WTO Meet Likely to Be a Washout as India and US Clash Over Food Security

Developed countries claim that India’s price support for crops such as paddy and wheat have breached the cap prescribed by the WTO.

Every year, India announces MSP for as many as 23 crops but the bulk of subsidy payout goes to paddy and wheat, which are considered as staple foods for Indians. Credit: Reuters

Every year, India announces MSP for as many as 23 crops but the bulk of subsidy payout goes to paddy and wheat, which are considered as staple foods for Indians. Credit: Reuters

New Delhi: The Buenos Aires ministerial conference of the World Trade Organization (WTO) appears headed to be a washout with the US refusing to accede to India’s demand for a permanent solution to the public stockholding for food security. India has put its foot down on the issue, saying that no substantive outcome is possible at Buenos Aires if its demand is not met.

“Today in the agriculture negotiations in Buenos Aires, a major country stated categorically that they cannot agree to any permanent solution on the public stockholding issue at ministerial conference (MC) 11. This has posed a severe threat to a successful conclusion of the conference as there was a ministerial mandate for a permanent solution by MC11,” said a commerce ministry release.

It is a setback for the Narendra Modi government which had hardened its stance on public stockholding.

Under the WTO Agreement on Agriculture (AoA), developing countries can give agricultural subsidies or aggregate measurement support (AMS) up to 10% of the value of agricultural production. There is, however, a ‘peace clause’ that forbids any action against a developing country if it breaches the 10% cap.

Developed countries have linked India’s demand for public stockholding with its domestic support, which they say has breached the 10% permissible ceiling under the WTO rules. However, the Indian government has refuted the allegation. With the peace clause expiring this year and no solution in place, India can now be dragged to the WTO dispute settlement mechanism over its domestic price support for paddy, which, as per some estimates, has breached the 10% cap.

The domestic price support, or AMS, is calculated as the difference between the fixed external reference price (ERP) prevailing between 1986-88 and the minimum support price (MSP) provided by the Indian government.

Every year, India announces an MSP for as many as 23 crops but the bulk of subsidy payout goes to paddy and wheat, which are considered as staple foods for Indians.

The Indian government increases the MSP almost every year. As per some estimates, India’s paddy subsidies are around 24% of the total value of paddy production, much beyond the prescribed 10% limit.

India has contended that the reference period of 1986-88 is outdated and that it needs to be given flexibility to stock enough grains to ensure food security for poor sections of its population.

For example, the WTO has fixed ERP for rice at Rs 3.52 per kg (at base 1986-88 prices), which being a non-inflation and dollar-denominated adjusted proxy for the cost of production has remained unchanged since the base year.

But the cost of production in India has jumped by manifold since then. The India rupee too has depreciated vs the US dollar by nearly 400% between 1986-87 and 2014-15. India has recently submitted data to the WTO on domestic price support for four years, from 2010-11 to 2013-14, to refute developed countries’ allegations.

According to the Indian government, input subsidies on account of fertilisers, irrigation and electricity fell to $22.8 billion in 2013-14 from $29 billion in 2010-11. India’s green box subsidy payout has also declined during this period. India spent $18.3 billion in green subsidy in 2013-14, far lower than $24.5 billion in 2010-11.

The government spent another $14.7 billion on public stockholding for food security purposes in 2013-14, higher than $13.8 billion in 2010-11, as per India’s filing to the WTO.

According to the agricultural census for 2000-2001, 98.97% of farm holdings in India were of low-income or resource poor farmers. The percentage increased to 99.15, as per the 2005-2006 census.

Article 13 of the AoA, also called Peace Clause, stipulates that domestic support measures and export subsidies of a WTO member that are legal under the provisions of the AoA cannot be challenged by other WTO members on grounds of being illegal under the provisions of another WTO agreement. The Peace Clause expired on January 1, 2004.

At Bali ministerial conference in December 2013, developed countries agreed to find a permanent solution to this issue by 2017. Pending that, it was agreed that developing countries cannot be challenged through WTO dispute settlement mechanism even if they cross the 10% cap.

Trade analysts point out that 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.

The Modi government has insisted on a time-bound action plan at WTO to address the food procurement subsidy issue. This is considered too ambitious by the US.

If Buenos Aires ministerial eventually collapses, India will be forced to shift its focus on signing new bilateral and regional trade pacts. For example, India might show urgency to fast-track talks with the EU for a bilateral free trade pact.

India would also like to expedite negotiations for the Regional Comprehensive Economic Partnership. To ensure the quicker conclusion of talks, it might have to offer a deeper reductions in tariffs.