Much of international diplomacy involves walking on eggshells. Major differences, especially on trade and commerce, are often allowed to hibernate while countries focus on the big picture of bilateral ties. Bold leaps of statecraft are sometimes needed to help industry on both sides to settle such trade frictions.
Quite remarkably, India and the U.S. have managed to do exactly that in just under a year, burying differences in the seven-long outstanding trade disputes at the World Trade Organization (WTO). In late March this year, the two countries settled their last lingering trade dispute on poultry products at the WTO.
India and the U.S. notified the WTO of reaching a mutually agreed solution in the poultry dispute, withdrawing their respective pending WTO cases in the matter, following the settlement reached between the two countries last September. This comes on the heels of the settlement of six other WTO disputes between the two countries, following Prime Minister Narendra Modi’s visit to the U.S.
Yet the poultry dispute stands out for several reasons.
The Dispute
To begin with, this dispute was filed more than a decade ago, relating to certain import restrictions taken by India against the imports of poultry products from the U.S. on grounds of avian influenza or bird flu. This is an unusually long time for a WTO dispute to remain unresolved, making it the oldest of the seven disputes between the two countries.
Initiated by the U.S. in 2012, the dispute challenged India’s import restrictions on poultry products on account of avian influenza which could potentially transmit to humans. This dispute marked one of the earliest instances where animal, and human health and safety-related measures, broadly referred to as ‘sanitary and phytosanitary (SPS) measures’ initiated by a developing WTO member was brought before a WTO panel.
The U.S.’s primary contention was that India, in deviating from internationally recognised standards set by the World Organization for Animal Health (formerly the OIE), failed to provide scientific justifications for its poultry measures, as mandated by the WTO’s SPS Agreement. Both the panel and the WTO Appellate Body ruled in favour of the U.S. Subsequently, India was given a year to modify or withdraw its inconsistent measures.
The U.S. later alleged that India had still failed to meet its obligations, and filed a retaliation claim at the WTO. In response, India filed its own counter-dispute to establish that its revised measures conformed with WTO rules.
Over the past decade, both these disputes have largely been kept in abeyance by the parties as they attempted to settle the matter mutually. Now, with the fresh impetus and persistent efforts from both sides, India has dodged a yearly $450 million claim, as part of the larger settlement of pending disputes between the two countries.
In exchange, India has agreed to reduce tariffs on select products such as cranberries, blueberries, frozen turkey, and premium frozen duck meat destined for luxury hotels. This is a fair trade-off, given the overall balance of interests and the long pendency of the dispute.
While this dispute may not rank as the most economically significant for India, particularly when contrasted with some of the other WTO disputes settled with the U.S. involving challenges to various Indian foreign trade policy schemes such as special economic zones and export-oriented unit schemes, its resolution represents a significant diplomatic breakthrough.
The uphill task for negotiators from both sides in resolving this dispute is evident from the fact that it could not be settled alongside the six other pending disputes by mid-2023. Collectively, the resolution of these seven disputes has achieved something unprecedented in international trade dispute settlement. It has demonstrated that despite complicated domestic compulsions, major trading partners can still rely on the advantages of diplomatic channels to effectively resolve sensitive trade matters.
Along with India’s participation in the U.S.-led Indo-Pacific Economic Framework, this puts wind in the sails of the India-U.S. partnership.
Takeaways from the Outcome
Admittedly, settling disputes by arriving at a bilateral solution is not uncommon at the WTO. For example, the U.S. and the European Union’s disputes over aircraft subsidies to Boeing and Airbus ultimately required a diplomatic resolution, despite several iterations of challenges before the WTO panels and the Appellate Body. In fact, WTO rules encourage countries to resolve disputes amicably, with litigation only to be pursued as a last resort.
However, the significance of this settlement package lies in both the total number of disputes settled and the diversity and complexity of their subject matter — ranging from different types of subsidies to countervailing duties to SPS measures.
In the absence of a functional Appellate Body (it became defunct in 2019), resolution of long-standing trade conflicts requires out-of-the-box solutions. It also points to a greater emphasis and thrust on using bilateral diplomatic channels to resolve such issues.
This outcome demonstrates that paralysis within a multilateral body need not prevent large trading partners from resolving differences through focused bilateral negotiations within the framework of litigation. This bodes well for newer attempts at fostering a more stable international trade environment where trade disputes are not allowed to simmer.
James Nedumpara is Professor and Head at the Centre for Trade and Investment Law, New Delhi. Shailja Singh is Legal Consultant (Associate Professor) at the Centre for Trade and Investment Law, New Delhi. Views expressed are personal.
