Development Econimics;India and US reach WTO breakthrough over food A global trade deal could add $1tn (£630bn) to the world economy

Development Econimics;India and US reach WTO breakthrough over food A global trade deal could add $1tn (£630bn) to the world economy

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India and the US have resolved their disagreements on food security issues, paving the way for the implementation of a global trade pact.

The deal to simplify trade procedures was done at a World Trade Organization (WTO) meeting summit in Bali in Indonesia last year.

But India has been blocking implementation of that agreement.

It wanted assurances that its food security programme would not be challenged under the WTO’s rules.

India’s concern was that complaints based on rules limiting farm subsidies might undermine its spending on food stockpiles intended to ensure that the poor have enough to eat.

Food security programmes are covered by a so-called “peace clause” in which countries agreed to refrain for making such challenges until 2017. The US has now agreed to extend that commitment, in effect indefinitely. This bilateral agreement between the US and India still has to be endorsed by the full WTO membership, and it’s likely to be discussed in the Organization’s General Council next month.

The breakthrough stems from a bilateral summit in September when Prime Minister Narendra Modi visited the US.

It clears the way for the WTO to press ahead with the Trade Facilitation Agreement that was done in Bali.

Analysts have estimated that that trade deal could add $1tn (£630bn) to the world economy, by reducing the costs of conducting trade by for example simplifying customs procedures.

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.”

The statement also said Delhi and Washington have 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”.

India sees food subsidies as a crucial way to help the poor

Analysis: Sanjoy Majumder, South Asia correspondent, BBC News

This breakthrough on the issue of food subsidies will be seen as a major victory for India.

Earlier this year, India refused to back the Trade Facilitation Agreement – a key deal which could add $1tn to the global economy and create more than 20 million jobs, mostly in developing countries.

So India’s decision to hold out was strongly criticised. Some even saw it as the beginning of the end of the WTO.

India feared that signing up to the deal would affect its $12bn food security programme – a key welfare measure aimed at delivering millions of people from poverty.

As part of this, India buys grains such as rice and wheat from farmers at above market prices, sells a part of it to poor households and stockpiles the rest to guard against shortages.

It does this to both protect farmers, but also provide affordable food to many.

Stockpile deadlock

India’s Commerce Minister Nirmala Sitharaman took to social media to share the latest developments, where she tweeted that India and the US “had successfully resolved their impasse over food securities in #WTO”.

The minister added later: “WTO General Council will receive India’s proposal and US will support us.”

At the centre of the dispute, India had argued that the country itself and other developing economies see food stockpiling as a necessary measure to ensure poor farmers and consumers survive in the business community.

But it involves subsidies for farmers, which can distort international trade and are subject to WTO disciplines.

Western countries, led by the United States, have previously raised concerns that the stockpiles could affect global markets and skew trade.

Who wins?

“This may be considered as a coup of sorts for Prime Minister Modi,” says Vishnu Varathan, a senior economist from Mizuho Bank.

He explains, “getting the US and WTO to concede on food stockpiling helps define the prime minister as a firm leader, who is able to make progress while protecting India’s vital interests.”

Rajiv Biswas, Asia Pacific Chief Economist at consultancy IHS says the deal provides a good solution that addresses India’s concerns.

Mr Biswas adds, “it is also a positive outcome for the WTO as it will pave the way for a very significant WTO trade liberalization agreement to be implemented at a time when some critics were beginning to question the future role of the WTO.”

The Trade Facilitation Agreement, which is now likely to go ahead was NOT about reducing trade tariffs or customs duties, which are being discussed separately. Progress on that, and most other areas of the wide ranging WTO talks known as the Doha Round launched in 2001, has been slow.

The TFA was the one major achievement from those extremely protracted negotiations.

NOTE: This is relevant only for those studentstaking the coursework option for the final assessment.

ECO-3A09C — Development Economics (Coursework option) Coursework Essay The essay isworth 60% of the grade for this module. Word limit: 3000 words (all indusive) Submission deadline: 3 pm on 15th January 2015

Choose ONE of the following questions:

1. Check out the recent news story on the BBC: “India and US reach WTO breakthrough over food” (http://www.bbc.co.uk/newstusiness-30033130) on 13th November 2014. What is the policy that US wanted India to abandon? Why did the US want India to abandon it? Why was India reluctant to abandon it? What do you think will be the likely consequences of this deal, both for India and for the rest of the world?

Hints f or answer: 1. H i stori cal context of the policy. 2. Objectives of the policy over ti me — political , social and economic. 3. The economic arguments for and against such a policy. 4. Performance record and impact thus far. 5. The US case— what, why, how, etc. 6. The Indian case— what, why, how, etc. 7. How and why did the two sides come to an agreement? 8. Prognosis — your predictions (with reasoned arguments — pol i ti cal , social and economic)
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