Context:

  • Providing food to the poor or targeted groups at subsidized prices is fully WTO compatible

Background

  • It was believed that India and other developing countries were likely to exceed or had already exceeded the 10% subsidy threshold in 2013.
  • The G-33 group of developing countries under the leadership of India submitted a proposal in late 2012 to exempt developing countries’ food security programs from the 10% threshold enshrined in the WTO Agreement on Agriculture.

Introduction:

  • The ongoing discourse on the Public Distribution System (PDS) of Tamil Nadu is about the relevance of procurement of gains/pulses from farmers, public storage in Food Corporation of India godown, Direct Benefit Transfer in view of the commitments made in the World Trade Organsiation (WTO).

Salient features of PDS of Tamil Nadu:

  • The PDS in Tamil Nadu is continues to retain the feature of universal coverage even after implementation of the National Food Security Act, 2013 (NFSA).
  • There is no reduction even in the total coverage from the earlier Targeted Public Distribution System
  • The average annual offtake or the annual allocation has remained 36.78 lakh tonnes.
  • The major part of the subsidy for the distribution of food grains (90.81%  for rice and 91.70% for wheat) is borne by the government.
  • The implication of this subsidy allocation to Tamil Nadu alone on the government is approximately Rs 843 crore per month and approximately Rs 10, 120 crore per year.

WTO policies:

A Brief about the Trade Facilitation Agreement:

  • The Trade Facilitation Agreement was agreed on in 2013 in Bali and opertionalised from February 2017 after two-third of the WTO’s 164 members ratified it.
  • Prime Minister Narendara Modi, engaged with global leaders, and in November 2014 India obtained an open ended peace clause from the General Council of the WTO, which was further reaffirmed at the Nairobi Ministerial.
  • Accoding to the Agreement, several trade-related issues like transparency, predictability and efficiency at the ports, faster clearance procedures, and improved appeal rights for traders are to be addressed by member countries.
  • The Trade Facilitation Agreement allows for consultations before any new trade rules are notified.
  • A WTO study indicated that when the Trade Facilitation Agreement is fully implemented, trade costs for member countries will decrease by an average of 14.3%.
  • It is also highlighted that the time taken to export and import will come down drastically.
  • Finance Minister Arun Jaitley has made budgetary allocations for bringing in single-window clearance and improving customs clearance at the ports.
  • A high-level committee chaired by the Cabinet Secretary will monitor logistics and efficiency at ports and related issues.

Major Concern about the Trade Facilitation Agreement:

  • The Public Stock Holdings issue remains unresolved the WTO.
  • It was agreed in Bali in 2013 and reiterated in Nairobi in 2015, that a permanent solution for public stock holding be found by 2017, it is still a ‘work-in-progress’.
  • The current WTO rules would have allowed a legal challenge to our public stock holding and minimum support price-based procurement programme in case we breached ‘limit ‘on procurement.
  • The limit is defined as 10% of the value of production of the particular grain being procured.
  • Impact of WTO policies:
  • The WTO rules allow subsidization of these food security programs as long as total domestic agricultural subsidies by developing countries do not exceed 10% of the total agricultural outpu
  • WTO rules classify procurement and holding of public stocks for food security purposes as ‘Green Box’ or non trade-distorting.
  • If the minimum support price is higher than the archaic fixed reference price, then it is considered as trade-distorting agriculture support.
  • Trade-distorting support should be within the limit, which is 10% of the value of production of the particular grain being procured.

Impact of Trade Facilitation Agreement on Food Security and Farmers

  • Many in India believed that the WTO and the developed countries were dictating India to curb its food security program for the poor.
  • India is the world’s largest producer of milk and second largest producer of rice and wheat. Despite this fact it is a cruel irony that nearly 200 million of the over 800 million undernourished people in the world live in India. Therefore, India has every right to expand its public food distribution system to address this massive domestic need.
  • India needs to work with the WTO member countries to ensure it does it in non-trade distorting ways.
  • The WTO is not meant to be the place to negotiate the fate of food security programs designed to feed millions and there is need for protecting Inia’s interest on staple food supplies that are procured for food security programs at subsidized prices and the other grain trade in domestic and international markets.
  • If changes are needed in the WTO Agreement on Agriculture to level the playing field, they should be a part of an overall multilateral agreement, which includes all three pillars of the Agreement on Agriculture, i.e. domestic support (subsidies) to farmers, market access and export competition.
  • The Trade Facilitation Agreement limits up to 10% of the output of the product. But the base price to calculate this 10% has been fixed at 1986-1988 prices, which is lower than the current market prices. As a result, the Indian Government which is giving huge amounts of food subsidy will have to reduce it to a considerable extent.
  • If the subsidy is reduced, then the market price of agricultural commodities would rise or the government would have to lower the minimum support price offered to the farmers in order to maintain the current market prices. Lowering the MSP would be a discouragement to the farmers and might lead to lower output, thus, a reduced supply wgich ultimately affect the food security of India and may make India dependent upon the food export.
  • However, due to lowering the MSP for food grains, the farmers may shift to producing fruits and vegetables resulting in increasing the size of its market.
  • Stockpiling restrictions of the TFA are directed against this unnecessary surplus production. This may increase the risk of shortage of foodgrain and famine.
  • Stockpiling restrictions would mean less demand by the government from the farmers. As a result, the output would be less and the supply in the market would also be reduced. Thus, raising prices. It would also result in constraining agricultural commodity market.
  • For India, a permanent solution to the issue of public stockholding of foodgrain and discussions on a special safeguard mechanism will remain of primary importance at the upcoming ministerial conference in Argentina, later this year.

Conclusion:

  • It is imperative for the Indian government then, to prudently balance its role as one of the world’s biggest exporters and consumers of food grain, (of rice, sugar and wheat), while sticking on to its commitment to the poor of this country.
  • At the same time, it is also necessary for India to cut a winning bargain at the WTO bearing in mind the fact that with the food bill now a reality, procurement from small farmers will have to be stepped up (to 70 million tonne from 45 million tonne presently), which means minimum support prices will also go up, making it impossible for India to stick to AoA norms.

 

 

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