MSP has another limit to overcome WTO’s challenge

Demand to provide farmers Legal Guarantee for Minimum Support Price (MSP) Their produce has sparked a nationwide debate. Some believe it would be a “fiscal waste” to procure all the 23 crops for which the annual MSP is announced. Others argue that buying these crops would be a nightmare. There is another aspect of this debate which has gone unnoticed. Can India provide a legal guarantee for MSP without violating the inherent international law obligations? Agreement on Agriculture (AOA) of the World Trade Organization (WTO),

as a business-distorting subsidy

One of the central objectives of the AOA is to cut trade-distorting domestic support that WTO member countries provide to agriculture. In this regard, domestic subsidies are divided into three categories: ‘green box’, ‘blue box’ and ‘amber box’ measures. Subsidies that fall under ‘Green Box’ (such as income support to farmers out of production) and ‘Blue Box’ (such as direct payments under programs that limit production subject to certain conditions) are considered non-trade distorted. . Countries can provide unlimited subsidies under these two categories. However, the price support provided in the form of purchase of crops at MSP is classified as a business-distorting subsidy and comes under ‘amber box’ measures, subject to certain limitations.

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To measure ‘amber box’ support, WTO member states are required to calculate the Overall Measure of Support (AMS). AMS is the sum total of product-specific support (price support for a particular crop) and non-product-specific support (fertilizer subsidy). Under Article 6.4(b) of the AOA, developing countries like India are allowed to provide a de minimis Level of product and non-product domestic subsidies. This de minimis In the case of product-specific subsidies, the limit is limited to 10% of the total value of production of the product; and in the case of non-product subsidies, at 10% of the total value of the country’s agricultural output. subsidies violation de minimis Hats are trade-perverse. consequently, They should be accounted for in AMS.

Purchases at MSP, after comparing it to the Fixed External Reference Price (ERP) – an average price based on the base year 1986-88 – are to be included in the AMS. Since the fixed ERP has not been revised in the WTO over the past several decades, the gap between the MSP and the fixed ERP has widened significantly due to inflation.

For example, according to the Center for WTO Studies, India’s ERP for rice in 1986-88 was $262.51 a tonne and the MSP was lower than that. However, India’s applicable administered price for rice in 2015-16 was $323.06 a tonne, much higher than the 1986-88 ERP. When this difference is accounted for in the AMS, the probability of an overshoot is de minimis The limit becomes real. Contrary to the current practice of procuring rice and wheat on a large scale, procurement of all 23 crops at MSP would result in a breach in India. de minimis The extent of making it vulnerable to legal challenge in the WTO.

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Even though the government does not procure directly, but orders private parties to acquire at a price fixed by the government, as in the case of sugarcane, de minimis A limit of 10% applies. Recently, a WTO panel in the matter, India – Remedies for Sugar and Sugarcane, concluded that India violated de minimis Limit in the case of sugarcane by offering guaranteed prices paid by sugar mills to cane farmers.

peace block

The AOA needs to be modified so that it provides adequate policy space for running MSP supported food security programmes. Although a permanent solution is nowhere in sight, the countries have agreed on a peace clause. The peace clause forbids bringing legal challenges against price support-based purchases for food security purposes, even if it violates domestic support limits. However, the peace clause is subject to a number of conditions. It benefits, for example, for the assistance provided to traditional staple food crops by developing countries to advance public stockholding programs (procurement of food to provide free rations through the public distribution system) for food security. can be raised.

In addition, the peace clause applies only to programs that existed up to the date of the decision and are compliant with other requirements. Countries are also obliged to notify the WTO if their subsidies exceed the permissible level. For example, earlier this year, India told the World Trade Organization that it provided a subsidy of $6.31 billion for rice in 2019-20, while the value of rice production was $46.07 billion. In other words, the subsidy was 13.6% of the total value of production, whereas de minimis 10% level.

India’s purchases for rice and wheat, even if it violates it de minimis border, will enjoy legal immunity. However, India will not be able to implement the peace clause to protect the purchase of crops that are not part of the food security program (such as cotton, groundnut, sunflower seeds).

Even if the AOA is modified to exclude MSP supported procurement for food security purposes from AMS, purchases at prices exceeding the fixed ERP for other crops would be considered trade-distorted and thus de minimis Limitation Therefore, India needs to recalculate its agricultural assistance programs to utilize the flexibility available in the AOA.

some options

Arguably, India could move from value-based support to income-based support in the form of MSP, which would not be trade-distorted under the AOA provided the income support is not linked to production.

Alternatively, one can complement the value-based support (keeping the de minimis Keeping in view the limits) with an income-based support policy. However, this will be difficult especially given the climate of high misunderstanding between farmers and the political establishment.

The recent fiasco with three repealed agricultural laws shows that agricultural reform, no matter how smart, cannot be embraced by farmers. The government needs to create a conducive environment to engage with farmers and convince them for other effective policy interventions beyond MSP, which are financially prudent and WTO friendly.

Prabhas Ranjan is Professor and Vice Dean, Jindal Global Law School, OP Jindal Global University. views expressed are personal