Public stockholding – is it end of the road for ‘permanent solution’?

The 11th WTO [World Trade Organization] ministerial which started on December 10, 2017 in Buenos Aires with pomp and show has ended in whimper. After four days of marathon deliberations [in the plenary, group meetings and bilateral], even the efforts by director general, Roberto Azevedo to draft a declaration – a bare minimum for any such conference – did not bear fruit.

The main reason for the failure was diametrically opposite stance taken by USA and India. While, the latter pressed for the most contentious issue under the Doha Development Round [DDR] viz. finding a permanent solution for public stockholding programs for food security, the former did not even allow it to be put on the table [earlier in November at WTO HQ Geneva to discuss an initial draft declaration, USA had opposed the very use of word ‘development’]. In fact, by not letting it happen, it has backtracked on the commitment given at the 9th ministerial in Bali [December, 2013].

Instead, USA wanted to bring to the table new issues such as investment facilitation, disciplines for micro, small, and medium enterprises [MSMEs] and e-commerce [in July, 2017, developed countries had even submitted proposals on a new “holistic” work program on electronic commerce]. This was rejected by India. With both sides dismissing each other’s proposals, the failure was inevitable.

In the absence of any specific mandate, WTO secretariat is clueless on how to move forward on DDR issues pending for over one-and-a-half decade. At another level, 70 countries have signed a declaration to ‘informally’ discuss “new issues” which gives developed countries an opportunity to crystallize ideas with an eye on the next ministerial in 2019 – the intent being to seek a negotiating mandate.

The union minister of commerce and industry, Suresh Prabhu who led the Indian delegation is not perturbed and feels that India is in a safe zone. His optimism stems from the fact that in view of developing countries having got ‘an interim relief [‘peace clause’ to use WTO nomenclature] till permanent solution is found’, even if the solution is not found, the relief would be available perpetually. This perception might have prompted him to observe – prior to the ministerial – to indicate that “he won’t take up the issue”.

Meanwhile, Prabhu reversed his stance and decided to take up the issue with all seriousness in the ministerial. But, by that time, damage had already been done as his observation emboldened US negotiators to toughen their stance putting India on back foot. There is more to the flip flop by Indian negotiators.

Under the ‘peace clause’ agreed to in Bali, if a developing country gives aggregate measurement support [AMS] [WTO jargon for 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. Moreover, it did not permit inclusion of new schemes/products for the purpose of exemption from challenge.

In the WTO-General Council [GC] meeting in Geneva [July 31, 2014], India had insisted on a time bound action plan to find a permanent solution on food security to be executed before end of 2014 co-terminus with approval of Trade Facilitation Agreement [TFA].  In December, 2014, the Council approved ‘extension of peace clause till a permanent solution is put in place’ even as TFA got the green signal. This is where we committed a mistake.

The belief that the relief would be available perpetually [even if permanent solution is not found] is misplaced. This is subject to fulfillment of the conditions which were not dropped under the December, 2014 decision of WTO – GC. Those conditions require extensive documentation and more important, a demonstration that subsidy support given in this manner is not trade distorting. So, the Damocles sword hangs!

TFA being of great importance to developed countries, India must not have given approval to it without seeking in return, a permanent solution on food security. True, we did well by linking the two in July 2014 meeting of WTO-GC. But, it is a mystery as to why this was abandoned midstream! Had this been carried forward [that time around, Modi had established an excellent rapport with then President Obama which could have been leveraged to our advantage], we would have got a permanent solution.

Yet, letting developed countries get away with what they wanted [read: TFA], they were under no compulsion to concede what was crucial to developing countries. The 10th ministerial in Nairobi [December, 2015] merely stated that “negotiations on the subject shall be held in the Committee on Agriculture [CoA], which will be distinct from ongoing agriculture negotiations under DDR”. That took us nowhere. Now, at Buenos Aires, US has dumped it. Nevertheless, we must continue to hammer our case in Geneva.

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 excess of minimum support price [MSP] paid to farmers over international price – or external reference price [ERP] – multiplied by quantum of agri-produce whereas ‘non-product specific’ subsidies is money spent by government on schemes to supply agricultural inputs at subsidized rates.

Under the Agreement on Agriculture [AoA], for computing ‘product-specific’ support, ERP was frozen at 1986-88 level. With this, comparing current MSP with ERP of 3 decades before inevitably results in ‘artificially’ inflated subsidy. So, the 10% ceiling is bound to get exceeded showing developing countries as violators even when they are not if current ERP is used.

So, India should insist on comparing MSP with current ERP to arrive at AMS. Besides, in calculation only the quantity procured for public stockholding need be taken instead of entire production. In short, WTO should be goaded to take a re-look at AoA to remove these flaws as also other ambiguities which developed countries leverage to keep their subsidies at high level [e.g. they keep them mostly in so called ‘green box’ which cannot be touched].

That India’s current AMS is below the 10% threshold must not lull us into a state of complacency as tomorrow, the scenario may change putting us in a vulnerable zone. Hence, the focus has to be on changing the rules of the game to make them ‘fair’ and ‘equitable’.

 

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