At the WTO Ministerial Conference, India stood firm on its stance on public stock-holding programme, drawing strong opposition from the developed countries

The 13th ministerial conference (MC) of WTO (World Trade Organisation) held on February 26-29, 2024 in Abu Dhabi has ended in a deadlock. This is because India leads about 80 countries—the G33 including India, African, Caribbean and Pacific countries, together called ACP—on – on one hand and the European Union (EU) and the USA representing the developed countries on the other didn’t budge from their respective pre-meditated positions.    

On the most important issue of finding a permanent solution to the public stock-holding (PSH) programme for food security, India’s stance was vehemently opposed by the USA/EU. Currently, under India’s PSH programme, government agencies like the Food Corporation of India (FCI) buy agri-produce such as wheat, rice/paddy, and coarse cereals from farmers at the minimum support price (MSP) and give it free to India’s poor population under the National Food Security Act (NFSA).  

The cost of supplying food i.e. MSP plus handling, storage and distribution costs is paid as a subsidy from the Union Budget. This can be bifurcated into two components (a) subsidy to the farmer, which is the excess of MSP of, say, rice over its international price also known as External Reference Price (ERP) and (b) subsidy to the food consumer, being the excess of ERP over ‘nil’. The WTO is concerned with (a) branded as “product-specific” subsidies. 

The international price/ERP of any commodity is based on global demand-supply forces and is determined competitively. All farmers irrespective of their country of location are expected to receive this price. In case, because of the intervention by the government of a member country say India, the farmers therein receive a price/MSP higher than this, they are presumed to have been subsidised to the extent of excess of MSP over ERP. The WTO is also concerned with subsidies on agricultural inputs like fertilisers, seeds, irrigation, power, etc., referred to as “non-product specific” subsidies.

Termed as ‘Amber box’ subsidies, under the Agreement on Agriculture (AoA), the total of product and non-product-specific subsidies or aggregate measurement support (AMS) is capped at 10 per cent of the value of agricultural production for a developing country. If a member country gives AMS over 10 per cent, it is a violation.

The AoA came into force in 1995. For India, until 2005, MSP was less than ERP. Thereafter, MSP has been higher than ERP and, in the last decade, this gap widened. During 2019-20, in the case of rice, AMS was 13.7 per cent, exceeding the 10 per cent cap. The big question is:-Does this excess subsidy distorts international trade?

The answer is a categorical ‘no’. This is because the formula for the computation of AMS is flawed. The ERP used for comparing with MSP (albeit current) dates back to 1986-88. This is bound to “artificially” inflate the subsidy. Besides, AoA calculation doesn’t exclude subsidies given to resource-poor farmers. These farmers mostly produce food for self-consumption meaning they don’t have a surplus to sell. Both these flaws need to be removed.  

By using the current ERP and excluding subsidies to resource-poor farmers, India’s subsidy will automatically go below the 10 per cent threshold. Second, the entire purchases from the farmers albeit at the MSP are meant for sale to the poor beneficiaries under the NFSA. Hence, the question of cereals thus procured entering the global market doesn’t arise.   

For over a decade, India has been hammering on these points to constitute what is being touted as a ‘permanent solution’. But, developed countries have looked the other way. All that they conceded was sanction for a “peace clause” at the MC-9 in Bali (2013). 

It said, “If a developing country gives AMS over 10 per cent, no member will challenge this until 2017 when the WTO would look for a permanent solution.” This was modified in the General Council (GC) held in December 2014, to say “The peace clause will stay till a permanent solution is found.” 

However, the peace clause comes with several riders, such as the submission of data on food procurement, stockholding, distribution and subsidies. These also include establishing that subsidies are not “trade distorting.” Besides, programmes implemented after 2013 are not covered under the ambit of the ‘peace clause’.

India has invoked the ‘peace clause’ several times for breaching the 10 per cent ceiling in case of subsidy on rice. However, developed countries have objected to such invocation citing it is not transparent and that cereals procured under PSH are ‘illegitimately exported. It would appear that charge levelled by Thailand Ambassador to the WTO Pimchanok Vonkorpon Pitfield (she said, 40 per cent of India’s rice exports were stocks diverted from PSH) was made at their behest.     

The developed countries have an interest in ensuring that their agri-produce occupies a big space in the international market. This, in turn, will require that Indian exports be discouraged. Therefore, the extant arrangement (read: peace clause with riders) suits them. Hence, they have no interest in finding a permanent solution. It has been deferred for over a decade and they will continue to do so.

Meanwhile, India will do well to ensure smooth sailing with the peace clause. To avoid pinpricks by developed countries, the government should ensure that purchases by its agencies are synchronized with the requirements of NFSA; that excess stock situations are avoided and that there is no leakage of subsidised food from the PSH programme. 

On fisheries subsidies, in sync with the principles of “polluter pays” and “common but differentiated responsibilities,” India had proposed that developed countries abolish their subsidies over the next 25 years even while exempting developing countries from over-fishing subsidy prohibition within these 25 years.

In this regard, the MC - 12 held on June 12-17, 2022 (Geneva) decided that “no subsidies will be given for fishing in areas outside exclusive economic zones (EEZ) or RFMOs (regional fisheries management organisation)”. It also agreed to check illegal, unreported and unregulated (IUU) fishing and mooted “very strict controls” on overfishing so that fish stocks are restored.

India was allowed to give subsidies for fishing in the EEZ - merely a reiteration of its rights under the UN Law of the Sea Convention. However, this was subject to putting in place a regime for managing and monitoring marine fish stocks within two years. If it fails, it will be compelled to stop subsidies for poor fishermen. 

In the MC–13, India wanted unconditional exemption to the poorer nations for the subsidies they give for their small-scale and artisanal fishermen. The developed countries refused to give it. As for the moratorium on customs duty on e-commerce (developed countries have been its prime beneficiaries since 1998), India wanted this to go as developing countries are losing billions of dollars in duties foregone. The MC–12 had decided to extend the moratorium till MC -13 or March 2024, whichever is earlier. During the Abu Dhabi Ministerial, India reiterated this demand. 

It stuck to its stance till the last moment but had to give up as the majority of the members (including the UAE) decided to continue the moratorium for two more years. Meanwhile, India stalled attempts by China to get through an agreement on ‘investment facilitation’. It also opposed efforts by developed countries to bring other non-trade issues such as environment, labour standards, industrial policy etc to the table.

(The writer is a policy analyst; views are personal)