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India Sinks Global Trade Deal Casting Doubt on WTO’s Ability to Deliver

Posted August 04, 2014

A trade pact to ease worldwide customs rules concluded by 160 members of the World Trade Organization (WTO) in Bali in December, abruptly collapsed late last week after India refused to ratify the deal before the July 31 deadline without its parallel demand for concessions on food security being met.

The Trade Facilitation Agreement (TFA) would have been a unique success in the WTO’s 19-year history which, according to some estimates, would add $1 trillion and 21 million jobs to the world economy. The deal would create a global framework for more efficient customs documentation and administrative procedures for cross-border trade, which currently remains a significant cost factor for international shipments.

The new government of Narendra Modi however insisted that a permanent agreement on India’s policy of subsidized food stockpiling must be in place at the same time as the trade facilitation deal, well ahead of a 2017 target set in Bali last year. India was seeking to amend the norms for calculating food subsidies thereby enabling it to accumulate more food grains at a value lower than the current 10 percent of total production value.

U.S. Secretary of State John Kerry, who was on an official visit to India, said that India’s refusal to sign the TFA sent a “confusing signal” and had undermined the country’s pro-free trade image. A number of other WTO member states also voiced frustration after being unable to overcome India’s last-minute objections to the deal.

“Australia is deeply disappointed that it has not been possible to meet the deadline. This failure is a great blow to the confidence revived in Bali that the WTO can deliver negotiated outcomes,” Australian Trade Minister Andrew Robb said. “There are no winners from this outcome – least of all those in developing countries which would see the biggest gains.”

The deal’s failure worryingly throws into question the WTO’s ability to arbitrate disputes and serve as a forum for international accords. WTO Secretary-General Roberto Azevêdo urged members “to reflect long and hard on the ramifications of this setback”.

Some countries, including the United States, the European Union, Australia, Japan and Norway, have already discussed a plan to exclude India from the facilitation agreement and push ahead regardless. Other officials though have dismissed such talk of leaving India behind as “naive” and counterproductive. “India is the second biggest country by population, a vital part of the world economy and will become even more important,” New Zealand Minister of Overseas Trade, Tim Groser, told reporters. “The idea of excluding India is ridiculous.”

India is now proposing that a compromise deal which addresses its food security concerns can still be negotiated in September after the WTO’s summer recess, and finalized by the end of 2014, allowing time for the TFA to be implemented as scheduled in July 2015.