Subsidy Spotlight: India

March 9, 2012

The United States recently filed a case against India in the World Trade Organization (WTO) hoping to unclog trade channels for U.S. poultry producers.

“India’s ban on U.S. poultry is clearly a case of disguising trade restrictions by invoking unjustified animal health concerns,” U.S. Trade Representative Ron Kirk said via a press release. “The United States is the world’s leader in agricultural safety and we are confident that the WTO will confirm that India’s ban is unjustified.”

And this just may be the beginning of India’s WTO woes, according to a study by DTB Associates, a Washington, DC-based trade policy firm that says India’s been steadily increasing its subsidization and running afoul of WTO subsidy limits.

“India has increased support to the agricultural sector sharply over the past several years,” DTB wrote.

Among the increases are higher support prices for wheat and rice, which have risen by 72 percent and 75 percent respectively over the last five years.  India’s support prices “are now well above the U.S. target prices for both commodities,” according to the paper.

In addition, DTB pointed out a massive run-up in input subsidies—meant to offset costs of fertilizer, electricity, irrigation, and seeds—which have climbed 214 percent over the same period to $30 billion.

“In light of such increases, it is not surprising that India would have difficulty respecting its WTO commitments,” the study concluded.  “However, the WTO violations have gone unnoticed, in part because of India’s failure to submit the required WTO notifications and in part because of the methodology India uses to calculate its AMS.”

The AMS, or Aggregate Measure of Support, is the calculation by which the WTO measures subsidies and price supports to a country’s farmers.

WTO member countries are required to maintain subsidization within the AMS cap or certain “de minimis” levels (5 percent for developed countries; 10 percent for developing countries).  Exceeding the caps constitutes a violation of WTO rules and can result in WTO-sanctioned punishments.

“India’s AMS limit is bound at zero,” DTB noted.

The study further found that India has made significant changes in its AMS calculation methodology.  “It is unclear what motivated the changes, but their effect was to hide potential violations of WTO rules.”

By contrast, the United States is well under its AMS cap.

Larry Combest (R-TX), the former chairman of the House Agriculture and Intelligence Committees, says these findings are significant on two fronts.

“Many of our trade partners have attacked U.S. farm policies tongue-in-cheek as they derailed international trade talks through an unwillingness to make any meaningful reforms of their high and rising subsidies and tariffs,” he said.  “As Congress writes the next U.S. farm bill, lawmakers must be aware that while U.S. farm policy funding is at all time lows, our global competitors are aggressively stepping up their subsidies and tariffs to the detriment of U.S. farmers and ranchers and to our nation’s economy.”