U.S.-India Agreement on Stockpiles of Food Revives a Trade Deal

November 14, 2014


MUMBAI, India — India and the United States reached an agreement on Thursday over food stockpiles, removing a major obstacle to a global trade deal that has been stalled for months.

[by Neha Thirani Bagri | November 13, 2014 | NY Times]

The pact, which precedes a meeting this weekend of the Group of 20 major economies, allows India to continue its extensive food subsidy program. In settling the dispute, India returns to the negotiating table on a broader trade package.

That package, first agreed upon at a World Trade Organization meeting in December in Bali, Indonesia, is the first significant global trade deal since the creation of the W.T.O. nearly two decades ago. Aimed at facilitating the movement of goods across international borders, the agreement focuses on easing customs procedures, reducing red tape and upgrading border infrastructure.

Proponents of the deal argue that it would add $1 trillion to the global economy and create 21 million jobs. Critics, though, have noted that it would require a substantial investment from developing countries to upgrade their ports and borders.

But talks on the trade package reached an impasse in July when India said it would veto the global trade deal unless a dispute over its food security program was resolved. Since then, India has faced resistance from other member countries for stalling a critical agreement.

Michael B. Froman, the United States trade representative, said that President Obama and Prime Minister Narendra Modi of India had discussed the issue during Mr. Modi’s visit to Washington in September in light of the “mounting crisis of confidence” facing the W.T.O. after the trade deal was derailed. “In recent days, officials of both governments worked intensively and reached an agreement that should give new momentum to multilateral efforts at the W.T.O.,” Mr. Froman said in a statement.

India views the stockpiling as core to its food security and its efforts to feed millions of its impoverished citizens.

The Indian government buys food, including grain, from its farmers and stockpiles it for a public distribution system, where it is sold at government-run stores at subsidized prices. The food subsidy program, which has often been criticized as ineffective, is available to 75 percent of India’s rural population and 50 percent of the urban population, according the National Food Security Act introduced last year.

W.T.O. rules say that subsidizing more than 10 percent of the grain produced for food in a country distorts the market for trade. But India wants to do away with that cap. Countries including the United States and Pakistan have expressed fears that India was accumulating too much grain and that it might eventually release the surplus on the world market, lowering prices for other producers.

In Bali, W.T.O. members had agreed to a temporary solution in which developing countries would not be penalized for breaching their subsidy levels until a permanent solution was found by 2017. Indian officials, though, were concerned that the issue had been sidelined and wanted talks on the issue to progress.

India and the United States have now agreed on a “peace clause,” which protects member countries from being legally challenged under W.T.O. agreements until a permanent solution is found on the stockpiling issue. The clause will keep India safe from accusations that it subsidizes too much grain beyond 2017. A timeline for negotiations on stockpiling was also set, giving India the assurance that the issue will be dealt with promptly.

“India and the United States have resolved their differences on public stockholding of food,” Nirmala Sitharaman, India’s commerce minister, said on Thursday at a news conference in New Delhi. The move, she said, paves the way for India to ratify the global trade deal.

“This breakthrough represents a significant step in efforts to get the Bali package and the multilateral trading system back on track,” Roberto Azevêdo, the director general of the W.T.O., said in a statement. “It will now be important to consult with all W.T.O. members so that we can collectively resolve the current impasse as quickly as possible. Implementation of all aspects of the Bali package would be a major boost to the W.T.O., enhancing our ability to deliver beneficial outcomes to all our members.”

Analysts said the agreement with the United States would improve India’s negotiating position at the G-20 meeting and in other global talks. “It is a move ahead both for multilateralism at the W.T.O. and for India, which was being viewed as obstructionist,” said Rajrishi Singhal, a senior geoeconomics fellow at Gateway House, a foreign policy research group in Mumbai.

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