India threatened on Friday to block a worldwide reform of custom rules, which some estimates say could add $1 trillion to the global economy and create 21 million jobs, prompting a U.S. warning that its demands could kill global trade reform efforts.
Diplomats from the 160 World Trade Organization member countries meeting in Geneva had been meant to rubber stamp a deal on "trade facilitation" that was agreed at talks in Bali last December in the WTO's first ever global trade agreement.
But India, in an 11th-hour intervention, demanded a halt to the trade facilitation timetable until the end of the year and said a permanent WTO deal on food stockpiling must be in place at the same time, well ahead of an agreed 2017 target date.
"My delegation is of the view that the adoption of the TF (trade facilitation) Protocol be postponed till a permanent solution on public stockholding for food security is found," Indian Ambassador Anjali Prasad told the WTO meeting.
The ultimatum revived doubts about the future of the WTO as a negotiating body, and many diplomats said Delhi's stance could derail the whole process of world trade liberalisation.
"It is no use to sugar coat the consequences of such action or to pretend that there would be business as usual in the aftermath," U.S. Ambassador Michael Punke said.
"Today we are extremely discouraged that a small handful of members in this organisation are ready to walk away from their commitments at Bali, to kill the Bali agreement, to kill the power of that good faith and goodwill we all shared, to flip the lights in this building back to dark," he said in a statement.
"WHOLE WORLD WATCHING"
India won support from Cuba, Venezuela and Bolivia. But an official at the meeting said the "very, very large majority" of WTO members opposed India's stance, which was a replay of the hard line it took in Bali last December.
India's former commerce minister Anand Sharma, who negotiated the Bali deal, told Reuters New Delhi had played a critical role to reach a balanced agreement in Bali but that it had subsequently not secured what it had sought.
"It was expected that TFA would move along with the issue of public stockholding ... but it seems it has not happened. That is unacceptable," Sharma said.
However, WTO diplomats said Sharma had agreed in Bali to a four-year timeline for a deal on stockpiling and a much shorter one for trade facilitation.
Many diplomats expressed surprise that India had effectively reopened the Bali negotiation just as the WTO appeared to have turned the page to a potential new era of trade talks after a decade of negotiating failure.
"Many members, including developing country members, have noted that, if the Bali package fails, there can be no post-Bali. It’s with regret that we agree with them," Punke said.
"We still have a few days. But while the deadline is fixed and firm, the real issue isn't time. The issue is, will all WTO Members keep their commitments? ... In the next few days we’ll find out. The whole world is watching."
A failure to overcome India's objections by early next week could overshadow a planned visit to New Delhi by U.S. Secretary of State John Kerry, which begins on July 30. Unless India succeeds in changing the timeframe, the deadline for agreeing the trade facilitation is July 31, at which point it will lapse.
D.S. Rawat, secretary general of the Indian industrial chamber ASSOCHAM, said he supported the government's move.
"We should not be unduly perturbed for being blamed for failure of talks," Rawat said. "We need a level-playing field on the issue of agricultural subsidies. India will have to provide food subsidies to its millions of poor people living below poverty line until they reach a level."
India's tough stance has surprised those who expected newly elected pro-business Prime Minister Narendra Modi to radically slash subsidies.
Modi has vowed to spur economic growth through sweeping changes to policies that many people felt had stagnated under the outgoing administration, and his every step is being closely monitored at home and abroad.