By getting the US to extend the peace clause, India has scored a win on the farm subsidy issue. But to secure interests in the long term, it must insist that the minimum support price it offers to farmers be excluded from subsidy calculations
India had faced all-round flak for its stance at the World Trade Organisation’s General Council meeting, in Geneva on July 31, that linked approval of the Trade Facilitation Agreement with time-bound actions to address the concerns of developing countries with regards to food grain stockpiling.
In December 2013, India was accused of going back on the Bali ministerial declaration and creating obstacles in the progress of the Doha round talks. Some developed countries were even willing to move forward — without India — and finalise the TFA, leaving the food security issue in the lurch.
Now, the US not only appears to have climbed down from its previous position, but it has also applauded India’s constructive role in ending the impasse. So, what has Prime Minister Narendra Modi delivered? Has India got what it wanted? What’s the way forward?
At Bali, the developed countries had agreed to a ‘peace clause’, in exchange for India’s support to the TFA, which seeks to streamline customs procedures and improve border infrastructure for faster, easier and cheaper trade. Under the peace clause, if a developing country gives agricultural subsidies in excess of 10 per cent of its agricultural gross domestic product, it cannot be challenge until 2017, when the WTO will look for a permanent solution to address their food security concerns.
This meant that while the peace clause would be hold till 2017, there was no guarantee that a permanent solution would be in place by then. Clearly, this was a flawed agreement. The peace clause also came with a plethora of conditions such as submission of data on food procurement and stockholding. It also included establishing that subsidies are not ‘trade distorting’. This is nearly impossible to comply with. Thus, the developed countries made sure that even temporary reprieve would not be available to developing countries.
During the WTO meeting in Geneva, the Modi Government took a tough stance to undo the wrong done at Bali. It insisted on a time-bound action plan for arriving at a permanent solution to food security concerns and its concurrent adoption with approval of the TFA.
During the three months of hectic negotiations that followed between India and the US, (including Mr Modi’s meeting with US President Barack Obama on September 30) both sides attempted to accommodate each other’s views. While, India did not insist on a permanent solution right away, the latter reconciled to removal of the four year cap on applicability of the peace clause.
The US has agreed to an extension of the peace clause, till such time as a permanent solution is put in place. In return, India has given the go-ahead for the TFA. The WTO General Council will put its stamp of approval in its December 10-11 meeting.
At the surface level, the deal may appear to be fair to developing countries (and a big victory for India), but in reality, it may not be so. Reportedly, the conditions previously appended to the peace clause have not been dropped. This will continue to keep India in a vulnerable zone.
Also, it is a matter of concern that the search for a permanent solution has been deferred. The argument that the extension of the peace clause will pressurise the West to expedite a solution does not cut ice. When the existing provisions under AoA are loaded against developing countries, why should the West push for change?
The Indian Government can still press for a permanent solution. So, what is it looking for? India wants the subsidy that it gives to poor farmers (by way of minimum price support for public stock holding) to be excluded from the aggregate measurement support. Alternatively, it wants the external reference price, which under the extant AoA is pegged at the 1986-1988 level, to be updated to the current level.
Both proposals are logical and consistent with the spirit of the WTO. Just look at the methodology used for AMS calculation. The AMS has two components — (i) product specific and (ii) non-product specific. The first is the excess of price paid to farmers over international price or the ERP multiplied by the quantum of produce. The second is the money spent on schemes to supply agricultural inputs such as fertilisers, seeds, irrigation facilities and electricity at subsidised rates.
The latter was excluded from the AMS on the grounds that such support does not have any trade-distorting effect, whereas WTO disciplines target only those forms of support which produce such effect (amber box subsidies).
During the Uruguay round negotiations, (leading to the WTO agreement), India had submitted that input subsidies given to 79.5 per cent of total land holdings (farmers with less than 10 hectares) are taken as low income or resource poor and, therefore, qualify for exemption under Article 6.2 of the AOA. Accordingly, in its notification submitted in 2002 covering 1996/97 and 1997/98 marketing years, India allocated about 80 per cent of input subsidies to Article 6.2 and 20 per cent to amber box.
The same logic applied to product specific subsidies. But, it was irrelevant then, as the MSP given to farmers was substantially lower than the ERP, resulting in negative product-specific AMS. This position continued till 2004-2006. Thereafter, due to significant increase in MSP, the equation has been reversed.
For example, the current MSP for wheat, at $233 billion per tonne, is higher than 1986-1988 ERP of $130 billion per tonne. To use the ERP that prevailed almost three decades ago for computing current subsidy support is a serious flaw. When compared to the current international price of $333 billion per tonne, the price support given to our farmer is less by $100 billion per tonne.
By updating the ERP to current level, India will be in a comfortable zone. But, it needs to keep in mind future increases in the MSP. India should ask for an exclusion of support to resource poor farmers for arriving at product-specific subsidies, in much the same way as it is done for allocation of input subsidies.