Sticking to our guns

India’s refusal to accept a four-year ‘peace clause’ for ostensibly breaching farm subsidy caps under the World Trade Organisation’s Agreement on Agriculture (AoA) has been vindicated at Bali. The germane issue here is not about our sovereign right to provide unlimited agricultural subsidies or to keep them insulated from the global rules of trade. The problem lies – and those accusing India of having played a deal-breaking role would do well to take a closer look at them – in the AoA’s rules itself, which are hopelessly flawed and outdated.

The most telling example of how defective these rules are is the method used for computation of subsidies. For example, a farmer growing wheat in India is regarded as having received a subsidy if the official procurement price paid to him is higher than the world ‘reference’ price. But the AoA fixes the latter at the levels prevailing way back in 1986-88. Global wheat prices, which averaged $150-160 a tonne back then, are around $300 now. They ruled even higher at $400 a tonne, the landed cost at which India imported the grain in December 2007. The minimum support price of around $225 for this year’s crop translates into a ‘subsidy’ of $75 a tonne to the wheat farmer under the current AoA rules. On the other hand, if the external reference price is updated to reflect actual world prices today – as they should – the Indian wheat farmer is actually being negatively subsidised to the extent of $ 75 per tonne!

India was therefore right in demanding that the world prices used in determining farm subsidy caps be updated to reflect present reality. Moreover, there are provisions in the AoA that exempt subsidies if these are being availed by ‘low-income’ and ‘resource-poor’ producers or if these are handed out in countries suffering “excessive rates of inflation”. Such general clauses are vague and require much more clarity. It is necessary to rework the extant rules governing agricultural subsidies to make them more transparent and relevant to current times, while providing sufficient flexibility for countries to pursue food/income security goals in a non-market-distorting manner. By seeking to bind India to the old rules and offering a four-year reprieve from penal action for ostensibly violating them, the developed countries have been unreasonable. Thankfully, the Indian position – that the ‘peace clause’ remains in force until a permanent solution is found to food security and, indirectly, the farm subsidy computation issue – has prevailed at the WTO’s Bali ministerial meet. It is a just victory.

COMMENT NOW