Escaping the Trawl

The Indian Prime Minister and the President of the USA in a joint statement on February 13, 2025, announced, “Mission 500”, which aims at USD 500 billion in bilateral trade by 2030. According to the website of the US Trade Representative (USTR), America’s total goods trade with India was estimated at USD 129.2 billion in 2024. The trade deficit between the two countries in 2023-24 was USD 35.3 billion in India’s favour. Trade negotiations between India and the USA have already started. The emphasis of the talks right now is to prepare lists for “early harvest”, and a roadmap to conclude a bilateral trade agreement (BTA) by the fall of 2025. Agricultural produce has emerged as one of the key focus areas of the ongoing discussions between India and the US for a trade deal.

Last week, US Commerce Secretary, Howard Lutnick, called upon India to open up the agricultural sector for trade, saying “it just can’t stay closed”. He repeatedly called for a bilateral deal, arguing that a pact “with the largest consuming economy in the world” would be beneficial. Lutnick sought a “grand deal”, saying, “Let’s bring India’s tariff policy towards America down, and America will invite India to have an extraordinary opportunity and relationship with us.” The terms “large” and “grand” bilateral trade agreement is usually used while seeking to negotiate a comprehensive trade agreement covering all key aspects, rather than engaging in sector-specific discussions. Lutnick’s statement has created apprehension among Indian policymakers because further than tariff reductions, the US may like to include provisions on government procurement, agricultural subsidies, patent law relaxation, and unrestricted data flows issues that India has largely opposed for decades.

India’s agriculture sector is currently protected by moderate to high tariffs to shield domestic farmers from unfair competition. Opening up a sector means reducing import curbs and duty. According to trade experts, opening up agriculture to heavily subsidised imports would mean an influx of cheap food products, severely impacting Indian farmers’ incomes and livelihoods. Agriculture and allied activities such as animal husbandry form the backbone of India’s rural economy, employing over 700 million people. Over 90 per cent of global food trade is controlled by a few multinational corporations like Nestlé, PepsiCo, Mondelez International, Mars, and The Kraft Heinz Company that have historically used predatory pricing strategies. It is feared that if India reduces protection, domestic farmers could be at the mercy of these global giants, leading to severe economic and political consequences.

Meanwhile, the farmer unions have urged the Union government to resist US pressure to open the country’s agriculture sector to bilateral trade agreements, warning that such a move would be detrimental to farmers and “suicidal for the economy under the threat of increasing tariffs”. The Sanyukt Kisan Morcha (SKM) said: “The US is dictating its terms on trade and tariffs, but succumbing to pressure will destroy the Indian farmers and agriculture. This amounts to implementing the World Trade Organisation’s long-opposed dictates in toto. We can’t allow the corporate and multinational takeover of Indian agriculture”.

US Farmers Need Indian Market

The United States typically exports more agricultural goods by value than it imports, but the value of imports has grown more rapidly than exports over the past decade, contributing to a negative trade balance at present. The value of US agricultural exports peaked in fiscal year 2022 before declining in 2023. In 2023, total exports were valued at USD 178.7 billion; compared to agricultural imports amounting to approximately USD 195.4 billion. After 2022, the USA is running a negative balance in agriculture trade and the gap is widening. This has prompted the Trump administration to propose a steep tariff on agriculture imports. On Thursday (March 13), Trump threatened to impose a massive 200 per cent tariff on European alcohol in response to the European Union’s retaliation against his steel and aluminum tariffs—a tit-for-tat escalation of a trade war that could easily get out of hand.

According to the US Department of Agriculture (USDA), China, Mexico and Canada are the biggest foreign buyers of US agricultural goods. The countries spent between USD 28 billion and USD 29 billion each on US farm goods in 2023. The EU and Japan purchased products worth USD 12.6 billion and USD 11.9 billion, respectively, that year, making them the top 4 and top 5 buyers. As far as imports of agri products into the US go, Mexico was the biggest partner delivering goods, followed by Canada. The European Union sold products worth almost USD 33 billion to the US that year, while Brazilian and Chinese imports remained in the single digits.

China retaliated against President Donald Trump’s tariffs with an additional 15 per cent tax on key American farm products, including chicken, pork, soybeans and beef. The Chinese tariffs, announced last week, were a response to Trump’s decision to double the levy on Chinese imports to 20 per cent on March 4. US trade wars with Canada and the European Union intensified on Wednesday (March 12), with President Donald Trump and the United States’ normally allied countries imposing new levies on each other. The United States enacted 25 per cent tariffs on all steel and aluminium imports on 35 countries, including Canada and the 27-nation EU, and ending previous exemptions that also had been in place for imports from Argentina, Australia, Brazil, Britain, Japan, Mexico, and South Korea. Canada immediately imposed new tariffs on USD 20.7 billion worth of US exports, while the EU announced retaliatory trade action with new duties on US industrial and farm products. The new EU measures will apply to about USD 28 billion worth of US goods. EU officials have said that its tariffs are aimed at products such as beef and poultry from Kansas and Nebraska, wood products from Alabama and Georgia, and liquor from Kentucky and Tennessee.

The latest Purdue University/CME Group Ag Economy Barometer reading showed that almost half of farmers think a trade war leading to a significant decrease in US agricultural exports is “likely” or “very likely. “American farmers could ultimately feel even more pain as a result of President Donald Trump’s tariffs on Canada, Mexico and China, reports CNBC. The February sentiment data comes amid worries among experts that farmers won’t be as profitable in 2025. To compensate the US farmers’ exports to existing destinations, the Trump administration is desperately trying to enter India’s expanding agro market.

India is ranked as the eighth largest global importer of agricultural and related products. Agricultural and related products include all agricultural products plus forest products, seafood, and biodiesel. In 2023, India imported USD 37 billion of agricultural and related products from the world. In the past 5 years, India’s imports have grown substantially, up by USD 12.5 billion (51 per cent) from USD 24,489 million in 2019. In the same period, the USA’s export of Agricultural & Related Products to India declined from USD 2200 million in 2019 to USD 1842 million in 2023. Major exported bulk products from the USA to India, consisting of commodities that have received little or no processing, included cotton (USD 237 million) and soybeans (USD 26 million).

In 2024, the US administration had identified the bulk, intermediate, and agriculture-related US products with high potential for the Indian market. It included cotton, dairy products, ethanol, fresh fruit, forest products, processed food and beverages, pulses, and tree nuts. It also mentioned that policy changes will expand market opportunities for important US products for pecans, almonds, apples, chickpeas, lentils, walnuts, blueberries, cranberries, frozen turkey, and frozen duck. The report concluded that India has tremendous potential to be a large consumer of many of the high-quality and diverse agricultural products that the United States has to offer.

Quit WTO

During his first Presidential term, Donald Trump repeatedly threatened to withdraw the US from the WTO. In May 2020, Senator Josh Hawley (Republican from Missouri) introduced a resolution in the Senate to withdraw the US from the World Trade Organisation (WTO). In the House of Representatives, Peter DeFazio (Democrat from Oregon) and Frank Pallone (Democrat from New Jersey) have also introduced a resolution calling for withdrawal from the WTO. USA’s recent withdrawal from the World Health Organisation (WHO) and Paris Climate Agreement has resurfaced the issue. But a resolution to pull out of the WTO would have to pass both the House and Senate in the US – which constitutes a very high hurdle. The potential for a US withdrawal from the WTO is not the primary concern at present. The greater danger lies in the Trump administration continuing to undermine the WTO from within by blocking the appointment of members to the Appellate Body. In November 2019, the Trump administration threatened to veto the passage of the WTO’s annual budget. The US is the single largest contributor to this budget, accounting for approximately 11.6 per cent of the total in 2019. Giving in to US demands, WTO members agreed to limit funding to the Appellate Body.

Previously proclaimed as the ‘jewel in the crown’ of the WTO, the DSM (Dispute Settlement Mechanism) of WTO is in crisis. Any attempt to reform the WTO-DSM following US pressure has been ineffective. The US has made the judicial organ of the WTO-DSM, the Appellate Body (AB) ineffective by blocking any opportunity to fill vacancies on the AB. They have specified their condemnation of substantive, jurisdictional, and procedural aspects of the AB’s practice and jurisprudence, namely complaints about judicial activism and apprehension about detrimental effects on US sovereignty. In December 2019, the number of jurists on the AB fell to below the minimum of three required for it to hear appeals. The AB is paralysed by this in the sense that it has been unable to complete any pending disputes and cases are appealed ‘into the void.’ Such an impasse has detrimental ramifications on the enforcement of world trade law. With the demobilisation of the WTO-DSM, there is no overarching institution responsible for the supervision and regulation of world trade law. This has created huge uncertainty and insecurity in the international trade community.

Along with the USA administration, different organisations in India are also demanding that the government must quit the WTO. SKM—the farmers’ umbrella organisation that spearheaded the 2020-21 farmers’ agitation in the outskirts of Delhi—organised their second major protest, in February 2024, for a legally backed Minimum Support Price (MSP) for all agricultural produce. They observed February 26 as “Quit WTO Day”. According to the protesting farmers, the World Trade Organisation’s (WTO) Agreement on Agriculture (AoA), implemented to reduce agricultural subsidies and establish fairer trade systems, is fundamentally biased against developing nations like India. Farmers have demanded that India withdraw from the World Trade Organisation (WTO) and suspend all free trade agreements under the Agreement on Agriculture (AoA).

At a meeting of the Swadeshi Jagran Manch’s (SJM) national council, held in Raipur on March 9-10, 2025, a resolution calling upon the Union government to prioritise the “national interests of farmers and small entrepreneurs” while negotiating with the US on trade was put forth. Right from its inception, the SJM has been fighting against unequal WTO agreements, adversely impacting public health, farmers, industry, and the common man,” the resolution said.

SJM, the Rashtriya Swayamsevak Sangh’s (RSS) frontal organisation on the economy, in its resolution also said that the government should enhance its foreign trade with bilateral trade agreements rather than multilateral trade agreements in the wake of US President Donald Trump’s pronouncements on global trade tariffs. However, while entering into bilateral trade agreements with the US and other countries, national interests should be protected, especially of farmers and small entrepreneurs, it added.

Problem with WTO’s Agreement on Agriculture (AoA)

Economists have argued that various clauses mentioned in the Agreement on Agriculture (AoA) go against the interests of developing countries like India. The assessment method, used by WTO, of India’s subsidy regime is incorrect. Taking advantage of this, the US has been systematically targeting India’s agricultural subsidies in the WTO. In a series of submissions to WTO’s Committee on Agriculture, the last of which was made in November 2024, the US and four other WTO members argued that India’s minimum support price (MSP) for rice and wheat far exceeded the permissible limit. In April 2024, India had to, for the fifth time; invoke the “peace clause” for exceeding the 10 per cent ceiling on support it offered to its rice farmers. The country informed the World Trade Organisation (WTO) that the value of its rice production in 2022-23 was USD 52.8 billion while it gave subsidies worth USD 6.39 billion, which comes out to 12.1 per cent as against the permitted 10 per cent. The “peace clause” in the World Trade Organisation (WTO) context, specifically Article 13 of the Agreement on Agriculture, allows developing countries to temporarily shield themselves from legal challenges for exceeding domestic support limits on agricultural subsidies, like those for rice and wheat, until a permanent solution is found.

According to Biswajit Dhar (EPW March 8, 2025), this assessment of India’s subsidy regime is incorrect on two counts. First, WTO’s methodology for calculating MSP is flawed, for it compares international prices prevailing almost four decades back (1986–88) with the current MSP for quantifying the level of subsidies India provides. The correct approach for assessing India’s farm subsidies would have been to adjust the 1986–88 international prices for inflation, which the methodology excludes. Second, India reports its total value of subsidies to the WTO in US dollars, but the US and the other co-sponsors of the WTO submission have been calculating the subsidies using Indian rupees. Thus, India’s approach of reporting in US dollars captures the devaluation of the Indian rupee since 1986–88, which partially compensates for the exclusion of inflation adjustment in the subsidy calculation methodology.

These moves by the USA to force India to reduce its agricultural subsidies would seriously affect the farming communities, a large section of which has been demanding that MSP should be a legal right. The Government of India has defended its provisioning of farm subsidies thus far, and hopefully, this position will not change despite the decision in the Joint Statement to expand bilateral trade in agriculture.

Observations

In addition to tariffs, developed and industrialised countries like the USA extend support to their agricultural sector through various non-tariff barriers, and subsidies on inputs and output. These may discourage exports of agricultural products from developing countries, despite being competitive. The US issued a notification in May 2018 banning wild caught shrimps from countries that do not comply with fishing practices to protect sea turtles. Subsequently, an expert team from the US visited several coastal states in India to assess the fishing methods. The continuing US ban on wild shrimps caught by vessels not fitted with turtle excluder device (TED), had hit seafood exporters on the west coast of India.

WTO is an international institution that oversees the rules for global trade among 164 member countries and 25 observer countries and governments. Countries of the global south should initiate reforms in the flawed agreements instead of leaving the multilateral trading system. Developing countries should explore available options which could provide potential solutions to revive DSM.

India’s experiences on bilateral trade agreements (BTAs) are not encouraging. India and South Korea entered into a Comprehensive Economic Partnership Agreement (CEPA) in 2009. For 2023, India’s exports to South Korea amounted to USD 6.286 billion, marking a 16.61 per cent decrease annually, while imports from South Korea reached USD 21.361 billion, showing a 3.19 per cent annual increase. Another CEPA with Japan, in 2011, aiming to mitigate the trade imbalance with Tokyo also failed to achieve its stated objectives. In 2023 India’s imports from Japan totalled USD 17.506 billion while exports to Japan amounted to USD 5.084 billion. Since 2010-11, Japan’s exports to India have doubled from USD 8.62 billion, whereas India’s exports to Japan have remained relatively stagnant.

In 2013, China initiated an alternative global trade system in the name of Bridge and Road Initiative—the 21st century Silk Road. As of December 2023, over 150 countries, including China, had signed documents to join China’s Belt and Road Initiative (BRI). Should the USA ditch WTO, BRI may emerge as an alternative multilateral trading organisation replacing WTO. For its benefit, India should join BRI and the Modi government must improve ties with China.

Views expressed are personal