Explained: How Farm Laws Will Help India’s WTO Compliance

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ABC research team concluded that the three newly enacted farm laws will provide additional legitimate scope to India for enlarging its Domestic Support window and would enhance India’s position in geopolitics as food has become one of the top geopolitical agendas.

New Delhi (ABC Live India): The Indian Government led by Prime Minister Narendra Modi nowadays is facing a tough protest by the farmers of the nation after it enacted the three farm laws in the month of September, 2020.

The Government and the agitating farm unions have held 10 rounds of meetings which has not yielded any result till now.

The main demand of the farmers is that the government has to repeal all the newly enacted farms law. Whereas, the government has made its stance clear to the farmers that they can amend the law but cannot roll it back.

After 10 rounds of negotiations, the incident of January 26, 2021 happened, this completely derailed the negotiation process between the government and the farmers. Moreover, the centre stage of farmer protest also shifted from Singu Border (Haryana & Punjab) to Gazipur Border (Uttar Pradesh).

After looking into the above said firm stance of the government and the farmers, it is crystal clear that both sides have their compulsions and limitations thus, leading to a  wait and watch scenario. However, this indecisiveness especially on the part of the government many raised a question that if the government is ready to suspend the three enacted law for 18 months and also agreed to amend the same then  why is it not ready to repeal these laws?

The ABC Research Team investigated on what would be compulsions/limitations of the government which forced it to enact the three farm laws hastily. Thereafter, taking a firm stand of not repealing these laws even at cost of political loss.

It is pertinent here to mention that farmers are one of the largest blocks in the Indian politics and no one in this countrycan take a risk to be branded as ‘Anti-Farmers’.  It is strange that even then the government led by Mr. Modi has taken firm stand on the three farm laws.

The ABC Research Team began with finding out the genesis of the three new farm law enacted by the parliament of India in the month of September 2020 (amid COVID-19).

As per the ABC research report, majority of laws in India are enacted as a part of the country’s obligation towards the International conventions or agreements. Thus, our research team focussed on India’s commitment towards the World Trade Organisation in the agriculture sector.

As per WTO official records, India has been a WTO member since 1 January 1995 and a member of General Agreement on Tariffs and Trade (GATT) since 8 July 1948.

It is pertinent here to note that the WTO officially commenced its operations on 1 January 1995, pursuant to the 1994 Marrakesh Agreement, replacing GATT, which was established in 1948.

The WTO’s agreement on agriculture was concluded in 1994, which was aimed to remove trade barriers, promote transparent market access and integration of global markets.

During our research we found a very relevant write-up on WTO’s Agreement on Agriculture (AoA). This agreement is a highly complicated legal document, often criticized as a tool in hands of developed countries to exploit developing/least developed countries.

In simple words the agreement on agriculture has three basic features domestic support, market access, and export subsidies.

Domestic support in agriculture

In WTO’s terminology, the subsides provided are identified with three colour boxes viz. Green box subsidies, Amber box subsidies and Blue box subsidies.

Green box subsidies

The subsidies which don’t distort the trade are placed under Green box subsidies. Examples of such subsidies include those given on research funding; environment protection; domestic food aid; disaster relief; farmer training programmes; pest and disease control programmes etc. The WTO agreement does not put any limit on such subsidies.  Therefore, any country can provide as many of these subsidies as it wants subject to the conditions that these subsidies should be government funded and must not involve price support.

Amber box subsidies

Amber box subsidies are those subsidies which alter the international trade by making products of a particular country cheaper in comparison to same product of another country. Examples of such subsidies include input subsidies such as electricity, seeds, fertilizers, irrigation, minimum support prices etc.

Blue box subsidies

Blue box subsidies are also analogous to amber box but they are likely to limit the production. For example, subsidy on minimum support price will increase with production, so it would be placed in amber box. But, at the same time subsidy provided on area of farms will not increase with production. Thus, a subsidy that would be placed in amber box normally would be placed in blue box if that support also requires limiting their production.

Issues around Aggregate Measurement of Support (AMS)

Under the WTO provisions, developed countries are allowed to provide amber box subsidies to upto 5% of their agriculture production from 1986 to 1988, while the developing countries are allowed to provide such subsidies up to 10% of their agriculture production from 198 to 1988.

However, the aggregate amount of such subsidies provided by developed countries is much higher than developing countries mainly because of two reasons. Firstly, the developed countries have been using Green box subsidies (no limits) to such an extent that it artificially increases the production and effectively distorts the trade. 

Secondly, most developing countries like as India, China and others will exhaust their resources much before reaching at a stage which has been described under WTO as de minimus. Thus, India-China document calls the AMS as trade distorting and calls for its elimination.

De-Minimis provision

Under this provision developed countries are allowed to maintain trade distorting subsidies or ‘Amber box’ subsidies to level of 5% of the total value of agricultural output. For developing countries this figure is 10%.

So far India’s subsidies are below this limit, but it is growing consistently. This is because MSP is always revised upwards whereas market prices have fluctuating trends. In recent times where a crash in international market prices of many crops is seen, government doesn’t have much option to reduce MSP drastically. By this analogy India’s amber box subsidies are likely to cross 10% level allowed by de Minimis provision.

Bali Ministerial Meet and ‘Bali Package – Trade Facilitation and Peace Clause’ – 2013

The Bali Trade facilitation was agreed by all nations for adjustments/adaptations to limits under Agreement on Agriculture (de minimis provisions); a ‘Peace clause’ was agreed at. Peace clause gave countries a 4 year time to adjust to this limit and avoid sanctions. The date of ratification of the Bali agreement was 31 July, 2014, on which India declined to ratify unless a ‘permanent solution’ is reached. After this, in November, India – US reached an understanding in which time limit of 4 years was removed and in return Trade Facilitation was agreed to by India.

 ‘Trade facilitation deal’ was marketed by developed countries as a progressive and much needed deal for the greater good of all type of nations. It is being said that it will boost up Global GDP by $ 1 Trillion and will add millions of new jobs.

India started reporting to WTO Committee on Agriculture in year 1998, which is duly inscribed in its Notification No. G/AG/N/IND/1 dated 17 June 1998 wherein it is stated that, “India does not provide any product-specific support other than market price support. There is, therefore, no information to be given relating to equivalent commitments, direct payments.” Further notification says that, “In 1995-96, as also during the reference period, India had market price support programmes for 22 products, out of which 19 are included in the list. Three relatively minor crops viz. ragi, safflower, and sunflower seed are not included in the list, as due to inadequacy of data it has not been possible to calculate the relevant product-specific support”

The meaning thereby that India until 1998 was giving minimum market price support for 22 products including wheat and rice which are the current contentious crops for present farmer’s agitation. The amount of the domestic subsidies provided by India then was under the prescribed limit of 10% of the total agricultural produce.

In the WTO Domestic Support Notification No. G/AG/N/IND/7 dated 09/06/2011, India again reiterated that domestic support commitments (minimum market price support for 22 agriculture products including wheat and rice) is under the permissible limit under De-Minimis provision of the Agreement on Agriculture.

Further, the WTO Domestic Support Notification No. G/AG/N/IND/10 dated 10/09/2014 also says that India’s domestic support commitments for the marketing years 2004 to 2011 were less than 10 % of its total agriculture produce.

Notably, in the WTO Notification No. G/AG/N/IND/11 dated 13/07/2017 it was confirmed that India gave USD 2,647.39 Million for MSP to Rice growing farmers and USD 117.76 Million for MSP to Wheat Growing farmers under De-Minimis provision for the marketing years 2011 to 2014.

A WTO Notification No. G/AG/N/IND/12 dated 01/05/2018 states that India gave price support of USD 4310.62 Million to Rice growing farmers, USD -1623.62 Million to Wheat Growing farmers, USD 323.06 Million for Cotton growing farmers and USD 92.25 Million for Pulses growing farmers under De-Minimis provision for the marketing years 2014 to 2016.

The WTO Notification No.G/AG/N/IND/13 dated 20/07/2018 for the marketing year 2016-2017 says that India gave price support of USD 2,524.19 Million to Rice farmers, USD -841.15 Million to Wheat farmers, USD 397.67 Million for Pulses under De-Minimis provision.

The WTO Notification No. G/AG/N/IND/15 dated 29/03/2019 for the marketing year 2017-2018 affirmed that price support to Rice farmers increased from USD 2,524.19  Million to 3,745.04 Million, for wheat it rose to USD 159.68 Million  from USD -841.15 Million and for pulses furthered to USD 792.22 Million.

The WTO Notification No. G/AG/N/IND/18 dated 31/03/2020 for the marketing year 2018-2019 affirmed that price support to Rice farmers increased from USD 3,745.04 Million to 5,004.97 Million for wheat it came to USD -30.53 Million from 159.68 Million and for pulses furthered to USD Million 952.54

The WTO Notification No.G/AG/N/IND/19 dated 31/03/2020 wherein India placed on records the new or modified domestic support measures exempted from reduction and recorded an amount of USD 21632.51 Million invested in following schemes;

  • Pradhan Mantri Fasal Bima Yojana (PMFBY)
  • Pradhan Mantri Krishi Sinchayee Yojana (PMKSY)-Per Drop More Crop   (PDMC)
  • Rashtriya Krishi Vikas Yojana (RKVY)
  • National Mission for Sustainable Agriculture (NMSA)
  • Mission for Integrated Development of Horticulture (MIDH)
  • Integrated Scheme for Agricultural Marketing (ISAM)
  • National Mission on Agricultural Extension and Technology (NMAET)
  • Public Distribution System
  • National Livestock Mission
  • Promotion of Agricultural Mechanization for in-situ management of Crop Residue
  • Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)

India’s Compliance Track Records for reduction in Domestic Support for Agriculture Sector

It is pertinent here to mention that India filed first compliance report to WTO in year 2009 and since then India is filling this report annually. 

The WTO Compliance Notification Obligations No. G/AG/GEN/86/Rev.1 dated 18/11/2009 for marketing year 2004 to 2008 confirmed that India had complied provision of AOA regarding the reduction of domestic support for agriculture as agreed upto marketing year 2003.

The WTO Compliance Notification Obligations No.G/AG/GEN/86/Rev.4  dated 17/11/2010 for marketing year 2004 to 2009 confirmed that that India had complied provision of AOA of reduction of domestic support for agriculture as agreed upto marketing year 2003.

The WTO Compliance Notification Obligations No.G/AG/GEN/86/Rev.8 dated 16/11/2011 for marketing year 2004 to 2010 confirmed that that India had complied provision of AOA of reduction of domestic support for agriculture as agreed upto marketing year 2003.

The WTO Compliance Notification Obligations No.G/AG/GEN/86/Rev.12 dated 02/11/2012 for marketing year 2004 to 2011 confirmed that India had complied provision of AOA of reduction of domestic support for agriculture as agreed upto marketing year 2003.

The WTO Compliance Notification Obligations G/AG/GEN/86/Rev.15 dated 13/09/2013 for marketing year 2004 to 2012 confirmed that India had complied provision of AOA of reduction of domestic support for agriculture as agreed upto marketing year 2003.

The WTO Compliance Notification Obligations No G/AG/GEN/86/Rev.19 dated 03/11/2014 for marketing year 2004 to 2013 confirmed that confirmed that India first time reported on the Compliance for Domestic Support (DS-1) that it had complied provision of AOA of reduction of domestic support for agriculture by 89% as agreed upto marketing year 2010.

The WTO Compliance Notification Obligations No. G/AG/GEN/86/Rev.22 dated 09/09/2015 for marketing year 2004 to 2014 confirmed that India had complied provision of AOA of reduction of domestic support for agriculture by 84% as agreed upto marketing year 2010.

The WTO Compliance Notification Obligations No. G/AG/GEN/86/Rev.26 dated 28/10/2016 for marketing year 2004 to 2015 confirmed that India had complied provision of AOA of reduction of domestic support for agriculture by 80% as agreed upto marketing year 2010.

The WTO Compliance Notification Obligations No. G/AG/GEN/86/Rev.29 dated 06/10/2017 for marketing year 2004 to 2016 confirmed that India had complied provision of AOA of reduction of domestic support for agriculture by 90% as agreed upto marketing year 2013.

The WTO Compliance Notification Obligations No. G/AG/GEN/86/Rev.33 dated 16/11/2018 for marketing year 2004 to 2017 confirmed that confirmed that India had complied provision of AOA of reduction of domestic support for agriculture by 100% as agreed upto marketing year 2016.

The WTO Compliance Notification Obligations No. G/AG/GEN/86/Rev.36 dated 18/10/2019 for marketing year 2004 to 2018 confirmed that confirmed that confirmed that India had complied provision of AOA of reduction of domestic support for agriculture by 100% as agreed upto marketing year 2017.

In year 2020 the WTO in its Compliance Notification Obligations No. G/AG/GEN/86/Rev.37 dated 13/03/2020 confirmed that confirmed that India lost the status of 100% compliant country regarding reduction in domestic support for agriculture products as its compliance for domestic support had come down to 96% .as India reported the compliance till 2017.

The second WTO notification dated 15/07/2020 affirmed that India regained the status of 100 percent compliant country as it updated WTO upto 2018 regarding reduction in domestic support for agriculture products.

The third WTO notification of year 2020 dated 19/11/2020 stated that India still maintained the status of 100 percent compliant nation as far as reduction in domestic support for agriculture products was concerned.

Conclusion

After careful analysis of above mentioned WTO Domestic Support and Compliance notifications, ABC research team concluded that India is giving a Minimum Support Price (Domestic Support) for 22 agriculture products including rice and wheat since the time when India joined WTO in year 1995.

The level of these subsidies in shape of Minimum Support Price have remained within the prescribed limit as provided in De-Minimis clause of WTO Agreement on Agriculture, i.e. 10 percent of total agricultural produce of corresponding year till 2019.

Further, the ABC research report revealed a crucial fact regarding rising amount of domestic support provided to Indian Farmers in the shape of Minimum Support Price for 22 agriculture products since 2011-14. During these reporting years, India provided MSP of USD 2765.15  Million which increased to USD 4696.94 Million for the marketing year 2017-2018 and further hiked to USD 5957.51 Million in year 2018-2019.

It is noteworthy that India has reported a negative domestic support of USD -1623.62 Million to Wheat Grower farmers for marketing Years 2014 to 2016, USD -841.15 Million for 2016-17 and USD -30.53 Million for years 2018-2019 in reference to peace clause agreed at the 2013 Bali Ministerial Conference.

The ABC research report further disclosed that India spends highest on Minimum Support Price for rice, followed by wheat and the pulses respectively and India has reached to the optimum level of prescribed limit of 10 percent of its total agriculture production in marketing years 2018-2019 under De-Minimis clause.

Now onwards it would be difficult for India to keep the domestic support under De-Minimis as provided in WTO pact under 10 percent for a much longer period. So, India requires an urgent tool which can provide an extra window for domestic support.

The above stated WTO compliance notifications of 2020 unambiguously established the fact that after India ratified the WTO Agreement on Trade Facilitation (TFA) in April 2016, the compliance has increased significantly specially in the case of Domestic Support obligations.

As on 16/11/2018, India achieved 100 % Domestic Support Compliance, which further continued in next year but came down to 96 percent on 13/03/2020.(Just before COVID-19 lockdown in India was imposed).

India regained status of 100 % Domestic Support Compliant nation on 15/07/2020(During COVID-19 pandemic) which it maintains as such till date.

How India regained and Maintained 100 % Domestic Support Compliance?

As reported above India has reached at the verge of cross the permissible limit under De-Minimis provision of WTO pact (10%).

In the latest WTO Notification No. G/AG/N/IND/18 dated 31/03/2020 for the marketing year 2018-2019, and in some earlier years India utilized the peace clause for bringing the subsidies provided to wheat growing farmers in the shape of Minimum Support Price under De-Minimis provision. Also, India was able to update WTO only upto year 2018 regarding reduction in domestic support for agriculture products.

The ratification of Agreement on Trade Facilitation mandates India for complying its obligations as per WTO pact and by complying 100 % domestic support obligations, India will be in a position to have an equal footing as the developed nations in WTO.  Therefore, India can think of taking specially designed benefits for developed counties under WTO’s various provisions, which no other developing country could achieve without 100 percent compliance of the Domestic Support obligations.

After 13/03/2020, when India’s Domestic Support Compliance status came down to 96%, the Government of India promulgated three Farm ordinances in the month of June, 2020, and filed second compliance report of 2020 in WTO duly reflected in  WTO notification dated 15/07/2020.

In the Month of September, 2020, the Parliament of India passed the three farm acts, wherein farmers were allowed to sell their produce anywhere in India. The act also facilitated private players to stock food-grains withdrawing the ban on hoarding of such food-grains by entities other than the government.

ABC research team opined that till now, a total food-grains produced by India can only be quantified by knowing the total procurement made by the Government of India, as farmers of major crops like rice, wheat (Punjab, Haryana) and others states are bound to sell their farm produces to their designated APMCs only. Whereas with the new option created under the three farm laws would enlarge the scope of quantifying the agricultural produce accurately and also widen the scope of De-Minimis provision for India in Domestic Support compliance in coming years.

Finally, ABC research team concluded that the newly three enacted farm law will provide additional legitimate scope to India for enlarging its Domestic Support window, and would enhance India’s position in geopolitics as food has become one of the top Geopolitical agendas.

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