Last week, the United States (US) submitted a document in the World Trading Organization (WTO) questioning the compatibility of India’s agricultural subsidies with the relevant provisions of the Agreement on Agriculture (AoA). The document targets the minimum support price (MSP) granted to wheat and rice, the two key food crops. The US’ contention is that the MSP of these two crops (market price support, according to AoA), is well above the limits set by the AoA.
This is the most serious challenge to India’s subsidies’ regime, coming after the AoA provisions related “public stockholding (PSH) for food security purposes”, almost derailed the implementation of the National Food Security Act. India has been able to obtain a temporary respite on this front; in the three Ministerial Conferences held subsequently, in Bali, Nairobi and Buenos Aires, India was assured that no WTO member would initiate a dispute against India, even if its commitments on limiting subsidies are breached.
The main contention of the US is that market price support that India provides to rice was consistently above 70% of the value of agricultural production since 2010-11 and above 60% for wheat during the same period. These levels of subsidies, claims the US, were way above the 10% limit imposed on India by the AoA. Although in the past, there have been veiled attacks by the US on India’s subsidies regime, this is the first time that it has quite literally taken the gloves off. Targeting India is the latest in the long list of unfair trade practices that the Trump administration has adopted over the past few months, beginning with the increase in steel and aluminum tariffs, which, incidentally, also targeted India.
Interestingly, an affront on India’s farm subsidies provides an opportunity to expose the malafides of the US, as also the illogicality of the subsidies’ regime of the AoA.
Although the WTO abhors the use of subsidies, it allows this instrument of trade policy to be used for agriculture. The subsidies regime included in the AoA has three forms of subsidies, ranging from those that were considered “non-distorting” or “minimally distorting” (the “Green Box” and “Blue Box” subsidies), to those that seriously “distorted” markets (the “Amber Box” subsidies).