Economy

What Is The WTO Case Against India On MSP And How It Hinges On A Similar Case Pending Against China

Wheat farmers in India. (Bharat Bhushan/Hindustan Times via Getty Images)
Snapshot
  • India has been maintaining that it gives MSP to farmers on grounds of food security.

    One will have to wait and see but in the immediate future, a ruling on Chinese support for its agricultural producers holds the key.

Last week, the United States (US) and Canada approached the World Trade Organization (WTO) against India’s minimum support price (MSP) for various crops, mainly pulses — gram (chana), black matpe (urad), pigeon pea (tur), mung beans (green gram) and lentils.

US and Canada have now sought a discussion with India on the higher MSP for five pulses, arguing that India’s support prices are 26 times higher than the permitted levels by WTO regulations. India announced a higher support price for various crops that was 50 per cent higher than production costs in the current crop year (July 2018-June 2019).

India has notified the higher MSP for pulses to the WTO putting the cost at Rs 2,677 crore but the US and Canada claim that it totals to Rs 69,923 crore. The WTO views MSP as a trade distorting measure and has capped such support at 10 per cent of the value of production of the crop for which such support is extended.

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US and Canada have taken the entire production of pulses into account, whereas India has only accounted for the quantity that it procures as part of its price support operations.

India has been disputing the calculation methodology under the Agreement on Agriculture at WTO. However, one of the reasons for such wide disparity in the claims is that while the US and Canada have worked the price in terms of Indian rupee, India has worked it in terms of the US dollar, something that is being consistently done by New Delhi.

The move to drag India to WTO’s dispute panel, under which negotiations take place first between disputing parties, follows US statement that it would haul New Delhi to the trade dispute panel on the higher MSP for various crops. US and Canada have a cause for the complaint since they are looking to export their pulses, especially yellow peas, to India.

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Interestingly, the US has dragged China to the WTO dispute panel for similar measures. A ruling by the dispute settlement panel is now being translated for all concerned parties to go through it. India is a third party to the dispute which means if the panel ruling goes against China, India will stand to gain from the ruling.

India and China have, on the other hand, united to come up with a revised proposal on aggregate measures of support (AMS). Both have pointed out that developed countries like the US enjoy 90 per cent of world AMS entitlements totalling about $160 million.

The AMS is treated under amber box provisions at WTO which means that they distort trade. On the other hand, there are some provisions to support farm and agriculture under green box. These provisions cannot be questioned by any WTO member.

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Countries like the US, Canada and those in the European Union provide such green box support to the tune of $200 million. These nations provide higher subsidy to their farmers compared to the price support that India extends to its farmers.

In 2002, Brazil challenged US support to its cotton farmers, arguing that they were shielded from changes in global prices. The South American nation complained that US subsidy programme for its farmers distorted global market and suppressed the natural fibre’s prices.

The WTO dispute panel found that market share for US cotton doubled between 1995 and 2002 with subsidies contributing significantly to fall in cotton prices. The fall in prices affected countries in West Africa, considered the least developed nations.

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The WTO dispute settlement panel found that several US domestic farm support programmes suppressed cotton prices in the global market. In particular, the panel ruled that the cotton market assistance loan and a couple of other payments, including one for market loss, distorted global cotton markets.

Following the panel’s ruling, US and Brazil reached an interim agreement to stop any sanctions by the WTO dispute panel. The US agreed to offer annual payments to Brazil for training and capacity building in the latter’s cotton sector.

In addition, based on the changes made by the US cotton programme in its 2014 Farm Bill, Brazil decided not to pursue the issue further.

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The 2014 US Farm Bill did away with direct and other payments to cotton farmers, including market assistance loans benchmarked against global prices. However, it had provisions to protect growers from loss of income due to production losses, price fall with the US government paying 80 per cent of the premium costs and full delivery costs.

The bill has now been replaced by the 2019 Farm Bill that will cost the US government $867 billion over a 10-year period. The bill offers crop insurance, farm commodity programmes that have floor price and income support for specified products while expanding crop insurance for newer crops like fruits, vegetables, hops and barley.

Dairy farmers will also benefit from this, while an amusing aspect of the bill is that it allows subsidies for farmers’ nieces, nephews and cousins, who may not have worked on a farm at all, to receive subsidies.

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WTO has seen similar cases like the US challenging functioning of the Canadian Wheat Board and its trading practices. A dispute panel, however, did not find anything wrong with the wheat board.

The case against India will take time since quite a few steps have to be followed before a dispute settlement panel could look into it. First, officials of India, the US and Canada will have to negotiate the issue. Only if the three are unable to find a common ground will the case head to the dispute panel, which will then form a committee. And from there, there are more processes to go through.

For instance, the US made a request to consult with China in September 2016. Almost nearly two-and-a-half years since then, a ruling is yet to be made.

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The plea against India will now be followed with a request to join consultations. In case of no progress during consultations, the issue will head to formation of a dispute panel that could take over six months.

There is a likelihood of a few more countries joining the US and Canada against India. Probably, India can negotiate a way out of this problem as it has done in a few other cases.

Moreover, India has been maintaining that it gives MSP to farmers on grounds of food security. This probably could fit into the green box provisions.

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One will have to wait and see but in the immediate future, a ruling on Chinese support for its agricultural producers holds the key.

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