Farm and Food Subsidies: India and WTO

India is one of the founding members of WTO which came into existence on January 01, 1995 replacing GATT (General Agreement on Tariffs and Trade) and promising the herald of a new era in the rule-based system of governing and promoting international trade concomitant with the needs of the ongoing process of globalization. It was created with six major objectives:

• Setting and enforcing rules for international trade
• Serving as forum for negotiating trade liberalization
• Resolving trade disputes
• Increasing transparency of decision making process in international trade
• Engaging with other international economic institutions for facilitating economic management and
• Facilitating the developing countries to gain full benefit of the global trading system.

India has a commitment towards fulfilling these objectives by implementing any norm or recommendation developed by WTO and any unwillingness has to be conveyed to the organization or proper reservations have to be made in this regard.

WTO Agreement on Agriculture (AoA)

The major issues between developing and developed countries with respect to agriculture are trade distorting and high trade barriers. Under WTO’s Agreement on agriculture (AOA) (effective 1Jan, 2000), the objective of WTO is to establish a fair trading system that helps in increasing the market access for the agricultural produce and also help increase the livelihood of the farmers and to make agricultural trade more competitive. The key features (and contentious issues) of this agreement are Market access, Export competition and domestic support.

Market Access

• All non-tariff barriers such as quotas would be either abolished or converted into tariffs. Thus, this agreement ends the quantitative restrictions on imports of agricultural products.
• As far as the maximum limit of tariff is concerned no country is permitted to impose tariff beyond a certain limit. Accordingly:
  • All industrialized countries are to reduce tariff by 36% within six years.
  • For individual agricultural products tariff has to be reduced by at least 15%.
  • Developing countries like India have to reduce tariff by 24% within 10 years.
  • On any individual agro pro- duct tariff cut has to be at least by 10%.

Export Competition

• The developed countries were to reduce the value of direct export subsidies by 36% over a period of six years and in volume terms by 21%. The base period for these cuts is 1986-90 or 91- 92 if exports were higher in that period.
• Over the same period the developing countries are to reduce the value of direct export subsidies by 24% and in volume by 10%.

Domestic Support

This issue is linked to providing state support to farmers in farm production. Under AoA, the developed countries had to reduce amber box subsidies within 6 years by 20% starting from 1995 with 1986-88 periods as base. The same had to be reduced by 13% within 10 years by developing countries.

The Subsidy Colour Boxes

AoA has classified all subsidies given to farmers into three colour boxes viz. amber box subsidies, blue box subsidies and green box subsidies.

Green Box Subsidies

The subsidies which don’t distort the trade are placed in Green Box subsidies. Examples of such subsidies include those given on research funding; environment protection; domestic food aid; disaster relief; farmer training programmes; pest and disease control programmes etc. The WTO pacts don’t place any limit on such subsidies so any country can provide such subsidies as much as it wants. However, these subsidies should be government funded and must not involve price support.

Amber Box Subsidies

Amber box subsidies are those subsidies which distort the international trade by making products of a particular country cheaper in comparison to same product in another country. Examples of such subsidies include input subsidies such as electricity, seeds, fertilizers, irrigation, minimum support prices etc.

Blue Box Subsidies

Blue box subsidies are also similar to amber box but they tend to limit the production.

For example, subsidy on minimum support price will increase with production, so it would be placed in amber box; but at the same time, subsidy fixed on area of farms will not increase with production – so would be placed in amber box. Thus, a subsidy that would be placed in amber box normally would be placed in blue box if that support also requires limiting their production.

The main tussle is that the developing countries have used the provisions of AoA to further the interest of their farmers. For instance, they have remodelled amber box subsidies in such a way that these qualify to be put into blue or green box subsidies. These countries are constantly pressurizing the developing countries for greater market access for agricultural products but are not willing to give the level of support that they provide to their own farmers. One report of WTO said that there is no change in the domestic support provided by members of OECO to their farmers since the year 2000. EU and United States spend over USD 1 billion per day as subsidy to their agricultural sector. Similarly, by 2015, Japan was maintaining a 778% tariff on imported rice to protect its own farmers.

Due to such policies, the developing countries have to suffer loss – and Brazil, China, Argentina, Thailand, India etc. are among the biggest losers. The battle between developed and developing countries is thus of these trade distorting subsidies given out by rich countries.

Negotiations and Their Outcomes

In the last two decades, the WTO talks on various ministerial conferences have failed over differences related to various issues of AoA. Ministerial Conference is the decision-making body of the WTO that takes important trade liberalization decisions. The major areas of discord between these countries are as follows:

• Lowering of import tariffs on agricultural products.
• Lowering or complete elimination of export subsidy on agricultural products.
• Lowering the domestic support to the farm sector
• Raising the authorised development aid to the LDCs.

Developing countries like India feel that they are being discriminated against in matters like tariff on food imports into developed countries. For example, in the name of mutual access, OECO countries impose very low tariff on imports from fellow members while similar imports from developing countries are subjected to higher tariffs. The key points from rounds of discussions are as follows:

Doha Development Round

The Doha Round of 2001 is called “Development Round” because of poor countries in its focus. However, the rich countries failed to yield much to the developing countries and instead kept pressurising the developing countries for deeper market access. However, this round brought the issue of AoA on forefront and agriculture virtually overshadowed all other things. The key elements of Doha Round included both agricultural and Non-agricultural Market Access (NAMA). With respect to agriculture, it included substantial and effective reductions in Overall Trade-Distorting Domestic Support (OTDS) by developed countries; self designation of an appropriate number of Special Products (SPs); an operational and effective Special Safeguard Mechanism (SSM); and Tariff simplification and tariff capping of developed country tariffs.

However, Doha round of talks failed because of the divide between the developed and developing countries on WTO, IMF and World Bank.

During most of the Doha talk rounds, the developed countries pressurized the developing countries to open their markets further via a so called Trade Facilitation Agreement (TFA). On the other hand, the developing countries pressurized the developed countries to bring more transparency to rules and regulations in the global financial bodies; and for removing or raising the cap on food and agricultural subsidies (this also known as “aggregate measure of support”, or AMS). The issue got politicised in both the blocks. Further, the developing countries also could not make some credible union {G-33 had not strong coherence} to put their cause and lacked a coherent strategy.  Summarily, the Doha Round talks failed because of the following:

• Inability of the participating countries to achieve an agreement in the key areas of agricultural subsidies and tariffs.
• Developing countries have sought an agreement from developed countries on cutting back farm subsidies as well as tariffs.
• Developing countries seeking bigger cuts on industrial tariffs to have more market access.

India along with G-33 group of developing countries wanted right for food stockholding for food security purposes. India took very extreme position from the beginning and wanted substantial and effective reductions in overall trade-distorting domestic support (OTDS) of the US and EU. Later, India softened its stand on both the key issues viz. Trade Facilitation Agreement (TFA) and subsidy on procurement, stocking and distribution of food grain during the Bali conference.

Reconciliatory Package, 2003

In 2003, EU offered to not to offer any subsidy to its farmers thus offering a reconciliation. But in this package, EU said that it will continue protecting the income of its farmers (protection of agricultural income to replace subsidy). It also did not mention export subsidy in its package. Thus, it failed to reach any reconciliation as stated.

Cancun and Hong Kong Meets (2003 & 2005)

In these two meetings, India became proactive to carry forward the concerns of developing countries. The outcome draft agreements in these meets tilted heavily in favour of the developed countries so deadlock continued. Gradually, India and other countries also started to put forward their agenda of food security for which they needed public stockholding of essential commodities.

2013 Bali Ministerial Conference

The outcome of the 2013 Bali Conference is known as Bali Package. The key points of Bali Package are as follows:

• It was decided to find a permanent solution of public stockholding (procurement by governments for food security purpose). The developed countries decided not to challenge the breach of domestic support by public stockholding programmes of developing countries.
• The countries agreed to provide more transparency in tariff quota.
• The subsidies for land use, land reforms, poverty reduction programmes was included in green box.
• It was decided to reduce export subsidies.

However, this package also had some unresolved issues.  Under Bali package, the WTO agreed to allow developing countries to provide subsidy on food crops without any punitive action via a so called Peace Clause, which offered four years of immunity against penalties imposed for breaching the farm subsidy cap of 10 per cent under the WTO Agreement on Agriculture (AoA). However, India and developing countries rejected this clause in want of a permanent solution to its food security act.

Developing countries sought an end to the export subsidies given to farmers by the developed countries which give them edge in exports. United States came up with a new US Farm Bill 2014 to ensure that there would be no cut in export subsidies.

Developing countries and LDCs wanted special safeguards and changing of rules related to public stockholding for food security.

Overall, the developing countries said that the developed ones just are rallying behind the Trade Facilitation Agreement to get the markets opened up in developing countries to their goods and services; without providing permanent solutions to their problems. They wanted an agreement on special safeguard measures (SSM) to protect farmers against import surges.

SSM is a tool that allows developing countries to raise tariffs temporarily to deal with surges in agricultural imports or price falls. Developing and developed nations are at loggerheads over the ‘trigger factor’ that allows a developing country to raise tariff on imports and the level of tariff that can be imposed.

2015 Nairobi Ministerial Conference

The 2015 Nairobi Ministerial conference resulted in so called Nairobi Package. This package included a commitment to abolish export subsidies for farm exports. As per this package:

• Developed countries such as United States will need to eliminate the farm export subsidies immediately, except on a handful of agriculture products. The developing countries were allowed to end these export subsidies by 2018.
• The Developing countries were given flexibility to cover marketing and transport costs for agriculture exports until the end of 2023. Additional time was given to the poorest and food importing countries. This simply implied that India will not be able to offer export subsidies for sugar and other farm products after eight years.
• No final decision was taken on public stock-holding as well as Special Safeguard Mechanisms (SSM).
• The countries struck a deal on IT trade whereby, they would eliminate the tariffs on 201 IT products per year. The idea is to make all IT products duty-free by 2019.

Developing countries, particularly India, wanted public food procurement to be exempted from subsidy reduction deals under WTO norms, which say public stockholding must not exceed 10 per cent of the value of food grains produced. India’s argument was that it should have permanent freedom instead of a temporary peace clause to use its food reserves to feed its poor without the threat of violating any international obligations. This issue remains unresolved so far. Further, India wanted to get the Doha Development Agenda reaffirmed.

Why a Permanent Solution?

• A permanent solution would give more legal certainty and flexibility to India to run its food security programmes. Moreover, a lasting solution will help countries design their future procurement programmes accordingly.
• Legal backing is necessary because if in future any country breaks on its promise agreed in peace clause (i.e not to drag a country to the WTO dispute mechanism even if its subsidy ceiling in its food security programme is breached) then dispute settlement body won’t consider its appeal.
• In the absence of any permanent solution, India has to submit information to the WTO about the size of its food security bill every year.
• Many African nations have exceeded their subsidy ceilings or are on the verge of doing so. Thus it becomes imperative that India should put forward the cause of all these nations.

Nevertheless, the decision to eliminate all export subsidies in agriculture and bringing in discipline in export measures was hailed as substantial progress and a step towards WTO’s key target – Sustainable Development Goal on Zero Hunger.

The Argentina Conference and Current Status

The latest and Eleventh Ministerial Conference of WTO members was held in Buenos Aires (Argentina) from 10^th December to 13^th December, 2017. This conference also failed to reach any consensus on any of the major objectives it had set itself before the meeting and hence no ‘ministerial declaration’ was issued at the end of meet. The main agenda of the conference included:

• An effective permanent solution for public stock holding for food security programmes.
• To address the unfinished issues of the Doha work programme Issues
• credible outcome on domestic support for reducing farm subsidies
• Discuss new issues relating to e- commerce, investment facilitation, bringing new disciplines for micro, small, and medium enterprises (MSMEs).

Current outcomes of the conference

On the issue of Public stock holding programme the deadlock continued. Although India’s procurement programme is adequately protected for perpetuity from penal provisions under the peace clause (Bali summit, 2013) whose permanent status was affirmed in 2014 however no legal backing to the clause was reached.US backed from its commitment at the Nairobi ministerial meet in 2015 to work towards finding a permanent solution on it by 2017.