India wins U.S. support for food scheme, ends WTO blockade

By Manoj Kumar and Krista Hughes

NEW DELHI/WASHINGTON (Reuters) - India won U.S. support for its food stockpiling scheme on Thursday, rescuing the World Trade Organization from paralysis and giving new Prime Minister Narendra Modi a victory without major concessions.

Under the pact with Washington, India will lift a veto on a global agreement on streamlining customs rules, a deal that prominent supporters estimate will add $1 trillion to the world economy as well as 21 million jobs, 18 million of them in developing countries.

Modi, elected in May, pulled the plug on the WTO agreement four months ago because he wanted faster agreement on an unrelated deal on food security, leaving the WTO facing an uncertain future.

Stressing the importance of ensuring that its 1.25 billion people have enough to eat, India won an open-ended commitment from Washington to protect its food purchase and distribution scheme from legal challenges over exports of surplus grain stocks accumulated in government warehouses.

WTO Director General Roberto Azevedo said the breakthrough was a significant step to getting the global trading system back on track and "potentially a major boost to the WTO".

However, he added that all WTO members needed to be consulted as quickly as possible.

U.S. Trade Representative Michael Froman, who had been the principal opponent of India's food scheme on the grounds that it distorted trade, predicted the streamlined customs rules known as the Trade Facilitation Agreement (TFA) would now win quick ratification.

He declined to answer questions on what concessions India had given in return.

New Delhi's blockade had plunged the WTO into its worst crisis ever, leading Azevedo to float the idea of abandoning the goal of trade reform covering its 160 members.

The breakthrough is the second at the WTO in days, following a U.S.-China pact to cut tariffs on IT products, also billed as a $1 trillion advance.

COMPROMISE

But the India deal is more important as it unlocks further negotiations.

Modi's tough line jarred with the 'Make in India' pitch he has taken to investors abroad in his first five months in charge and risked isolating him at his first G20 summit of world leaders in Brisbane, Australia, this weekend.

Instead, G20 leaders will be able to focus on "a robust trade agenda", said John Danilovich, Secretary General of the International Chamber of Commerce.

"This timely news... will also open the door to advance discussions on other aspects of the post-Bali trade agenda."

Many trade diplomats had disapproved of India's tactics and were dumbfounded by its apparently reckless stance, presented by Indian officials as the defence of a poor nation that deserved to be listened to.

Modi instructed aides early last week to strike a deal.

"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."

India had called for a permanent 'peace clause' to protect its food stockpiling, subject to certain conditions, and rejected calls to scale back purchases of wheat and rice from its farmers, despite criticism that this encouraged overproduction.

A food security law passed by the last government expanded the number of people entitled to receive cheap food grains to 850 million.

In a recent disclosure to the WTO, India said its state food procurement cost $13.8 billion in 2010-11, part of the total of $56.1 billion it spends on farm support. Wheat stocks, at 30 million tonnes, are more than double official target levels.

The India-United States compromise should now go before a Dec. 11-12 meeting of the WTO's General Council, its highest decision-making body, for ratification, Indian trade minister Nirmala Sitharaman said.

(Reporting by Manoj Kumar in New Delhi and Matt Siegel in Sydney, additional reporting by Tom Miles in Geneva; Writing by Douglas Busvine; Editing by Alex Richardson and John Stonestreet)