Wednesday, May 22, 2024

A Taste of India’s Trade Distortion

By Karah Fissel
International Trade Policy
USA Rice

The U.S. rice industry generates roughly $34 billion toward the U.S. economy, but exports account for more than 50% of the rice produced and processed here in the United States. Agricultural exports are critical to the U.S. economy, and the single largest threat to our rice exports is India—a country that has increased its domestic support for rice so drastically that it skyrocketed from the number four global rice exporter in 2010 to the world’s largest two years later. In fact, in 2023, Indian rice exports accounted for nearly 42% of global rice trade.

Over the past decade, subsidies for agricultural inputs—fertilizer, electricity, irrigation, and seeds—have accounted for a significant percentage of India’s value of production. They have sharply increased domestic support, with support prices for rice more than doubling in local currency terms since 2009. This is effectively a floor price on the domestic rice market, and the Indian government maintains these internal market prices by purchasing large quantities of rice at that artificially low price. The excess is either sold domestically—displacing import opportunities—or dumped on international markets. This combination of heavily subsidizing input costs and output prices drives the excess production of rice in India and results in increased exports, as the domestic market cannot possibly absorb all the excess.

India does not deny their manipulative practices. In their World Trade Organization (WTO) notifications, they fully admit their level of support is above their commitments. However, they justify this with a WTO clause that provides developing countries with an exception to exceed their committed levels of support in the name of food security.

It’s important to note that this clause is not meant to be used when exports affect the world market. For its part, the U.S. government has stepped up to challenge why India has sought these exceptions at the WTO.

The obvious questions remain: how can India claim their practices are in the name of domestic food security while their levels of support far exceed the actual value of production? And how can India claim that their practices do not affect trade when they are the largest global exporter? India should take steps to reform its programs, but unfortunately it continues to raise subsidy levels while seeking unlimited exemptions, going so far as to derail the entire agricultural negotiations at the WTO’s 13th Ministerial Conference in Abu Dhabi recently.

India took steps in 2022 and 2023 to stabilize their domestic prices. They implemented export bans for broken rice, as well as all non-basmati and non-parboiled rice. They then established a basmati export floor price, which led to immediate increases in world rice prices (the highest in nearly a decade), to the detriment of markets across Africa and Asia. Eventually, when the export bans and other restrictions are lifted, India will quickly shift to selling their excess rice on the market cheaply and further distort rice trade.

The U.S. government should be commended for its initial effort to push back against India’s egregious practices—at the WTO in Geneva as well as here at home. In March, U.S. House Ways and Means Committee Chairman Jason Smith (R-MO) requested that the U.S. International Trade Commission (USITC) update its 2015 report on the global competitiveness of the U.S. rice industry, a move that USA Rice wholeheartedly supports. The report accurately characterized the global rice market as being impacted by significant government intervention in both imports and exports. With this updated report, the Office of the Trade Representative (USTR) has yet another powerful piece of evidence to hold India accountable at the WTO.

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