India invokes peace clause as rice subsidies exceed 10% cap

picture credits- the newyorker

India has again invoked the peace clause at the World Trade Organization (WTO), for exceeding the 10 per cent ceiling on support it offered its rice farmers. India informed the WTO that it exceeded its subsidy ceiling as the value of its rice production in the year 2019-20 stood at $46.07 billion. It stated that it gave subsidies worth $6.31 billion which amount to 13.7 per cent as against the permitted 10 per cent.

The peace clause was invoked by India, as it protects its food procurement programmes against action from WTO members as its rules were breached. In this particular case, the subsidy ceilings which stands at 10 per cent of the value of food production in the case of India and other developing countries was breached as India granted subsidies amounting to 13.7% of food production.

India invokes peace clause again as rice subsidies exceed 10% cap - The Economic Times

picture credits- the economic times

India’s invocation of ‘peace clause’ in 2018-19

It is to be noted that India had additionally invoked the peace clause for 2018-19. This had made India the first country to exercise its peace clause rights. Earlier, India’s minimum support programme (MSP) for rice was under scrutiny at the World Trade Organization , where the US and the EU had challenged the increase in subsidies beyond ceiling limits in the marketing year 2018-19.

Additionally, invocation of the ‘peace clause’ by India to justify the subsidies was also questioned by the opposing members who posed several queries on the various conditions. These queries included notification requirements, that were to be met for the purpose as decided at the Bali Ministerial meet.

A Geneva-based official had stated that “The main challengers of the invocation of the ‘peace clause’ were the US, EU, Canada, Brazil, Japan and Paraguay who registered a total of 25 questions in relation to India’s additional notification obligations, reporting methodologies and the trade impact of the support,”.

US, European Union, others question India on using WTO peace clause - The Economic Times
picture credits – the economic times

In 2018-19, India had informed the WTO that it had breached the subsidy limit fixed at 10 percent of the value of food production for developing countries under the Agreement on Agriculture, for rice. In that period, India had provided subsidies worth $5 billion to rice farmers against rice production worth $43.67 billion.

India’s arguments

Presently, India told the WTO that “India’s breach of commitment for rice, a traditional staple food crop, under… the Agreement on Agriculture arises from support provided in pursuance of public stockholding programmes for food security purposes which were in existence as on the date of the Bali Ministerial Decision on Public Stockholding for Food Security Purposes,”.

As breaching subsidy ceilings is seen as distorting global trade, India was again questioned by the US, EU, Canada, Brazil, Japan and Paraguay for invoking the peace clause for breaching the subsidy ceilings.

Additionally India informed the WTO that “Government does not undertake exports on a commercial basis from public stockholdings. Additionally, open market sales of food grains from public stockholding are made provided the buyer gives an undertaking of not exporting from such purchase,”.

India, in its notification to the organization, stated that under its public stockholding programmes for food security purposes, wheat, rice, coarse cereals and pulses, are acquired and released in order to meet the domestic food security needs of the country’s poor and vulnerable population. This is done “not to impede commercial trade or food security of others”. It further stated that “For these reasons, the breach of the de minimis limits for rice is covered by the peace clause,”.

Biswajit Dhar, professor at JNU stated that “The peace clause can’t be challenged and because of this flexibility, distribution of food grains to the poor can be done for free which is crucial during the pandemic,”.

It is to be noted that the country, through its Minimum Support Price (MSP) programme and National Food Security Act 2013, ensures food security and Public Distribution System in the economy.

India in its argument stated that that the main objectives of the food security programmes include ensuring MSP to farmers, stability in food grain prices and their equitable distribution at affordable prices to the marginalized and vulnerable sections of society throughout the year.

This required maintaining an adequate buffer stock of food grains to deal with fluctuations in production and meeting unforeseen exigencies and natural calamities.