Column: Beware the peace clause

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SummaryThe WTO proposal on agriculture is biased in favour of countries who have notified high farm subsidies

A ‘peace clause’ proposal on agricultural subsidies by developing countries is on the agenda of the Bali Ministerial Meeting of the WTO being held from December 3-6. The G33, which is a coalition of 46 developing countries including India, China, and Indonesia, had submitted a proposal asking for exemption of purchases from low-income and resource-poor farmers for public stockholding of grains for food security needs, even when these purchases were at a price higher than the fixed external reference price (ERP) committed by members in the WTO Agreement on Agriculture (AoA).

AoA envisages a reduction in the levels of domestic subsidies (the aggregate measurement of support or AMS) of the members from the levels notified by them for the period 1986-88. For those members whose subsidies’ level was less than the de minimis level of 10% of the value of agricultural production, on both product-specific and non-product-specific basis, there is a requirement not to exceed this limit. The G33 proposal implies, in effect, that these purchases are not to be counted for determining whether the 10% limit on product-specific subsidies is being adhered to.

The developed countries’ response to the proposal was initially negative, but they softened when the G33 made it known that without a movement on the public-stockholding-for-food-security proposal, no progress could be expected on the key proposal on trade facilitation, being given high priority by the developed countries. The developed countries are now willing to engage in negotiations on the proposal, and in the meantime they have offered a ‘peace clause’, whereby they will not raise any dispute if any developing countries appear to be in breach of the commitment on domestic subsidies.

Why is the G33 asking for an exemption of support for public-stockholding of grains? Perhaps there is a fear that very soon individual developing countries will breach the de minimis level of 10% of the AMS because of annual increases in the minimum support price (MSP). What is the reality in this regard, and what could be the alternative and, perhaps, better options that India could pursue to deal with this problem?

In the case of product-specific support, the AoA stipulates that the subsidy in a particular year is to be estimated on the basis of the difference between the administered price (MSP) and the fixed external reference price (ERP, 1986-88) notified by each member at the outset and incorporated in the original schedule. The fixed external reference

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