The finance minister of India has recently urged the World Trade Organisation (WTO) to reconsider its stance on farm subsidies, as these significantly influence the food security of emerging economies. The call for review comes amid the backdrop of a global pandemic and ongoing conflict between Russia and Ukraine.
Understanding WTO Subsidies
Within the framework of the WTO, there are different types of subsidies: Amber, Blue and Green Box. Amber Box subsidies distort international trade by enabling a country’s products to be sold at lower prices compared to those from other countries. These include subsidies for inputs like fertilisers, seeds, electricity, irrigation, and Minimum Support Price (MSP).
Blue Box subsidies are similar to Amber but involve conditions designed to reduce distortion, such as requiring farmers to limit production or set aside part of their land. Unlike Amber Box subsidies, there are no spending limits on Blue Box subsidies.
Green Box subsidies are domestic support measures that cause minimal to no trade distortion. These government-funded subsidies do not provide any price support to crops and include environmental protection and regional development programmes.
Why a Review of Subsidy Norms is Needed
There are several reasons why the WTO needs to revisit its norms. Firstly, there is a complaint that the perspectives of the Global South and emerging markets are often overlooked in trade discussions, especially regarding the exportation of agricultural goods. Moreover, the current system uses a reference price that makes it difficult for WTO member countries to stay within the 10% subsidy limit.
Secondly, the impact of the Covid-19 pandemic and the Russia-Ukraine conflict have made food and fertilizer security a pressing concern. For this reason, there have been strong calls to rethink the existing subsidy norms.
In line with this, India has requested amendments to the formula used to calculate the food subsidy cap and the inclusion of programmes implemented after 2013 under the ‘Peace Clause’.
Understanding the ‘Peace Clause’
In December 2013, WTO members agreed to a mechanism known as the ‘Peace Clause’ as an interim measure. The clause ensures that no disputes are raised against developing nations if they breach the prescribed ceiling – a measure that remains in place until a permanent solution to food stockpiling is found.
An Overview of the World Trade Organisation (WTO)
The WTO, established in 1995 with currently 164 member countries, promotes and regulates global trade. It provides a platform for members to negotiate and enforce trade agreements, resolve disputes, and promote economic growth. The WTO traces its origins to the General Agreement on Tariffs and Trade (GATT) created in 1947. Unlike GATT that dealt mostly with trade in goods, the WTO covers trade in services and other intellectual properties like creations, designs, and inventions.
Addressing Issues in Global Trade
Inequalities persist in the global trade landscape, most notably between developed nations and emerging economies or the Global South. A particular point of contention is the imbalance in opportunities for trading agricultural goods. This coupled with rising food insecurity due to the Covid-19 pandemic and Russo-Ukrainian conflict emphasizes the urgency to address these issues.
To do so, the WTO must reconsider its norms on subsidies, particularly those surrounding the Amber, Blue, and Green Boxes. Furthermore, India’s suggestion to adjust the formula for calculating the food subsidy cap should also be taken into account towards building a more equitable trade environment.
Last Modified: February 20, 2024