Why did India block the first global trade reform in 19 years?

The country stunned WTO negotiators by its last-minute objections to a deal to cut red tape and reduce tariffs. 

The Explainer

India on Thursday dealt a blow to global free-trade advocates by blocking a landmark agreement that would have been the World Trade Organization’s first global trade reform in nearly two decades.

In early July, the Indian government stunned trade negotiators when it announced that would no longer support a trade facilitation agreement reached by all 160 members of the WTO at a December summit in Bali. A flurry of efforts to find a compromise before a midnight deadline Thursday was not successful.

So, is it really that big of a deal that the pact wasn’t signed?

For supporters of more liberalized global trade and of the WTO, yes.

WTO members have been trying since 2001 negotiations in Doha, Qatar, to reach an agreement to reduce tariffs and ease the flow of goods and services. But the process has dragged over the past decade-plus in the 160-member body. 

In 2011, negotiators targeted a smaller part of the Doha agenda that they expected to produce easy compromise: trade facilitation. In essence, a trade facilitation pact would streamline customs rules, cut paperwork and container handling times, and standardize procedures for shipping goods, as Reuters explains. The WTO estimated a deal would boost the global economy by $1 trillion. 

Last December, in Bali, a pact was agreed upon. India almost sidetracked the deal, but negotiators thought they had India on board after last-minute concessions.

The Bali deal was “meant to build up confidence,” the Financial Times notes, and lead into other negotiations about the rest of the Doha agenda.

What drove India’s resistance?

It came down to how tightly WTO members will be regulated on food stockpiling and subsidies for farmers.

India has a 73 million-ton stockpile of rice and wheat, and periodically dumps some of the surplus into international markets, decreasing global prices, according to the Financial Times. India's grain stockpiles are "a highly sensitive issue in a country of 1.2 billion, where more than 40 percent of children under five years old are malnourished," FT explains.

Other countries argued that the size of India's generous food programs could be in violation of WTO rules, which cap production subsidies. In Bali, the Indian government got an agreement that its food program would have immunity until a permanent solution was negotiated by December 2017. 

But then the new government under Narendra Modi, elected in May, said that it wanted an agreement on food programs to be reached much sooner than 2017. An inability to broker a compromise on that point is what sank the deal. 

What's most aggravated negotiators is that this dispute is a side-issue that doesn't actually affect the core content of the deal.

“India did not object to the deal it vetoed. Its objections were unconnected to trade facilitation. It blocked the trade facilitation deal to try to get what it wanted on something else: food security,” Reuters notes. 

Did India have any backers?

Cuba, Venezuela, and Bolivia voiced support. No other members backed India.

How does India explain this? 

India  “cannot put to risk the livelihoods of its poor farmers,” the Times of India described Finance Minister Arun Jaitley as telling negotiators.

Commerce Secretary Nirmala Sitharaman told the Financial Times earlier this month that India wants "to move along with the world, open our economy and have open fair trade practices, but this is not the way to do it....We want [the WTO] to succeed. [But] our cause is never heard. . . . Our co-operation over and over again just makes us look as if we are not being assertive enough.” 

The staunch objection to the deal was surprising to some observers because of the Modi government's strong pro-business and economic development platform.

What happens next?

Analysts in the Western press are pessimistic about the impact this will have on the WTO. Reuters writes:

India's veto may be the beginning of the end for the WTO. Trade experts say that if the WTO's 20-year-old rulebook does not evolve, more and more trade will be governed by new regional agreements such as the Trans-Pacific Partnership, which will have their own rules and systems of resolving disputes. That could lead to a fragmented world of separate trade blocs.

In India, some press reports are presenting the incident in a different light.

"The Bali deal won't collapse if we do not sign the trade facilitation by tonight," one Indian official told India's Economic Times, suggesting that there would be renewed negotiations on this topic. The paper wrote that the official was "seeking to counter the high-decibel campaign by developed countries that collapse of the Bali agreement would be a death blow to the WTO."

The July 31 deadline was a self-imposed deadline to formally bring the agreement into the WTO legal framework, and kick-start the ratification process. The United States and the European Union strongly opposed renegotiating the deadline.