International Affairs · Law · Public Policy

A Snapshot of India’s WTO Showdown

India’s unfettered stand at the World Trade Organisation (WTO) has been making headlines since last week on a point of “food security”. What is this point, what is its history and why is it relevant? Most Indian media has been showcasing India’s rebellion as a sort of resistance to a post-colonial, oppressive agreement that disallows India to achieve food security. This piece attempts to break down the elements of the issue and lay them down unbundled so the reader may examine each piece at leisure. 

The Background

The WTO is an international organization that supervises, overseas and regulates international trade. The main aim of the WTO is trade liberalization. It achieves this by formalizing trade agreements between countries and adjudicating disputes as and when they occur. The WTO constantly keeps a check on national policies of countries so that fair trade and market access are not threatened by a country’s protectionist measures such as unregulated import tariffs and subsidies (direct or indirect).

As far as agriculture is concerned, international trade is governed by the Agreement on Agriculture (AoA) which is an international treaty under the WTO. The AoA deals with three basic concepts – domestic support (which is the main point for our purposes), market access (reduction of trade barriers by WTO States) and export subsidies (cutting export subsidies by ‘x’ amount for developed countries and ‘x-y’ for developing countries). Under domestic support, the AoA classifies subsidies into three boxes, something like this-

Amber Box: Restricted subsidies linked directly to production.

Blue Box: Monitored restrictions on programmes giving out production subsidies.

Green Box: Exempted subsidies, fully permitted.

The Problem

Generally, food subsidies and “public stockholding for food security purposes” finds place in the green box. The Government of India buys wheat and rice above market price from farmers (Minimum Support Price – MSP), stocks it and then distributes these grains to state-run shops where they are sold at cut-rate prices – which is the process of public stockholding in a nutshell. While these are fully allowed, as expected there exist certain nuanced caveats to such freedoms. There are two main issues in the present context. The first is the issue of procurement i.e. the Government of a developing country is allowed to procure only a certain amount of grains from the farmers. The second issue is that the AoA states that, “Food purchases shall be made at current market prices” (Annex 2, Clause 3).  If these issues are touched upon, then the ‘subsidies’ move away from the protection of the green box into the sharper confines of the amber box.

These issues glow brighter in light of the recent National Food Security Act (2013), which promises to deliver subsidized wheat and rice to roughly two-thirds of India’s total population of 1.2 billion at Rs. 3 and Rs. 2 a kilo for rice and wheat respectively. To achieve a target as grand as this, the Government will have to keep increasing the MSP as well as reducing prices of food grains, which will attract provisions under the amber box. This situation creates a major policy gap between India’s international trade obligations under the WTO and its internal food policy. Simplistically put, the WTO wants a cap on certain kinds of subsidies that can be given to domestic farmers and agriculture while India insists that such caps threaten a country’s food security and sovereignty and wants a revision on the limits on procurements and MSPs.

The Conflict

In December 2013, in Bali, Indonesia, the 9th Ministerial Conference of the WTO resulted in a Trade Facilitation Agreement (TFA) with the objective of effectively reducing global trade barriers by establishing malleable and more efficient customs procedures. India has also agreed to be part of the TFA but only on the condition that there must be no interference with India’s upcoming massive procurement programme. It must be noted that the TFA is a parallel issue and not the direct point of India’s dissatisfaction. India has now threatened to block the TFA until a permanent solution to the procurement issue is found.

India’s current stockpile reserves stand at 21.2 million tonnes and 39.8 million tonnes of rice and wheat respectively, which is twice the amount recommended by WTO and will only get bigger as the Food Security Act gets implemented. Now India has two options – either amend the domestic law or exert international pressure so the WTO changes its law.

Some remarks

It is interesting to note that the current BJP government is very keen to defend the Food Security Act, which it had earlier criticized vehemently citing the reason of a big fiscal pressure. Politics aside, the main point of debate should be whether India is correct in blocking the TFA to amend the AoA? Also, perhaps the Government could concentrate on building meaningful national policies to ensure food security that are not in direct contravention with WTO provisions. For example, subsidies by way of research fall within the green box. There is a terrible dearth of research and policy which address food loss occurring in the stocking and distribution stage and funding is much needed to ensure such massive amounts of food are not lost. The Government could provide subsidies to improve infrastructure (again within the green box) – through production to consumption without invoking any WTO issue. Again, India is in dire need of improved infrastructure especially in storage and stockpiling without which the most sophisticated policy would fail to achieve food security. These subsidies could be provided alongside looking for a permanent solution to procurement so that the TFA is not disrupted because India stands to gain from the TFA as well.

About the Author

PhotoIpshita is an alumnus of W.B. National University of Juridical Sciences (BA/LLB (Hons) – 2006) and the University of Melbourne (LLM-2013). She has more than four years of research experience in environment and resources law, forests and biodiversity and carbon finance. She is currently working as the Executive Editor at Alexis Insights.

Leave a Reply