How a dispute over American chicken legs pushed India-US trade ties downhill

The story of decade-long dispute over American poultry that triggered problems in India-US trade ties – one which both countries are still trying to fix.

File photo of Prime Minister Narendra Modi with US President Donald Trump in Manila | ANI Photo

New Delhi: Harley Davidson bikes, Indian mangoes, e-commerce rules – these are some of the friction points that spring to mind when trade disputes between India and the US are talked about.

But Commerce and Industry Minister Piyush Goyal may be better advised to recall another hot-button issue that started it all when he travels to Washington later this month to try and resolve the increasingly fractious trade ties – a decade long dispute over American poultry, or chicken legs, to be specific.

Over a decade ago, India, a country that loves its robust chicken leg quarters banned poultry imports from the US whose consumers are known to prefer chicken breast. The result was a dispute that pushed trade ties downhill and offers a valuable lesson as the two countries attempt to try and resolve their differences.

The poultry dispute that took India on the brink of sanctions

In 2007, the UPA government imposed a sudden ban on US poultry imports under the Indian Livestock Importation Act, 1898 as a safeguard measure against the spread of avian influenza.

Not surprisingly, the US took the dispute to the World Trade Organisation (WTO)’s Dispute Settlement Body.

The US is the world’s largest producer and second largest exporter of poultry meat. Its consumption of poultry meat (broilers, other chicken, and turkey) is considerably higher than beef or pork, but less than total red meat consumption, according to the Economic Research Service of the US Department of Agriculture.

However, the US exports almost 18 per cent of the total poultry produce and the majority of US broiler exports are chicken leg quarters and other products categorised as ‘dark’ chicken meat. So the US exports the bulk of its chicken leg quarters around the world in those countries where it is considered a delicacy — like India.

By the time US won the case at the WTO in October 2014, Prime Minister Narendra Modi’s BJP government had firmly established itself as India’s dominant political pole.

And so, despite losing the case, the Modi government refused to implement WTO’s verdict, even as tough negotiations continued to ease the imports. Finally, in 2017 India allowed the import of American chicken legs — but not before the US threatened to put trade sanctions through the WTO.

The US had utilised all resources under the WTO rules to ensure India adheres to the verdict and begins importing chicken legs from America in large quantities, but to no avail.

“India did not implement it until there was a situation when the WTO was about to authorise sanctions. It was weeks away from that. That would have been multilaterally authorised sanctions. So that is when India agreed to issue export certificate for poultry,” Mark Linscott, former assistant United States Trade Representative (USTR) for South and Central Asian Affairs, told ThePrint.

In the meanwhile, though, India made itself self-sufficient in all segments of poultry production. Today, it is the fourth-largest chicken producer, after China, Brazil and the US. According to the Agricultural and Processed Foods Export Development Authority (APEDA), India itself exported 4,49,527.49 metric tonnes of poultry products worth Rs 532 crore to the world in 2016-17.

“We are self-sufficient in poultry production and do not need to rely on imports from any country. In fact, we are now in oversupply. This is the reason why Indian poultry producers have started exporting chicken to other countries, especially the Middle East countries,” said A.K. Rajput, executive director, All India Poultry Breeders Association and general manager, Suguna Foods Ltd.

“It (American chicken leg imports) has just started to trickle in, nothing substantial yet,” said Mukesh Aghi, president and CEO of US-India Strategic Partnership Forum (USISPF).

Continuous disruption

A couple of months ago, it seemed like the chickens have come home to roost.

The Modi government was basking in the glory of a landslide victory in May and was only just settling down when the Trump administration cracked the whip by withdrawing trade benefits worth about $6 billion given to Indian exports under the Generalised System of Preferences (GSP).

This led India to also impose retaliatory tariffs, in the same month, on 28 American products ranging from apples to engineering goods. Meanwhile, India wasn’t able to carve out a waiver for itself on the US’ decision to raise customs duties on certain steel and aluminium products.

All of this came on top of continued distrust between the trading partners over several matters — ranging from duty on US-made Harley Davidson bikes in India to H1B visas issued to Indian professionals in the US.

In its laundry list of issues, the US has also expressed displeasure with India over its policies on data localisation and e-commerce, both of which have caused major hurdles for American firms operating in the country.

Two-way trade between India and the US in goods and services crossed $140 billion in 2018. Both sides are now aiming to reach $500 billion in the near future.

According to Linscott, who is now a senior fellow at the Washington-based Atlantic Council, the ongoing tiff started in 2014 when New Delhi raised tariffs on various products including cell phones, in the information and communications technology (ICT) sector.

“First the ICT tariffs, then capping of prices on medical devices, have all added to the trade friction,” Linscott added.

He argued that the discord between the two countries is not “rocket science” and there are only a handful of issues that can be sorted out in the coming months.

“All that is needed right now is creative thinking and hammering out a deal,” said Linscott.

Fresh round of talks

Now, Commerce and Industry Minister Piyush Goyal is going to Washington to chalk out a fresh path with US Trade Representative Robert Lighthizer.

During a phone call with the US President Donald Trump Monday, Prime Minister Modi stressed on a meeting between Goyal and Lighthizer “at an early date to discuss bilateral trade prospects for mutual benefit”, said a statement issued by the Ministry of External Affairs.

This will be the first time Goyal will meet Lighthizer in the present capacity. Both ministers have spoken over phone several times and it is expected that the two sides will discuss a trade deal on agricultural products, according to official sources.

Sources also said that while Goyal had been wanting to meet the USTR since July, Lighthizer is not keen on talks for the sake of talks as he wants India to come up with a concrete deal now.

Over the last two months, several US officials have made rounds of New Delhi to pave the way for a smooth meeting between Goyal and Lighthizer. Last week, US deputy secretary of state John J. Sullivan and US assistant secretary of state Alice Wells visited India. On their agenda, among other issues, was “expanding US-India trade and investment ties”, according to a statement issued by the US State Department.

But the US has adopted other methods too. It has also threatened India with a ‘301 investigations’ if trade irritants are not resolved, according to deputy USTR Jeffrey Gerrish.

The ‘301 investigations’ are carried out by the Office of the US Trade Representative. Under this, the US negotiates an arrangement with a trading partner either in the form of compensation or through elimination of trade barrier.

“We want trade issues to get resolved… We don’t want trade to come in the way of progress made in other ways,” said Robert Garverick, counsellor for economic affairs at the US Embassy in India.

“If we can find some progress in this area of trade then there are really no limitations in how far the strategic relationship can go,” Garverick said during the launch of a report — Trade At A Crossroads: A Vision for the US-India Trade Relationship — that was jointly launched by Atlantic Council and USISPF last month.

The FTA solution?

Last year, the Trump administration hinted at a possible free trade agreement (FTA) with India to address all issues concerning two-way trade.

Mukesh Aghi of USISPF agreed that an FTA is the only solution.

“Today the situation is that it is the tail which is wagging the dog. And in a long term relationship, we all want to avoid that. So, FTA is the right solution from that perspective,” he said.

Aghi also emphasised that it is time India takes advantage of the US-China trade war.

“The current scenario between US and China is putting a lot of pressure on American companies to move their manufacturing. Some of these companies are keen to explore manufacturing in India. And these are all high-tech manufacturers. India needs to ensure that these companies do not go to Cambodia or Vietnam but come to India,” Aghi added.

Last month, the Ministry of Commerce and Industry held a session with Indian exporters under the aegis of the Federation of Indian Export Organisations (FIEO) on identifying ways to expand India’s exports to US and China.

Ajay Sahai, director general and CEO, FIEO, said India stands to gain additional exports of about $12 billion as a result of the ongoing US-China trade war.

For now, though, all eyes will be on Goyal’s visit and the deal that could possibly emerge from it.