India in a jam as US, EU strike farm trade deal

India's hopes of exploiting the rift between United States and the European Union could get a jolt with the two largest trading blocs burying their differences on agricultural and non-agricultural market access ahead of the World Trade Organisation ministerial at Cancun in September.

Trade experts said an agreement between the US and the EU on key areas could harm India's interests since developed countries would now push for greater market access through higher tariff cuts without reduction in agricultural subsidies.

India, however, wants reduction and eventual elimination of trade-distorting subsidies, besides seeking special treatment for several export products.

ICRIER's Anwar-ul-Hoda said the US and the EU could have settled for lower tariff cuts and subsidy reduction but would find it difficult to push their case at the WTO.

"It is, however, too early to speculate on the impact since the details are not known," Hoda said.

While the US has climbed down from its demands for a tariff-free world for non-agricultural products by 2015, it is all set to unveil a plan with the EU on the three key areas of agricultural trade: domestic support, export subsidies and market access.

The US-EU deal is expected to contain a hybrid formula marrying the gentle across-the-board cuts used in previous international farm agreements with a more aggressive capping of duties, and, in some areas, their elimination.

A similar mix would apply to export subsidies, which states had committed themselves eventually to eliminating while launching the Doha round, and export credits, an EU source said.

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The proposal, which still needs the green light from EU member-states, was concluded late on Tuesday by EU and US negotiators locked in intensive talks for the past couple of weeks.

"The agreement is in principle," EU ambassador to the WTO Carlo Trojan told journalists.

The US and the EU are the biggest players in international farm trade and the biggest providers of subsidies to their own farmers.

The issue of subsidies is one of the most controversial ones in the negotiations. Developing countries say rich, state farm subsidies, running to over $300 billion a year, prevent them from competing on equal terms globally.

The US-EU-Canada joint paper on non-agricultural market access has proposed a formula-based approach, with a single co-efficient and with developed countries reducing tariffs by a higher margin.

The proposal has, however, neither spelt out the co-efficient for the formula to be adopted, nor the proposed date for implementation.

The paper attempts to reduce the disparity in tariff levels across the world through a formula that will cut high tariffs more than low ones.

But it will also allow developing countries to protect sensitive industries by making less than the required cuts for a certain number of goods or some value of trade.

Among the sectoral initiatives, it proposed harmonisation or elimination of tariffs on products like textiles and environmental goods of interest to developing countries.

Textiles tariff elimination could find favour with India, given the potential of exports. However, environmental goods are of particular interest to the EU and developing countries are not expected to benefit.

Government officials refused to go into the details of the policy but pointed out that the US-EU-Canada proposal did not provide any indication on co-efficients.

They said the Indian delegation in Geneva was seeking clarifications on the joint proposal and also the new proposal being put forward by the WTO at the three-day meeting of the negotiating group on non-agricultural market access.

The draft non-agricultural market access modalities had proposed tariff elimination in seven sectors, besides a co-efficient-based duty-reduction formula. It was proposed that developing countries get a longer implementation period.