Column: The Peace Clause conundrum

Updated: Dec 2 2013, 09:21am hrs
Alarm bells ring in India every time there is a WTO ministerial meeting with a serious agenda. The Bali meeting is no different. This time anxiety surrounds the proposed Peace Clause in relation to the domestic support commitments of member countries on agriculture.

What exactly is the source of the problem In the Agreement on Agriculture, WTO members undertook to reduce domestic subsidies by 20% from the aggregate monetary levels prevailing in 1986-88. For countries like India, whose levels of subsidies were lower than 10% of the value of productionboth on a product-specific and non-product-specific basisthe obligation was that the aggregate monetary levels of support would not exceed the 10% limit in future. For members with programmes of market price support, the subsidy in a particular year is to be calculated on the basis of the difference between the fixed external reference price based on the years 1986-88 and the applied administrative price in that year. The thinking at that time was that, in view of the high levels of support in the major industrialised countries, normal rates of inflation should be allowed to erode the aggregate monetary levels of support, so as to obtain an effective reduction higher than the committed level of 20%. However, Article 18.4 of the Agreement provides relief to members suffering from excessive rates of inflation.

The language of Article 18.4 seems to suggest a case-by-case consideration of the matter. In the charged and adversarial atmosphere prevailing in Geneva, the members of the G33 group of developing countries found it necessary to seek an across-the-board permanent solution. Their demand for such a solution merits attention in the context of the radically changed world food scenario. In 1986-88, food supplies were chasing demand across the world: in 2013, demand is chasing supplies. From chronically low prices, we have moved to persistently high prices, and the rules need to be updated to take this reality into account. The major industrialised countries have solved their problem by moving out of market price support and into decoupled income support, although there are nagging doubts on whether they are truly and fully decoupled. But problems might arise for the developing countries that still rely on market price support.

The first step that needs to be taken is for the issue to be brought on the agenda of the WTO for an across- the- board solution. The text circulated for the Bali meeting clearly does that by proposing to establish a work programme to pursue the issue of compliance with obligations on domestic support with respect to traditional staple food crops. Obviously, all issues including those related to the excessive rates of inflation will fall within the remit of negotiations.

Since finding a solution to the problem will take time, a Peace Clause has been proposed in the interim, seeking to give immunity to WTO members from disputes with regard to commitments on domestic support. The G33 had taken the line that the Peace Clause should remain valid until a final solution to the problem had been found. There is disappointment that the text forwarded to the ministers proposes that that the clause would be valid for four years. However, it would be imprudent to reject the text on this score, as a time-limited protection against disputes is better than none at all. Four years is a long time. The text also envisages that WTO members seeking immunity from disputes will notify the relevant measures and furnish certain other additional information. There can really be no objection to members seeking such information in return for immunity against disputes. The only valid concern can be that while benefiting from the Peace Clause members are expected to ensure that the support programmes at issue do not distort trade. This is rather vague language, which may raise controversy.

Some trade policy analysts, including the author, have doubted the need for a Peace Clause from Indias perspective. The argument is that for countries like India, Article 18.4 provides a good basis for tackling the problem caused by the fixed external reference price. However, the WTO has to respond to the needs and circumstances of all its members. There may be others for whom the increase in the level of market price support may be more than can be justified by the rate of inflation. For them, the appropriate remedy would be to be able to revise the external reference price on the basis of the international price prevailing in recent years. It is relevant to note in this connection that there is no compulsion to seek recourse to the Peace Clause and any member wishing to avoid the need to furnish additional information or to stay clear from the perceived additional substantive obligation may elect to do so.

The important point from Indias point of view is that the ministers will take a decision at Bali to put the issue on the agenda of the WTO. In the discussions that ensue India has strong grounds on which it can argue for a favourable decision on a formula approach rather than a case-by-case approach on the issue of inflation.

There are broader and systemic considerations that make it imperative for India to be a part of the solution rather than a problem at Bali. Mega-regional agreements from which India is excluded, such as the TPP and TTIP, are bound to affect the countrys external economic interests. The only way India can alleviate the problems arising from these alliances is by helping to put the WTO negotiations back on track so that the Doha Round is concluded and fresh initiatives are taken thereafter for multilateral liberalisation of trade. Such liberalisation can remove the sting from the discriminatory treatment that the mega-alliances will inflict. India, therefore, should be proactive and canvass support for the Bali package. The Peace Clause is not what India needs but as presently drafted it can do no harm.

Anwarul Hoda

The author is professor, ICRIER and a former DDG, WTO