On February 26, 2024, the Samyukta Kisan Morcha (SKM) observed the Quit WTO Day, calling for India’s withdrawal from the World Trade Organisation (WTO). WTO obligations have been a point of focus and discussion in the country since India joined WTO in 1995.
This article presents an overview of the international obligations India has and the reasons behind the farm unions’ call for withdrawal from the organisation.
What is the World Trade Organisation?
The Organisation of a result of the Uruguay Round of Multilateral Trade Negotiations, signed in April 1994. The Uruguay Round was part of a prior multilateral trade agreement called the General Agreement on Tariffs and Trade (GATT). Essentially, a multilateral-meaning that it involves various nations- agreement called GATT was signed post World War II and it evolved into the Marrakesh Agreement of 1994 and thus establishing WTO.
What role does World Trade Organisation play?
As the name suggests, it works to establish and negotiate the rules of international trade and make sure that the rules are followed by the member states i.e., countries. For example, to make sure that products produced anywhere in the world have a minimum safety agreement, the Sanitary and Phytosanitary Measures Agreement is in place-putting minimum standards to work, across the world.
What are the agreements under the WTO Framework?
The WTO framework covers:
- Goods via the General Agreement on Tariffs and Trade and other multilateral agreements such as Agreement on Agriculture, Agreement on Subsidies and Countervailing Measures etc.
- Services via General Agreement on Trade in Services
- Intellectual Property via the Agreement on Trade Related Aspects of Intellectual Property Rights
How does WTO impact agriculture sector across the World?
WTO is primarily a pro-market framework which uses its stature and consensus mechanism to enforce a free market movement of goods including agricultural goods. This means that it wants agricultural goods to be imported and exported across the world according to the supply and demand, without any player distorting trade. The Agreement on Agriculture (AoA) is the primary instrument that guides the international trade framework for agricultural commodities. It has three pillars- domestic support, market access and export subsidies.
What do the three pillars mean?
First, AoA aims to phase out trade distorting domestic support.
For example, if Brazil supports its coffee farmers so much that the coffee it exports to the world can be sold at cheaper rates, farmers of other coffee producing countries like Vietnam will find it difficult to sell their coffee at reasonable prices since Brazilian Coffee is cheaper. If not for the Brazil government’s support to its farmers, both coffees would have competed on faired grounds in the international markers. Essentially, one of the aims of WTO vis-à-vis agriculture is to phase out those subsidies and such domestic support by the governments so that trade is not distorted.
Second, AoA is part of the framework which aims to regulate trade restriction such as tariffs on imports. Tariff is a tax or a duty that a country levies on the imports for allowing them to be sold in the country. It earns revenue to the state but also increases the price of the imported goods. Prior to WTO framework, countries used to restrict the amount of i.e., the quantity of goods that can come into country-called import quotas. This import Quota is called a Non-Tariff Barriers (NTB) since there is no tax/duty levied but the restriction is in not allowing the goods to be sold in the country in the first place. The WTO framework prohibits Non-Tariff Barriers in agricultural goods barring some exceptions.
Third, Export Subsidies are incentives that the government gives its exports and other such direct incentives-contingent on exports. This could be in the form of Direct Payments to exporters on the basis of volume of the goods exported, or in the form of Export Credit Guarantees where government provides insurance against non-payment of the foreign buyers for the exports. The WTO framework prohibits most subsidies linked to volume of exports except for LDCs.
Should governments not support their farmers?
According to the WTO framework, support is not prohibited but trade distorting support is. For example, under PM Kisan Samman Nidhi Yojana (PM KSNY), the Indian government assists eligible landholder farmers by providing them Rs.6,000 per year in three instalments. This is a direct benefit transfer, not conditional upon any crop farmer produces or the volume of the crop. There is no limit, under the international regime, on how much can be spent on PM KSNY. These types of measures that does not cause trade distortion, or involves funding research, training, marketing, promotion, infrastructure, domestic food aid etc. are called Green Box measures.
Then there are “trade distorting measures” such as the Minimum Support Price (MSP)-which is linked to production i.e., the more the farmer produces, the more money she gets. MSP is a product specific measure i.e., there exists a specific MSP for each eligible agricultural commodity and that MSP varies across commodities. However, other measures like fertiliser subsidy, seeds and electricity subsidy etc. are also supportive of the total production in the country. The total monetary value of both product specific and non-product specific measures is called the Aggregate Measurement of Support (AMS)-otherwise referred to as Amber Box. The commitment at the WTO by all nations is to reduce the amount of AMS.
Moreover, the total AMS should not be more than 10% of the total production value of the Agricultural Product, for developing countries and should not be more than 5% for the developed countries. For example, rice production in 2019-20 was $46.07 Billion and the subsidies in that year were $6.31 Billion which is 13.7% of the total value and a 3.7 % more than the De Minimis 10 percent. This is a breach of subsidy limit and questions have been raised by other countries on this breach.
Essentially, there is no limit on non-trade distorting support but with respect to trade distorting support, 10% of total agricultural production value.
How is Food Security related to WTO Agreement on Agriculture?
In India, for Food Security act purpose i.e., to distribute free or subsidised grain as food aid to the poor, procurement is done from the farmers at MSP. If a country needs such procurement to be done on higher scale, it will have to spend more on MSP, and this stands the risk of breaching the 10% De Minimis limit since MSP is a trade distorting measure. This was the prime discussion point in the WTO Ministerial Conference in 2013 and later culminated into the Bali Peace Clause.
The Bali Peace clause stated that no country would be legally barred from the food security programmes, for four years even if the subsidy breached the limits specified in the Agreement on Agriculture. Later, this peace clause secured an indefinite extension.
Why are farmers calling for a Withdrawal?
There are three issues of farmers that have been left unresolved for decades- one is a legal guarantee on the Minimum Support Price for all crops, the implementation of Comprehensive Cost of Production and 50% more as the formula for MSP, and a loan waiver. This means apart from the 24 crops for which MSP is in force today, more crops will have to be added. However, there is an impediment for such addition.
The MSP currently in force is covered by the combination of both De Minimis and the Bali Peace clause. However, the peace clause only extends to those MSP programmes that existed prior to 2013 and the programmes covering the new crops as the farmer demands will not be covered thus resulting in breach of WTO commitments.
Farmers are calling for a withdrawal since it would give India the liberty to provide as much as MSP to as many crops as needed without being under pressure from the WTO.
What is the government’s stand?
While the progress of talks/ discussions between the protesting farmers and the government has not been swift, India has made its stand clear, at the 13th Ministerial Conference of the WTO held in Abu Dhabi in February 2024, on the permanent solution to Public Stockholding and did not concede space in agriculture and fisheries over demands to reduce subsidies. However, it is important to note that the successive governments have been failing to achieve a permanent solution for the Bali Peace Clause despite agreeing to various agreements and proposals by the developed countries.
Conclusion
While it might not be practically possible to exit WTO or Agreement on Agriculture due to it potentially having a ripple effect on other WTO agreements involving other goods and services, it is necessary that WTO’s unfair system against the developing nations be resolved. For example, an American farmer gets a support of more than $7000 as support, an EU farmer gets $1000 as support whereas an Indian farmer $49 as support. This gap is possible due to the rules of WTO which favoured the mighty more when they were drafted. For example, if a developed country provided trade distorting support of $1 Billion in the base year of 1986-88, they were allowed an exemption of 5% of such $ 1 Billion. Developed countries have always provided high amounts of domestic support but the developing country let us say, was providing trade distorting support of only $100 Million, the 10% of such $100 Million will be lesser than 5% of $1 Billion. Therefore, the developing countries have been finding it hard to support their farmers like the developed countries do. With international cooperation and better alliances, India should position itself in a space to gain uncompromising and favourable outcomes for its farmers.
(The author is part of the organisation’s legal research team)
Related:
‘Kisan Mazdoor Commission’: will examine rising challenges for Indian farmers