Expectations from the Bali Ministerial

Written by Kirtika Suneja | Updated: Dec 4 2013, 08:38am hrs
What issues is India taking to the ninth ministerial of the World Trade Organisation (WTO) in Bali

In the ninth Ministerial of the WTO which began in Bali (Indonesia) on Tuesday and will last till Friday, the multilateral body's 159 member countries will discuss the five major issues of trade facilitation agreement (TFA), G33's (a group of developing countries) proposal regarding public stock-holding and food subsidies, tariff rate quota (TRF) administration, export competition and development issues of the least developed countries (LDCs).

The success of the talks in Bali is important for India as it recently rolled out the National Food Security Act, 2013 under which the government provides rice, wheat and millet at a subsidised rate to two-thirds of the Indian population, something that the WTO calls trade distorting saying such subsidies are capped under the agreement on agriculture (AoA).

What, in WTO parlance, are trade-distorting subsidies

WTO slots subsidies in boxes: green (permitted), amber (slowing down needed or to be reduced) and red (forbidden). However, in agriculture, things are more complicated. The AoA has no red box, although domestic support exceeding the reduction commitment levels in the amber box is prohibited. There is also a blue box of subsidies concerning programmes that limit production. There are also exemptions for developing countries (SD box).

New Delhi contends that some the subsidies that are given as part of the procurement for public stock-holding from poor and marginal farmers should not be slotted in the amber box. The amber box includes measures to support prices or subsidies directly linked to production quantities.

Moreover, developing countries lament an inherent asymmetry in WTOs AoA because it allows direct income support to farmers without limit while market price support is contained. The problem is, unlike the rich countries, developing oneswith limited financial meansare not able to give income support. The developed countries have in general moved out of market price support and adopted income support measures arguably decoupled from production levels and price (whether the decoupling is complete is disputed).

Developing countries are allowed to offer food subsidies (market price support) to a limit of 10% of the total agriculture produce. This is also called de minimis level.

Under the AoA, WTO members are committed to reduce domestic subsidies by 20% from the aggregate monetary levels that existed in 1986-88. India, with levels of subsidies lower than 10% of the value of production, undertook that the aggregate monetary levels of support would not exceed the 10% ceiling (this ceiling is applicable to all developing countries with product-specific caps). The limit for developed countries is 5%. Under the current norms, the acquisition price has to remain below the external reference price (ERP) determined on the basis of prices prevailing during 1986-88. The difference between the acquisition price (the applied administered price) in a particular year multiplied by the quantity acquired counts towards the Amber Box. New Delhi's concern is if this ceiling for food subsidy is not increased, thengiven its present levelIndia may cross the same in 3-4 years. Cash-strapped developing countries are unable to use the provision on direct food aid. Instead, they acquire and hold stocks of produce and subsequently release it at administered prices to the target population.

What solutions have been offered on this issue

The current debate on this at the WTO ishow should the trade rules be modified in order to address the food security concerns of developing countries While developing countries favour the idea of domestic support to serve their food security interests, developed countries have tried to block progress on the proposal by raising technical objections. However, the G33 members (led by India) have clarified that their public stocks are for consumption and these countries do not want to influence international markets. What we give to our poor people is our right and that is insulated in entirety from any multilateral negotiations or WTO negotiations. That is the sovereign space and for India it is sacrosanct and non-negotiable. Whatever public procurement we do is using public funds and that stock can't be released for global trade, commerce and industry minister Anand Sharma said before leaving for the Bali ministerial.Three solutions have been put forward by the G33 nations to resolve the issue. First, the External Reference Price (ERP) for the purposes of calculating amber box subsidy on account of food procurement and distribution should not be based on the prices that prevailed in 1986-88. Given that food prices have risen manifold in since then, the acquisition price is bound to exceed the current ERP, the G33 points out. Second, in order to account for excess inflation, developing countries should have the flexibility to deflate the administered price at which food is procured by a factor based on inflation. Third, a Peace Clause that would be operational until a permanent solution to the current imbalance is arrived at. Under the PeaceClause, WTO members will exercise restraint on initiating disputes on account of subsidies provided by developing countries for procurement of food.

What is the Peace Clause offered by the developed nations

It refers to a period of peacea time length agreed upon by the member countries during which they would refrain from seeking penalty against countries which still breach the subsidy cap. The WTO has proposed a four-year interim period during which developing countries like India can offer those food subsidies that are at present considered illegal, without being subjected to penalty.

With the recent rise in global food prices, many countries have begun giving higher subsidies to farmers to promote agriculture, putting them in danger of breaching the 10% cap. The clause, is now being offered as a carrot to developing countries by WTO director general Roberto Azevedo as an interim solution to take forward the stalled WTO talks. The provision seeks to provide a four-year relaxationtill the 11th Ministerial Talks in 2017during which a WTO member can not seek penalties on a developing country for breaching the cap.

The G33 had called for a longer cover under the Peace Clause till a permanent solution is reached. However, developed nations, are not in favour of any such long relaxation.

Apart from food subsidies, what else is India going to negotiate for a global trade deal in Bali

India is also going to negotiate the proposed agreement on trade facilitation that aims to simplify customs rules across all international borders for faster movement of goods. Under this agreement, India mainly has concerns over courier services. On TFA, India has agreed on many issuesthere are a total of 78 unsettled issues of which the country has raised only nine. On TRQ and export competition, India endorses the settled draft.

On the LDC issue, India has affirmed duty-free and quota-free market access to 96.2 % of the Indias tariff-lines to 24 LDCs. Earlier, it was allowed on 85% of Indian products.