Context: The US is pressuring India to reduce agricultural tariffs to boost its farm exports. India is resisting due to concerns over food security, MSP, and unfair US subsidies.
Relevance of the Topic: Mains: Challenges in India-US trade relations; WTO subsidy norms and their impact on Indian agriculture
Contentious issues in India-US Bilateral Trade Agreement
One of the most contentious issues in the India-US Bilateral Trade Agreement (BTA) is the US government’s and the US agri-lobbies’ pressure on India to open its agriculture market. They are pushing India:
- To lower high tariffs on key agri-products like Rice and Maize in order to enable US agri-business to significantly expand their presence in India.
- To remove restrictions on genetically modified (GM) corn.
- Allow imports of Distillers Dried Grains with Solubles (DDGS), a byproduct of ethanol production.
- Ease limits on Ethanol imports.
What benefits will the US gain?
Through tariff reduction and access to India’s markets, estimated benefits annually:
- $235 million/year if India removes restrictions on GM corn.
- $434 million/year if the US corn is used for sustainable aviation fuel in India.
- $137.5 million in 5 years if India allows imports of DDGS.
- The US would benefit from increased soy oil exports.
Why Is India not Agreeing?
India has resisted tariff reduction due to several concerns, all centered around protecting its agricultural sovereignty and food security:
- Livelihood uncertainties for Farmers: Opening India’s agriculture to imports would create livelihood uncertainties for farming communities and pose a serious threat to its food security.
- Unfair competition from the US subsidies:
- The US’ farm subsidies have consistently increased over the past two decades- from $61 billion in 1995 to $215 billion in 2022. The US provides over $200 billion annually in farm subsidies, enabling its agri-businesses to export (dump) at prices below production cost.
- If India removes tariff protections, Indian farmers without such subsidy levels would be unable to compete, leading to market distortions.
- Flawed WTO Subsidy Assessment: The WTO Agreement on Agriculture (AoA) uses a flawed methodology that compares current MSP with international prices from 1986-88, thus, inflating India’s subsidy levels unfairly.
If India yields to pressure and removes or reduces MSP, distressed farmers may abandon the production of critical food crops.
Way Forward
India must:
- Refuse to reduce tariffs on key commodities unless the US agrees to significantly reduce its farm subsidies.
- Continue to challenge the WTO’s flawed subsidy calculation methodology, pushing for inflation-adjusted or updated international reference prices.
- Maintain its strong negotiating position in the WTO and BTA to prevent external pressure from undermining national interests.
- Assert that India’s subsidies serve developmental goals, unlike the US, which uses subsidies to dominate export markets.