Govt mulls WTO inflation escape clause for farm support

Examining clauses which could allow it the freedom to offer subsidies currently prohibited under global trading rules

A high rate of inflation is not always bad for emerging economies like India. Apparently, the government is mulling the option of exercising the exemption such countries already have within the Agreement on Agriculture (AoA) under the World Trade Organization (WTO), in the event the proposed ‘peace clause’ is not agreed upon during the ministerial conference scheduled in Bali (Indonesia) on December 3-6.

Voices against the so-called ‘peace clause’ or ‘due restraint clause’ have risen as the WTO ninth ministerial conference (MC9) nears. The government, though, is also examining other clauses which allow it the freedom to offer those subsidies currently prohibited under global trading rules, a source involved in the talks told Business Standard on condition of anonymity.

Article 18.4 of the AoA stipulates: “Members shall give due consideration to the influence of excessive rates of inflation on the ability of any member to abide by its domestic support commitments.” It states the subsidy given by a country in a particular year will be calculated on the difference between the minimum support price (MSP) or administered price and the notified external reference (ERP) prevalent in 1986-88.

WHAT THE RULE BOOK SAYS

• Article 18.4 of the Agreement on Agriculture under the WTO stipulates: “Members shall give due consideration to the influence of excessive rates of inflation on the ability of any member to abide by its domestic support commitments”
• It states the subsidy given by a country in a particular year will be calculated on the difference between the minimum support price or administered price and the notified external reference prevalent in 1986-88

Anwarul Hoda, chair professor, ICRIER Trade Policy, said: “The MSP has increased by a little over 500 per cent since then, due to high rates of inflation. Originally, India notified its ERP in rupees but then changed to the dollar in subsequent notifications. Also, since 2003-2004, India has not been notifying its subsidies. So, it might be possible that unlike what is perceived, India has not breached the 10 per cent level (stipulated for this purpose).” Hoda was deputy director-general of WTO from 1993 to 1999.

Pradeep Mehta of CUTS, a trade policy advocacy body, agrees. He thinks all the controversy surrounding the ‘Peace Clause’ is unnecessary when India can get a respite for its farmers within the existing rules.

Presently, developing countries can provide subsidies that are limited to 10 per cent of the production value under WTO norms. It is feared that India, China and Brazil are in danger of breaching this level. As a result, a sort of interim measure or a ‘peace clause’ is being worked out at the WTO headquarters of Geneva, to be discussed by all 159 member-countries during MC9.