Why India's Modi Defied The WTO

India recently reneged on a World Trade Organization trade deal years in the making. Prime Minister Narendra Modi said he broke the deal to protect his country's poor.

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LINDA WERTHEIMER, HOST:

This is WEEKEND EDITION from NPR News. I'm Linda Wertheimer. India is faced with hundreds of millions of poor people who need to be fed. So the government subsidizes their food and makes efforts to help Indian farmers. But what if these farm-measures risk violating World Trade Organization rules, limiting such subsidies? Prime Minister Narendra Modi is taking on the World Trade body. He is withdrawing India's earlier assent to a major World Trade Organization agreement reached in Bali last December. From New Delhi, NPR's Julie McCarthy has more on India's about-face.

JULIE MCCARTHY, BYLINE: If just one country disagrees with a multilateral trade agreement, it fails under the WTO rules of consensus. By refusing to go along with the Bali agreement endorsed by India's previous government, is Narendra Modi a spoiler of world trade or a protector of his needy population? Delhi's trade minister, Nirmala Sitharaman, took the floor of the parliament this past week to say India is only safeguarding the poorest of its citizens.

NIRMALA SITHARAMAN: Developing countries, such as India, must have the freedom to use food reserves to feed the poor without the threat of violating any international obligations. This is a sovereign right.

MCCARTHY: The Bali Trade Facilitation Agreement that India rejected is aimed at cutting red tape, customs costs and corruption. Jeffrey Schott of the Peterson Institute for International Economics says in reversing itself, India also threw sand in the gears of a mechanism that would have given Delhi four years to recast WTO subsidy rules. India wants its farm subsidies exempt from WTO review and wants the latitude to stockpile enough grains to meet the food-security needs of 800 million Indians, who by law are entitled to subsidized food. But Schott says India has taken the Bali Trade Facilitation Agreement hostage until it gets in accord on agriculture.

JEFFREY SCHOTT: There's a possibility of resolving the rules to have special circumstances for food security or others. And that was the objective of providing this window for negotiations to develop these new world trade rules. And this is a process that India has now stopped, at least temporarily.

MCCARTHY: Policy Research Center analyst Bharat Karnad says India fears that once the countries of the developed world obtained Delhi's signature on any agreement, they will lose interest in negotiating an exemption on subsidies for India's farmers. Subsidies can lead to overproduction, then dumping, then sanctions for distorting trade. Karnad says Modi has shrewdly rejected the Bali agreement to get new subsidy rules.

BHARAT KARNAD: You have a leverage now. You're going to use it to stop this agreement now as a means of inducing the richer countries to come to the negotiating table.

MCCARTHY: Arvind Subramanian, senior fellow at the Center for Global Development, says India's concerns are legitimate, even if its tactics are draconian. He suggests that India might be better off making an argument about its regime on tariffs than subsidies. Tariffs can also distort trade, keeping imports out. But he says India's tariffs are already low. While this WTO dispute is certain to come up during Prime Minister Modi's visit to the White House next month, the Obama administration may be in a mood to accommodate. The White House is keen to deepen the relationship and move past an awkward visa flap that found Modi denied entry into the United States on grounds of religious persecution. No charges were ever proven against Modi's handling of Hindu-Muslim riots in 2002 in the state of Gujarat, which he governed. In an interview on India's NDTV news channel last month, Secretary of State John Kerry took pains to turn the page.

(SOUNDBITE OF ARCHIVED RECORDING)

JOHN KERRY: We look forward to a terrific meeting with President Obama in September.

MCCARTHY: Julie McCarthy, NPR News, New Delhi.

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