 "Food Security Ordinance may invoke WTO compliance issues")
The recently promulgated National Food Security ordinance, which aims to provide 5 kg food grains per person per month at subsidised prices under the targeted public distribution system, might be in violation of the global trading rules on agriculture under the World Trade Organization (WTO) if an attempt is made to divert subsidized food grains for export purposes.
According to trade economists and experts, even if the ordinance is aimed at giving subsidies to 67% of the people for consumption purposes, it nevertheless tantamounts to subsidies which are otherwise prohibited under the WTO norms, which is commonly known as 'trade distorting subsidies' or 'Amber Box' subsidies in trade parlance.
The situation is much more complex than it appears to be.
On one hand, even if the subsidy given under the food security ordinance is provided to consumers and not farmers, there is no mechanism to monitor such a leakage. On the other hand, India is one of the main countries in the G-33 along with other developing countries which is spearheading the proposal on food security at the WTO that seeks to legalise the so-called prohibited 'Amber Box' subsidies.
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Thus it is crucial for India and other developing countries to get the agreement on food security approved at the WTO in order to continue giving such subsidies within their domestic constituencies in future also.
Additionally, consensus on the G-33 proposal would not only remove the asymmetry and imbalance in the Agreement on Agriculture in respect of food security and domestic food aid in WTO, but would also provide a positive stroke for removing hunger.
“WTO rules have to respond to the emerging reality that developing countries require flexibility and policy space for addressing the food security needs of their population in a manner that is consistent with their development priorities,” said Abhijit Das, head of Centre for WTO Studies, IIFT.
As far as exports of food stocks are concerned, India has never exported rice from its public stockholding. However, in certain exceptional and rare circumstances it had to export wheat.
So the problem is two-fold. There is an inherent asymmetry in WTO’s Agreement on Agriculture whereby countries can provide unlimited amount of direct food aid to sections of the population in need.
While on one hand, developed countries like the US have resorted to direct food aid to their population and have provided subsidies to the extent of $94 billion during 2011, on the other hand, developing countries, being cash-strapped, are unable to use the provision on direct food aid. Instead, they acquire and hold stocks of food products and subsequently release it at administered prices to the target population in need.
“Smooth implementation of the Food Security Law may be require tweaking of the WTO agricultural subsidy regime. India and several other developing countries have proposed amendments to the subsidy regime, which will ensure that we are above board. Considerable efforts would have to be put in order to ensure that the forthcoming WTO ministerial meeting in Bali is able to seal a deal on this issue,” said Biswajit Dhar of New Delhi based think tank RIS.
In the aftermath of the global food crisis, developing countries have become more vulnerable than developed countries because of differences in productivity, scale and financial means to cope with problems besetting agriculture. Agricultural sectors in developed countries are equipped with advanced technologies, large financial resources and support systems to provide secure incomes to their farmers and to manage quick shifts in the market and in environmental conditions.
In contrast, many developing countries like India are not able to provide services, infrastructure and support to their small farmers or to deal effectively with volatility in agricultural markets, due to a lack of institutional and financial means.
The issue of agricultural subsidies has been one of the most contentious issues in the Doha Round of the global trade talks that started in 2001. After protracted negotiations, a draft text of outcomes was released in December, 2008. While this has not been finally approved because the Doha Round itself has been in limbo since then, there is a broad measure of consensus around the proposed outcomes.
“The problem is that because the Doha Round has not been finalised, this remains a draft proposal. In the meantime, our subsidies have been rising and could cross the permissible de-minimis levels. If that happens, it would amount to a violation of our WTO commitments and some country could possibly bring a WTO dispute against us," said a Geneva-based trade economist who refused to be identified. 'De Minimis’ level means the threshold beyond which subsidies cannot be given under global trading rules.
The economist said the additional requirements of implementing the Food Security ordinance are bound to further raise our subsidy levels. In case the requirements in ordinance force us to procure more from farmers and supply the food-grains at deeper subsidies to the consumers, overall subsidy levels would go up.
The G33 proposal in the WTO therefore seeks a decision on this issue in the Bali Ministerial. The US and others have raised the old bogey of India trying to sabotage progress on issues like Trade Facilitation by raking up the food security issue.
According to Manoj Pant, professor, Centre for International Trade and Development, School of International Studies, JNU, “Subsidies given under the food security ordinance is being given to consumers on which there are no restrictions and not to the farmers.”
The December 2008 text on Agriculture states: “acquisition of stocks of foodstuffs by developing country members with the objective of supporting low-income or resource-poor producers shall not be required to be accounted for in the AMS (Aggregate Measurement of Support).”
While the US is completely against such a proposal, the European countries are still ready to discuss the issue and find out an amicable solution to the problem. This is because the US feels, any agreement on this issue will give unprecedented flexibilities to China as it gives much more subsidies compared to India in terms of numbers and their procurement levels are much higher.
An agreement on this proposal is extremely crucial for India as 99% of its farmers fall under the ‘low-income or resource-poor’ category. Moreover, Indian government is also concerned of the fact that in public procurement it is soon going to overshoot the ‘de minimis’ level.
The current threshold is 10% of the total value of output in agriculture that can be given as subsidy. The agriculture ministry has already said that it is concerned that the threshold could be breached in near future.