World Trade Organisation (WTO) and India
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Agricultural trade
2024: Thailand accuses India of exporting subsidised rice
Sidhartha, March 1, 2024: The Times of India
From: Sidhartha, March 1, 2024: The Times of India
Unless you are an avid reader of all things concerning world trade, Tuesday’s spat between India and Thailand at the ongoing World Trade Organisation (WTO) conference may have come as a surprise. The Thai ambassador to WTO accused India of exporting rice at unfairly low prices funded by govt subsidies. The subsidies, the allegation goes, that are meant to supply low-price rice to India’s poor, are actually subsidising the country’s rice exports.
Indian delegation protested the claim, lodged a complaint, taking strong exception to the statement.
The incident is only the latest spark to fly off the contentious issue of agriculture trade that has divided countries for over two decades. India and Indonesia, along with other developing nations, are pushing for reforms in rules governing agriculture trade. The current rules don’t allow them enough freedom to support their farmers and the poor, who need free or subsidised food.
The background Back in 1994, the WTO set up an agreement to lower import taxes and subsidies that affect agriculture. Here’s how subsidies are categorised:
Green Box: These are subsidies that don’t really affect trade much. They include direct payments, general services and environmental programmes. There’s no limit on these.
Blue Box: These subsidies are supposed to be cut down over time. They’re mainly used by rich countries — and China — and are tied to how much land is farmed or crop yield.
Development Box: It allows developing countries to provide input subsidies to low income or resource-poor farmers and investment subsidies for agriculture.
Amber Box: Most other subsidies fall here. They can make farming and trade unfair because they might en- courage overproduction or lower prices too much. The rules allow developing countries to subsidise up to 10% of their agriculture’s value of production. For developed countries, the cap is 5%. But rich countries have found ways to go much higher than their cap. For instance, a paper by the Centre for WTO Studies estimated that EU was providing 150% of its sugar’s value of production as subsidy, and the US 189% to coffee.
Why Are Developing Countries Upset?
The rules favour wealthier nations, giving them more ways to support their farmers and dominate the global market. This makes it harder for poorer countries to compete. For example, India has exceeded the 10% subsidy limit for rice, and others might too. The prices, set in the 1980s as a reference for what counts as a subsidy, are outdated, not accounting for inflation or current market prices.
Farms are small in India, which makes government support vital. There is also the need to keep food in stock for the poor during crises like the Covid pande- mic or global conflicts.
Calculations by Centre for WTO Studies show that per farmer support in India is around $300, whereas in US it is around $80,000. So, an American farmer, with average land holding of 180 hectare, gets 267 times what a tiller gets in India, where average land holding is just above one hectare.
What's Being Done?
This issue was first raised in 2002 but became a hot topic in 2013. To move forward with trade discussions, developed countries agreed to a ‘peace clause’ that prevents disputes over subsidy limits. Since then, India and others have been pushing to find a permanent solution.
Current Status
For the past decade, groups representing developing and poorer countries have been asking for a permanent fix but claim rich nations aren’t keeping their promises.
What Do Developed Countries Say?
Rich countries think public stockholding programmes distort trade. They’ve accused developing countries like India of exporting subsidised grains. This is where Thai ambassador’s Wednesday allegation comes in. They’re calling for a major reform to lower tariffs and subsidies. However, there’s disagreement among them, with the EU resisting tariff cuts, unlike the US and other countries seeking broader changes.
WTO becomes India’s protector, not predator
Swaminathan S Anklesaria Aiyar
When the World Trade Organisation (WTO) was created in 1995, critics protested that India must not join this vehicle of US imperialism, whose tough patent rules would ruin India’s agriculture and pharmaceutical industry. They could not have been more wrong. Both Indian agriculture and pharma have flourished under WTO rules. And today, the WTO is India’s greatest ally against US pressure on patents.
US drug companies complain that India has rejected patents for some blockbuster drugs (like Novartis’ Gleevec), while issuing a compulsory licence (which ignores patent rights) for Bayer’s anti-cancer drug. They say India is flouting established norms on intellectual property rights (IPR), cheating patent owners of billions, and conferring a bonanza on Indian producers of cheap substitutes (generic drugs). US companies want the US International Trade Commission to investigate India’s treatment of IPR, and recommend sanctions (under Section 301 of US trade laws) if required.
Few countries stand up to the threat of US sanctions: the costs typically exceed the benefits. But India has refused to co-operate even in a USITC visit to New Delhi, saying its bureaucrats are too busy with other things. India has told the US that WTO rules provide for all members to settle patent disputes through that body, not through unilateral action. India is confident that its IPR rules are WTOcompliant. For that very reason, the US has avoided WTO, and is attempting bilateral pressure instead.
Indian patent laws are far more restrictive than those of the US or Europe, but WTO rules allow this. Critics claimed falsely in 1995 that WTO rules would condemn India to servitude. In fact they allowed India considerable freedom to be strict on patents, allowed price control, and allowed the forced issue of compulsory licences for drugs critical to public health.
Foreign companies complain that India rejects patents given widely across the globe (as with Gleevec). India says it has since 2005 granted over 4,000 drug patents (mainly to US companies) and issued just one compulsory licence. This conforms fully to WTO rules.
If the issue goes to the WTO, India will point out that even the US courts have rejected hundreds of drug patent applications. The US government itself has used compulsory licensing and price control for drugs regarded as critical for public health (as in the anthrax scare after 9/11). So, India looks on a good wicket.
Still, the dispute will not disappear. The US says that although thousands of patents may have been given, only 45 are for innovative drugs, of which nine are being contested. It accuses the government of trying to favour Indian companies making cheap generics. This is not untrue.
Some Indian NGOs want wholesale rejection of patents to keep medicines cheap. That would be cheating on India’s pledges to WTO. It would also be counterproductive, inviting retaliatory sanctions. India is full of adulterated, sub-standard and bogus drugs, so let nobody pretend our conditions are ideal, or that all Indian drug producers are noble promoters of cheap medicine.
In a recent study, India ranks at the bottom of 25 countries in IPR protection. Arguably this classification is unfair (strictness in issuing patents is interpreted as weakness). But certainly IPR protection in India leaves a lot to be desired. Bollywood will tell you how piracy plays havoc with copyright, echoing complaints from Hollywood. Software piracy is rampant, hurting Indian IT companies as well as foreign ones.
Finding the WTO inadequate, the US now aims to forge one free trade deal with Europe (Transatlantic Trade and Investment Partnership), and another with Japan and the Pacific Coast (Trans Pacific Partnership), apart from dozens of bilateral deals. All these will have far stricter IPR rules than the WTO, and indeed aim to make WTO irrelevant. India needs to guard against this by being more pro-active in WTO, and not revel (as in the past) in the role of a spoiler.
India’s future lies in high-tech areas. Let’s be clear: these need IPR protection. By rejecting labour flexibility, India has forsaken the labour-intensive export route to prosperity taken by the Asian tigers and China. Its key export successes are in brain-intensive areas — software, BPO, pharmaceuticals, engineering goods. India will keep rising up the brainpower ladder.
Its comparative advantage lies in skills, and need a climate encouraging such skills. India should be strict on drug patents. But it must reject the NGO attempt to sabotage all IPRs, claiming these are western impositions on the poor. Brainpower should be paid for no less than manual labour. We need a proper balance between the needs of consumers and brainpower producers. The US goes too far, but so do our NGOs.
YEAR-WISE DEVELOPMENTS
2015: ministerial meeting at Nairobi
See graphic. '2015: Did the ministerial meeting at Nairobi go against the interests of the developing world?'
