January 23, 2022

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Indo-Us Trade Deal Stuck on Agriculture and Dairy Goods

Piyush Raj August 27, 2020 3 min read
An Indo-US Trade deal on Agriculture and Dairy goods has been stuck because the US is pressurizing India to remove the heavy subsidies on exports. India has always been a thorn for the Western countries because of the heavy subsidies that it provides to them. India had agreed to remove bad subsidies on fisheries as a start but the question remains on the definition of a bad subsidy which is hampering this deal

Indian Agro exports form a large chunk in the Indian exports to the US. Major items exported to the US include rice and rice products, fresh vegetables, fresh fruits like mangoes, apples, grapes, pickles, tea, etc. The agro-exports to the US account for 10% of the total Indian exports. However, not every Indo-US trade deal is easy to crack!

In July of 2020, the Union Ministry of Commerce and Industry said that a trade deal with the US will be finalized with only a couple of phone calls to President Donald Trump. However, recent reports have suggested that it might not be that easy.

Demand from the US

According to sources, The United States is pressuring India to lift restrictions on US export of dairy products and agriculture goods. The USTR has told India to buy agricultural and dairy products such as chicken, apples, and almonds worth $6 billion. 

The tactic is not new as the US has tried to do the same with Canada. The USA tried to change the provisions of the North American Free Trade Agreement (NAFTA). This is what is made this Indo-US trade deal a difficult one to crack.

According to a report, the demand came at the “last moment” from US Trade Representative Robert Lighthizer. He has demanded that if India wants restoration of trade benefits under the Generalised System of Preferences (GSP) programme, it has to give “business equivalent of that amount” to the US.

Reason Behind the delay

The problem is that the American dairy market has been overproducing for years. But a drastic fall in the price of milk has made the business unsustainable for many farmers. The US is now looking to export the dairy products to other countries but this move has met with stiff resistance. This is especially with its NAFTA partners Canada and Mexico which have allowed only partial access in their market. According to the statistics by the US Department of Agriculture, almost 20000 dairy farms have closed in the past ten years. This has made the survival of small farms extremely difficult.

Sources added the delay is also because the US attention right now is more towards curbing Chinese imports entering its market. This is because the tension between these two countries continues to soar.

Mukesh Aghi, president and CEO of the US-India Strategic Partnership Forum (USISPF) said, “We are working both with the White House as well as the USTR to hammer a win-win deal for both the countries. We don’t want it to become a political issue. Question is how to make it a priority when the attention is all towards China.”

‘Bad Subsidy’ Hampering the Indo-US Trade Deal

Outlay of subsidies
An outlay of export subsidies

India has always been a thorn for the Western countries because of the heavy subsidies that it provides to them. The subsidy is termed by the developed countries as a “bad subsidy”. It hinders a large organization to compete in the market. India had agreed to remove bad subsidies on fisheries as a start but the question remains on the definition of a bad subsidy.

Read more about Bad subsidy on Fisheries

The negotiations are bound to be difficult as the US elections are approaching and President Donald Trump would want to show results of his “America First Policy” which shows the desperation to conclude the deal as soon as possible.

The Indian side argument is that agriculture in India is not controlled by large organizations. So, most of its farmers will be hit by the measures if India opens up its agriculture sectors. The two phone call deal now looks a remote possibility and with both India and the USA holding their ground, a trade deal can be expected to take a long time.

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