Central idea: India has been criticized at the World Trade Organization (WTO) for not adequately addressing questions raised by members regarding its Minimum Support Price (MSP) programs for food grain, particularly rice.

 Genesis of the row

• WTO members such as the US, Australia, Canada, the EU, and Thailand have alleged that India did not provide sufficient responses during consultations.
• The MSP programs have breached prescribed subsidy limits and are under scrutiny at the WTO argued these countries.
• With this, India became the first country to invoke the Bali ‘peace clause’ to justify exceeding its 10% ceiling for rice support in 2018-2019 and 2019-2020.

What is ‘Bali Peace Clause’?

• India’s minimum support price (MSP) falls under the amber box subsidies category.
• India has exceeded its limits for amber box subsidies for rice for two consecutive years, which is why it has been challenged at the WTO.
• The Bali ‘peace clause’ allows developing countries to exceed their 10% ceiling without facing legal action by other members.
• However, it is subject to numerous conditions, such as not distorting global trade and not affecting food security of other members.
• India’s MSP programs are subject to the ‘peace clause’, but some WTO members have accused India of habitually not including all required information in its notifications.

Allegations of Inadequate Reporting by India

• WTO members have been accusing India of not reporting all public stockholding programs under the ‘peace clause’.
• Some members have pointed out that India also lacks an adequate monitoring mechanism to ensure that no stocks are exported.
• India, on the other hand, argues that it is not obligated to notify any public stockholding programs other than for the crop where the subsidy limits were breached.

Impact on India’s MSP Programs

• The criticism from WTO members could have an impact on India’s MSP programs for food grain, particularly rice.
• The conditions set under the ‘peace clause’ could limit India’s ability to exceed the subsidy limits and support its farmers.
• India may have to provide more detailed notifications and monitoring mechanisms to address the concerns of other members and ensure compliance with WTO regulations.

Why is India defending its stance on MSPs?

• India faces several challenges in the agricultural sector, including climate change, soil degradation, and water scarcity.
• The country also has to deal with farmers’ distress due to low prices for their produce, which is why the MSP program was introduced in the first place.
• The challenge posed by the WTO to the MSP program could further exacerbate the problems faced by Indian farmers.

Back2Basics: WTO and its Subsidies Boxes

The World Trade Organization (WTO) is an intergovernmental organization that is responsible for regulating international trade between nations.

• Establishment: It was established on January 1, 1995, and currently has 164 member countries.
• Objective: To ensure that trade flows as smoothly, predictably, and freely as possible.
• Frameworks: Negotiating and formalizing trade agreements, resolving trade disputes between member countries, and monitoring national trade policies.
• Working principles: Non-discrimination, transparency, and fairness in international trade.

The WTO has three types of subsidy boxes – green, blue, and amber. Each box represents a different level of trade-distorting subsidies.

1. Green box subsidies: These subsidies are considered non-trade-distorting and are allowed under WTO rules. They include measures such as research, disease control, and infrastructure development.
2. Blue box subsidies: These subsidies are considered less trade-distorting than amber box subsidies but can still distort trade to some extent. They include measures such as direct payments to farmers to reduce production, provided that certain conditions are met, such as the use of fixed areas or yields.
3. Amber box subsidies: These subsidies are considered the most trade-distorting and are subject to reduction commitments under the WTO Agreement on Agriculture. They include measures such as price support, input subsidies, and direct payments that are not subject to certain conditions.

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