At the Trade Policy Review (TPR) meeting held at WTO (World Trade Organisation) in Geneva (January, 2021), the Indian delegation led by the commerce secretary, A Wadhawan insisted that (i) permanent solution for public stockholding to serve the food security objective; (ii) special safeguard measures (SSMs) to prevent import surges and (iii) elimination of unfair farm subsidy entitlements of some members should be taken up first on priority for any farm deal that may be worked out at the 12th WTO Ministerial Conference (MC 12) scheduled to be held from November 29, 2021.
Ever since the launch of Doha Development Round (DDR) (2001) (as the title suggests, this was meant primarily to address the issues of concern to the developing countries), India has been taking up the above core agriculture issues at the WTO but without any success. In fact, at the MC 10 held in Nairobi (December 2015), the developed countries led by the USA and the EU literally junked the Doha Development Agenda (DDA).
Whether or not MC 12 will yield the desired outcome? For this, we will have to wait and see. Meanwhile, there is need for introspection as to where did things go wrong.
Under the Agreement on Agriculture (AoA) of the WTO, a developing country cannot give aggregate measurement support (AMS) — an acronym for subsidies in WTO parlance — in excess of 10% of the value of its agricultural production. For developed countries, the threshold is kept at 5%. The AMS includes “product-specific” subsidies and “non-product specific” viz. subsidies on agricultural inputs like fertilizers, seed, irrigation and power.
The “product-specific” subsidy is excess of the Minimum Support Price (MSP) paid to farmers over the External Reference Price (ERP) multiplied by the quantum of agri-produce. Whereas the MSP is taken for the relevant year, say, 2018-19, the ERP is the average of the international price prevailing during 1986-88 fixed in rupee terms. If, subsidy given by a developing country exceeds 10%, this will be violation of its commitment under the WTO and is open to challenge by other members.
The rationale behind putting a cap is that excess subsidy given to producers (read: farmers) in any country has the effect of giving unfair advantage to them in the global market by ‘artificially’ lowering the price of their food supplies – also known in WTO parlance as ‘trade distortion’. The cap is intended to prevent this.
India runs a mammoth program of Public Stockholding (PSH) for Food Security Purposes. Under it, agencies of the Government viz. Food Corporation of India (FCI) and so on, buy agri-produce from the farmers at MSP (notified by the union) and distribute through a network of fair price shops to meet the food security needs of India’s poor and vulnerable population at affordable price. Since, MSP is higher than ERP, the excess is deemed as subsidy under the AoA.
India’s argument is that supplies from PSH is meant only for beneficiaries (albeit poor) and are not available for export, hence, there is no question of these supplies causing any distortion in international trade. Any subsidy involved in running this program can’t be deemed to be actionable; accordingly, it should be excluded from the calculation of AMS to see if the cap is breached. The logic is sound. But, the crucial question is why did India not get this ‘exemption from subsidy cap obligation’ incorporated in the AoA from the day one (the agreement came into force from January 1, 1995). Even the methodology of calculating AMS under the AoA is flawed.
First, MSP for the relevant/current year is compared with ERP that prevailed way back in 1986-88. This is absurd; it results in “artificially” inflated subsidy. Second, due to ambiguity in the agreement, quantities not procured by the agencies are also considered for arriving at subsidy. Third, subsidy on agri-inputs to resource poor farmers (they produce food for self-consumption and have no marketable surplus) is also included. No wonder, in a counter-claim (May, 2018), the USA had informed WTO that during 2013-14, Indian AMS on rice was 77% (courtesy, all these flaws which artificially inflate the subsidy) against only 5.45% given in Indian submission.
In view of above, forget getting exemption, the anomalies in AMS calculation has made India’s PSH program potentially vulnerable to violating WTO commitments. The Government – both under UPA and NDA – made efforts to secure relief.
The MC – 9 in Bali (2013) agreed to a “peace clause” under which “if a developing country gives AMS in excess of 10%, no member will challenge this until 2017 when WTO would look for a permanent solution to address their food security concerns”. It came with several riders such as submission of data on food procurement, stockholding, distribution and subsidies etc. These also included establishing that subsidies are not “trade distorting.” Moreover, it intended to cover only the schemes existing at that time.
In the WTO-General Council (GC) meeting in Geneva on July 31, 2014, India insisted on a time-bound action plan to find a permanent solution, to be executed before the end of 2014 co-terminus with approval of the Trade Facilitation Agreement (TFA) — an area of great importance to developed countries. This was a good strategic move but it was abandoned midstream. In December, 2014, even as latter got away with the TFA, former got reconciled to “extension of the peace clause till a permanent solution was found.”
In effect, the deal meant that India had literally surrendered its right to secure a permanent solution; that it was Ok with ‘the benefit of peace clause in perpetuity’. However, being subject to riders, even this is not automatically assured.
Meanwhile, developed countries of US and EU continue to give subsidies at a level much higher than the 5% threshold applicable to them and yet, remain compliant with WTO commitments. Unlike India, which subsidizes agri-inputs and price support to farmers, they achieve the same result by making direct benefit transfers (DBT) to farmers which does not form part of actionable subsidies.
In regard to SSM – it allows members to temporarily raise tariffs beyond the ‘bound levels’ (this is the maximum permissible duty that a member country can impose under bound rate agreement; for instance, in case of wheat, its is 80%) to deal with surging imports and resultant fall in prices – MC-10 in Nairobi (2015) had recognized that developing countries will have the right to recourse to it as envisaged under the Hong Kong Ministerial Declaration. But, this comes nowhere near India’s demand to amend an already existing provision in Article 5 of AoA to provide them the same benefit that developed countries derive from Special (Agricultural) Safeguards (SSG).
In short, it is a case of lack of care and foresight on the part of our negotiators at WTO in letting a flawed formula for AMS calculation creep in to the AoA in the first place and missed opportunity to make correction (2014/15) that has led to the present precarious situation for developing countries. It is good to see India flagging these issues yet again for resolution at MC – 12.
Making WTO agree to remove the flaws has not worked in the past. This won’t work even now. The Government needs to think out-of-box. It may consider DBT to farmers (poor food consumers can be protected by giving direct income support replacing the PSH). Being non-actionable, this can be given without any cap. This will be a win-win for all stakeholders including majority of the poor farmers. However, in the present atmosphere wherein a mere decision to open up agri-markets (through the three central laws) even as state mandis and MSP remain intact has led to so much anger, what will happen when the MSP goes – inevitable when DBT is given.
Modi faces a ‘Hobson’s Choice’.