambiguity”. It remains unclear if USA has “altered” their basic position.  India may still not be immune from legal action if the condition of subsidy beyond 10% of MSP price levels of base year 1986-88 on food stocking programs is breached without indexing for annual inflation.  (India has been very vocal to USA and WTO that annual food inflation should be accounted for determining breach in the limit of subsidies before deciding any penal action). Neither USTR has unambiguously stated that peace clause will be applied till perpetuity until India’s concerns on Food Security and subsidies on Public stocks holdings issues are settled, as claimed by the Indian officialdom.
 Are India, USA, and WTO moving from one ambiguity to another ambiguity? More details and data need to come out in public domain before the radical departure of USA position can be confirmed.  A simple reading of above quoted comments signifies that the first priority of USA remains to secure TFA at WTO and that legal action before 2017 cannot be ruled out. As per Bali agreement, peace clause is an interim arrangement and so long as USA continues to speak about adherence of “conditions in Bali”, perhaps status –quo remains.
NDA government may be right in interpreting the Bali agreement as the one exposed to limitation of peace clause till 2017 while they (NDA) themselves have aggressively initiated reform in food policies/stock holdings. USA has thus addressed Indian concern by “modifying” the language rather than shifting their position of unlimited access to India on exceeding subvention limits provided under WTO provisions.
If the USA position is “Modified”, then the very objectivity of Obama Administration on WTO becomes questionable. All issues raised by USDA on Indian subsidies and trade distortions get annulled automatically.  WTO members who have already undertaken reforms will feel embittered if India alone stands excluded. Another poser that arises is--- if there is change of heart in USA vs India due to some distinct understanding on geo-political realities and economic cooperation, is it incumbent upon other nations to follow suit and endorse policies that distort the trade!! 
Here is an explanation of how Indian public procurement policy of grains leads to trade distortion in import, export and domestic market.  There is 90% subvention under Food Security Act. Heavily subsidised grains discourage or deter import into India at world’s market prices. Thus India as a market remains closed or blocked to other exporting nations.
On the export front India has unfair advantage. Since India’s PDS system has leakage of 45-50%, the pilfered pipeline enables local traders to procure cereals at below the market prices, which enhances Indian export competitiveness to the disadvantage of other competing nations. Despite India claiming its sovereignty in its food policy management, the other nations are inimical to this flawed system because it certainly tramples on their sovereignty to trade globally.  
The Indian Government also knows that hoarding of stockpiles by FCI/State agencies sucks surpluses that would have otherwise gone to the market. These dead stocks induce food inflation and generate financial losses apart from rot of grains.   
WTO agreement attempts to put all nations on equal footing. India and USA have moved forward, as claimed by both sides, but need to come out openly and transparently so that more clarity is arrived at in the public domain to assess the terminal outcome of the deal at WTO.

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