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WTO consent to farm subsidies




  • While Pakistan opted to play no role in the recently-ended ninth WTO ministerial in Indonesian city of Bali, India dominated the proceedings and was able to get what it wanted: subsidies for its food security programme.

    Farm subsidy is an issue that has divided the membership of the multilateral trade body ever since it was created. The heavy amounts of subsidies given by the developed countries to their farmers have been distorting international trade to the detriment of the interests of the developed countries.

    Under the WTO’s Agreement on Agriculture, member countries are required to reduce and gradually end all agricultural subsidies.

    What remains unnoticed is that by allowing subsidies to India, the West has won trade facilitation as part of the Doha development round when it had been all along a part of the Singapore issues that included more contentious issues of investment, government procurement and competition policy.

    In a way, India’s victory on the food security, with 159 member nations approving protection rather than reduction of subsidies, “exemplifies the majesty of the hypocrisy of the US and the EU, and indeed the foundational basis of the WTO”, according to Brij Patnaik, a senior Indian analyst. The seeds of this inequity were sown in the Uruguay Round and codified in the agreement on agriculture (AoA).

    The fact remains that the US and the EU got away with very high agriculture subsidies simply because they were already providing much higher subsidies to their farmers when the WTO was created in 1994. This allowed $19 billion (currently) in trade distorting subsidies to the US and none for 61 of the 71 countries. This was because these countries had none of these subsidies at that time.

    Much of the US subsidies are for crops such as wheat, soybean, cotton and corn, which are exported and are, therefore, distorting trade. But much of India’s subsidies are considered non-trade distorting since they are mostly for domestic consumption.

    However, Pakistan argues that the minimum support price (MSP) mechanism offered to Indian farmers by the government distorts global trade as it was adversely affecting Pakistani exports of rice.

    Some Indian analysts, however, claim that India does not provide a MSP for basmati rice, which forms 40 per cent of Pakistani rice exports in value terms. If anything, they say, the export competitiveness of Pakistani basmati is decreasing because Pakistan is not investing adequately in this sector.

    Pakistan, one may note, is unable to provide subsidies to its farmers because of increased constraints on the government and also because of conditions imposed by the multilateral lenders such as IMF demanding removal of all kinds of subsidies.

    India, however, has been subsidising its agriculture adequately. Pakistan was represented by its ambassador to the WTO who, despite being chairman of the General Council of the WTO, preferred not to play an active role and raised no objections to India’s proposal reportedly on instructions from his superiors in Islamabad.

    However, India will have to periodically submit its food security programme to WTO scrutiny and ensure that it does not sell government-procured food grain in overseas markets, which could distort international trade. India’s Food Security Act entitles 82 crore people to five kg of foodgrains per person a month at Rs 1-3 per kg.

    India had insisted on a permanent exemption from the WTO rules but failed to get it. The final text recommended working out a permanent solution within four years. Besides, there are a series of safeguards in the text including requirements for full transparency and not having an effect that distorts trade or adversely affects the food security of a neighbour such as Pakistan.

    The agreement on public stockholding says that it will be “in pursuance of public stockholding programmes for food security purposes existing as of the date of this (Bali) agreement”. While this protects India to some extent, it will not allow other developing countries to adopt similar programmes. It is also clear that the exemption will not cover non-staple food crops. Para (4) of the text asked the countries “to ensure that stocks procured under such programmes do not distort trade or adversely affect the food security of other members”.

    Countries such as Thailand, Pakistan and Uruguay, major producers of rice like India, say that the subsidised Indian farmers could negatively impact farmers in their own countries. Pakistan’s rice producers are reportedly upset as WTO deal has put their export of $2 billion worth of rice at stake.

    Hamid Malhi, President, Basmati Growers Association, who was the lone representative of the farmers’ community from Pakistan to attend the meeting was highly critical of the government’s attitude towards failing to protect the interests of the country’s farmers.

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