business

Updated: Nov 14, 2014 08:26 IST

India and the United States scripted a compromise formula on food subsidies on Thursday, paving the way to remove a major irritant in the stalled World Trade Organization (WTO) deal on easing of customs rules.

As part of a revised proposal, India and the US have agreed for an indefinite “peace clause” on food security until a permanent solution is found, marking a major success for the Narendra Modi government in global trade talks withstanding mounting diplomatic pressure from developed countries.

A “peace clause” gives legal security to member countries and protects them from being challenged under other WTO agreements.

HT first reported on September 22 the possibility the of breakthrough during Prime Minister Modi’s visit to the US when he discussed the issue with President Barack Obama.

Developed nations have shown support for a “peace clause” that would agree to developing countries’ demands on food security for a period of four years.

India, however, was pressing for a guarantee for further exemption until a permanent solution is negotiated and to find a way to allow countries the right to provide higher levels of subsidies for their poor beyond these four years.

The latest move will likely help WTO members ratify the so-called trade facilitation agreement (TFA) to make trade easier, faster and cheaper by making systems transparent and reducing red tape.

In July, India had withstood mounting pressure from the developed countries including the US, which had blamed New Delhi’s hard bargain strategy for the eventual collapse of the talks putting the WTO’s future in “uncertain ground.”

India had made it clear that state-funded welfare schemes for the poor were non-negotiable even as it took the blame for blocking the TFA in July, as it did not come bundled with a roadmap for rules on food subsidies.

"The United States and India reached agreement today (Thursday) on a set of measures intended to break the impasse in the work of the World Trade Organization (WTO) to implement the agreements reached last December," said a US government statement.

The two countries agreed that India's food security programmes would not be challenged under WTO rules "until a permanent solution regarding this issue has been agreed and adopted," it said.

India's commerce minister Nirmala Sitharaman tweeted that India and the US had "successfully resolved their impasse over food security issues in #WTO".

"WTO General Council will receive India's proposal and US will support us," she said.

Even after Modi's talks with Obama in September, India, however, held the view that without a permanent solution on food subsidies, public stockholding programmes such as buffer stock of food-grains will be hampered.

Existing rules cap the value of food subsidies at 10% of the value of production. But, the way the support is calculated at prices of more nearly three decades earlier means many countries would find it difficult to stay within the limit potentially attracting strong penalties from the trade body.

This will affect India’s food security programme and food grain procurement through the minimum support prices (MSP).

Bali package

New Delhi's decision in July to hold up the TFA to reduce trade barriers came after the WTO's members agreed at a December, 2013, meeting in the Indonesian island of Bali to implement the pact.

At the time of the Bali accord, WTO members agreed on a four-year "peace clause" to protect India from being punished over subsidies and stockpiles until a "permanent" solution" was reached. The agreement was due to take effect in mid-2015.

But after the Bali pact, Indian officials complained there were nearly two dozen meetings on the trade facilitation pact and just a handful on subsidies.

Bali was the first multilateral agreement concluded by the WTO since its inception in 1995.

It also signalled the first concrete progress on the Doha Round of trade liberalisation talks, launched in 2001 and aimed at underpinning development in poorer nations.

It took nearly a decade to conclude the trade facilitation part of the talks, which began in 2004.

"The agreement announced today (Thursday) between the US and India paves the way for full implementation of the WTO's Trade Facilitation Agreement (TFA)...The agreement also reflects shared understandings regarding the WTO's work on food security," US Trade Representative Michael Froman said in a statement.



"We now look forward to working with all WTO members and with Director-General Roberto Azevedo to reach a consensus that enables full implementation of all elements of the landmark Bali Package, including the TFA," he added.

(With agency inputs)