Since last few years, global economy has been facing the fear of food shortage because of growing population and use of agriculture crops and land for alternate energy. The food security issue has become more serious since last two year. On the basis of this issue India was seeking the permission of higher subsidies for its agricultural products particularly rice. Rice is the primary food item in Eastern parts of India and it also contributes a significant share in Indian exports.
India had decided not to ratify WTO's Trade Facilitation Agreement ( TFA), which is dear to the developed world, without any concrete movement in finding a permanent solution to its public food stock-holding issue for food security purposes. It has asked WTO to amend the norms for calculating agriculture subsidies in order to procure food grains from farmers at minimum support price and sell that to poor at cheaper rates.
The current WTO norms limit the value of food subsidies at 10 per cent of the total value of food grain production. However, the support is calculated at the prices that are over two decades old. India was asking for a change in the base year (1986-88) for calculating the food subsidies. It wanted the change to a more current base year on account of various factors such as inflation and currency movements.
There are apprehensions that once India completely implements its food security program, it could breach the 10 per cent cap. Breach of the cap may lead to imposition of hefty penalties, if a member country drags India to the WTO. The research organisations and academia in India, Indian Ministry of Commerce and the Agriculture price Commission have the same and unified view of the issue of subsidies. Indian price commission proposed the rate of minimum subsidies for different agriculture products which are in practice since last decade. Supporting India's tough stand at WTO on the food security issue, United Nations (UN) body for development of agriculture International Fund for Agriculture Development (IFAD) issued a policy statement by mentioning that ensuring food for its people is more important than creating jobs in certain other nations. According to IFAD, "Creating jobs for some other country, while people are still hungry, doesn't make sense. The bottom line is that every government has the responsibility to ensure that it can feed its own people."
After emphasise on the permission of subsidy to rice growers by Indian government, it was decided by WTO to allow agriculture subsidies for an interim period till Eleventh Ministerial Meeting (perhaps after two years). WTO has allowed this subsidy to all member countries in the name of food security through its circular on the 'Public Stockholding for Food Security Purposes on 6th December 2013. This circular mentioned the relevant clause of 'Marrakesh Agreement', which states that "Until a permanent solution is found, and provided that the conditions set out are met, Members shall refrain from challenging through the WTO Dispute Settlement".
WTO declaration stated that:
"Having regard to paragraph 1 of Article IX of the Marrakesh Agreement Establishing the World Trade Organisation;
Decides as follows:
1. Members agree to put in place an interim mechanism as set out below, and to negotiate on an agreement for a permanent solution, for the issue of public stockholding for food security purposes for adoption by the 11th Ministerial Conference.
2. In the interim, until a permanent solution is found, and provided that the conditions set out below are met, Members shall refrain from challenging through the WTO Dispute Settlement Mechanism, compliance of a developing Member with its obligations under Articles 6.3 and 7.2 (b) of the Agreement on Agriculture (AoA) in relation to support provided for traditional staple food crops25 in pursuance of public stockholding programs for food security purposes existing as of the date of this Decision, that are consistent with the criteria of paragraph 3, footnote 5, and footnote 5&6 of Annex 2 to the AoA when the developing Member complies with the terms of this Decision. (Detail is also attached)"
It means that now Indian farmers will be in a position to supply their products at cheaper prices with the help of government financial support. Consequently, export of rice from India will be available at competitive prices in the international markets. Pakistani exporters will not be in a position to compete Indian exporters because government of Pakistan cannot provide subsidies to its growers -not because of WTO but because of IMF conditionality. As IMF agreement does not allow government to give any subsidy to its farmers or exporters. Moreover, because of growing fiscal deficit government of Pakistan cannot provide subsidies to the growers or exporters. It is astonishing that subsidies and transfer payment contribute 22 percent in Indian budget, while this contribution is only 8 percent in case of Pakistan, which is now further declining.
It is noteworthy that export of rice contributes more than two billion dollars in the foreign exchange earnings, and in the present economic condition foreign exchange earnings is too important for the economy. At present, the subsidy from Indian Government to rice exporters has seriously affected the rice exports of Pakistan. As the international prices of agricultural products is declining, but the export of rice from Pakistan is decreasing in term of quantity also during the last three months. Pakistan's rice export volume has declined during the last three month (July to September) from US $363 million compared to the last year same period of US $404 million. In this state of affairs, it was necessary to raise a voice in favour of exporters. FPCCI fulfilled its responsibility and has repeatedly informed the government and stakeholders about the subsidy on rice by Indian government in the name of food security. We have highlighted the consequences of Indian policy and its impacts on Pakistan's exports. FPCCI has informed the Ministry of Commerce, Ministry of Finance and stakeholders through various letters and Press Releases, but no action/reaction was taken from concerned departments as well as Ministry of Commerce.
It is notable that recent trends of trade statistics show the decline in the export of rice from Pakistan. In future it can hurt the other exports including textile and clothing products as cotton is the basic raw material of these products. Being the representative of Private Sector of Pakistan FPCCI has proposed of reviewing/re-negotiating with IMF regarding withdrawal of subsidies from major segments of the economy in the light of this new scenario. FPCCI has submitted its case to the Ministry of Finance and Ministry of Commerce. We emphasise that government of Pakistan will have to take necessary steps to design its fiscal policy according to the political economy of the region, where provision of subsidies and active response against non-tariff measures (NTM) have become the most active tools of economic progress.
FPCCI submitted its clear stance on PUBLIC STOCKHOLDING FOR FOOD SECURITY PURPOSES which was one of the agendas of the 9th Ministerial Conference of WTO at Bali, Indonesia, FPCCI emphasised Ministry of Commerce to strongly object on this demand of subsidy by India because if the subsidy is granted it would imbalance regional trade and Pakistani products (particularly rice) will become uncompetitive in international markets.
Pakistan has always been supporting liberal economic policies and free trade. All economic indicators and indexes released by international think tanks and policy making organisations indicate that Pakistan's economy is more open that other economies in South Asia. In continuation of our policies we have been supporting free competition in international markets. Indian policy makers have been supporting subsidies and protectionism. Consequently, Pakistani industry and exporting firms have to compel the demand for subsidies for getting equal level playing field.