On India’s Violation of WTO’s Agreement on Agriculture (AoA)

Source: This post on India’s Violation of WTO’s Agreement on Agriculture (AoA) has been created based on the article “India’s fight for food security at WTO” published in “Business Standard” on 23^rd January 2024.

UPSC Syllabus Topic: GS Paper 3 Agriculture – Issues related to direct and indirect farm subsidies and minimum support prices.

On India’s Violation of WTO’s Agreement on Agriculture, The article discusses the complaint against India breaching WTO’s AoA limits. It also highlights why AoA is discriminatory against developing countries and what India should do in this regard.

A detailed article on WTO reforms and India can be read here.

Background:

The 13th Ministerial Conference of the World Trade Organization (WTO) will be held in Abu Dhabi next month.

India’s main focus at this conference will be to defend its right to purchase food grains from its farmers at minimum support prices (MSPs) without violating the WTO’s Agreement on Agriculture (AoA) rules.

What is The Complaint Against India?

India breaching AoA limits: The AoA permits price support up to 10% of the market value of a product in developing countries (like India). In 2020-21, India’s price support for rice rose to about 15%.
However, the US and other countries claim that India’s support is much higher, around 94%. This high level of support has led to India becoming the top rice exporter, holding 40% of the global market share.

What is The Calculation Methodology for MPS Adopted Under WTO’s AoA?

Market Price Support or MPS is the gap between a fixed external reference price and the applied administered price multiplied by the production quantity eligible for the MSP.
For instance, the AoA uses a fixed external reference price of $262.51 per tonne to calculate price support for rice. This price is based on the export or import price of rice from 1986 to 1988 and remains unchanged.

Why does The Issue of Different Calculations of MPS Arise?

The flawed methodology of the AoA causes the significant difference in Indian and US calculations of MPS. This is due to:

1. Definition of Eligible Production: The AoA defines “eligible production” as the amount of produce that is entitled to receive MSP, regardless of whether it was actually bought. However, India considers the quantity actually bought under MSP.
2. Incorporating Currency Exchange Rates: The AoA does not specify that calculations must be in a specific currency. India calculates its subsidy figures in US dollars, benefiting from the weakening INR. However, the US argues otherwise.
3. Unchanged Reference Point: Comparing the MSP with a 35-year-old reference price (1986-1988) results in a higher calculated subsidy share for developing countries (since the benchmark of support provided by developed countries was already high in 1986-88).
   As a result, the US and the EU today offer over 50% and 65% support and still comply with AoA rules. However, India is considered non-compliant for providing 15% price support.

This makes the AoA discriminatory against developing countries

Want To Know More Topics-

On Expanding Social Security

Third Globalisation and India

What Should be The Way Forward for India?

1. MSP as Green Box: India should seek the classification of MSP programme as “Green Box” support. This would exempt it from obligations to reduce support levels.
2. Higher Production Targets: India can consider setting higher production targets for some crops and limit its support to only 75% of the output. This strategy fits into the AoA’s Blue Box category.
3. Expand Team of Experts: India currently has fewer specialists focusing on agricultural trade issues compared to other countries.

Question for practice:

What is the complaint against India regarding breaching of WTO’s AoA rules? How are the AoA rules discriminatory against developing countries?