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Food Sovereignty under WTO

Unfulfilled Promise at Buenos Aires

Sachin Kumar Sharma (sksharma.iift@edu) and Abhijit Das (headwto@iift.edu) are at the Centre for WTO Studies, Indian Institute of Foreign Trade, Delhi.

The interim solution to the problem of whether to allow public stockholding of food stocks for food security purposes in the World Trade Organization was arrived at during the Bali Ministerial Conference held in 2013 and subsequently by the General Council of the WTO in November 2014. However, the commitment to agree to a permanent solution by the 11th Ministerial Conference did not materialise. The United States and some other members reneged on their commitment to finding a permanent solution, effectively undermining the WTO itself. Developing country members have to persist for a permanent solution.

At the 11th Ministerial Conference (MC11) of the World Trade Organization (WTO), many developing country members expected a permanent solution to the issue of public stockholding for food security purposes. Regrettably, MC11 failed to deliver on this issue due to the divergent views of member countries on it as reflected in various proposals submitted to the WTO. Further, the strong opposition of the United States (US) extinguished all chances of a permanent solution.

The need for a permanent solution arises out of a lack of policy space for many developing and least developed countries (LDCs) under the existing rules of the Agreement on Agriculture (AoA) to implement agricultural and food security policies. These provisions threaten the food security for millions of poor people and hinder the achievement of Goal 2 of the sustainable development goals (SDGs) of the United Nation: zero hunger by 2030. It is an irony that developed countries provide huge support to the farmers as well as spend billions of dollars for food security, whereas illogical and biased provisions of the WTO come in the way of developing countries to provide food security to their poor who are vulnerable to hunger and malnutrition.

Constraining Provisions

Many developing countries are implementing price support–backed food security policies to safeguard the interests of farmers as well as the poor. For example, the Indian government procures foodgrains from farmers at a minimum support price (MSP) and distributes it to the poor through the public distribution system (PDS). Food security policies in many developing countries have three main components: (i) procurement, (ii) stockholding, and (iii) distribution.

The WTO rules classified the expenditure on stockholding and distribution under Green Box support, which is deemed to be a minimal trade-distorting support. All the WTO members are eligible to provide unlimited support under this box. However, procurement of foodgrains at the administered price is classified as Amber Box support, which is a trade-distorting support under the provisions of the AoA.

All domestic support measures, except exempt measures, provided in favour of agricultural producers are to be measured as the “Aggregate Measurement of Support” (AMS), commonly known as the Amber Box. The support provided to farmers under the Amber Box includes (i) product-specific support such as price and budgetary support; and (ii) non-product specific support such as fertiliser, electricity, and irrigation subsidies, etc. In the case of product-specific and non-product-specific support being below the de minimis limit, then a member is not required to include that support under the Amber Box.

De minimis limit is the minimal amount of trade-distorting domestic support that is allowed under the AoA. Amber Box support is capped for all the WTO members as per their Schedule of Commitments at the time of joining of the WTO. Most developing countries were not giving trade-distorting support above the de minimis limit during the base period (1986–88) under the Uruguay Round. Therefore, their Amber Box support was capped at zero. As a result, a majority of the developing countries cannot provide product-specific support more than the de minimis limit, that is, 10% of value of production of the agricultural product concerned during the relevant year (WTO 2002a). For instance, product-specific support for the procurement of rice at the MSP by the Food Corporation of India (FCI) is capped at 10% of the value of production of rice during the relevant year.

Due to this, developing countries are facing difficulties in procuring foodgrains at the administered prices without breaching their commitments under the AoA. Without the procurement at the administered price, providing food security to the poor will be a daunting task. The US–China dispute (in 2016) on the domestic support policy of China is a prime example of the limited policy space for developing countries (WTO 2016).

Developed country members are not constrained by the de minimis limit due to AMS entitlement. Many-developed countries were giving trade-distorting support higher than the de minimis limit under the Uruguay Round during the base period 1986–88. These members got the flexibility to give trade-distorting support higher than the de minimis limit in the future as well. This entitlement allowed developed countries to provide huge support as a percentage of the value of production. For example, product-specific support through various programmes to rice in the US was 82% of value of production in 2001, whereas the European Union (EU) has given 177% of the value of production to sugar in 2006. As per their latest domestic support notification, the US and EU are utilising only 20% and 8% of their AMS entitlement, respectively, and therefore, developed countries have a huge policy space to further distort international trade without breaching their commitment under the WTO (Sharma and Das 2017). What tilts the AoA further against the developing countries is the requirement that the subsidy for procurement of food stocks should be calculated on the basis of world prices prevailing during 1986–88.

Policies in Developing Countries

Given the price volatility in agricultural prices, price support–backed public stockholding of foodgrains has been acknowledged as an integral part of the food security strategy in developing countries. It is also recognised as an important instrument to protect the interest of farmers by ensuring price support to address the issue of risk and uncertainty. In developing countries, food expenditure accounts for a major share of the total household expenditure for the poor. As a result, given the inelastic demand for food, high fluctuations in food prices have an adverse effect on the welfare of vulnerable groups, including poor women and children.

Public stockholding programmes provide a safety net for the poor as well as millions of low-income or resource-poor farmers in developing countries. Due to the public stockholding programme, after independence, India successfully prevented the occurrence of untoward events like “the Bengal Famine of 1943” in which 2.7 million–3.0 million people are estimated to have died due to starvation (Sen 1981). It is important to note that during the food crisis of 2008, there were no food riots in India. This highlights the importance of public stockholding in safeguarding the interests of the poor. This policy has helped India become self-sufficient in foodgrain production over the past few decades. It is unimaginable to implement the National Food Security Act, 2013 without the existing public stockholding programme.

This policy is not unique to India, but is followed in many other developing countries and LDCs. In Indonesia, the Indonesian bureau of logistics or BULOG is responsible for implementing the food security programme called RASKIN through market intervention in the form of procurement and distribution of rice at administered prices. RASKIN is a social safety net programme for poor and vulnerable sections of the society. The General Authority for Supply of Commodities (GASC) in Egypt is responsible for procuring wheat from farmers at administered prices to support farmers as well as ensuring food security for its people.

Similarly, Sinograin in China, National Cereals and Produce Board (NCPB) in Kenya, National Office of Cereals and Legumes (ONICL) in Morocco, PASSCO in Pakistan, Turkish Grain Board (TMO) in Turkey, the Food Reserve Agency (FRA) in Zambia, etc, are responsible for procuring foodgrains from the farmers for protecting the interests of the farm community as well as ensuring food security and self-sufficiency (Sharma 2016). Bangladesh, Tunisia, Zimbabwe, Philippines, Malawi and many other developing countries have similar policies. Nepal also had price support–backed procurement policy for rice in the past, which was discontinued in the 1990s. Given the importance of price support–backed public stockholding, the Government of Nepal again announced this policy for rice in November 2016 (Himalayan 2016).

In the case of Malawi, the government agreed to eliminate the price support–backed procurement operations for maize under the International Monetary Fund (IMF)–World Bank supported programmes during 1998–2000 (IMF 2002). It led to a food crisis and the government had to declare a food emergency in February 2002. Thereafter, the government again started the price-backed procurement policy and Malawi is now self-sufficient in maize production. All these cases highlight the significance of government intervention in the agricultural market for ensuring self-sufficiency and food security.

In developed countries, agricultural policy has evolved over a period of time. The US, United Kingdom and European Economic Community (EEC) have used price support–backed procurement policy in the past to boost agricultural growth (South Centre 2015). At present, the US is implementing the Supplemental Nutrition Assistance Program (SNAP) to provide food-purchasing assistance for the poor living in the country. Table 1 shows that on an average a beneficiary under the SNAP gets $1,505.07 in comparison to $23.95 in India. Therefore, it shows the double standards of some members of the WTO that object to developing countries implementing food security programmes tailored to meet their needs.

 

However, the US does not procure from the farmers; instead, deficiency payment is given to the eligible farmers. For instance, the government announces a target price of agricultural commodities under the Price Loss Coverage (PLC) programme. In the event that the market price is lower than the target price of the relevant crop, the eligible farmers receive a payment based on the difference between the target and market price. Besides this, farmers in the US also receive support from other programmes under the Agricultural Act of 2014 (USDA 2017).

Long-standing Demand

Even before the Doha Round, India sought a “Food Security Box” for developing countries to address the eroding policy space related to food security (WTO 2001a). Due to the concerns raised by developing countries, the Doha Ministerial Conference in 2001 mandated that special and differential treatment for developing countries as well as non-trade concerns, including food security and rural development, shall be an integral part of the negotiations (WTO 2001b). A proposal by the African Group in 2002 demanded that the procurement of foodgrains for food security purposes at the administered price should not be accounted for in the Amber Box (WTO 2002b). The fourth revised modality (WTO 2008) also mentioned that the acquisition of stocks of foodstuffs by developing country members with the objective of supporting low-income or resource-poor producers shall not be required to be accounted in the Amber Box. To advance the Doha Round negotiations, the G33, a coalition of developing countries, including China, India, Indonesia, Philippines, etc, demanded the exemption from the Amber Box in 2012 (WTO 2012).

In 2013, the G33 sought a supplementary decision to be taken in the Bali Ministerial Conference to ensure that the developing countries’ need for food security is adequately responded to by the WTO in the interim period, that is, till the AoA is amended. The 9th Ministerial Conference in Bali (2013) put in place an interim solution popularly called the Peace Clause. Member countries were mandated to negotiate a permanent solution for adoption by the 11th Ministerial Conference (WTO 2013).

As per the Peace Clause, it was agreed that members shall refrain from going through the WTO Dispute Settlement Mechanism to challenge the compliance of a developing member with its obligation related to domestic support under Articles 6.3 and 7.2 (b) of the AoA, though the Peace Clause is subject to a large number of conditionalities. The Bali Ministerial Conference decision gave flexibility to developing countries to implement price support policies for foodgrains even in the case of breaching their applicable AMS limit under the AoA. To seek recourse to the Peace Clause, developing countries have to comply with the notifications, transparency, anti-circumvention, and safeguard provisions in the Bali decision. In 2014, the General Council of the WTO decided that if a permanent solution on the issue of public stockholding for food security purposes is not agreed and adopted by the 11th Ministerial Conference, the Peace Clause shall continue to be in place until a permanent solution is agreed upon and adopted. It was reaffirmed by the 10th Ministerial Conference in Nairobi in 2015 and decided that members shall engage to negotiate and make all the efforts to agree and to adopt a permanent solution (WTO 2015).

Food Security at MC11

Given the clear mandates from the Bali (in 2013) and Nairobi (in 2015) Ministerial Conferences to find a permanent solution by 2017, the issue of public stockholding was a priority issue for MC11 in Buenos Aires. Member countries had divergent views on this issue as reflected in proposals made by (i) EU–Brazil,1 (ii) the G33,2 (iii) Russian Federation and Paraguay,3 and (iv) Norway and Singapore.4

At MC11, developing country members were expecting a permanent solution better than the existing provisions of Peace Clause. Notably, the Peace Clause only covers the support provided for traditional staple food crops in pursuance of public stockholding programmes existing as of 7 December 2013. In other words, future or new food security programmes are not covered by the Peace Clause.

Due to this, the G33 demanded that existing and future programmes with respect to public stockholding for food security programmes of the developing country and LDC members should be covered by a decision on the permanent solution. Besides this, the G33 used the terminology “foodstuff” in their proposal instead of “traditional staple food crops” as mentioned in the Peace Clause and other proposals on food security. The G33 argued that “foodstuffs” is used in footnotes 5 and 6 of Annex 2 of the AoA and it covers more crops in comparison to “traditional staple food crops,” and therefore, product coverage under the permanent solution should be “foodstuffs.”

Members also had divergent views on the issue of notification requirement in the Peace Clause. As per the Bali decision, before taking recourse to the Peace Clause, a developing country member has to (i) provide up-to-date domestic support notifications for the preceding five years, and (ii) notify in advance a breach or a potential breach. The EU–Brazil and Russian Federation proposal also has similar provisions. As per the Norway and Singapore proposal, a developing country benefiting from the decision must have provided for the year of breach and should continue to provide domestic support notifications no later than 18 months after the end of the reporting year. From the developing countries’ perspective, these conditions are too onerous and difficult to comply with. As shown in Table 2, not only developing countries, but many developed countries are also lagging behind with their domestic support notifications. Therefore, it is unrealistic to expect developing countries to comply with onerous notification requirements of the Peace Clause. The G33 countries have opposed these notification obligations and demanded that the transparency provisions be made more practicable.

There were also opposing views on safeguards and anti-circumvention provisions on the issue of public stockholding. Under the Peace Clause, developing country members shall ensure that stocks procured do not distort trade or adversely affect the food security of other members. Except for the G33 proposal, all other proposals broadly sought that developing countries should ensure no direct or indirect exports from public stockholding for food security purposes. The G33 proposal was silent in this regard. Besides this, the Russian Federation and Paraguay proposed stringent conditions and suggested that if a developing country member has 5% or more of global export share of stock product or the export of product increases by a certain percentage, the product should no longer be covered by the permanent solution. It has also provisions related to applied tariff on products subject to the public stockholding programmes.

Members were intensively engaged in finding a permanent solution, but the US stated categorically that they cannot agree to any permanent solution on public stockholding at the MC11. This has damaged the credibility of the WTO, as the mandate of the Bali and Nairobi Ministerial Conferences was not honoured in Buenos Aires.

Beyond MC11, Buenos Aires

As member counties were not able to find a permanent solution at the MC11, provisions related to the Peace Clause under the Bali and Nairobi Ministerial Conferences will continue to be applicable. It was India’s strong stand on food security in 2014, when it refused to ratify the Trade Facilitation Agreement due to lack of progress on work related to finding a permanent solution, that led to the perpetual Peace Clause for developing countries.

 

The National Food Security Act, 2013 of India is covered by the Peace Clause. However, India has to comply with conditions attached with Bali Ministerial Decision. To invoke the Peace Clause, India has to make domestic support notifications for the preceding five years. India has notified domestic support notifications till 2013–14. Product-specific support for wheat and rice remained below the de minimis level till 2015–16 (Tables 3 and 4). However, product-specific support for rice is around 6% in 2015–16 and there is a risk of breaching the 10% limit in the coming years.

Many developing country and LDC members would not be able to comply with the conditions of the Peace Clause, and their programmes could be subject to dispute. Some developing country and LDC members would not be able to benefit from the Peace Clause if they implement new programmes due to the suffocating and constraining provisions of the WTO. For instance, the price support programme for rice in Nepal will not be covered by the Peace Clause as it came after the Bali Ministerial Decision. Further, the anti-circumvention requirement of not distorting trade and adversely affecting food security should be clarified so that developing countries such as India are not left at the mercy of dispute settlement panellists. It would be in the interest of the developing countries to persist in their efforts for a permanent solution that is better than the perpetual Peace Clause.

At the MC11, naked commercial interests of grain exporters’ lobbies in the developed countries trumped over the subsistence needs of more than 800 million people suffering from hunger and undernourishment. This is unsustainable and must change.

Notes

1 JOB/AG/99, 17 July 2017, “Proposal on Domestic Support, Public Stockholding for Food Security Purposes and Cotton from Brazil, European Union, Colombia, Peru and Uruguay” Committee on Agriculture, Special Session.

2 JOB/AG/105, 19 July 2017, “Proposed Permanent Solution on Public Stockholding for Food Security Purposes,” Committee on Agriculture, Special session.

3 JOB/AG/118, 30 October 2017, “Public Stockholding for Food Security Purposes.”

4 JOB/AG/125, 20 November 2017, “Public Stockholding for Food Security Purposes,” Committee on Agriculture, Special session.

References

Himalayan (2016): “Govt Fixes Minimum Support Price of Paddy,” viewed on 20 December 2017, https://thehimalayantimes.com/business/government-fixes-minimum-support-....

IMF (2002): “Malawi—The Food Crises, the Strategic Grain Reserve, and the IMF,” International Monetary Fund, viewed on 20 December 2017, https://www.imf.org/external/np/exr/facts/malawi.htm.

Sen, Amartya (1981): Poverty and Famines: An Essay on Entitlement and Deprivation, Oxford: Oxford University Press.

Sharma, Sachin Kumar (2016): The WTO and Food Security: Implications for Developing Countries, Springer.

Sharma, Sachin Kumar and Abhijit Das (2017): “EU-Brazil Proposal on Farm Support: Strengthening Agricultural Reforms or Undermining Them?” Centre for WTO Studies, Working Paper No CWS/WP/200/44.

South Centre (2015) “WTO’s MC10: Agriculture Negotiations-Public Stockholding,” Analytical Note SC/TDP/AN/MC10/3, South Centre, viewed on 19 December 2017, http://www.southcentre.int/analytical-note-december-2015-3/.

USDA (2017): “Crop Commodity Program Provisions-Title I,” United States Department of Agriculture, 19 December, https://www.ers.usda.gov/topics/farm-economy/farm-commodity-policy/crop-....

WTO (2001a): “Negotiations on WTO Agreement on Agriculture,” Committee on Agriculture Special Session, World Trade Organization, Document No G/AG/NG/W/102.

— (2001b): “Ministerial Declaration,” ministerial conference fourth session, Document No WT/MIN(01)/DEC/1.

— (2002a): “The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations,” WTO Secretariat.

— (2002b): “Special and Differential Treatment for Developing Countries,” Committee on Agriculture, Special Session Informal Meeting, Document No JOB(02)/187.

— (2008): “Revised Draft Modalities for Agriculture,” Committee on Agriculture, Special Session, Document No TN/AG/W/4/REV.4.

— (2012): “G-33 Proposal on Some Elements of Tn/Ag/W/4/Rev.4 for Early Agreement to Address Food Security Issues,” Document No JOB/AG/22.

— (2013): “Public Stockholding for Food Security Purposes: Ministerial Decision,” Document No WT/MIN(13)/38.

— (2015): “Public Stockholding for Food Security Purposes, Ministerial Conference Tenth Session,” Document No WT/MIN(15)/44 and WT/L/979.

— (2016): “China Domestic Support for Agricultural Producers,” Document No WT/DS511/1.

— (2017a): “Proposal on Domestic Support, Public Stockholding for Food Security Purposes and Cotton from Brazil, European Union, Colombia, Peru and Uruguay,” Document No JOB/AG/99.

— (2017b): “Proposed Permanent Solution on Public Stockholding for Food Security Purposes—Proposal by the G33,” Document No JOB/AG/105.

— (2017c): “Public Stockholding for Food Security Purposes—Proposal by the Russian Federation and Paraguay,” Document No JOB/AG/118.

— (2017d): “Public Stockholding for Food Security Purposes—Proposal by Norway and Singapore,” Document No JOB/AG/125.

Updated On : 29th Dec, 2017

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