Roberto Azevedo who was recently in Delhi to explore and understand India’s perspective on issues for taking up in the 11th WTO [World Trade Organization] ministerial scheduled for December 11-14, 2017 stated “one has to be patient for a permanent solution and asked not to undermine the efficacy of the peace clause”.
Azevedo exhortation is unmindful of the vulnerabilities of developing countries inherent in the ‘peace clause’. When, the provision itself stands on a slippery foundation, there is every reason for them to be impatient and hence, their search for permanent solution. Let us look at some basic facts.
At the 9th ministerial in Bali [December, 2013], developed countries had agreed to a ‘peace clause’ under which, if a developing country gives agricultural subsidies in excess of 10% of its agricultural 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 was 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, stockholding, distribution and subsidies (including their computation) etc. These also included establishing that subsidies are not ‘trade distorting’ which is nearly impossible to comply. In other words, even in the interim, any member could challenge if conditions are not met. Already, US has been asking India to supply all sorts of data which tantamount to virtual surveillance on our food security system.
In 2014, Modi-government insisted on finding a permanent solution within that year and even made signing of Trade Facilitation Agreement [TFA] – a key demand of developed countries – conditional on their agreeing to the solution. In its meeting held on December 10-11, WTO-General Council [GC] 2014 approved TFA but permanent solution remained elusive.
However, in a slight modification of the decision at Bali which had set a deadline for termination of peace clause [2017], the GC approved its extension till such time a permanent solution is found. On the face of it though, it appeared that developing countries would enjoy protective cover of the clause for an infinite period, they were still not out of woods as conditions appended to it were not dropped.
The decisions of WTO-GC were reiterated at 10th ministerial meeting at Nairobi [December 15-19, 2015]. As regards, finding a permanent solution to public stock holding for food security, it merely agreed that “negotiations on the subject shall be held in the Committee on Agriculture [CoA] in the Special Session, which will be distinct from ongoing agriculture negotiations under Doha Development Agenda [DDA]”.
The decision to take the subject matter out of DDA purview and throwing in to the lap of CoA [albeit in a Special Session] showed utter lack of seriousness in pursuing it. But, developing countries cannot afford to sit complacent. Given inherent vulnerabilities in the peace clause, they have no option but to pursue search for a permanent solution. What should they focus on?
Under Agreement on Agriculture [AoA], developing countries can give subsidy on food for public stock holding operations – called aggregate measurement support [AMS] in WTO jargon – up to 10% of value of agricultural production. AMS includes ‘product-specific’ subsidies and ‘non-product specific’ viz. subsidies on agricultural inputs viz., fertilizers, seed, irrigation, electricity etc.
The ‘product-specific’ subsidy is computed as excess of the minimum support price [MSP] paid to farmers over international price – or external reference price [ERP] – multiplied by quantum of agriculture produce whereas ‘non-product specific’ subsidies is money spent by government/state on schemes to supply agricultural inputs at subsidized rates. There are two major flaws in AoA.
First, for computing AMS, whereas support on agri-inputs to resource poor farmers is ‘excluded’ [on the basis that such support is not ‘trade-distorting’], product-specific subsidies given to them are not. Second, for computing ‘product-specific’ support, ERP is frozen at level of 1986-88. With this, comparing current MSP with ERP of 3 decades before results in ‘artificially’ inflated subsidy.
With these major flaws in assessment and computation of subsidies, it is inevitable that the resulting AMS will exceed the 10% ceiling fixed under the agreement. It is unfortunate that negotiators from India [and other developing countries] had then allowed a faulty formula to get embedded in the agreement. There is dire need to correct it.
If, only we insist on correction of these two anomalies, Indian agricultural subsidies even while continuing with extant dispensation will be well within the 10% ceiling. That indeed is the ‘permanent solution’ to the problem of public stock holding for food security and needs to be taken up in upcoming ministerial at Buenos Aires with alacrity.
Another issue of fundamental interest to developing countries is special safeguards mechanism [SSM] which allows members to temporarily raise tariffs to deal with surging imports. At Nairobi ministerial, they wanted an amendment to an already existing provision in Article 5 of AoA to provide them same benefit that developed countries derive from Special (Agricultural) Safeguards [SSG]. Yet, the declaration only recognized that developing countries will have the right to recourse to SSM as envisaged under the Hong Kong Ministerial Declaration. This was a hollow assurance to say the least.
With regard to agricultural export subsidies, here too, at Nairobi, the developed countries got away with a commitment from developing countries for aggressive cut in their subsidy support to agriculture and allied activities. A tighter deadline to phase out these subsidies [possibly by 2023] is on cards. At the same time, they did not even let their own huge domestic subsidies to be put on the table for discussion.
The developed countries also managed a surreptitious entry of new issues like Government procurement, competition policy, link between trade and climate, TRIPs [trade related intellectual property rights] etc when the Nairobi declaration recognized that “some [in an obvious reference to developed countries] wish to identify and discuss other issues for negotiation, others do not”. Now, there are moves to expand this list by including e-commerce.
India should engage proactively with WTO to ensure that issues of concern to developing countries viz. permanent solution to food security, SSM and agricultural subsidies get prominent attention in the agenda of upcoming ministerial at Buenos Aires in December, 2017. It should also ensure that ‘new issues’ are kept out till such time all pending issues under Doha Round are settled.