India agreed to sign an important trade agreement after initially refusing to do so earlier this year. This marks an important step in the Doha Round of negotiations and could have a positive impact on the global economy.

The Doha Round of the World Trade Organisation Talks are set to be revived after India refused to meet the July 31 deadline for adopting the organisation’s trade facilitation agreement earlier this year. A source speaking to the Times of India noted that ‘India, US and EU are close to some understanding and based on this understanding they will work for a final solution at the WTO.’ In the Doha Round, members of the World Trade Organisation (WTO) are focussed on opening market access, strengthening rules surrounding trade, reducing tariffs between countries, and facilitating the movement of goods.

India’s refusal to comply with the Doha Round of the WTO trade negotiations in July was met with criticism by trade officials across the world. The new Indian government led by Prime Minister Narenda Modi cited the lack of progress on food security measures as the reason for India’s demurral. J.P. Singh, a political scientist at George Mason University, however, noted that a broader range of factors were responsible for India’s actions. These include domestic policies and a lack of trust in international institutions. In India, 32.7 per cent of the population lives under the poverty line of US$1.25 per day. Within this percentile of the population are small farmers struggling to sell grain to make a living, with thousands resorting to suicide especially in the states of Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh and Kerala. This has forced India to increase its subsidisation of food stockpiles to rise above the ten per cent of a country’s total food production as allowed by the WTO. A lack of trust in the WTO may also explain the attitude behind India’s actions. This lack of trust is fuelled by numerous allegations that international organisation frequently infringe on the sovereignty of developing countries and frustrate the domestic processes of finding and fitting government structures to local contexts. India also claims that when the developing world makes trade deals with the developed world, the developing countries often get little in return.  Commerce Secretary Nirmala Sitharaman told the Financial Times 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.’

India’s return to the table has come with demands. India will agree to sign the trade agreement only after an agreement on food security is reached, and in return the US and EU will accept India’s demand for providing flexibility to developing countries in fixing minimum support prices for farm products. India is also under pressure to resolve its WTO negotiations before 2017, which is when the peace clause expires. Under the peace clause, India and other countries involved in the talks will be able to continue their food security programmes that otherwise would breach the subsidy limits outlined in the WTO agreement on agriculture. This is vital for India to continue its policy to subsidise farmers, purchase grain for a minimum support price and then supply it below cost to India’s poor through public distribution channels. Without the peace clause, there will be mounting domestic pressure against the Indian government to pull out of WTO talks.

The revival of the WTO talks and India’s decision to sign the trade facilitation agreement is an important step. It was agreed at the WTO ministerial conference in Bali in December 2013, that the trade facilitation agreement would be signed by 31 July 2014. The Australian Government Department for Foreign Affairs and Trade has been optimistic on its views on the trade agreement stating, ‘Globally, the agreement will provide a major boost for jobs and growth’. According to an OECD report, the full implementation of the agreement could result in a cost reduction of 14.5% for low income countries, 15.5% for lower middle income countries, 13.2% for upper middle income countries and 10% for OECD countries. The OECD report also predicted that worldwide income will increase by more than US$40 billion for every per cent in cost reduction. India’s decision to sign the trade agreement is also a comparatively small but overall vital step towards concluding the Doha Round of trade negotiations.

Jarryd de Haan is a Research Assistant in the Indian Ocean Research Programme at Future Directions International. It was originally published by Future Directions International. It is republished with permission.