Working Paper Support to Agriculture in India in 1995-2013 and the Rules of the WTO Lars Brink April 2014 IATRC Working Paper #14-01 Support to agriculture in India in 1995-2013 and the rules of the WTO Lars Brink Associated Faculty at the Global Issues Initiative (GII) of the Institute for Society, Culture and Environment (ISCE) Virginia Polytechnic Institute and State University [email protected] 13 April 2014 Support to agriculture in India in 1995-2013 and the rules of the WTO Lars Brink Abstract: India has submitted notifications to the World Trade Organization (WTO) on domestic support to agricultural producers in 1995-2003. This paper reviews India’s notifications and summarizes the related discussion in the WTO Committee on Agriculture of some key issues relating to the rules of the Agreement on Agriculture on domestic support. It calculates price gaps for rice, wheat, cotton and sugarcane in 1995 to 2013 under four scenarios regarding the external reference price and calculates the resulting market price support using total production and procurement quantities. It compares the associated Aggregate Measurements of Support (AMSs) to their limits based on value of production. The AMSs show large excesses above their limits over many years until 2013 for several crops under some readings of the Agreement but much less so if certain adjustments are made. This highlights the differences among alternative interpretations of the Agreement in determining compliance with a country’s obligations, in particular the understanding of the fixed external reference price and the production eligible to receive the applied administered price. The paper puts India’s administered pricing in the context of the 2013 decision of WTO ministers regarding protection under some conditions against challenge under the WTO dispute settlement mechanism. Keywords: India, WTO, agriculture, domestic support, Aggregate Measurement of Support, market price support, fixed external reference price, eligible production JEL code: F13, Q17, Q18 Contact author: Lars Brink, 4 Brink Road, Chelsea, Quebec, J9B 2C6 Canada Email: [email protected] Phone: +1 819-827-0456 The author gratefully acknowledges the helpful comments of Jonathan Hepburn, Anwarul Hoda, Ekaterina Krivonos, Will Martin, Alan Matthews, and David Orden on earlier drafts. Responsibility for remaining errors and omissions rests with the author. The author thanks the Global Issues Initiative of the Institute for Society, Culture and Environment, Virginia Tech, for financial support. 1 Support to agriculture in India in 1995-2013 and the rules of the WTO Table of Contents Executive summary ......................................................................................................................... 5 Domestic support rules and key data .......................................................................................... 5 Notifications and the Committee on Agriculture ........................................................................ 5 India’s 1995-2013 AMSs ............................................................................................................ 6 Excessive AMSs and the 2013 ministerial decision ................................................................... 7 Introduction ..................................................................................................................................... 8 Background ................................................................................................................................. 8 Motivation and purpose .............................................................................................................. 9 Domestic support in the Agreement on Agriculture ....................................................................... 9 Classifying measures and measuring and exempting support .................................................... 9 Calculating AMSs ..................................................................................................................... 10 De minimis levels, Current Total AMS and Bound Total AMS............................................... 11 India’s support measurements....................................................................................................... 12 India’s 1986-88 calculations ..................................................................................................... 12 India’s domestic support notifications ...................................................................................... 14 India’s notification for 1995 ................................................................................................. 14 India’s notifications for 1996 and 1997................................................................................ 15 India’s notifications for 1998 to 2003 .................................................................................. 17 Review in the Committee on Agriculture ..................................................................................... 18 Overview ................................................................................................................................... 18 Choice of crops ......................................................................................................................... 19 External reference prices and using US dollars ........................................................................ 19 Background ........................................................................................................................... 20 Committee discussion............................................................................................................ 21 Administered prices and price gaps .......................................................................................... 22 Cotton .................................................................................................................................... 22 Sugarcane ............................................................................................................................. 23 Price gaps ............................................................................................................................. 24 Eligible production.................................................................................................................... 24 Input subsidies .......................................................................................................................... 26 Crop insurance and other green box claims .............................................................................. 27 2 Process ...................................................................................................................................... 28 A literal reading of domestic support provisions in the Agreement on Agriculture ..................... 29 General ...................................................................................................................................... 29 Article 1(a): AMS and support in favour of producers ............................................................. 30 Article 1(a)(ii): calculating AMS .............................................................................................. 31 Article 1(b): basic agricultural product ..................................................................................... 33 Annex 3, paragraph 9: fixed external reference price ............................................................... 34 Article 18.4: influence of excessive rates of inflation .............................................................. 36 Article 6.2: input subsidies ....................................................................................................... 38 AMS calculations for India for 1995 to 2013 ............................................................................... 41 Introduction ............................................................................................................................... 41 Product-specific AMSs ............................................................................................................. 42 Price gap scenarios............................................................................................................... 42 Market price support scenarios ............................................................................................ 44 AMS scenarios and de minimis............................................................................................. 45 Price gaps for four crops ........................................................................................................... 46 Rice ....................................................................................................................................... 46 Wheat .................................................................................................................................... 46 Cotton .................................................................................................................................... 47 Sugarcane ............................................................................................................................. 48 Product-specific AMSs for four crops ...................................................................................... 49 Rice ......................................................................................................................................