In a severe indictment of India’s stand at World Trade Organization [WTO], the Economic Survey [2015-16] presented to parliament in February, 2016 unequivocally questioned India’s long-time stance of insisting on special safeguards mechanism [SSM] and permanent solution to its public stock holding issue.
Dr Arvind Subramanian, author of the Survey and chief economic advisor [CEA] argued that the country’s strategy should instead evolve around the need to shift away from tariff armours for producers to domestic support, and that too at an appropriate level and form. He pointed out that the policies being defended are those that “India intends to move out of in any case” due to well documented impacts, including a decline in water tables and over-use of electricity and fertilizers.
On CEA’s radar are the mammoth subsidies that India gives on food for public stock holding operations [‘product-specific’ subsidies in WTO parlance] on the one hand and subsidies on agricultural inputs viz., fertilizers, seed, irrigation, electricity etc [‘non-product specific’ subsidies] on the other. The sum total of these subsidies is branded as
aggregate measurement support [AMS].
Under Agreement on Agriculture [AoA] of WTO, developing countries can give AMS up to 10% of value of agricultural production. The ‘product-specific’ subsidy is computed as excess of price paid to farmers over international price or ERP [external reference price] multiplied by quantum of produce whereas ‘non-product specific’ subsidies is money spent on schemes to supply inputs at subsidized rates.
At the 9th ministerial in Bali [December, 2013], developed countries had agreed to a ‘peace clause’ under which, if a developing country gives agricultural subsidies in excess of 10% of its agricultural 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 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. Already, US has been asking India to supply all sorts of data which tantamount to virtual surveillance on our food security system.
In its meeting held on December 10/11, 2014, WTO-General Council [GC] approved extension of peace clause till such time a permanent solution is put in place. But, the conditions appended to the clause were not dropped. The decisions of the WTO-GC were reiterated at the 10th ministerial meeting at Nairobi on [December 15-19, 2015]. As regards, finding a permanent solution to public stock holding for food security, the ministerial merely agreed that “negotiations on the subject shall be held in the Committee on Agriculture [CoA] in the Special Session, which will be distinct from ongoing agriculture negotiations under Doha Development Agenda [DDA]”. This postpones the solution indefinitely.
In this backdrop, CEA’s contention that India should stop looking for a permanent solution is a tacit acknowledgement of what is already a fait accompli [courtesy, lack of meticulous follow-up]. But, for him to argue that such forms of subsidies are not in our interest and that “India intends to move out of these in any case”, hence, we need not pursue our interests at WTO would be a strategic blunder.
True, Modi – government has declared its intent to replace extant system of subsidies [via supply of inputs like fertilizers at subsidized price or minimum price support [MSP] to farmers] by direct benefit transfer [DBT] which will not attract penal provisions of AoA under WTO. But, there is big difference between proclamation of an intent and actualizing it on ground zero. Such pronouncements have been in the air for over 2 years now. Yet, all that we see is a few pilot projects in select states/union territories [UTs].
It will take a minimum of 5 years before we could actually have DBT in these crucial segments. Till then, it will a grave mistake to simply sit complacent thinking that the ‘peace clause’ will immunize India from actions against violation of AMS commitments. All the more so, when conditions appended to the clause hang like a Damocles Sword and US surveillance on our food systems continues unabated.
We need to catch the bull by the horn. There are two major flaws in AoA. First, for computing AMS, whereas support on agri-inputs to resource poor farmers is ‘excluded’ [on a sound logic that such support is not ‘trade-distorting’], product-specific subsidies given to them are not. Second, for computing ‘product-specific’ support, ERP is frozen at the level of 1986-88. With this, comparing current MSP with ERP of 3 decades before inevitably results in ‘artificially’ inflated subsidy.
If only we insist on correction of these two anomalies, Indian agricultural subsidies even while continuing with extant dispensation will be well within the 10% ceiling. That indeed is the ‘permanent solution’ to our problem of public stock holding for food security and has to be vigorously pursued.
Likewise, we must not allow issue of SSM [it allows members to temporarily raise tariffs to deal with surging imports and resultant fall in prices] hanging in the air.
At the Nairobi ministerial, developing countries wanted an amendment to an already existing provision in Article 5 of AoA to provide them the same benefit that developed countries derive from Special (Agricultural) Safeguards [SSG]. Yet, the declaration only recognized that the developing countries will have the right to recourse to SSM as envisaged under the Hong Kong Ministerial Declaration. This was a hollow assurance to say the least.
In retrospect, when the Economic Survey notes that there is no point in pursuing SSM either, government may have got reconciled to a fait accompli. But, it would be imprudent to give it up either.