Now, according to officials in the commerce ministry, the threat of both countries taking India to the wto tribunal and blocking exports of foodgrains looms large. Indeed, the issue is likely to snowball, with the Indian government having decided to go ahead with the export of foodgrains (last week, the Union cabinet cleared the export of 30 million tonnes of rice). This, despite the fact that commerce ministry officials admit that the US is technically justified and would probably win its case if it took it up with the wto. So, pundits in the food and civil supplies and commerce ministries are now desperately trying to come up with a suitable response to the stern 12-point questionnaire sent by the US and a shorter one from Canada.
With no place to store its wheat surplus and still more on the way, the government decided last year to sell 2 million metric tonnes of wheat overseas through the State Trading Corporation, Minerals and Metals Trading Corporation and Projects and Equipment Corporation. Some 7 lakh tonnes had already been sold when the US and Canada, both major wheat exporters, woke up to the fact that India was selling wheat at low prices in the international market.
The US has pointed out that the government pays farmers a minimum support price of Rs 5,800 per tonne. Add storage and other costs and the cost of wheat would be Rs 8,300 per tonne—the price at which the government of India sells wheat in the domestic market. Yet, it is selling wheat for export to its own state trading corporations at Rs 4,150 per tonne. That means India is selling wheat in the international market way below its cost price. This amounts to an export subsidy and under the terms of the wto agreement, to which India is a party, is illegal.
Trying to justify the move, officials of the commerce ministry say that Rs 8,300 per tonne is the price at which wheat was sold through the public distribution system to consumers above the poverty line, while Rs 4,150 per tonne is the price at which it is made available to those below the poverty line. Also, it isn't indulging in any direct export—it sells to the state trading corporations and the rest is their headache.
This argument is unlikely to cut any ice with the US, because it has already questioned the fact that the wheat has been sold to state trading corporations, excluding private agencies. These trading corporations do not have the option of selling the wheat back into the domestic market. The US, incidentally, has been lobbying against the channelisation of exports through state trading corporations.
But the US argument has its share of sceptics as well.Trade policy analyst Devinder Sharma argues that while the US is technically in the right, it cannot afford to take a holier-than-thou attitude with regard to export subsidies. While under a 1994 agreement developed countries like the US have been ostensibly scaling down their farm subsidies, these have actually been steadily going up. These "hidden subsidies" are thinly disguised in the form of direct payments to farmers on various pretexts like drought relief, subsidies on agricultural research and the US market access programmes. None of these are subject to reduction or elimination under the current trade agreements. For example, in 1998-99, the Organisation for Economic Cooperation and Development—a collective of 30 of the world's most industrialised countries—paid out farm subsidies to the tune of $360 billion. And this is in a case where less than 10 per cent of the total population is directly dependent on agriculture. According to anti-wto campaigners, the subsidy figure has only gone up since that time.
Then, there's the US practice of issuing export credit—giving loans to countries so that they can purchase US foodgrains. This goes against the tenets of the wto agreement but has also gone unchallenged. Indonesia has been one beneficiary of export credit, having received over 7 lakh tonnes of wheat from the US.
All this has raised the hackles of the developing world, which has found a champion in India. At a recent summit of the G-24—the group of less developed nations—in Washington, finance minister Yashwant Sinha pointed out that contrary to its publicly stated stand of globalisation, the developed world has actually been indulging in protectionism. One direct fallout of this has been that the export of primary products, which was meant to flow from the less developed world, has been throttled.
These issues have also been taken up by India at the ongoing negotiations on the Agreement of Agriculture (AoA) under the wto in Geneva. India has pointed out that the actual use of subsidies by developed countries has gone up, even as they preach elimination of subsidies to the developing countries. Direct payments to farmers, says India in its proposals on the AoA, should be gradually eliminated. So should the practice of export credit. These arguments have been made against the background of discussions on special differential treatment for developing countries like India.
Meanwhile, the US position on foodgrains exports by India is embarrassing for the pro-wto lobby here because it underlines the fact that India hasn't gained access to western markets—a promise that was used to justify the country's signing of the wto in the first place. As a commerce ministry publication points out: "The share of exports from developing countries...is less than what it was 25 to 30 years ago. The anticipated increase in exports from developing to developed countries has not materialised." And that's more food for thought.
