Food subsidies still haunt India at WTO

India is concerned over the delay in reaching a ‘permanent solution’ to the problem of dealing with food procurement subsidies. The WTO members are thrashing out a work programme for the 10th Ministerial to be held in Nairobi this December.

Under Agreement on Agriculture (AoA), developing countries can give agricultural subsidies or aggregate measurement support (AMS) up to 10 per cent of the value of agricultural production.

AMS has two components viz., (i) ‘product-specific’ or the excess of price paid to farmers over international price or ERP (external reference price) multiplied by quantum of produce; (ii) ‘non-product specific’ or money spent on schemes to supply inputs such as fertilisers, seed, irrigation, electricity at subsidised rates.

For computing AMS, support on inputs to resource poor farmers was ‘excluded’ under the AoA. The rationale for this was that such support does not have any ‘trade-distorting’ effect. The same logic applied to product specific subsidies. However, it was not explicitly incorporated in the agreement as the minimum support price (MSP) given to farmers then was substantially lower than ERP, resulting in negative ‘product-specific’ AMS. Indeed, this position continued till 2004-06.

Thereafter, due to significant increase in MSP, things have changed. For instance, at present for wheat, MSP at $226 per tonne (corresponding to ₹1,450 a quintal) is higher than 1986-88 based ERP of $130 per tonne. In view of product-specific subsidy going into positive territory and subsidies on agricultural inputs also increasing substantially, there is a real risk of AMS exceeding the 10 per cent ceiling.

The problem can be solved by re-visiting the AoA to (i) update ERP to current level and (ii) exclude purchases from resource poor farmers for computing product-specific subsidies. This indeed is a permanent solution that India has been looking for.

At Bali ministerial in December 2013, developed countries had agreed to a ‘peace clause’ (exemption from penal action for violations).

Under the peace clause, if a developing country gives agricultural subsidies in excess of 10 per cent of its agri-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 too came with a plethora of conditions, such as 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 can challenge farm support measures.

Team Modi recognised that Bali agreement was flawed. So, in the meeting of the WTO-General Council (GC) in Geneva (July 31, 2014), it insisted on a time bound action plan to address the food procurement subsidy issue.

That was considered too ambitious by US. However, the WTO-GC in its meeting held on December 10-11, 2014, approved extension of peace clause till such time a permanent solution is put in place.

On the face of it, it might appear that India is in a safe zone. But, it is not so. This is because the conditions appended to peace clause have not been dropped and the search for a permanent solution has been deferred for an ‘indefinite’ period. The fear is of the US asking for all sorts of data to deny us benefit of peace clause even in the interim.

At the Nairobi ministerial, India should insist on getting a permanent solution ‘now’ by (i) updating ERP to the current level and (ii) excluding purchases from resource poor farmers for computing product-specific subsidies under AoA. The developed countries should recognise that a three-decade old ERP cannot be compared with today’s MSP in India to compute the current level of subsidy.

Likewise, if resource poor farmers can get exemption on input subsidies, how can they be denied exemption on product subsidies?

If, they still drag their feet, India should insist on ‘unconditional’ availability of interim ‘peace clause’ till such time a permanent solution is found. This must not be linked to any other issue on the table such as industrial tariff or services.

The writer is a policy analyst

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