Trade: The Big Bang in Agriculture
New Delhi 12 Jan (TWN) -- The Uruguay Round Agreement
on Agriculture is due to come up for review at the World Trade
Organization in 1999, and it seems likely to be with a big bang.
There are indications that preparations have already
started in the major developed countries.
But developing countries have yet to start this work.
In the preparations for the review, the focus of
those developing countries which are consistent exporters of agricultural
products will be different from those which are not.
The former category of countries are likely to associate
themselves with the Cairns group of major socalled non-subsidizing
exporters, both developed and developing. But even they need to
identify their own specific interests within the overall interests
of the Cairns group.
The second category of countries will have various
types of interest, e.g., as consumers, as casual and infrequent
exporters and also as hosts of non-commercial agriculture.
But for all developing countries, a basic requirement
is that they must try to produce their own staple food as much
as possible, so that their dependence for these items on imports
gets minimised.
The conventional wisdom preached by theoretical economists
is for a country to import food if it is cheap, rather than invest
resources in the costly process of producing food within the country.
But for various reasons, this classical advice is not quite appropriate
in respect of such an essential and vital item as the staple food.
First, the developing countries, except for a very
few, suffer from the chronic shortage of foreign exchange. Dependence
on imports for their staple food in such a situation may cause
difficulties and uncertainties in the availability of food in
these countries.
Coupled with the privatisation of agricultural trade,
dependence on imports of food may also cause serious uncertainties
and frequent high rise in the prices of the staple food products.
A delay in the import of food at the time of shortage of foreign
exchange will cause tremendous misery to the people, resulting
at times in possible social unrest.
Second, even if adequate foreign exchange is available,
imports may not be readily available at the times of need for
various reasons. A country can ill afford any uncertainty in the
availability of food.
Third, dependence on imports for the staple food
may reduce the foreign policy options for a country, at least
on critical occasions, thus constraining its sovereignty in external
relations.
Assured provision of the staple food is almost as
important for a nation as its security. Hence, there is a good
rationale for treating staple food as somewhat different from
the normal commercial transactions in international trade.
Developing countries will therefore need to try to
adapt the WTO agreement to this basic requirement of theirs. And,
during the 1999 review, this important distinction between trade
in staple food and that in other items of agricultural or industrial
products must be a guiding factor.
The first step in the preparation by a country for
the review of the Agreement on Agriculture should be to assess
the impact of the implementation of the agreement on the country.
For such an assessment, a number of factors need
to be examined.
The major exporting developing countries should examine
how far their export prospect has actually improved by the reduction
in import controls, domestic support and export subsidy of the
major developed countries during these three years of the implementation
period. If possible, an attempt should be made to segregate the
role of each of these factors on the actual enhanced exports.
The non-perennial and marginal exporting developing
countries should also assess their experience on whether there
has been any actual increase in the prospect of their exports.
The developing countries should examine whether there
has been an increase in their imports of agricultural products
as a result of their reduction of import controls and domestic
support. They should see if there has been a pattern of increase
of imports from specific sources.
Also needing assessment is whether there has been
any impact on the production of agricultural products in the country,
and particularly whether there has been any adverse impact on
small and marginal farmers.
Those developing countries which have reduced their
domestic support have also to assess whether such a reduction
has created any problems for their farmers, particularly small
and marginal farmers. Even those that have not had to reduce the
support, should examine whether there had been any need for domestic
support in these years of implementation and whether they had
been constrained in providing support due to the commitments in
the agreement.
As part of their preparations, developing countries
should also undertake a detailed examination of the implementation
of the agreement by the developed countries that have large export
and import share in the agricultural products.
In particular the following points should be examined.
Under the agreement, a country is required to reduce
the overall domestic support from year to year, and the financial
ceiling for each year of the implementation has been committed
in its schedule.
But within this ceiling, the country is free to choose
the products, the types of subsidy and the quantum of subsidy.
As a result, there is a continuing uncertainty as to the choice
of the options.
Hence those developing countries which have possibilities
of exports may find it difficult to plan out their export well
in advance. It should be examined whether developing countries
have, in actual practice, experienced such handicap.
Similar examination needs also to be done with respect
to the implementation of the commitments on export subsidy by
the major developed countries.
An exporting developing country has to assess whether
the choice of the products in the developed countries for the
purposes of reduction of domestic support and export subsidy has
given it some benefit.
Developed countries have imposed very high tariffs
on several products in the process of tariffication of their non-tariff
import control measures. It should be examined whether there have
been any imports of these products beyond the tariff quotas in
these countries.
Some major developed countries had been having high
production of agricultural products, and they had schemes for
the reduction of production through retirement of land and other
resources. To encourage them in this move, the agreement permits
subsidies for this purpose.
It should be seen whether these countries have actually
taken advantage of these provisions and taken steps to reduce
the agricultural production effectively and whether actual reduction
has been achieved.
These studies should be conducted by the developing
countries which are capable of doing so. Various organisations
which are engaged in providing technical assistance to developing
countries should also conduct these studies to support the developing
countries in their preparations for the review.
These studies will provide the basis for the developing
countries to prepare their proposals for the improvements in the
agreement.
A number of improvements are needed in the Agriculture
Agreement to remove some basic problems.
Major developed countries have put prohibitive tariffs
on some product lines taking advantage of the tariffication process.
They have undertaken very light obligations for opening up their
markets. All that they are required to do is to reduce the tariff
levels by 36% by the beginning of 2000.
Hence the tariffs on these lines of products will
continue to remain very high even thereafter. In spite of the
professions of liberalisation of agriculture trade, their markets
will thus continue to remain almost closed for these products.
It is necessary that developed countries live up
to their own professed ideals of liberalisation and reduce their
tariffs on these product lines significantly so that imports into
these countries are possible. Alternatively or in addition, they
should significantly enhance the tariff quotas and make them available
on a non-discriminatory basis.
The domestic support and the export subsidy of these
countries are also very high. Here again the obligation on the
developed countries is rather light. All that they are required
to do is to reduce the domestic support by 21 percent, the budgetary
support for the export subsidy by 36 percent and the quantity
coverage of export subsidy by 21 percent by the beginning of 2000.
It appears highly unfair that the farmers in these
countries, who are far more well off than those in the developing
countries, will continue to get such high support from their governments.
It hampers the prospects of the farmers of developing countries.
This significantly distorts the level playing field
of competition.
The developed countries must reduce these subsidies
significantly. Merely reducing them by certain percentage over
a course of time is not enough; what is required is to have commitments
for significantly low ceilings.
There is also a basic inequity in the Agriculture
Agreement in respect of the import control, domestic support and
export subsidy: The major developed countries will be able to
retain 65 to 80 percent of the levels of subsidies even up to
the beginning of 2000, whereas most of the developing countries
which had not been using these measures before 1995, have been
totally prohibited from using them any more, beyond the de minimis
levels.
Apart from being grossly unfair, it may create problems
for the developing countries in case they need to introduce these
measures in the interest of development of their agricultural
production.
The developing countries have to be enabled to use
these measures up to a much higher level than what is permitted
by the de minimis provisions.
The input subsidies for low-income farmers are allowed
in developing countries. But developing countries may need input
subsidies in respect of some products for a wider range of farmers.
It may be necessary for essential food products as also for such
products which have the potential for production and export.
In many cases, agriculture may be the dominant economic
activity in the country and as such all encouragement to the production
and export of these products may be needed over the entire country
and not only for the low-income farmers. Developing countries
need to be provided with the necessary flexibility.
Subsidies listed in Annex 2 of the Agriculture Agreement,
most of which are relevant for the major developed countries,
have been protected against the countervailing duty and other
counter actions.
But the investment subsidies and input subsidies
for low-income farmers in developing countries have not been given
this favourable dispensation.
This is patently unfair.
Developing countries should get at least similar
immunity as the major developed countries.
The subsidy provided by developing countries in purchase
of food for stocking and public distribution is exempt from the
reduction commitment.
While this may appear to be a concession, in actual
effect it is not so. The amount of this subsidy has to be included
in the calculation of the annual Aggregate Measurement of Support
(AMS) and is thus subject to the overall committed ceiling. Hence,
if a developing country wants to provide this subsidy, it has
to reduce some other subsidy; which it could do anyway, even without
this "concession". There should be a clear provision
that this subsidy will not be included in the calculation of the
annual AMS. Though concern has been expressed about the problems
of the net food importing developing countries, nothing specific
as a commitment has been mentioned in the agreement. There is
a need for major developed countries undertaking adequate financial
commitments in this regard.
The modalities which led to the specific commitments
by various countries have not been made enforceable. It is important
to check the conformity of the commitments with the agreed modalities
which had been prepared before the conclusion of the Uruguay Round.
As mentioned earlier, the production of staple food
products in developing countries is of vital importance. Any impediment
to it, whether in the form of liberalisation of import or elimination
of government support, should be removed. It is desirable to exclude
the staple food production of developing countries from the disciplines
of the agreement altogether.
It is rational to treat it on the same lines as products
related to national security.
In a large number of developing countries, agriculture
is not always a commercial operation. Farmers take to it as a
means of livelihood in absence of an alternative. If there is
an integration of the domestic agriculture with the international
production and trade, it is likely that a large number of these
farmers and their families may lose their source of livelihood.
It is necessary to find out ways to insulate these farmers from
the adverse consequences of liberalisation of agricultural trade
and production. There should be some specific provisions in the
agreement in this regards.
Developing countries should start the preparations
for the 1999 review in right earnest. Side by side, the organisations
engaged in providing technical assistance to them should also
start their work immediately, if they have not started it already.
Information should be collected in various countries
on the points mentioned above and on other points which may be
relevant. It should be compiled and analysed with the focus mentioned
above.
There should be a structured co-ordination between
the developing countries and the organisations providing technical
assistance to them on this subject.
Developing countries should co-ordinate their preparation,
so that their resources are put to the best use in a combined
way.
Developing countries should identify their common
interests. Even if 15-20 countries group together and pursue their
common interest, they can be effective in the negotiations during
the review.
(* Bhagirath Lal Das was formerly India's Ambassador and Permanent Representative to GATT. Later he was Director of International Trade Programmes in UNCTAD.)