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.
- 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.
- 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.