Peace clause at WTO

September 23, 2023
Posted by: OptimizeIAS Team
Category: DPN Topics

Peace clause at WTO

Subject :IR

Section: International Organisation

Source: BL

Context: Developing nations, including India, will make a strong pitch for a permanent solution to their concerns on subsidy limits placed on their public stockholding programmes at the WTO Senior Officials’ meeting scheduled next month, sources have said.

The meeting has been called by the WTO Secretariat, on October 23-24, to work out the agenda for WTO’s 13th Ministerial Conference in February 2024.
The Africa Group and the G33 alliance of developing nations, of which India is a part, have all been pushing for a permanent solution on public stockholdings underlining the importance of food security especially in the light of the sufferings during the Covid-19 pandemic.

The G33 (or the Friends of Special Products in agriculture) is a coalition of developing and least developed countries. Despite the name, there are currently 48 member nations including China, Cuba, India, Indonesia, Nigeria, Pakistan etc.
It was established prior to the 2003 Cancun ministerial conference, that have coordinated during the Doha Round of World Trade Organization negotiations, specifically in regard to agriculture.
Dominated by India, The group has “defensive” concerns regarding agriculture in relation to World Trade Organization negotiations, and seeks to limit the degree of market opening required of developing countries.

Facing repeated attacks from certain developed nations at the WTO which allege that India’s MSP programmes affect food security of other nations, India argued at a meeting on agriculture earlier this year that its public stockholding of food grain actually helped provide food security.
During Covid-19 disruptions, these stocks helped India feed (provide free foodgrains) to its 800 million plus vulnerable population, it said.
WTO members have been specifically targetting India’s MSP programme for rice as its subsidies have breached the subsidy ceiling of 10 per cent for agriculture produce forcing the country to use the Bali ‘peace clause’.

Peace Clause

It was agreed to at the WTO’s Bali Ministerial meeting in December 2013 that allowed developing countries to breach subsidy limits on food crops subject to certain conditions being met related to notifications on the PSH programmes and food security.

The peace clause allows developing countries to breach the subsidy ceiling without being dragged into dispute by members, for rice. However, it comes with tough notification requirements and conditions, all of which are difficult to follow.

Notification conditionalities mentioned in the Bali peace clause

A separate notification on all PSH programmes involves giving details of all MSP operations and numbers related to procurement, storage and disbursement not only for rice but other items covered under the programmes, including wheat and pulses.

First country to invoke the peace clause

India had earlier invoked the clause for 2018-19, when it became the first country to do so.

India informed the WTO that the value of its rice production in 2019-20 was $46.07 billion while it gave subsidies worth $6.31 billion, or 13.7 percent as against the permitted 10 per cent.

India said that under its public stockholding programmes for food security purposes, rice, wheat, coarse cereals and pulses, among others, are acquired and released in order to meet the domestic food security needs of the country’s poor and vulnerable population, and “not to impede commercial trade or food security of others. For these reasons only the breach of the de minimis limits for rice is covered by the peace clause.

Government does not undertake exports on a commercial basis from public stockholdings. Additionally, open market sales of food grains from public stockholding are made provided the buyer gives an undertaking of not exporting from such purchase.

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. It protects India’s food procurement programmes against action from WTO members in case the subsidy ceilings – 10 percent of the value of food production in the case of India and other developing countries – are breached.

The Agreement on Agriculture (AoA) is a WTO treaty that was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and formally ratified in 1994 at Marrakesh, Morocco.

The AoA came into effect in 1995. According to its provisions, developing countries were to complete their reduction commitments by 2000 and developing countries by 2004.

The Least Developed Countries were not required to make any reductions.The Agreement covers products that are normally considered part of agriculture but excludes forestry and fishery products and also rubber, sisal, jute, coir and abaca.

The provisions of the WTO Agreement on Agriculture relate mainly to three broad categories-

1.Market Access

Tariffication – implies all non-tariff barriers to be abolished and converted to tariffs.
Tariff reduction – Developing countries were obligated to reduce tariffs by 24% in 10 years.
Access opportunities – Minimum access equal to 3% of domestic consumption in 1986-88 will have to be established for the year 1995 rising to 5% at the end of the implementation period.

2.Export subsidies

Developed countries are mandated to reduce their export subsidy volume by 21% and expenditure by 36% in 6 years, in equal installment (from 1986 –1990 levels).

Developing countries need to reduce export subsidy volume by 14% and expenditure by 24% over ten years in equal installments.

3.Domestic support

It calls for reduction in domestic subsidies that distorts free trade and fair price.

Aggregate Measurement of Support (AMS) is to be reduced by 20% over a period of 6 years by developed countries and 13% over a period of 10 years by developing countries.

The Agreement on Agriculture (AoA) divides domestic support into

1.Trade distorting – all trade distorting subsidies are placed under Amber box which is qualified in accordance with Aggregate Measure of Support (both product and non product specific).These include measures to support prices, or subsidies directly related to production quantities.

AoA stipulates reduction of total AMS by 20% for developed countries over a period of 6 years while by 13% over a period of 10 years by developing countries.

Policies amount to domestic support under this category of less than 5% of value of production for developed countries and less than 10% for developing countries are excluded from any reduction commitments also called de minimis subsidies.

2.Non trade distorting or minimal trade distorting –

Green box includes assistance given through environmental assistance programmes like research training and extension, marketing information, rural infrastructure etc.. Support under it is excluded from any reduction commitments and is not subject to any upper limit.

They have to be government-funded (not by charging consumers higher prices) and must not involve price support.They tend to be programmes that are not targeted at particular products, and include direct income support for farmers that are not related to current production levels or prices. They also include environmental protection and regional development programmes.

Blue box This is the “amber box with conditions”- designed to reduce distortion and includes direct payments in the form of price deficiency, direct payment to limit production. It is also exempted from reduction commitments but has an upper limit.
Special and Differential box includes measures taken by developing countries, otherwise subject to reduction like investment subsidies, input subsidies.