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India wins U.S. support for food scheme, ends W.T.O. blockade

November 13, 2014

Indian villagers plant rice seedlings in a paddy field atIndian villagers plant rice seedlings in a paddy field at
India had vetoed the most important WTO deal in years after saying it exposed its poor farmers to unacceptable risks.Photograph by Pacific Press LightRocket via Getty Images

India won U.S. support for a massive domestic food stockpiling scheme on Thursday, rescuing the biggest global trade deal in two decades and giving new Prime Minister Narendra Modi a victory without any apparent major concessions.

Under the pact with Washington, India will lift a veto on a global agreement on streamlining customs rules that is likely to add $1 trillion to the world economy as well as 21 million jobs, 18 million of them in developing countries.

It’s the second big fillip to global trade in a week, following an agreement between the U.S. and China that paves the way for a major expansion of free trade in high-tech goods.

Modi, elected in May, had pulled the plug on the World Trade Organization (W.T.O.) agreement four months ago because he objected to a related deal on food security.

Washington, which was the principal opponent of India’s food scheme on the grounds that it distorted trade, hailed Thursday’s deal. Trade Representative Michael Froman said it would “give new momentum to multilateral efforts at the W.T.O.” and predicted the Trade Facilitation Agreement (T.F.A.) struck by the W.T.O. last year in Bali, Indonesia, would now win quick ratification.

Yet, at a conference call to brief reporters on the deal, Froman declined to answer questions on what concessions India had given in return.

In talks to break the deadlock, India stressed the importance of ensuring that its 1.25 billion people, many of them poor, have enough to eat. It won an open-ended commitment from Washington to protect its food purchase and distribution scheme from any challenge under W.T.O. disputes procedures.

India’s blockade had plunged the W.T.O. into its worst crisis in two decades, leading Director-General Roberto Azevedo to float the idea of abandoning the consensus principle on which the 160-member group operates.

Modi’s tough line jarred with the ‘Make in India’ pitch he has taken to investors abroad in his first five months in charge. He could have been isolated at his first G20 summit of world leaders in Brisbane, Australia, this weekend.

But India, home to a sixth of the world’s population, is one of the few bright spots in a flagging global economy and Modi was vindicated in his conviction that its promising market for cars, mobile phones and medicines would not be cut adrift.

“This is a huge plus for the world trading system – it uncorks T.F.A. and potentially other deals,” said Frederic Neumann, co-head of Asian Economics Research at HSBC in Singapore.

“From Modi’s perspective, it’s a major victory to say we’ve got an indefinite stay of execution on our food subsidy scheme.”

Modi instructed aides early last week to strike a deal. Throughout the impasse, Indian officials expressed quiet confidence that Azevedo would not win enough backing to follow through on his threat.

India had refused to bow to calls to scale back its scheme to buy wheat and rice from its farmers, despite criticism that this encouraged overproduction. A food security law passed by the last government actually expanded the number who were entitled to receive cheap grain to 850 million.

In a recent disclosure to the W.T.O., India said its state food procurement cost $13.8 billion in 2010-11, part of the total of $56.1 billion it spends on farm support. Wheat stocks, at 30 million tons, are more than double official target levels.

The compromise should now go before a Dec. 11-12 meeting of the W.T.O.’s General Council, its highest decision-making body, for ratification, Indian trade minister Nirmala Sitharaman said.