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India may push for permanent food stock rules

  • Category
    Economy
  • Published
    30th May, 2022

Overview

  • India’s stand food stock rules
  • What is Agreement on Agriculture?
  • Objectives of Agreement on Agriculture
  • Three Pillars of AOA
  • Issues with Agreement on Agriculture

Context

India may seek a permanent solution to the issue of public stockholding for food security during the 12th World Trade Organization (WTO) ministerial conference in Geneva.

About

  • According to current WTO rules, a member country’s food subsidy bill should not breach 10% of the value of production based on the base price of 1986-88.
  • WTO rules do not allow export of commodity from public stock because it distorts prices, which affects other countries.However, the same is allowed if exports are done at market prices.
  • Currently, the peace clause agreed in the Bali ministerial meetingonly includes the government programmes started before 2013.
  • Under this clause, WTO members agreed to refrain from challenging any breach of the prescribed ceiling of 10% by a developing nation.
  • The developing countries cannot be taken to arbitration as they are protected under the peace clause.
  • However, the clause is applicable till a permanent solution is reached.
  • India is seeking to add government programmes that were started after 2013 in the peace clause.

Analysis

India’s standfood stock rules

  • India had informed WTO that the value of its rice production in 2019-20 stood at $46.07 billion and that subsidies worth $6.31 billion, or 13.7%, were given, above the 10% limit.
  • Indian government subsidy to farmers comes in at $300 per farmer, compared to $40,000 per farmer in the US.
  • India is not the only country looking for a permanent solution to public stockholding programmes.Developing nations such as China and African nation part of the G33 group have also raised this issue at WTO.

What is Agreement on Agriculture?

  • The WTO's Agreement on Agriculture (AoA) was negotiated in the 1986-94. It marked a significant first step towards bringing agricultural subsidies under international disciplines.
  • Specific commitments set out in the AoA were implemented over a 6-year period (10 years for developing countries) starting in 1995.

Objectives of Agreement on Agriculture

  • To establish a fair, transparent and market oriented agricultural trading system
  • To strengthen more operationally effective GATT disciplines. 
  • The agreement does allow governments to support their rural economies, but preferably through policies that cause less distortion to trade. 
  • It also allows some flexibility in the way commitments are implemented. Developing countries do not have to cut their subsidies or lower their tariffs as much as developed countries, and they are given extra time to complete their obligations. Least-developed countries don’t have to do this at all. Special provisions deal with the interests of countries that rely on imports for their food supplies, and the concerns of least-developed economies.

The Bali’s Peace Clause

  • Trade negotiators generally refer to Article 13 of the World Trade Organization's Agreement on Agriculture as the Peace Clause.
  • It is now possible, therefore, for developing countries and nations favouring free trade in agricultural goods.
  • Another temporary peace clause was made at the WTO Bali conference in December 2013.
  • It stipulated that no country would be legally barred from food security programs for its own people even if the subsidy breached the limits specified in the WTO Agreement on Agriculture.

Three Pillars of AOA

  • Domestic Support:It includes the classification of agricultural subsidies into ‘boxes’ depending on their effects on production and trade.
    • Amber Box:  It contains all domestic support considered to distort production and trade.  All these types of supports are subject to limits which are termed as ‘de minimis’ levels.  The developed countries have to limit their domestic support within 5% and developing countries to limit within 10% of total agriculture production.
    • Blue Box: This is the “amber box with conditions”. Such conditions are designed to reduce distortion.Any support that would normally be in the amber box is placed in the blue box if the support also requires farmers to limit production.At present, there are no limits on spending on blue box subsidies.
    • Green Box:  It falls under the permitted subsidies that cause minimal distortion, and typically includes those subsidies given to research and development (R&D), environmental protection and animal welfare.
    • Market Access:Market access refers to the reduction of tariff (or non-tariff) barriers to trade by WTO members. The 1995 Agreement on Agriculture required tariff reductions of:
  • 36% average reduction by developed countries, with a minimum per-tariff line reduction of 15% over six years.
  • 24% average reduction by developing countries with a minimum per-tariff line reduction of 10% over ten years.
  • Least developed countries (LDCs) were exempt from tariff reductions, but they either had to convert non-tariff barriers to tariffs or bind their tariffs, creating to a ceiling that could not be increased in future.
    • Export Subsidies:The Agriculture Agreement prohibits export subsidies on agricultural products unless the subsidies are specified in a member’s lists of commitments. Where they are listed, the agreement requires WTO members to cut both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies.

Issues with Agreement on Agriculture

  • It reduces tariff protection for small farmers, which is a major income source in developing countries, while at the same time, it allows rich countries to continue subsidising their farmers.
  • The developed countries have cleverly classified most of the sops as non-trade distorting subsidies (green-box), which supposedly has minimal effect on world trade.
  • The developed countries also cornered the right to a lion’s share in the total trade distorting subsidies (amber box) too.  
  • This is possible as most developed countries have adopted the overall cap on subsidies instead of the product specific one (5%), which helps them better target sops for specific crops.
  • Most developing countries, on the other hand, cannot risk increasing the amber box subsidies to more than the 10 per cent of their total production value of a specific commodity as they could then be penalised.
  • This exposes the hypocrisy of the rich nations which highly subsidise their farmers but routinely reprimand countries such as India and China for their ‘minimum support price’ programmes for poor farmers.
  • It is unfair that even with low over-all subsidies, India has to worry about breaching the 10 per cent ceiling for rice once the food subsidy programme is fully implemented as it could then get into trouble.
  • The WTO’s push towards globalisation threatens three dimensions of a sustainable and equitable agricultural policy, namely, ecological security, livelihood security and food security. Globalisation will adversely affect producers with low or no capital and investment.
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