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Peace Clause Will Not Buy Durable Peace for India at the WTO, Analyst Says

Paddy procurement. Photo by Vivian Fernandes.

The ‘peace clause’ agreed at the  9th ministerial conference (MC) of the World Trade Organisation (WTO) in Bali in 2013 and ratified by its General Council in 2014 may not buy durable peace for India’s grain public stockholding (PSH) programme, writes policy analyst Uttam Gupta in an article in the Deccan Herald of 16 April, 2024.

Gupta says India’s Commerce Minister Piyush Gupta said he was “completely satisfied” with the outcome of the 13th Ministerial Conference of the WTO in Abu Dhabi in February 2024. The conference had ended in a deadlock, which meant that the peace clause stays. This clause says “If a developing country gives AMS (aggregate measure of support) exceeding 10 percent no member will be challenged till a permanent solution is found.”

India has exceeded the AMS of 10 percent during the last five years. Gupta says in 2019-20, in the case of rice it was 13.7 percent. The AMS comprises product-specific subsidies. India procures wheat, rice and coarse cereals from farmers at minimum support prices (MSP). In the case of wheat and rice or paddy, the procurement is open-ended, that is, the government procures whatever quantity the farmers offer for sale. This grain in turn is given to the poor at no price (till the end of 2027). This subsidy has two components. One is the subsidy which farmers receive, that is, the excess of MSP over the competitively determined global price of a commodity, also known as the External Reference Price (ERP). These are “product-specific subsidies.” (The other subsidy goes to consumers. Since they don’t pay for rationed grain, the subsidy is the excess of ERP over Nil).

There are also “non-product-specific” or Amber Box subsidies that Indian farmers receive in the form of lower-than-market prices of fertilisers (mainly urea), water and electricity. The product-specific and non-product-specific subsidies add up to the Aggregate Measure of Support (AMS) which should not exceed 10 percent of the ERP that prevailed in 1986-88.

The peace clause subjects India to WTO surveillance as it has to provide data to it on grain procured, stocks held, stocks distributed and subsidies given. The WTO is anxious that the subsidies are not trade distorting, that is the grain procured at MSP is not sold in the global market. India procures more than is needed for the public distribution system. The excess is auctioned. The buyers have to undertake not to export what they have bought at these auctions.

However, WTO member countries are not convinced. At a consultation meeting at the Abu Dhabi ministerial, Thailand’s Permanent Representative to the WTO, Pimchanok Vonkorpon Pitfield said India was procuring rice at MSP to capture the export market. India lodged a protest saying that it was only procuring 40 percent of paddy production for feeding the poor and the rest was bought at market prices for export. Following India’s protest Thailand replaced its ambassador.

There are also instances of India’s PDS grain being smuggled to neighbouring countries.

Gupta says India must seek a permanent solution by persuading the WTO to adopt the current market price as ERP, not the one that prevailed in 1986-88 and it should get the WTO to exclude subsidies given to smallholder farmers.



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