WTO Agriculture Agreement and Subsidies

Q. Why in News/Context?

·   Speaking at the Asian Development Bank (ADB) Governor’s seminar on ‘Policies to support Asia’s rebound, The finance minister of India has urged the World Trade Organisation (WTO) to look at the issue of farm subsidies with an open mind as it impacts the food security needs of emerging economies in the backdrop of COVID-19 pandemic and the Russia-Ukraine war.

Q. What is the issue

·   Since WTO was founded, there has been a grievance with respect to the export of  agricultural products and generally in trade, the voice of the Global South and emerging markets has not been heard at par with that of the developed countries.

·      The ‘Global South’ largely refers to countries in Asia, Africa and South America.

·    Subsidies for agriculture and poor farmers in developing countries were not counted at all and were frozen, in the context of COVID and Russia-Ukraine war, food and fertiliser security had become important.

Q. What are these subsidies or Domestic support in agriculture?

     ·    In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. need to be reduced), red (forbidden).

    ·  The Agriculture Agreement has no red box, although domestic support exceeding the reduction commitment levels in the amber box is prohibited; and there is a blue box for subsidies that are tied to programmes that limit production.

      ·    Amber box- Nearly all domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box, which is defined in Article 6 of the Agriculture Agreement as all domestic supports except those in the blue and green boxes. These include measures to support prices, or subsidies directly related to production quantities.

     · These supports are subject to limits. “De minimis” minimal supports for both product-specific and non-product-specific support are allowed, defined as a share of the value of agricultural production. This threshold is generally 5% of the value of agricultural production for developed countries, 10% for most developing countries — although some WTO members agreed to a different level when they negotiated to join the WTO.

    · The reduction commitments are expressed in terms of a “Total Aggregate Measurement of Support” (Total AMS) which includes all supports for specified products together with supports that are not for specific products, in one single figure.

   · Blue box-This is the “amber box with conditions” — conditions 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- In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion.They have to be government-funded (not by charging consumers higher prices) and must not involve price support.

    · They tend to be programmes that are not targeted at particular products, and include direct income supports for farmers that are not related to (are “decoupled” from) current production levels or prices. They also include environmental protection and regional development programmes.

Q. What is the Peace Clause?

·      Under global trade norms, a WTO member country’s food subsidy bill should not breach the limit of 10% of the value of production based on the reference price of 1986-88.

·   As part of permanent solution, India has asked for measures like amendments in the formula to calculate the food subsidy cap and inclusion of programmes implemented after 2013 under the ambit of ‘Peace Clause’.

·    As an interim measure, the WTO members at the Bali ministerial meeting in December 2013 had agreed to put in place a mechanism popularly called ‘Peace Clause’ and committed to negotiating an agreement for a permanent solution.

·      Under Peace Clause, WTO members agreed to refrain from challenging any breach in prescribed ceiling by a developing nation at the dispute settlement forum of the WTO.

·     This clause will stay till a permanent solution is found to the food stockpiling issue.