Peace clause at WTO

India’s notification to the WTO on breaching the prescribed subsidy limit for its public stockholding programme for rice has raised questions.

Some countries have sought an explanation over a difference of seven million tonnes between the available and actual stocks in 2020-21.

Background –

• The term ‘peace clause’ has been a cause of disquiet ever since India dug in its heels on the issue of domestic food security.
• The major discussion around this clause is the question:
  • • Should the WTO have a say in India’s policy of buying foodgrain at a fixed price from farmers and supplying it below cost to the poor?
• The stockholding programmes are considered to distort trade when they involve purchases from farmers at prices fixed by the governments.
• Normally the support is within the agreed limits but some countries fear this might not always be the case.
  • • These countries fear that this could breach the limits they have agreed on trade-distorting domestic support — ie, support that influences prices and quantities.

What is ‘Peace Clause’?

• The ‘peace clause’ said that no country would be legally barred from food security programmes even if the subsidy breached the limits specified in the WTO agreement on agriculture.
  • • Subsidy ceilings fixed by WTO stands at 10 per cent of the value of food production in the case of India and other developing countries.
• It was in Bali in 2013, but with conditions added to deal with fears that stockholding programmes involving purchases at supported prices could affect other countries.
• Governments seeking the shelter of the peace clause have to —
  • • avoid distorting trade or impacting other countries’ food security, and
    • provide information to show they are meeting those conditions.
• This ‘peace clause’ was expected to be in force for four years until 2017, by which time members hoped to find a permanent solution to the problem.

Background –

• In June 2022, the US and other WTO Members announced that they are initiating consultations with India on their trade-distorting rice subsidies.
• Issue raised by these countries —
  • • Much of India’s exported rice benefits from the government-established floor price, and then exported at low prices, distorting trade. India makes up nearly half of global rice trade.
    • According to its notifications, India’s market price support for rice totalled approximately $5 billion in 2019, $6.32 billion in 2020, and jumping to $6.9 billion in 2021.
    • Based on India’s reported values of production — $43.67, $46.1, and $45.6 billion, respectively — the support levels have been 11.46, 13.71, and 15.14 percent, exceeding the 10 percent de minimis limit.
    • However, actual support is likely much higher – more than 80 percent.
    • This is because India only includes actual procurement, not total production, in its calculations, contrary to WTO rules and precedent.

India’s response –

• India is the only country to notify the breach —
  • India agrees they exceeded their de minimis limits for rice subsidies in the three years.
  • It has claimed shelter from a WTO dispute settlement challenge under the ‘Bali Peace Clause.’
    • This clause protects India’s food procurement programmes against action from WTO members in case the subsidy ceilings are breached.
    • India had earlier invoked the clause for 2018-19, when it became the first country to do so.
• The reported gap is due to damages —
  • The government has told the agency that the gap of around $2.6 billion was on account of damages due to multiple factors, including pollution and moisture.
    • The procurement agencies purchase paddy. Around two-thirds of the paddy that is procured is milled into rice.
    • Government officials have argued that this could be a major reason for the gap.
  • It has dismissed suggestions that rice procured by government agencies for public distribution has been diverted or routed for exports.