Doublespeak of the rich at WTO

Unfair rules need to be challenged even if they seemingly have been democratically framed. This is exactly what India and China have done with their latest paper at the WTO on elimination of the so-called trade distorting subsidies. The countries have demanded that the developed world should give up their huge disproportionate entitlements to such sops before discussing further reforms.

Developed countries dole out several times higher subsidies to their farmers than the rest of the world. They label most of the sops as non-trade distorting (green-box subsidy at the WTO) which, supposedly, have minimal effect on world trade.

The paper, ‘Elimination of AMS to reduce distortions in global agricultural trade’, reveals that developed countries cornered the right to a lion’s share in the total trade distorting subsidies allowed for agriculture (or amber box subsidies at the WTO), also called aggregate measure of support, worldwide. This amounts to 90 per cent of the total entitlement for such subsidies. Most developing countries, on the other hand, cannot risk increasing the amber box subsidies to more than the de minimis (ceiling) of 10 per cent of total production value of a specific commodity as they could then be penalised. It is important to note here that product-specific subsidies apply largely to the developing world, whereas the developed world, by having an overall ceiling for all farm products, can manipulate the subsidies for individual products.

In effect, the developed world can give as much as $160 billion of trade-distorting subsidies that affect prices and production every year without attracting penalties. It could go up to 300 per cent or more for certain items in some countries. This exposes the hypocrisy of the rich nations which routinely reprimand countries such as India and China for their minimum support price programmes for poor farmers.

The WTO rules, on the face of it, do not seem so unfair. While developing countries face the 10 per cent ceiling of the production value for their product-specific AMS, the same for developed countries, or some of them, stands at just 5 per cent. Developed countries exercised an option of either accepting a product specific ceiling of 5 per cent, or an overall cap. The former was exercised by those whose subsidy levels were very high at the time the Agreement on Agriculture was being negotiated in the 90s.

For instance, if a country’s overall AMS limit is $10 billion, it could concentrate the entire amount on one crop. On the other hand, developing countries such as India are stuck with product-specific de minimis limits of 10 per cent. This means that for no crop can the AMS limit be higher than 10 per cent of its value of production.

This outrageously unfair arrangement came about because at the time when the Uruguay Round was negotiated, very few countries, including India, understood its implications. Back in the 1990s, they did not have either the technical prowess or the human resource to negotiate well, and allowed developed countries and a handful of developing countries get away with high AMS limits.

But do the high entitlements for AMS actually result in developed countries giving high levels of subsidies? The India-China study shows that developed members including the US, the EU and Canada have, using the flexibility, subsidised a large number of items heavily at some point of time over the past two decades. In the US, the product-specific support was 10 per cent or more of the value of production for 30 products in at least one year during 1995-2014. Some of the products with subsidies exceeding 50 per cent of the value of production include dry peas (57 per cent), rice (82), canola (61), flaxseed (69), sunflower (65), sugar (66), cotton (74), mohair (141), and wool (215 per cent).

The study further shows that even the latest figures of 2014 reveal that product-specific support for items such as sugar and sesame in the US was over 50 per cent, while for items such as peanuts, millet and cotton, it was 14-16 per cent.

For the EU, in respect of 43 products, the product-specific support was 10 per cent or more of the value of production in at least one year during 2000-13. Some products with subsidies exceeding 50 per cent of the value of production include butter (71 per cent), skimmed milk powder (67), apples (68), rice (66), olive oil (76), white sugar (120), tobacco (155), and silkworms (167 per cent). While the EU has managed to keep its product-specific AMS for most products below 10 per cent since 2010 (although it could choose to increase it if it likes), for silk worms it is maintained at a high 133 per cent.

Canada provided product-specific support at 10 per cent of the value of production, or more, to seven products in at least one year during the period 1995-2013, the reported stated. Products that have consistently benefited from very high level of subsidies as a percentage of value of production include milk (14 years), sheep meat (nine years) and corn (five years).

Compared to such high product-specific subsidies in the developed world, it seems a bit bizarre that India is consistently warned by countries like the US, Australia, the EU and Japan about its rising MSP support to food grains and cereals like rice, wheat and pulses when they are actually all well below the de minimis limit of 10 per cent at the moment.

Equally unfair is the fact that even with low over-all subsidies, India has to worry about breaching the 10 per cent ceiling for rice once the food subsidy programme is fully implemented as it could then get into trouble. How can subsidies given by developing countries to support their poor be open to challenge when they barely cross 10 per cent, while many rich countries are entitled to trade distorting sops several times the de minimis ceiling?

The answer to the question is obviously to be found in the WTO rule book, that China and India have rightly challenged and should continue to in more such revealing reports.

India can hope to get its long-standing grievances in the area of food security and inadequate safeguards against import surges seriously discussed, deliberated upon and possibly redressed at the forthcoming WTO ministerial meeting in Buenos Aires only if it manages to have developed countries on the defensive.

The joint paper with China on AMS could well be the first step in this direction. It needs to keep up the momentum and adopt a more offensive posture by laying bare more such inequities in the Agreement on Agriculture that is habitually brushed under the carpet by the powerful. If a lie can pass off as truth when repeated a thousand times, the truth, too, can gain recognition when it is well articulated and is loud enough.

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