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WTO Pressure on Farm Subsidies

Why is it in the news?

  • The government’s agreement to provide a legal guarantee of Minimum Support Price (MSP) to protesting farmers is constrained by India’s WTO-related farm subsidy obligations and the pressure it faces on its subsidy programs.

More about the news

  • The Cairns Group, which includes nations like Australia, Brazil, and Canada, has raised concerns about India’s farm subsidies.
  • Specifically, they argue that India’s public stockholding (PSH) program, which involves the government purchasing crops at guaranteed minimum prices to support farmers, is highly subsidized.
  • According to these countries, such subsidies distort global food prices and may adversely affect food security in other parts of the world.
WTO’s Agreement on Agriculture (AoA)

路聽聽聽聽聽聽 The AoA was established to facilitate the removal of trade barriers and promote transparent market access in the agricultural sector.

路聽聽聽聽聽聽 It operates on three main pillars: Domestic Support, Market Access, and Export Subsidies.

Domestic Support

路聽聽聽聽聽聽 It refers to the subsidies provided by governments to their domestic agricultural sectors.

路聽聽聽聽聽聽 These subsidies are classified into different categories based on their impact on trade and market distortion.

1) The Green Box includes subsidies that are considered minimally distorting, such as those supporting environmental programs or agricultural research.

2) The Blue Box encompasses production-limiting subsidies, which may include payments based on factors like acreage or yield.

3) The Amber Box consists of trade-distorting subsidies that are subject to reduction commitments to limit their impact on global trade.

路聽聽聽聽聽聽 The Peace Clause, established in 2013, provides a level of protection for developing countries’ subsidies, allowing them to avoid challenges under other WTO agreements.

Market Access

路聽聽聽聽聽聽 Involves the progressive reduction of tariffs, such as customs duties, by individual countries to promote free trade.

路聽聽聽聽聽聽 Also encompasses the elimination of non-tariff barriers, including import quotas, to facilitate smoother trade flows and market integration.

Export Subsidies

Export subsidies are restricted to four specific situations within the WTO framework:

1) Product-specific reduction commitments within the established limits.

2) Excess budgetary outlays for export subsidies, which may be subject to scrutiny.

3) Export subsidies consistent with the special and differential treatment provision, acknowledging varying development levels among member countries.

4) Export subsidies not subject to reduction commitments, provided they adhere to anti-circumvention disciplines outlined in Article 10 of the Agreement on Agriculture, ensuring fair trade practices.

Challenges for India at WTO Regarding Subsidies

India faces several challenges related to its subsidy programs, both in agriculture and industry.

  • In agriculture, India’s extensive subsidies, including minimum support prices (MSPs) and input subsidies, often exceed the limits allowed by the WTO.
  • Developed countries like the US and EU frequently challenge these subsidies, arguing that they harm farmers in other parts of the world by distorting global markets.
  • In the industrial sector, subsidies such as the Production Linked Incentive (PLI) scheme may also face scrutiny if they are seen as promoting exports or distorting trade.
  • India advocates for fair treatment based on its status as a developing country, arguing that subsidy rules should take into account the needs of countries like India to promote economic growth and support vulnerable sectors.

Ongoing Efforts by India

  • India is actively engaged in efforts to address concerns about its subsidies at the WTO.
  • It is pushing for greater flexibility to offer farm support and seeking a permanent solution to subsidy issues at inter-ministerial summits.
  • Specific efforts include proposing amendments to the formula used to calculate the food subsidy cap and advocating for the inclusion of post-2013 programs under the Peace Clause.

 

Way Forward

  • Addressing concerns about subsidies is crucial for India to effectively participate in the global trading system.
  • India needs to engage actively in WTO negotiations to seek reforms that address developed country subsidies while also ensuring compliance with its own subsidy obligations.
  • Exploring alternative frameworks, such as plurilateral agreements or sectoral negotiations, may be necessary to find practical solutions that accommodate the diverse interests of WTO member countries.

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