U.S. business groups expressed frustration last week over India’s decision to block implementation of a new World Trade Organization (WTO) agreement, saying it damaged the credibility of new Indian Prime Minister Narendra Modi as a business-friendly reformer.
“I think the fallout here could be quite massive, not just for U.S.-India relations but for India’s domestic reform agenda and the WTO going forward,” Linda Dempsey, vice president for international economic affairs at the National Association of Manufacturers, told POLITICO Pro.
India and a few other countries last Thursday blocked the WTO from carrying out the new Trade Facilitation Agreement (TFA) struck last year in Bali after other countries balked at New Delhi’s attempt to reopen a food security agreement reached at the same December meeting.
The TFA is the first multilateral agreement in the nearly 20-year history of the WTO. It aims to make it cheaper and easier to move goods across borders by reducing red tape and improving customs procedures.
The Organization for Economic Cooperation and Development has estimated the pact could cut trade costs 14.5 percent for developing countries and 10 percent for developed countries, while the Peterson Institute for International Economics has projected it could boost world exports by as much as $1 trillion.
Another deal struck in Bali was intended to protect India’s costly public food stockholding program from a possible challenge under WTO farm subsidy rules by putting a “peace clause” in place until a permanent solution to the problem was found. That agreement also called for a negotiated settlement by late 2017.
However, in recent weeks India has sought to move up the deadline for negotiating a permanent solution to its food security concerns by three years, to this December, and to delay implementation of the TFA until then.
U.S. business officials said India’s stance was particularly frustrating because the type of reforms contained in the TFA are similar to those Modi has promised to pursue at home. “To watch India halt a global deal that had already been signed and that does exactly the same thing as its domestic reform agenda does raises serious questions about the credibility of this government,” Dempsey said.
Jake Colvin, vice president of the National Foreign Trade Council, told reporters the decision sent “a terrible signal” about India’s ability to keep its promises. India’s move is all the more puzzling because blocking the TFA might make it more likely that countries could challenge India’s food stockholding program, he added.
Both Colvin and Dempsey expressed hope that India would reconsider its position while countries look at other options for implementing the pact. If not, the issue is likely to be on the agenda when Modi meets with President Barack Obama in Washington in September.
Meanwhile, Indian officials said on Friday in New Delhi that the TFA deal could be salvaged in September if other WTO members agree to address its food security concerns in the same time frame, Reuters reported.
“It is ridiculous to say the Bali deal is dead,” a senior official at India’s trade ministry said, speaking on condition he not be identified. “We are totally committed to the TFA, and only asking for an agreement on food security.”
Another trade official added: “We expect that the [WTO] director general will call a meeting in September and we are ready to sign the deal in September itself, provided TFA and food security issues are passed together. We are quite hopeful for the deal.”
