India's WTO problem PDF Print E-mail
Thursday, 18 September 2014 00:00
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The subsidy claims suggest we jumped the gun

With India finally notifying its agriculture subsidies for FY05 to FY11 to the WTO, it has fulfilled a part of its obligation under the Agreement on Agriculture—such subsidies had not been notified for over a decade. In the process, however, several more questions have arisen. According to the document, India gave domestic support of $56.1 billion in FY11. Of this, $24.5 billion are said to be ‘green box’ subsidies which do not distort trade—India has included $13.8 billion of FCI’s buffer stock operations under this head, up from $5.7 billion in FY05. Of the remaining $31.6 billion in FY11, the submission says, $29.1 billion are input subsidies given to ‘low income or resource poor producers’, and therefore exempt from the WTO requirements which restrict the aggregate measure of support (AMS) to 10% of the value of output in any year. As a result, India claims just a little over $2 billion is the total AMS; though the official submission does not mention the value of production, given this was around $300 billion in FY11, this means India’s AMS was under 1%.

India has previously said that 98.97% of its farm holdings are either low-income or resource-poor—in terms of acreage, these holdings of less than 10 hectares account for 89% of the total land. In other words, it can be argued—and this is what the government seems to have done—that around 89% of the total subsidies on fertilisers, irrigation, power and seeds are given to low-income or resource-poor farmers. Presumably this is why India’s WTO submission says $29.1 billion of input subsidies in FY11 are outside the ambit of the AMS. Most experts, however, would tell you that the bulk of such subsidies are consumed by rich farmers. In which case, WTO members could well argue that India’s submission on the amount of actionable subsidies is incorrect—if you add this basket to the actionable AMS subsidies, India is near breaching the WTO’s 10% limit. The advantage India has, of course, is that there is no real data on how much subsidy goes to rich and how much goes to poor farmers.

If WTO members cannot challenge India’s subsidy calculations since there is no hard data to go by, a larger problem occurs. If India’s actionable AMS subsidies are under 1% of agriculture output, what’s not clear is why India even objected to the WTO agreement on grounds of food security—indeed, India’s own submission puts the $13.8 billion spent on buffer stock operations in FY11 as ‘green box’ measures. The question to then ask, as the WTO talks head for near-collapse, is whether India over-reacted and put on hold the WTO trade facilitation agreement because it wanted to grandstand. In the days ahead, that is the question the government will have to answer.



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