New Delhi: India and the US have resolved differences over public stockholding of foodgrains with the US agreeing to an indefinite “peace clause" pending a permanent settlement—a development that makes possible the most significant global deal since the 1990s.

US support for the massive public food stockholding programme also signals a political victory for Prime Minister Narendra Modi, who seems to have won the deal without any major concessions—at least, not to public knowledge.

The two countries have reached an understanding on implementation of the agreements reached at the December 2013 World Trade Organization (WTO) ministerial meetings in Bali, Indonesia, on food security programmes maintained by some developing countries, both governments said on Thursday.

The so-called peace clause gives legal security to member-countries and protects them from being challenged under other WTO agreements.

“This will end the impasse at the WTO and also open the way for implementation of the trade facilitation agreement (TFA)," commerce and industry minister Nirmala Sitharaman said.

The India-US compromise should now go before an 11-12 December meeting of WTO’s general council, its highest decision-making body, for ratification, Sitharaman added. She did not comment on the contents of this proposal.

“This is a huge plus for the world trading system—it uncorks TFA 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," he added.

India’s insistence on an indefinite peace clause allowing developing countries to maintain their food security programmes until a permanent solution is found to the issue, and linking it to the TFA, scuttled WTO efforts to put the TFA in place by 31 July. The TFA would have been the first multilateral trade agreement in the nearly 20-year history of WTO.

The India-US understanding will pave the way for the implementation of the TFA, which is meant to simplify customs procedures, facilitate the speedy release of goods from ports and cut transaction costs.

“The bilateral agreement makes clear that a mechanism under which WTO Members will not challenge such food security programs under WTO dispute settlement procedures will remain in place until a permanent solution regarding this issue has been agreed and adopted," US trade representative Michael Froman said in a statement.

“On the basis of this breakthrough with India, 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 Trade Facilitation Agreement."

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

The issue was discussed in detail between US President Barack Obama and Modi during the latter’s visit to the US in September.

India had earlier refused to ratify the TFA till its concerns over finding a permanent solution on the issue of food security and public stockholding were addressed.

India drew flak from the US and other developed countries, which had proposed a four-year peace clause on the issue of food security programmes, for thwarting the TFA.

“Everyone has an interest in getting the TFA through, including India," Lalit Mansingh, former foreign secretary and ex-ambassador to the US, said on Thursday.

Developing countries opposed a WTO rule that caps subsidies to farmers at 10% of the total value of agricultural production, based on 1986-88 prices. They pointed out that the base year was now outdated and they need to be given leeway to stock enough foodgrains for food security of millions of their poor.

Implicitly criticizing the previous United Progressive Alliance government for signing the Bali agreement, Sitharaman said, “The point of difference (between the India and the US) was that the Bali agreement was imperfect. The Bali’s agreement imperfection has to be corrected. A course correction was what we wanted."

WTO’s inability to put the TFA in place by its July deadline had sparked pessimism over the future of the organisation.

On Thursday, WTO’s Azevêdo said the India-US breakthrough “represents a significant step in efforts to get the Bali package and the multilateral trading system back on track".

“Advancing our work toward a permanent solution on public stockholding and the implementation of the Trade Facilitation Agreement, including its provisions for technical assistance for developing countries, will be integral to this work," he said in a statement e-mailed from his office.

While stressing that the India-US understanding would represent a major step forward, Azevedo stressed that members would need to redouble their efforts in order to minimize the delays provoked by the impasse on the conclusion of the post-Bali work programme. Azevêdo had earlier threatened to abandon the consensus principle on which WTO operates after India’s blockage plunged the 160-member group into its worst crisis in two decades.

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.

EU trade commissioner Cecilia Malmstrom said in a statement from Brussels that the India-US announcement marked an “important breakthrough which will lead to the full implementation of the landmark Bali package".

“Together with the recent progress in negotiations on the expansions of the Information Technology Agreement, today’s breakthrough on the Bali agreements demonstrates that the WTO can deliver meaningful trade liberalisation results which will greatly contribute to the growth of the global economy, “ she said.

Still, the deal between India and the US raises two sets of concerns, according to Biswajit Dhar, professor at the School of Social Sciences, Jawaharlal Nehru University.

“Critical decisions such as the one taken today should have been taken in the multilateral forum. The decision shows that the US continues to have an overwhelming presence in the WTO, which it can use to broker deals in the organization. Since the Doha ministerial conference, emerging economies like India have been making their presence felt in the WTO, and it is to be seen whether their position would be affected as a result of this development," he said.

Dhar also cautioned that an indefinite peace clause could imply that a permanent solution will never be found.

Reuters contributed to this story.

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