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 production—both on a product-specific and non-product-specific basis—the 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