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Standing firm on food subsidies

| | in Oped

With India-China having jointly petitioned WTO, it is expected that both will reach at a permanent solution to address anomalies surrounding food procurement

In a joint paper submitted to the World Trade Organisation (WTO) committee on agriculture on July 17, India and China lambasted the developed countries, including the United States, the European Union and Canada for consistently giving trade-distorting subsidies to their farmers at levels much higher than the ceiling applicable to developing countries with respect to such subsidies. According to the paper, “Developed countries corner more than 90 per cent of global Aggregate Measurement of Support (AMS) — a technical jargon for trade-distorting subsidies — entitlements amounting to nearly $160 billion, which is beyond their de minimis (maximum permissible level of AMS). In contrast, most developing countries have access only to de minimis resulting in a major asymmetry in the rules on agricultural trade.” The overarching objective of WTO is to promote rule-based international trade among member countries based on principles of ‘fairness', ‘non-discriminatory' and ‘transparency'. This is why India preferred to be part of WTO framework instead of joining regional trading arrangements. Yet rich countries have been using this platform to impose ‘unfair' and ‘discriminatory' global trade in agriculture, causing loss to developing countriesvia affecting exports and decline in farmers’ income.

At the same time, they object to developing countries giving subsidy at bare minimum level. At a meeting of WTO agriculture committee held on March 28, they lambasted India on its minimum support price (MSP) programmes for wheat and other commodities. While, Australia raised concerns over increase in India's MSP for wheat since 2006, the US and the EU questioned subsidies on sugarcane, buffer stock of pulses and price support for both rabi and kharif crops. How do developed countries manage this highly inequitable global agricultural order? Are they violating WTO rules? Or the rules are crafted in a manner so as to favour them only? Under an Agreement on Agriculture (AOA), developing countries can give subsidy on food — called AMS — up to 10 per cent of value of agricultural production. For developed countries, the corresponding de minimis AMS level is five per cent.

AMS includes ‘product-specific' subsidies and ‘non-product specific' viz, subsidies on agricultural inputs, fertilisers, seed, irrigation, electricity etc. Product-specific subsidy is computed as excess of MSP, paid to farmers over international price — or external reference price (ERP) — multiplied by the quantum of agriculture produce whereas ‘non-product specific' subsidies is money spent by Government on schemes to supply agricultural inputs at subsidised rates.

On the face of it, stipulation may appear to be fair but on a closer look it turns out that there is another provision which made five per cent de minimis applicable to developed countries redundant. The agreement was hammered (more than two decades ago), historically, developed countries were giving high subsidies; so many of them got their individual AMS levels bound at a much higher level. They were to reduce these by 20 per cent over a period of five years. This was disingenuous as starting with say 100 per cent, after five years the bound level would still be 80 per cent as against the de minimis at five per cent.  

Developed countries have fully exploited this anomaly by maintaining subsidy at over 100 per cent of the production value on individual items. For instance, on mohair and wool by the US and tinned pineapple, cotton and tobacco by the EU. In Canada, AMS on tobacco in 2009 exceeded the value of production by 200 per cent. On the other hand, developing countries were required to reduce their AMS by 13 per cent over nine years. Considering that already their subsidies were much lower than thede minimis 10 per cent (for India, it was substantially negative), this provision was of no use. The position was made worse by certain flaws in computation. 

For computing AMS, whereas support on agri-inputs to resource poor farmers was ‘excluded' (on the basis that such support is not ‘trade-distorting'), product-specific subsidies given to them were not. Second, for computing ‘product-specific' support, ERP is frozen at level of 1986-88. With this, comparing current MSP with ERP of three decades results in ‘artificially' inflated subsidy. This juxtaposed with treatment of product-specific subsidies as ‘trade-distorting' — even when these are to poor farmers — inevitably results in AMS exceeding the 10 per cent ceiling fixed under the agreement. It is these inherent flaws in computation and treatment of subsidy that make developing countries potentially vulnerable to non-compliance with WTO commitments even when their actual subsidy is well within the 10 per cent de minimis level.

Flaws in AOA have remained submerged in the cacophony of charges/allegations made by developed countries who have mastered the art of obfuscating real issues. Instead of removing these, they have turned developing countries into pleaders, seeking immunity from challenge (in the event of violation) who end up either getting nothing or some sop, whose relieving effect is transient. Thus, they have got a ‘peace clause' under which no member will challenge violation until a permanent solution is found. But this comes with a plethora of conditions viz submission of data on food procurement, stockholding, distribution and subsidies etc. These also included establishing that subsidies are not ‘trade distorting' which is nearly impossible to comply.

With India-China having jointly petitioned WTO, at upcoming ministerial in Buenos Aires they should insist on elimination of all anomalies under AOA. While developed countries must cap subsidies at five per cent de minimis, developing countries must focus on using current ERP for computing actionable subsidies and excluding support to poor farmers — both product-specific and non-product specific — for arriving at overall AMS.

(The writer has a PhD in economics from JNU, Delhi)

 
 
 
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