In a joint paper submitted to the WTO’s [World Trade Organization] Committee on Agriculture, on July 17, 2017, India and China have lambasted developed countries including the US, the EU and Canada for consistently giving trade-distorting subsidies to their farmers at levels much higher than ceiling applicable to developing countries in respect of to such subsidies.
According to the paper, “developed countries corner more than 90 per cent of global Aggregate Measurement of Support [AMS] [a technical jargon for trade-distorting subsidies] entitlements amounting to nearly US$160 billion which is beyond their de minimis [maximum permissible level of AMS]. In contrast, most developing countries have access only to de minimis resulting in a major asymmetry in the rules on agricultural trade.”
The overarching objective of WTO is to promote rule based international trade among member countries based on principles of ‘fairness’, ‘non-discriminatory’ and ‘transparency’. That is why India has always preferred to be part of WTO framework instead of joining regional trading arrangements. Yet, rich countries are using this very platform for imposing ‘unfair’ and ‘discriminatory’ global trade in agriculture [courtesy mammoth subsidies to their farmers] causing huge loss to developing countries via affecting their exports and decline in farmers income.
At the same time, they object to developing countries giving subsidy even at bare minimum level. At a meeting of WTO agriculture committee held on March 28, 2017, they lambasted India on its minimum support price [MSP] programs for wheat and other key commodities. While, Australia raised concerns over increase in India’s MSP for wheat since 2006, US and EU questioned subsidies on sugarcane, buffer stock of pulses and price support for both rabi and kharif crops.
How do developed countries manage this highly inequitable global agricultural order? Are they violating WTO rules? Or the rules are crafted in a manner so as to favor them only?
Under Agreement on Agriculture [AOA], developing countries can give subsidy on food – called AMS – up to 10% of value of agricultural production. For developed countries, the corresponding de minimis AMS level is 5%.
AMS includes ‘product-specific’ subsidies and ‘non-product specific’ viz. subsidies on agricultural inputs viz., fertilizers, seed, irrigation, electricity etc. The ‘product-specific’ subsidy is computed as excess of MSP paid to farmers over international price – or external reference price [ERP] – multiplied by quantum of agriculture produce whereas ‘non-product specific’ subsidies is money spent by government on schemes to supply agricultural inputs at subsidized rates.
On the face of it, stipulation may appear to be fair but on a closer look it turns out that there is another provision which made 5% de minimis applicable to developed countries redundant.
At the time agreement was hammered [more than 2 decades ago], historically, developed countries were giving high subsidies; so many of them got their individual AMS levels bound at a much higher level. They were to reduce these by 20% over 5 years. This was disingenuous as starting with say 100%, after 5 years the bound level would still be 80% as against the de minimis at 5%.
The developed countries have fully exploited this anomaly by maintaining subsidy at over 100 per cent of the production value on individual items; for instance on mohair and wool by US and tinned pineapple, cotton and tobacco by EU. In Canada, AMS on tobacco in 2009 exceeded the value of production by 200%.
On the other hand, developing countries’ were required to reduce their AMS by 13% over 9 years. Considering that already, their subsidies were much lower than the de minimis 10 per cent [for India, it was substantially negative], this provision was of no use. The position was made worse by certain flaws in computation.
For computing AMS, whereas support on agri-inputs to resource poor farmers was ‘excluded’ [on the basis that such support is not ‘trade-distorting’], product-specific subsidies given to them were not. Second, for computing ‘product-specific’ support, ERP is frozen at level of 1986-88. With this, comparing current MSP with ERP of 3 decades before results in ‘artificially’ inflated subsidy.
This juxtaposed with treatment of product-specific subsidies as ‘trade-distorting’ – even when these are to poor farmers – inevitably results in AMS exceeding the 10% ceiling fixed under the agreement. It is these inherent flaws in computation and treatment of subsidy that make developing countries potentially vulnerable to non-compliance with WTO commitments even when their actual subsidy is well within the 10% de minimis level.
The flaws in AOA have remained submerged in the cacophony of charges/allegations made by developed countries who have mastered the art of obfuscating the real issues. Instead of getting to remove these, they have turned developing countries in to pleaders seeking immunity from challenge [in the event of violation] who end up either getting nothing or some sop whose relieving effect is transient at best.
Thus, at 9th ministerial in Bali [2013], they got a ‘peace clause’ under which, no member will challenge violation [AMS exceeding 10%] until 2017 when WTO would look for a permanent solution. This meant that while peace clause would go in 2017, there was 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, stockholding, 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.
In 2014, WTO-General Council [GC], in a slight modification of decision at Bali, GC approved extension of ‘peace clause’ till a permanent solution is found. But, this leeway was of no use as the conditions appended to it were not dropped thereby making developing countries vulnerable to challenge.
The decision of WTO-GC was reiterated at 10th ministerial at Nairobi [2015]. As regards, a permanent solution, it merely agreed that “negotiations on the subject shall be held in COA, distinct from ongoing agriculture negotiations under Doha Development Agenda”. This meant postponing a solution indefinitely.
Now that India-China have jointly moved WTO, at the upcoming ministerial in Buenos Aires [December, 2017] they should insist on a elimination of all anomalies under the AOA. While, developed countries should be made to cap their subsidies at 5% de minimis, for developing countries the focus has to be using current ERP for computing actionable subsidies and excluding support to poor farmers – both product-specific and non-product specific – for arriving at overall AMS.
At WTO, all that developing countries need is fair play in crafting rules and not charity/benevolence such as ‘peace clause’ which leave them at the mercy of developed countries for all time.