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WTO battle brews as members charge India with under-stating farm sops
Nov 17, 2014

India has yet another fight on its hands at the World Trade Organization (WTO) over food subsidies.

Many developed nations are now questioning the agriculture subsidies notified by India, charging that the country may have under-stated the actual figures. India’s decision to notify the subsidies in US dollars rather than the rupee is particularly under the scanner.

India’s classification of all farmers as low-income or resource-poor, thereby lowering its notified trade-distorting subsidies (called the aggregate measurement of support or AMS), has been strongly challenged by Japan and the US.
Dollar usage questioned

Also, Canada, Australia as well as the EU are crying foul over India’s decision to notify the subsidies in US dollars. Using the dollar, which has strengthened significantly since the reference price for calculating subsidies was fixed in 1986-88, brings down the domestic support figure significantly, they argue.

India has said that WTO rules allow subsidies to be notified in dollars and about 30 countries do the same.
No breach

In a recent Committee on Agriculture meeting, India maintained that its subsidy notifications were strictly in line with the WTO rules and that its subsidies were well within the capped limits of 10 per cent of agriculture production.

Agricultural input subsidies (on fertiliser, electricity, and seeds) to low-income or resource-poor producers, along with investment subsidies, are exempt from the AMS calculation. Such subsidies were equivalent to around 13 per cent of the total agricultural output in 2010.

The exemption has helped India stay within the WTO rules, which cap AMS at 10 per cent of the total farm output.
Japanese challenge

Questioning the subsidy at the WTO, Japan has asked India to explain why it includes farmers with relatively large farmland in the low-income or resource-poor producers category.

“By classifying farmers with less than 10 hectares of land as “low income or resource poor producers”, India has excluded all the input subsidies from the calculation of AMS,” Japan complained.

It further argued that the average farmland size in India is 1.2 hectares, and more than 80 per cent of holdings are less than two hectares. “Nevertheless, India classifies farmers with less than 10 hectares of land as ‘low income or resource-poor producers’,” it said.

India, however, has maintained that low-income farmers are those with less than 10 hectares of land, accounting for 99 per cent of the farmers in the country.

A WTO official said that India has promised to provide more information on the input subsidies given to the farmers.

Many developing countries, including India, want either their food programmes to be dropped from the list of trade- distorting subsidies, or for subsidies to be calculated on a more recent base line or for the indexing of subsidies to inflation.

India recently managed to convince the US to extend a ‘peace clause’, which offers it immunity against action in case of a breach of the subsidy cap.

The clause has been extended in perpetuity, till the formula for the calculation of trade-distorting subsidies is amended.