The World Trade Organization’s [WTO’s] draft declaration for the ensuing 10th ministerial meeting at Nairobi [Kenya] on December 15-18, 2015, promises to “address all aspects of agriculture reform as a matter of priority” but does not mention about finding a ‘permanent solution’ to India’s concerns on food security. While, the former is a cleverly worded statement [more of a rhetoric] offering nothing concrete, the latter is definitely a setback.
But, for any one tracking the chronology of events since the 9th Ministerial meeting at Bali [Indonesia] in December, 2013, this should not come as surprise. It is abundantly clear that from the day one, developed countries were never serious about finding a permanent solution. Nor, developing countries including India pressed for it. Let us look at some facts.
At Bali ministerial, developed countries had agreed to a ‘peace clause’, a euphemism for exemption from penal action for violations of commitments under WTO. Under it, if a developing country gives agricultural subsidies in excess of 10% of its agri-GDP, no member will challenge this until 2017 when WTO would look for a permanent solution to address their food security concerns. This meant that while peace clause would go in 2017, there is no guarantee that permanent solution would be in place by then.
The peace clause came with a plethora of conditions viz., submission of data on food procurement, stock holding, distribution and subsidies (including their computation) etc. These also included establishing that subsidies are not ‘trade distorting’ which is nearly impossible to comply. In other words, even in the interim, any member could challenge if conditions are not met.
All of the above happened under the erstwhile UPA dispensation. It was a big disaster. It meant that whereas from 2017 in any case, we would be subject to harsh action, even in the interim, India would be vulnerable, courtesy conditions appended to the clause. Already, US has been asking us to supply all sorts of data which tantamount to virtual surveillance on our food security system.
Team Modi started with a clear recognition of fallacies in the Bali agreement. So, in the meeting of WTO – General Council [GC], Geneva [July 31, 2014], it insisted on a time bound action plan to find a permanent solution to be executed before end of 2014. Modi even took it up in meeting with Obama on September [2014] but at some point allowed things to drift. WTO-GC in its meeting [December 10/11, 2014], approved extension of peace clause till such time a permanent solution is put in place.
The applicability of peace clause for an ‘indefinite’ period [albeit till a solution is found] gave only a ‘false’ sense of comfort to India as the Damocles Sword would still hang because conditions appended to peace clause were not dropped. At the same time, it gave a handle to developed countries not to work for a permanent solution. And, this is precisely what they are doing now by not even including this item in the agenda for Nairobi Ministerial.
So, how do we get out of the trap? Pleadings ad infinitum that we should to be allowed to protect our millions of poor farmers – a tactics that India has harped on all along under Doha Development Agenda [DDA] – won’t work any longer. We need to engage with US and EU on the rules of the game and a good solution [call it permanent or otherwise] lies there only.
Under Agreement on Agriculture [AoA], developing countries can give agricultural subsidies or aggregate measurement support [AMS] up to 10% of value of agricultural production. AMS has two components viz., (i) ‘product-specific’: excess of price paid to farmers over international price or ERP [external reference price] multiplied by quantum of produce; (ii) ‘non-product specific’: money spent on schemes to supply inputs viz., fertilizers, seed, irrigation, electricity at subsidized rates.
For computing AMS, support on inputs to resource poor farmers was ‘excluded’ under AoA. The rationale for this was that such support does not have any ‘trade-distorting’ effect, whereas WTO disciplines target only those forms of support which produce such effect. The same logic applied to product-specific subsidies.
However, it was not explicitly incorporated in the agreement as minimum support price [MSP] given to farmers then was substantially lower than ERP resulting in negative product-specific AMS. But, India should have anticipated a scenario wherein MSP could be higher than ERP and accordingly should have got ‘product-specific’ subsidies for resource poor farmers excluded from computation.
Our negotiators also allowed another flaw to creep in. Thus, for computing ‘product-specific’ support, they allowed ERP to be frozen at the level of 1986-88. With this, comparing current MSP with ERP of 3 decades before inevitably results in ‘artificially’ inflated subsidy. For instance, at present, wheat MSP of US$ 226 per ton [corresponding to Rs 1450 per quintal] is US$ 96 per ton higher than ERP [1986-88] of US$ 130 per ton.
At upcoming Nairobi ministerial, we should confront developed countries with both anomalies and get AoA amended to (i) update ERP to current level and (ii) exclude purchases from resource poor farmers for computing product-specific subsidies. India should insist on getting these changes incorporated in the agreement now. If, they still dilly dally then, India should insist on ‘un-conditional’ availability of interim ‘peace clause’ till such time a permanent solution is found.
India should also not allow issues like Government procurement, competition policy, link between trade and climate, currency and global value chain, TRIPs [trade related intellectual property rights] etc which developed countries are trying to include in the agenda. These were never a part of DDA and must not be allowed to creep in.