WTO on Public Stockholding

WTO on Public Stockholding

Subject: Economy

Section: External Sector

Context:

Economy

A total of nearly 80 members from various Organisations including the  G-33 group have submitted a joint proposal at the WTO regarding public stock holding based on a fair way of calculating subsidies with a current external reference price instead of an ancient one.

Concept:

Public stockholding programmes are used by some governments to purchase, stockpile and distribute food to people in need. While food security is a legitimate policy objective, some stockholding programmes are considered to distort trade when they involve purchases from farmers at prices fixed by the governments, known as “supported” or “administered” prices.

At the 2013 Bali Ministerial Conference, ministers agreed that, on an interim basis, public stockholding programmes in developing countries would not be challenged legally even if a country’s agreed limits for trade-distorting domestic support were breached. They also agreed to negotiate a permanent solution to this issue.

A decision on public stockholding taken at the 2015 Nairobi Ministerial Conference reaffirmed this commitment and encouraged WTO members to make all concerted efforts to agree on a permanent solution. Currently, public distribution programmes of developing countries are included under trade-distorting Amber Box measures that attract reduction commitments of WTO which is capped at 10% of value of total production based on 1986-88 prices.

Issue?

According to the present rules under the Agreement on Agriculture (AoA), subsidies given to the farmer, calculated as the excess of MSP over its international price, also known as External Reference Price (ERP), plus subsidy on inputs, are clubbed as aggregate measurement of support (AMS). 

One big problem is that the ERP is pegged to the base period of 1986–1988 without any adjustments for inflation which gives an inflated AMS.

Amber box subsidy:

WTO’s Agreement on Agriculture (AoA) classifies domestic support or subsidies given by the government to farmers into different categories. An important type of subsidies or supports is Aggregate Measurement of Support (AMS). The AMS represents trade distorting domestic support and is referred to as the “amber box”.

The AMS means annual level of support (subsidies) expressed in monetary terms, provided for an agricultural product in favour of the producers (product specific) of the basic agricultural product and non-product specific support provided in favour of agricultural producers in general.

The Aggregate Measurement of Support consists of two parts—product-specific subsidies and non-product specific subsidies.

• Product-specific subsidy refers to the total level of support provided for each individual agricultural commodity. For example wheat AMS is the subsidy given specifically to wheat.
• Non-product specific subsidy, on the other hand, refers to the total level of support given to the agricultural sector as a whole, i.e., subsidies on inputs such as fertilizers, electricity, irrigation, seeds, credit etc. Usually, these non-product subsidies are given to all crops.

Subsidy provided through price support in the case of a specific product like wheat is measured by taking the difference between the price given to the domestic producers during procurement (by the government)and a specified fixed external reference price (world market price set by the WTO) of that product.  Multiplying this gap by the quantity of production eligible to receive the administered price gives the specific subsidy for that product. If domestic prices are lower than the world reference price, then AMS turns out to be negative for that particular product.

As per the WTO norms, the AMS can be given up to 10 % of a country’s agricultural GDP in the case of developing countries. On the other hand, the limit is 5% for a developed economy. This limit is called the de minimis level of support.

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.