The 13th World Trade Organisation (WTO) Ministerial Conference, which took place in Abu Dhabi from February 26-29, 2024, concluded in a stalemate. India, alongside approximately 80 nations forming the G33, including African, Caribbean, and Pacific countries collectively known as ACP, found itself in a deadlock with the European Union (EU) and the USA, the representatives of developed nations. The impasse persisted as both sides remained unwavering in their predetermined stances.
The focal point of contention during the negotiations revolved around establishing a lasting resolution for India’s public stock-holding (PSH) programme, primarily aimed at ensuring food security. The USA and EU strongly opposed India’s position on this critical matter. In the existing framework of India’s PSH initiative, governmental bodies like the Food Corporation of India (FCI) engage in purchasing agricultural produce, including wheat, rice/paddy, and coarse cereals, from farmers at the minimum support price (MSP). Subsequently, these essential commodities are distributed free of charge to India’s underprivileged population through the National Food Security Act (NFSA).
Covering the expenses related to food supply, including the minimum support price (MSP), handling, storage, and distribution costs, is facilitated through subsidies allocated from the Union Budget. This financial support can be categorised into two main components. Firstly, there is the subsidy provided to the farmer, calculated as the surplus of MSP for commodities like rice over their international price, also referred to as the External Reference Price (ERP). Secondly, there is the subsidy directed towards the food consumer, determined by the excess of ERP over ‘nil.’ The focus of the World Trade Organisation (WTO) is predominantly on the first component, categorised as “product-specific” subsidies.
The international price or External Reference Price (ERP) of any given commodity is established through the dynamics of global demand and supply, determined through competitive means. It is anticipated that all farmers, regardless of their geographical location, should receive this price. However, if the government of a member country, such as India, intervenes and sets a Minimum Support Price (MSP) higher than this international benchmark, the farmers within that country are considered to be subsidised, reflecting the surplus of MSP over ERP. The World Trade Organisation (WTO) is equally concerned about subsidies relating to agricultural inputs, like fertilisers, seeds, irrigation, power, and more, which are termed as “non-product specific” subsidies.
Referred to as ‘Amber box’ subsidies within the framework of the Agreement on Agriculture (AoA), the cumulative sum of both product-specific and non-product-specific subsidies, known as Aggregate Measurement Support (AMS), is restricted to 10 per cent of the value of agricultural production for developing countries. Exceeding this threshold, with a member country providing AMS beyond 10 per cent, is considered a violation of the agreement.
The Agreement on Agriculture (AoA) took effect in 1995, and in India’s context, until 2005, the Minimum Support Price (MSP) remained lower than the External Reference Price (ERP). However, post-2005, the MSP consistently surpassed the ERP, and over the last decade, this gap has expanded. In the specific case of rice during the 2019-20 period, the Aggregate Measurement Support (AMS) reached 13.7 per cent, surpassing the 10 per cent cap. The pivotal question arises: Does this surplus subsidy have a distorting impact on international trade?
The unequivocal response is a resounding ‘No.’ This assertion stems from the inherent flaws in the computation formula for Aggregate Measurement Support (AMS). The flaw lies in using an External Reference Price (ERP) dating back to 1986-88 for comparison with the current Minimum Support Price (MSP), inevitably leading to an “artificial” inflation of the subsidy. Additionally, the calculations under the Agreement on Agriculture (AoA) fail to exclude subsidies extended to resource-poor farmers. These farmers primarily cultivate for self-consumption, meaning they lack a surplus to sell. Addressing these shortcomings is imperative for a more accurate assessment.
Utilising the present External Reference Price (ERP) and eliminating subsidies allocated to resource-poor farmers would naturally bring India’s subsidy below the 10 per cent threshold. Furthermore, it’s crucial to note that all acquisitions from farmers, even at the Minimum Support Price (MSP), are designated for distribution to underprivileged beneficiaries under the National Food Security Act (NFSA). Consequently, the notion of these procured cereals entering the global market becomes inconsequential.
For more than a decade, India has consistently emphasised these aspects in pursuit of what is commonly referred to as a ‘permanent solution.’ However, the developed countries have largely ignored these efforts. The only concession made was the approval of a “peace clause” during the MC-9 in Bali back in 2013.
The stipulation was clear: “If a developing country provides Aggregate Measurement Support (AMS) exceeding 10 per cent, no member would contest this until 2017, at which point the WTO would seek a lasting resolution.” However, a modification occurred during the General Council (GC) convened in December 2014, altering the statement to declare that “The peace clause will persist until a permanent solution is identified.”
Nevertheless, the peace clause is accompanied by various conditions, including the requirement to furnish data on food procurement, stockholding, distribution, and subsidies. Additionally, there is an obligation to demonstrate that the subsidies are not causing distortion in trade. Furthermore, any programmes initiated after 2013 fall outside the scope of the ‘peace clause.’
India has repeatedly invoked the ‘peace clause’ after surpassing the 10 per cent subsidy ceiling, particularly in the case of rice. However, objections from developed countries claim that this invocation lacks transparency, alleging that cereals procured under the Public Stock-Holding (PSH) program are being illegitimately exported. The accusation made by Thailand’s Ambassador to the WTO, Pimchanok Vonkorpon Pitfield, asserting that 40 per cent of India’s rice exports originated from diverted PSH stocks, appears to have been influenced by these developed nations.
The developed nations are motivated to secure a significant presence for their agricultural produce in the global market. Consequently, discouraging Indian exports becomes a strategic goal for them. The current arrangement, denoted as the ‘peace clause with riders,’ aligns with their interests. As a result, the prospect of seeking a permanent solution doesn’t appeal to them. This delay has persisted for over a decade, and there seems to be an inclination to prolong this state of affairs.
In the interim, it would be prudent for India to navigate the peace clause smoothly. To mitigate potential challenges from developed countries, the government must ensure that the acquisitions made by its agencies align seamlessly with the National Food Security Act (NFSA) requirements. Additionally, it is crucial to preempt excess stock scenarios and prevent any leakage of subsidised food from the Public Stock-Holding (PSH) program.
(The writer can be reached at dipakkurmiglpltd@gmail.com)
