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The food deal

Interview: Gabriel DomínguezNovember 13, 2014

India's insistence on its right to stockpile food had stalled a key global trade deal for months. But Washington and New Delhi have now reached an accord which clears a major stumbling block, says economist Rajiv Biswas.

A Kashmiri Muslim farmer works in a rice field on the outskirts of Srinagar on May 29, 2013 (Photo: TAUSEEF MUSTAFA/AFP/Getty Images)
Image: T.Mustafa/AFP/Getty Images

India and the United States announced on Thursday, November 13, they have resolved a row over food stockpiling and subsidies by governments, a move which paves the way for a landmark global trade agreement, which had stalled for months. India's Commerce Minister Nirmala Sitharaman said in a statement: "This will end the impasse at the World Trade Organization (WTO) and also open the way for implementation of the Trade Facilitation Agreement (TFA)."

The government of Indian PM Narendra Modi refused to ratify the TFA in July, insisting on retaining its right to stockpile and subsidize staple food for the poor. The global trade deal is designed to reduce trade barriers by lowering import tariffs and standardizing customs, and is expected to boost trade and boost global GDP by up to one trillion USD. It is also set to provide both developing and developed countries with greater access to each others' markets, according to the WTO.

Rajiv Biswas, Asia-Pacific Chief Economist at the analytics firm IHS, says in a DW interview that new deal gives India an indefinite timeframe for a new WTO deal on food subsidies to be concluded, one of its key demands. Still, for the TFA to be rapidly ratified and implemented other WTO members have to go along with the US-India deal, an issue that will be discussed at the WTO General Council meeting on 10-12 December. The pact is also likely to be discussed at the upcoming G20 Summit on 15-16 November.

Rajiv Biswas
Biswas: 'The TFA deal is very positive for the world economy, with limited downsides'Image: IHS

DW: Has the largest stumbling block to the global trade deal now been cleared?

Rajiv Biswas: India had been the main stumbling block to the WTO Trade Facilitation Agreement due to its refusal to agree to the TFA deal unless a parallel deal was concluded on food subsidies. The US-India deal on food subsidies now paves the way for the TFA to be rapidly ratified and implemented, so long as other WTO members are willing to go along with the US-India deal.

The next step is that the WTO General Council will consider the Indian proposal at its upcoming meeting on December 10-12. However, with both President Obama and PM Modi due to attend the G20 meeting in Brisbane on November 15-16, this summit will provide a crucial platform to get support for the US-India deal to pave the way for an early implementation of the TFA.

Are there any indications as to what the agreement entails?

The deal addresses India's concerns about the agreement on food subsidies concluded in Bali in December 2013. At the WTO Bali meeting, the WTO Ministerial Decision had been that a final deal on Public Stockholding for Food Security Purposes would be made by the time of the WTO 11th Ministerial Meeting in 2017.

The US-India deal will now give an indefinite timeframe for a new WTO deal on food subsidies to be concluded. In particular, it addresses India's concerns that if the Trade Facilitation Agreement was finalized before the food subsidies deal, developed countries may have no further interest in concluding a deal on food subsidies.

India derails WTO deal

What are India's main concerns in terms of food stockpiling?

India's food subsidy cost is already approaching 10 percent of the value of production, the cap set by the WTO, but only because the value of the subsidy is calculated under a WTO formula that uses 1986-88 reference prices to calculate the subsidy. India had argued for resetting the benchmark reference prices to allow for inflation.

These complications over the way the WTO calculates food subsidies had become especially problematic for India, particularly since the introduction of the new Food Security Act legislation which was passed in 2013, which increased food subsidies.

With India's rice and wheat subsidies already estimated to be close to nine percent of production based on the WTO 1986-88 price benchmark, the newly elected Indian government led by PM Modi had been concerned that it could soon be in breach of WTO food subsidy rules and incur large penalties.

How much did New Delhi's standing as a trade partner suffer as a result of its decision not to ratify the deal back in July?

India faced tremendous pressure from other WTO members as a result of this decision. Some WTO negotiators had even discussed implementing a TFA that excluded India, which could have undermined the WTO's role as an organization representing all its members. Therefore, this US-India deal offers a better long-term approach for global trade liberalization than a more divisive approach that would have split up the WTO membership.

The WTO has said the TFA could boost global trade by one trillion. How are India and other developing countries set to profit from the TFA?

The potential economic consequences of the WTO Trade Facilitation Deal for the global economy and Asian economies are very substantial, with estimated reductions in total costs of trade of up to 13 percent to 15 percent for developing countries and up to 10 percent for developed countries, as well as an estimated 21 million new jobs.

Lowering costs related to international trade will provide a significant boost to world GDP in the order of USD 400 billion to USD 1 trillion. India, as a developing country with relatively high costs related to customs documentation and administrative procedures for cross-border trade, will be a significant beneficiary from this TFA deal.

The TFA deal will not only help to make Indian exports more competitive by lowering costs related to customs procedures, but will also help to lower import costs which will also help Indian consumers and industry.

Critics of the WTO rules, though, say they may hinder countries from setting their own priorities in environmental protection and worker rights and could even wipe out industries, causing job losses. What is your view on this?

Lowering the costs of trade by streamlining cross-border customs procedures and administration offers significant gains to world growth and trade. This TFA deal does not change import tariffs, although the GATT and WTO have already provided the framework for substantial reduction in world tariffs on trade over the last 50 years, which has been a very positive factor in boosting world trade, GDP growth and employment growth.

Under the US-India deal, food security concerns of WTO members will also be addressed. Therefore, the TFA deal is very positive for the world economy, with limited downsides. That is why the TFA has won strong support from WTO members, including developing countries, with both developed and developing country governments keen to reap the significant benefits to world growth and trade.

Focusing now on the political component: Is the recent deal on food subsidies a victory for India's BJP-led government?

The US-India deal does represent an important success for PM Modi and the BJP government since it has achieved outcomes that the Indian government had sought in the WTO negotiations.

The deal struck by the Indian government provides a good solution that addresses India's concerns, and opens the door for the WTO Trade Facilitation Agreement to be rapidly implemented at a time when some critics were beginning to question the future role of the WTO. However, this is not yet a done deal unless other WTO members support the US-India agreement.

Rajiv Biswas is Asia-Pacific Chief Economist at IHS, a global information and analytics firm. He is responsible for coordination of economic analyses and forecasts for the Asia-Pacific region.