Recent developments in WTO and food subsides in India

SUNIL KUMAR B.R20637

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content

• Introduction- WTO and agreements• Ministerial conference -Issues in agriculture• Trends in Indian subsidies and its composition• Trade distortions- effect of subsidies on other countries and

vice versa • Food subsidy• Conclusion

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World Trade Organization

• Established In 1995.• 1986-94 Uruguay Round – led to WTO’s creation.• WTO is the successor to the GATT.• GATT is now the WTO’s principal rule-book for trade in

goods.• Merchandise exports grew on average by 6% annually, Total

trade in 2000 was 22 times the level of 1950.• More than 300 cases in ten years-DSB.• The goal is to improve the welfare of the people of the

member countries.

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Functions of WTO

• It’s a negotiating forum

• It’s a set of rules

• It helps to settle disputes

• Assisting developing countries

• Cooperating with other

international organizations

• Reviewing national trade

policies

Principles of the trading system

• Non-discrimination.

• Reciprocity

• Binding and enforceable

commitments

• Transparency

• Safety valves

World Trade Organization

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MINISTERIAL CONFERENCES Ministerial conference Host city

Outcome

1st 9–13 December 1996, Singapore

Disagreements largely between developed and developing economies ,over "Singapore issues“Tradefacilitation,tradeinvestment,tradecompt.

2nd 18–20 May 1998, Geneva  trade negoatation.

3rd 30 November – 3 December 1999, Seattle, United States   Ended in failure,

4th 9–14 November 2001, Doha, Qatar

 The Doha Development Round was launched at the conference. The conference also approved the joining of China, which became the 143rd member of WTO.

5th 10–14 September 2003,Cancún, Mexico

 Aiming at forging agreement on the Doha round. An alliance of 22 southern states, resisted demands from the North for agreements on the so-called "Singapore issues" and called for an end to agricultural subsidies within the EU and the US. The talks broke down without progress.

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CONTD…

6th 13–18 December 2005Hong Kong

 In this meeting, countries agreed to phase out all their agricultural export subsidies by the end of 2013, and terminate any cotton export subsidies by the end of 2006. 

7th 30 November – 2 December 2009, Geneva 

 The general theme for discussion was "The WTO, the Multilateral Trading System and the Current Global Economic Environment".

8th15–17 December 2011,Geneva  Membership agreement where made

for Russia, Samoa, and Montenegro.

9th3–6 December 2013Bali, Indonesia

 159 members of WTO agreed to the Bali Package which eases barriers to international trade.

10th15–18 December 2015Nairobi, Kenya

 The completion of Afghanistan and Liberia's accession to the WTO will be on the agenda.

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MINISTERIAL CONFERENCES RELATED TO AGRICULTURE

Uruguay Round (1986)

Extending the trading system into many new areas, notably, service sector and intellectual property.

Uruguay Round Agreement aimed at discouraging trade-distorting domestic support, non-tariff barriers, and reducing direct export subsides,

Reform trade in sensitive sectors of Agriculture and textiles. It was proposed that Public procurement of Agro-products must

not exceed 10% of its total production value. considered as an anti-farmer proposal and hurts agrarian

economies.Uruguay Round mostly benefits the developed countries. (Participation gap).

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Doha Development Round(2001)

• Including negotiations, wide range of issues concerning developing countries.

• One focus of the Doha Round was the easing of agricultural product access into the WTO market by reaching agreement regarding three controversial agricultural themes: the reduction of tariffs on imported agricultural goods, the reduction of subsidies for exported agricultural goods, and the reduction of subsidies for domestic agricultural goods.

• The negotiations reached a deadlock, and continues to do so till date, between Developed countries and Developing countries, on the precise terms of a 'special safeguard measure' to protect farmers from imports of cheaper and better quality agro products from the developed countries.

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 Bali Round (2013)

• Includes provisions for lowering import tariffs and agricultural subsidies, with the intention of making it easier for developing countries to trade with the developed. 1st agreement by all.

• Covers food security in developing countries, Public Stockholding for Food Security Purposes.

• Measures for Least developed countries (LDCs) and developing countries, including preferential treatment and market access.

• Duty-Free and Quota-Free (DFQF) Market Access for Least-Developed Countries.

• The Bali and the General Council's November 2014 decision on public stockholding which gives protection to farmers has been reaffirmed.

Source: WTO

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Nairobi Round (2015)

• Developed countries immediately eliminate their remaining scheduled

export subsidy entitlements. Developing countries shall eliminate their

export subsidy entitlements by the end of 2018.

• The members of the global trade body agreed on a commitment for giving

the developing nations a right to take recourse to Special Safeguard

Mechanism to protect their farmers, which was a long-standing demand of

India.

• Phase out export subsidies on cotton; for developed nations immediately,

while it has been marked for developing countries not later January 1, 2017.

Source: WTO

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Clash between developed and developing Countries in Nairobi.

Contention of the Developing Countries

• India has expressed disappointment on removal of cotton subsidy altogether by 01 January 2017, and a few other provisions related to phasing out of export subsidies.

Contention of Developed Countries

• The biggest demand of the developed countries is to abolish agricultural export subsidies.

• The US and EU wants to launch new negotiations but a majority of WTO members want to continue with the Doha negotiations.

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India and WTO

• India enjoys the most favoured nation (MFN) status with all the other

members of the WTO.

• The GATT secretariat estimated that largest increase in the level of

merchandise trade in goods(clothing ,ag, fishery), India's competitive

advantage lies in these fields, obtain large gains.

• India's textile and clothing exports will increase due to Multi-fibre

Arrangement (MFA) .

• The multilateral rules and disciplines, favourable environment for India's

international business .

• The reduction in barriers to export of agricultural products, agricultural exports

from India will increase.

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Agreements Importance

Anti-Dumping charging extra import duty in order to bring its price closer to the “normal value” in the importing country.

Sanitary and Phytosanitary Measures Agreement(SPS)

It allows countries to set their own standards.

Technical Barriers to Trade(TBT) Aims to ensure that technical regulations, standards, and conformity assessment procedures are non-discriminatory and do not create unnecessary obstacles to trade. 

Trade-Related Aspects of Intellectual Property Rights(TRIPS)

Sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members.

Trade-Related Investment Measures (TRIM)

Rules that apply to the domestic regulations a country applies to foreign investors.

Agreement on Agriculture(AOA) 1.market access 2.domestic support 3.export subsidy

AGREEMENTS IN WTO

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History of AOA

• 1950- The idea of replacing agricultural price support with direct payments

to farmers .

• 1958- Haberler Report stressed the importance of minimizing the effect of

agriculture subsidies on competitiveness and recommended replacing price

support with direct supplementary payments

• 1980- government payments to agricultural producers in industrialized

countries had caused large crop surpluses .

• 1986 GATT Ministerial Conference in  Uruguay, farm lobbies in developed

countries strongly resisted compromises on agriculture.

• The idea of exempting production and "trade-neutral" subsidies from WTO

commitments was first proposed by the United States and EU.

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Agreement on Agriculture (1995)

• The Uruguay Round marked a significant turning point in world trade in agriculture.

• The products-normally considered as part of agriculture except that it excludes

fishery and forestry products.

• Aims:

• Fair and market oriented trading system .

• Commitments on support and protection reduction.

• Operationally effective GATT Rules & Disciplines.

• Commitment to Equitable Trade Reform process.

• Greater opportunities and Terms of Access to Developing countries.

• Concern for LDCs.

• Concern on Non-trade issues such as Food Security, environment, health, etc.

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Pillars of AOAMarket Access Domestic Support Export Subsidies

Converting NTBs into tariff barriers

subject to reduction commitments.

Subsidies promoting foreign trade.

36% average reduction by developed countries, with a minimum per-tariff line reduction of 15% over six years.

Europe and the United States to spend billion $ a year on agricultural subsidies.

Reduced by: 20% in developed countries13.3% in developingcountries.

Value of subsidyBy 36% over 6 years for developed countries.By 24% over 10 years for developing countries.No reductions for least developed countries

24% average reduction by developing countries with a minimum per-tariff line reduction of 10% over ten years.

Green box ,Blue box, Amber boxCauses dumping in poor countries.

Quantity of exportBy 21% over 6 years for developed countries.By 14% over 10 years for developing countries.No reduction for least developed countries

SOURCE: WTO

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12%

31%

51%

66%

114%

62%

0%

20%

40%

60%

80%

100%

120%

Current

US EU Japan Korea India Global

Market Access current statusAverage Agriculture Tariff

us

EU

japan

Korea

India

global

SOURCE: WTO

Agriculture: Proposals for market access Market Access: Average Ag Tariff

12%3% 5% 6%

31%

6% 9% 13%

51%

7% 12% 15%

66%

14%

29% 29%

114%

28%

70% 70%

0%

20%

40%

60%

80%

100%

120%

Current U.S. Proposal G-20 Proposal EU Proposal

US EU Japan Korea India

SOURCE: WTO Hong Kong ministerial conference

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Post WTO trade scenario for major commodities and future strategy for India

products Trade scene Main factor Future strategy

Rice Export adverselyaffected; Importthreat

Increased competitionfrom developing countrieslike Vietnam, ThailandLow prices and subsidies

Improved competitivenessdomestic production

Wheat Export adverselyaffected; ImportThreat

Low prices and subsidiesand support in EU and US

Seek elimination of exportsubsidies and domesticsupport in OECD

Oilcake Export adverselyaffected

East Asia crisis and GMvarieties in USA, Argentinaand Brazil; Subsidies in USA

Improved varieties of oilseedsparticularly soybean; Seekreduction in subsidies in USA

Sugar Export adverselyaffected

Subsidies in EU and USA Seek elimination of exportsubsidies and domesticsupport in EU and USA

Cotton Export adverselyaffected; Importsincreased

Decline in domesticproduction and subsidiesin USA

Seek elimination of domesticsupport in USA; Technologiesto compete with Bt cotton

Source: www.wto.org

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GREENBOX • minimum trade distortion• subsidies allowed

Public funded government programmes

• research• extension• food security• disaster management• control of pests & diseases• structural adjustments Etc.

BLUE BOX • minimum trade distortion• subsidies allowed• such payments are made on

85 percent or less of the base level of production

Public funded government programmes

• Production limiting programmes• Participation in insurance• Income safety net programmes

AMBER BOX • trade distortion• subsidies NOT allowed

beyond specific level.• Given up to-Developed

countries less than 5% of total value of agricultural production, developing countries 10% and L D C no bar

subsidies a country can give to its farm sector.Product Specific: Seeds, fertilizers, irrigation, pesticides, electricity, credit.Non-Product Specific: Minimum support price

Domestic support

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0102030405060708090

100

U.S. EU - 25 Japan

Domestic Support – amber box:

Billion $ at current ratesSOURCE: WTO HONG KONG MENISTERIAL CONFERANCE

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Subsidies offered as % in total value of agricultural products by various countries (2012-13)

Country % share of subsidy in total value of agricultural products

Japan 72.5Columbia 54.0S.Korea 61.0Europe 37.0China 34.0Pakistan 26.0USA 28.8INDIA 03.0

Source: www.wto.org

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Export prices of primary agricultural commodities in post WTO period (1995=100)

Source: WTO International Trade Statistics 2006

1995 1996 2000 20050

20

40

60

80

100

120

140

CEREALSFISHSHRIMBEVERAGESSUGARCOTTON

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Export Subsidies

EU(over $2 billiona year)

Other3.0%

U.S.1.8%

Switzerland6.4%

Norway3%

EU87.8%

Source: www.wto.org

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Impact on Indian Agriculture

• India gains when?-As reduction in domestic support and export subsidies in the developed countries leading to substantial gains to the producers in developing countries.

• Apart from direct price effect there is lagged effect through agricultural wages and employment (Winters, 2002).

• In rice where the level of input subsidy is high, free trade would not be sufficient to counter the adverse impact on income due to withdrawal of subsidies.(Chand1999).

• The total Product Specific AMS continues to be negative and  the Non-Product specific AMS is also well within the de minimis level i.e. 4.85% in the base year 1986-88. 

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• India is one of the six countries who has been maintaining quantitative

restrictions (QRs).Items including 147 agricultural products have been

removed on 1st April, 2001.  While the removal of QRs has not changed

the overall rate of growth of imports or even their composition. 

• The experience of the implementation of AoA reveals that the world

prices of food products have been steadily declining threatening the

livelihood of producers in many developing countries.

Conti…

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Special Products in the WTO

• Developing countries are permitted untargeted subsidised food

distribution to meet requirements of the urban and rural poor.

Safeguarding domestic food production capacity an essential

component of food security strategies .

• Special products are self-designated agricultural products that have

flexibility in reduction commitments based on the criteria of food

security, livelihood security and rural development needs.

• As a result designation some of the agricultural products as Special

products .

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• Allowing self-designation of SPs, the developing countries would gain the

legitimate right to safeguard their agrarian interest.

• Special safeguard mechanism: Right of certain developing countries to impose

additional duties on imported agricultural products to make them more expensive in

the local market.

• In 2004 Special Products the new devices for developing countries, adopted in the

framework of AoA.

• the developing countries would accrue Benefits by designating an appropriate

number of special products based on,

1.Food Security,

2.Livelihood Security and

3.Rural Development needs.

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Benefits from SP

• As contribution of agriculture to GDP and employment in developing countries provision of SPs would protect the agriculture.

• Special Products would support domestic production.

• The designation of SP product is one of the crucial development instruments in trade for the developing countries.

• Designation of the special products should be based on the particular country’s strategy of development

• A pilot study is necessary before the designation of SPs.

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Food subsidy

• Food prices play an important role in the well-being of the poor and poverty

reduction in developing countries.

• Therefore, government interventions in food grains markets have existed in

one form or another for several decades

• small food price increases may adversely affect the ability of poor

consumers to meet their basic needs.

• food subsidies are needed to protect the welfare and nutritional status of the

economically disadvantaged people.

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Food subsidy as percentage of agricultural GDP

SOURCE: Economic survey, 2015-16

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Cost of Food Subsidy

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16*

0

20,000

40,000

60,000

80,000

100,000

120,000

Amount

Amount

Source: economic survey, 2015-16

• food subsidies are under increasing criticism because of their large impact on government budget deficits.

• benefits often do not reach the poor.• Food subsidies an increase of over 25 times in 21 years• As a percentage of agricultural GDP, the food subsidy

increased from 1.8 per cent to 5.8 percent during 1991-92 and 2010-11.

• The difference between the Economic Cost and the Central Issue Price is reimbursed by the Government of India as consumer subsidy to the Food Corporation of India (FCI).

CONTD…

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Source: GoI (2012c)

• Source: GoI (2012c)

Source: GoI (2012)

CONSUMER SUBSIDY IN WHEAT

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PERCENT SHARE OF SUBSIDY IN TOTAL BUDGET

SOURCE: http://www.thehindu.com/business/budget/budget-2016

IARI 36Source: http://www.thehindu.com/business/budget/budget-2016

IARI 37Source: http://www.thehindu.com/business/budget/budget-2016

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Reasons for increase in food subsidy

• steep rise in minimum support/procurement prices,• Accumulation of large stocks of grains• rising economic costs of food grains, • high off take of food grains under targeted public

distribution system and other welfare schemes.• inefficient functioning of Food Corporation of India.

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Policy Options for reducing Food Subsidies

• Decentralized Procurement: Promote Public-Public and Public-Private Partnership.

• Stop Open-ended Procurement of Food grains• Periodic Increase in Central Issue Price.• Reduction in Procurement Incidentals and

Distribution and Carrying Costs.

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Complainant Respondent Problem Remarks

India Turkey Restrictions on Imports of Textile and Clothing Products

Turkey agreed to:remove the quantitative restrictions it applies on textile categoriesof imports from India.

India European Communities

Restrictions on Certain Import Duites onRice.

EC Regulation establishing a so called cumulative recovery system (CRS), for determining certain import duties on rice

India European Communities

Anti Dumping Duties on Imports ‐of Cotton typeBed Linen from India

Panel investigating EU for limiting its examination in this investigation

Some agricultural disputes

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Complainant Respondent Problem Remarks

India Brazil Anti Dumping Duties on ‐Jute Bags from India

the determination to continue the anti‐dumping duties allegedly nullifies and impairs benefits accruing to India under, or otherwise impedes the attainment of objectives of, the cited agreements.

United States India Patent Protection for Pharmaceutical and AgriculturalChemical Products

DSB meeting of 22 April 1998, the parties announced that they had agreed on an implementation period of 15 months from the date of the adoption of the reports.

United States India Measures Concerning the Importation of Certain AgriculturalProducts-United States concerns related to Avian Influenza

India to implement the DSB recommendations and rulings shall be 12 months from the date of adoption of the Appellate Body and panel reports. cause they are not “based on” the relevant international standard

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Conclusion

• Agriculture should be subjected to world competition, but domestic policy support must continue.

• Implementation of WTO would have a mixed impact on net social welfare of India.

• In conclusion, let us remember the quote from our eminent agricultural scientist, Dr M S Swaminathan, “India should ensure that all boxes in the WTO must be abolished, and trade distortion, and unfair practices must be spelt out clearly and factors governing sustainable livelihood should be recognised so that resource- poor, developing countries should be able to place restrictions on imports.”

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Cont..

• India does not provide any export subsidy except the permissible internal and international transport subsidies and handling and processing charges to reduce marketing costs of exports of agricultural produce.

• The removal of QRs has not changed the overall rate of growth of imports or even their composition. 

• It was also done to catch up with the rising global prices and to compensate the farmers with increasing cost of production.

• Raising the level of productivity and quality standards to internationally competitive levels is one of the major challenges following the dismantling of quantitative restrictions on imports, as per the WTO Agreement on Agriculture.

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