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Monday , July 28 , 2014
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West doublespeak on subsidies

New Delhi, July 27: There’s more to the ongoing WTO deadlock than meets the eye. The West is crying foul over India’s threats to derail the agreement on global customs rules till the latter’s concerns over food security are addressed. However, what the West really fears is that if food security is agreed upon, it will unleash a conflict over the huge subsidies that the rich countries give to their farmers.

The consensus deal signed in Bali last December gave a temporary reprieve to India’s food security plans even as it called on the global community to continue negotiations for a more permanent solution to the issue of farm subsidies.

The West wants a subsidy cap of 10 per cent of the value of farm produce in a country. The price levels taken to calculate this cap are the global prices during 1986-87.

Indian negotiators want this base year to be changed to reflect the real prices so that the subsidy levels can remain unchallenged. India has already breached this cap in paddy.

Officials argue the reprieve has to be permanent for at stake is not only the food security bill but also India’s foreign exchange security, which would come under pressure if the country has to import large quantities of food from Australia or Canada.

“There is a growing disenchantment, anguish and anger in domestic constituencies and a sense of deja vu as once again they see the interests of developing countries being subordinated to the might of the developed world,” India said, in a statement at the WTO meeting in Geneva last week.

“In rounds after rounds, developing countries have been called upon to concede more and more, with little being offered in return,” the statement added.

The West is okay with the 10-per-cent cap as the money is spent on a small number of farmers. In the US, there are just 3 million working on farms producing around $200 billion worth of produce. The subsidy which the US claims is paid to them stands at $20 billion, or about $6,6 per farm worker.

However, this is merely direct farm subsidy. The US, which also supports poor consumers with food stamps, gave a total support estimate (TSE) worth a massive $156 billion to the farm sector in 2012, according to a paper by well-known economist Jacques Berthelot.

“We see that the (US) nutrition programmes have represented on average 69.4 per cent of the TSE, rising from 68.6 per cent in 2007 to 73.8 per cent in 2012. The actual other agricultural subsidies have accounted for $38.8 billion on average, from $30.5 billion in 2007 to $41 billion in 2012,” points out Berthelot.

The economist points out that the reductions agreed upon by the US and European Union (EU) in their farm subsidies do not take into account large numbers of hidden subsidies, which can continue at current levels.

These hidden subsidies will be questioned if a discussion on subsidies is re-opened and the US and EU will be under pressure to cut their huge relief programmes, which are distorting global trade.

In India, the subsidy is not paid to the farmer but consumer. The government buys grain at market prices from the farmer, stores it and then sells it at a cheap rate to the poor. Around 820 million will get cheap grain at a subsidy cost of about $20 billion. The subsidy per head is actually less than $25. However, as a percentage of the total value of the produce, it will cross the globally accepted cap in absolute terms within a few years.

India can either keep food subsidies outside this cap or redefine this cap in such a way that it can continue its food security programme for a longer period of time. One way could be to express the cap in per capita terms or to rework the base year on which the prices are calculated.

However, rival negotiators want a status quo. The large farms of the West see over-populated countries such as India and China as natural markets for their excess produce and want an entry into these tightly controlled markets.

In the last century, prices of grains and vegetables were much lower in India and China than the global levels. However, with rising inflation and changing consumption patterns, Asian prices are almost on a par with global rates.

Officials who are part of the Indian negotiating team say the new director-general of the WTO — Brazil's former trade minister Roberto AzevÍdo — seems to have joined forces with the US, Japan, the EU, and other developed countries.

The officials feel AzevÍdo has been pressing the developing and the less-developed countries to agree with the West and go ahead with the cuts in duties on industrial manufactures, while leaving issues such as farm subsidies and food security to be solved later.

As part of its pressure tactic, the US seems to have threatened the African nations to block their trade sops if they side with India.