It needs to get ERPs updated and purchases from poor farmers excluded from product-specific subsidy maths.
The World Trade Organization’s (WTO) draft declaration for the ongoing ministerial meeting at Nairobi, Kenya, on December 15-18, 2015, promises to “address all aspects of agriculture reform as a matter of priority”, but does not mention anything about finding a ‘permanent solution’ to India’s concerns on food security. While declaration is just cleverly-worded rhetoric, the fact that India’s concerns remain unresolved is a setback.
But, for any one tracking the events since the 9th ministerial meeting, at Bali in December, 2013, this should not come as surprise. It is abundantly clear that, from day-1, developed countries were never serious about finding a permanent solution. Nor did developing countries, including India, press for one. Let us look at some facts.
At the Bali ministerial, developed countries had agreed to a ‘peace clause’—exemption from penal action for violations of commitments under WTO. If a developing country gives agricultural subsidies in excess of 10% of its agri-GDP, no member will challenge this until 2017, when WTO would look for a permanent solution to address their food security concerns. This meant that while peace clause would go in 2017, there is no guarantee that permanent solution would be in place by then. The peace clause came with a plethora of conditions viz., submission of data on food procurement, stock-holding, distribution and subsidies (including their computation), etc. It also needed establishing that subsidies are not ‘trade distorting’. In other words, even in the interim, any member could challenge if conditions are not met.
The above decision gave no relief whatsoever. It meant that, whereas from 2017—in any case—developing countries would be subject to penal action for exceeding the prescribed subsidy ceiling, in the interim, too, they would be vulnerable, thanks to the conditions appended to the clause. Already, the US has been asking India for all sorts of data, tantamount to a virtual surveillance of our food security system.
The Narendra Modi-led government started with a clear recognition of fallacies in the Bali agreement. So, at the July 2014 WTO General Council (GC) meeting in Geneva, it insisted on a time-bound action-plan to find a permanent solution before the end of 2014. Prime minister Modi even took it up at his meeting with US president Barack Obama in September 2014, but, at some point, allowed things to drift. At the December 2014 GC meeting, the ‘extension of peace clause till such time a permanent solution is put in place’ was approved.
However, the applicability of the peace clause for an indefinite period (albeit till a solution is found) gave only a false sense of comfort to India as the Damocles Sword would still hang because conditions appended to peace clause were not dropped. At the same time, it gave a handle to developed countries not to work for a permanent solution. And, this is precisely what they are doing now by not even including this item in the agenda for Nairobi ministerial.
So, how do we get out of the trap? Pleading ad infinitum that we should to be allowed to protect our millions of poor farmers—a tactic India adopted—under Doha Development Agenda (DDA) won’t work any longer. We need to engage with the US and the EU on rules of the game and a good solution will emerge from only there.
Under the Agreement on Agriculture (AoA), developing countries can give agricultural subsidies or aggregate measurement support (AMS) up to 10% of the value of agricultural production. AMS has two components viz., (i) ‘product-specific’, or the excess of price paid to farmers over international price, or ERP (external reference price) multiplied by quantum of produce and; (ii) ‘non-product specific’, i.e., money spent on schemes to supply inputs viz., fertilisers, seed, irrigation, electricity at subsidised rates.
For computing AMS, support on inputs to resource poor farmers was ‘excluded’ under AoA. The rationale was that such support does not have any ‘trade-distorting’ effect, whereas WTO disciplines target only those that have such effect. The same logic applied to product-specific subsidies. However, it was not explicitly incorporated in the agreement as the minimum support price (MSP) given to farmers then was substantially lower than the ERP, resulting in a negative product-specific AMS. But, India should have anticipated a scenario wherein MSP could be higher than ERP and got ‘product-specific’ subsidies for resource-poor farmers also excluded from the computation.
Our negotiators also allowed another flaw to creep in. For computing ‘product-specific’ support, they allowed ERP to be frozen at the level of 1986-88. With this, comparing current MSP with ERP of 3 decades before inevitably results in artificially-inflated subsidy. For instance, at present, wheat MSP, at $226 per tonne (R1,450/quintal), is $96 higher than the ERP (1986-88), $130 per tonne.
At the Nairobi ministerial, India should confront developed countries with both anomalies and get AoA amended to (i) update ERP to current level and (ii) exclude purchases from resource-poor farmers for computing product-specific subsidies. India should insist on getting these changes incorporated in the agreement now. If, they still dilly dally then, India should insist on unconditional availability of the interim peace clause till such time a permanent solution is found. India should also not allow issues like government procurement, competition policy, link between trade and climate, currency and global value chain, TRIPs, etc, for which developed nations are batting, to get included in the agenda. These were never a part of DDA and must not be allowed to creep in.
The author is a policy analyst