Seven years after the WTO came into effect, developing countries find that all their hopes have been belied. India, for instance, had in a discussion paper, presented before a meeting of political parties, farmers organisations, NGOs and other civil society groups, accepted that none of the promises on three major planks of the Agreement on Agriculture (AoA) have come true. If that be the case for India, imagine the fate of other developing countries.
To expect that the WTO will make the necessary corrections when the final draft of modalities is released by the chairman of the agriculture negotiations on Dec 18-20, is to live in a fool's paradise. In fact, the developing countries have been befooled enough but still they refuse to stand up and say loudly that this is not what they wanted. Such is the bilateral political pressure that both the United States and the European Union, despite their publicly known differences, are trying to squeeze the developing countries into submission.
Knowing that the OECD countries are not going to reduce their agricultural subsidies, it is futile to expect that any phase-out formula will be implemented. The US has recently jacked up agricultural support and the EU continues to use the cover of 'multi-functionality' to protect its agriculture. Under such conditions, the developing countries should stop talking of reduction commitments and instead should be only demanding the subsidies to be brought down to zero before the AoA is implemented.
In addition, all that the developing countries need to ask for is linking up the removal of quantitative restrictions (of the developing countries) with the removal of agricultural subsidies. The restoration of QRs or in some cases the Special Safeguard Measures is the only way to protect the food security in the developing world. Any agreement short of this is of no use and should be outrightly rejected. The NGOs too need to be clear on this, or else they too would be inflicting an equal damage to the developing economies.
We present two papers on the continuing 'disagreement' on agriculture.
Contents:
The destructive fallout from the emerging global trade paradigm are being felt all over the country, though not in the same magnitude. But before we talk of the bitter political harvests and the growing disenchantment with the World Trade Organisation, it is important to understand why and how the market rules play against the Indian farmers.
It is now been acknowledged officially. Seven years after the WTO came into existence, on January 1, 1995, the anticipated gains for India from the trade liberalisation process in agriculture are practically zero. The Ministry of Agriculture as well as the Ministry of Commerce have officially admitted that the hopes from an international regime that talked of establishing a fair and market oriented agricultural trading system have been belied.
WTO's Agreement on Agriculture had incorporated three broad areas of commitments from member states, namely in market access, domestic support and export subsidies. The underlying objective being to correct and prevent restrictions and distortions in world agricultural markets. On the other hand, the trading regime has ensured that developing countries take time-bound initiatives to open up their domestic markets for cheap and highly subsidised imports of agricultural commodities in the name of encouraging competition.
Market access: Increased market access was the hallmark of the free trade agenda. It was aimed at force opening new markets for agriculture exporters. WTO required all countries to allow a certain minimum market access for every agricultural product at five per cent for developed countries and four per cent for developing countries.
There has, however, been hardly any change in the volume of exports. Tariff peaks or in other words high import duties continue to block exports from the developing countries. Tariffs still remain very high, specially in case of cereals, sugar and dairy products. Sanitary and phytosanitary measures, which were enforced to ensure quality of the imported products, actually continue to be a major barrier in diversifying exports in horticulture and meat products. Selective reduction in tariffs by the developed countries have also blocked the exports from developing countries. And on top of it, only 36 countries (all developed) have the right to impose special safeguard provisions if agriculture imports distort their domestic market!
India was forced to either phase out or eliminate the quantitative restrictions (QRs) on agricultural commodities and products latest by April 1, 2001. India has, therefore, opened its market and in turn made the farming community vulnerable to the imports of highly subsidised products. Already, cheaper imports of skimmed milk powder, edible oils, sugar, tea, arecanut, apples, coconut etc have flooded the market.
Domestic support: Clever manipulation of their subsidy reduction commitments has in reality increased the support to farmers in the developed countries. In the United States, subsidy to a mere 9,00,000 farmers has increased by 700 times since 1996. Two years before President Bill Clinton left the office, the US had provided an additional US $ 26 billion to its farmers. President George Bush has already announced an additional support of US$180 billion to the American farmers for the next ten years. In absolute terms, the farm support in the 30 richest trading countries (called the OECD) increased by 8 per cent to reach the staggering figure of US $ 360 billion in 1998 or one billion dollar a day!
In India, we are being told that our subsidies that are provided to agriculture, being negative (against the upper limit of ten per cent) we can still raise these. In reality, India is committed to do away with agricultural subsidies under the Structural Adjustment Programme of the World Bank and the IMF. In any case, India provides only one billion dollar worth of indirect subsidies to 110 million farming families.
It was anticipated that due to reduction in domestic support in developed countries, cereal production would shift from developed countries to developing countries. Empirical evidence, however, shows that such a trend is not at all visible. In other words, while the developing countries shift from cereals to cash crops like flowers and vegetables, they are left with no option but to import staple foods.
Export subsidies: WTO enables only 25 countries to provide export subsidies for their agricultural products and commodities. Other countries, which do not have agricultural export subsidies, like India, cannot make any new provisions for it.
The Ministry of Agriculture acknowledges that despite the rules being defined, the expected gains have eluded the developing countries. It was expected that with the removal of trade distorting measures, agricultural exports from the developing countries will increase. This did not happen. In fact, India has on the other hand seen a massive increase in the imports of agricultural commodities and products - from about Rs 5,000 crore in 1995 to over Rs 15,000 crore in 1999-2000 - a three-fold increase. In edible oils alone, the import bill has soared to Rs 12,000 crore. The so-called fair trading system has also not helped efficient producers in realising a higher price for their products. On the contrary, prices of most agricultural commodities are declining in the world markets.
Public stockholding of grains: Unlike the European countries where the public distribution system (PDS) was discontinued after the Second World War, its importance has grown for an overpopulated and poverty-stricken country like India. It was with the basic objective of curbing consumption and ensuring an equitable distribution of available food supplies, especially in the deficit areas and among the poorer strata of society, that the PDS was introduced more than fifty years ago.
WTO allows developing countries to use public stockholding of foodgrains for food security purposes "provided that the difference between the acquisition price and the external reference price (i.e. the international price) is accounted for in the subsidy support ". At the same time, member countries have been asked to identify the beneficiaries on the basis of "clearly-defined criteria related to nutritional objectives".
In other words, WTO has circumscribed the capacity of the government to intervene in the market to ensure needs of the food security. After all, if India were to acquire foodgrains for stockholding under PDS at the international prices, the budget allocations will mount beyond manageable limits. Any tinkering with the public stockholding of grains is sure to lead to food insecurity, as has been demonstrated in many countries, which have done away with public stockholding of grains. And yet, the government is making desperate attempts to decentralise the public stockholding of foodgrains in an obvious attempt to dismantle the main plank of what is called the 'famine-avoidance strategy'.
Food security box: Among the numerous measures being suggested in the ongoing review of agriculture agreement, much of the emphasis is on creating yet another box for food security as a mechanism for safeguarding developing country's vulnerability to cheaper imports. European Union has also been supporting some of the developing country's proposal to protect the food security needs. But what is essentially being overlooked is the way food security is now being defined. As the United States earlier declared, and which Britain blindly supports, food security no longer is linked to food self-sufficiency. Food security now implies that the needs of any developing country can be better met from trade.
What is being forgotten is that a developing economy like India needs a food security system that looks much beyond management of scarce supplies and critical situations. What is not being accepted is that free trade in food products and agricultural commodities does not help the survival of farming communities in developing countries like India, where it forms the backbone of the economy.
Food security, therefore, can only be ensured if the developing countries have provisions and powers to re-enforce QRs or trade barriers. No amount of tinkering with suitable clauses on market access, domestic support and export subsidies is going to serve the food security needs of the developing countries. Two measures, which will protect the food security needs of the developing countries while at the same time bring in equity and justice under the continuing " 'disagreement' on agriculture" as part of the global free trade regime, are:
*Food security can only be ensured if the right to impose QRs is restored for the developing countries. This can only be sanctioned under a multilateral system. The ongoing review of AoA is, therefore, the right forum to accord approval to this most effective provision for ensuring food security.
* The elimination of subsidies, including domestic support, and those for agricultural exports need to be linked to the removal of QRs. As long as the subsidies, both explicit and implicit, are not brought down to zero in the developed world, the developing countries should have the provision to continue with the QRs. After all, border protection is the only way for the developing countries to avoid being inundated by cheap and highly subsidised food and agricultural commodity imports.
[Rs 100 crore = Rs 1000 million. One US$= Rs 48]
The first round of discussions have taken place in the special sessions of the Committee on Agriculture in the areas of market access, domestic support and export subsidy. The trend of discussions gives rise to the apprehension that the negotiation on modalities for commitments may broadly proceed on the same lines as those adopted in the Uruguay Round. This course is likely to be harmful for the developing countries. In the Uruguay Round, the modalities were primarily in the form of percentage reductions in tariff, domestic support and export subsidy. The special treatment to the developing countries was mainly in the form of lesser percentages of reduction spread over longer periods.
This pattern of modalities has not been beneficial to the developing countries. In fact it has had adverse effects on them. The developed countries have retained prohibitively high tariffs, high domestic support (sometimes even enhancing them) and high export subsidy in various forms. The developing countries are not able to provide domestic support even if they are permitted up to some extent, because they do not have adequate financial resources. Their domestic production faces severe competition from the highly subsidized products of the developed countries. Also, their prospects of export to the developed countries and other areas get hurt due to competition from the subsidized exports from the developed countries.
Some facts brought out in this connection in a study by the FAO, published in two volumes, one in 2000 and the other in 2001, give a disturbing picture (Agriculture, Trade and Food Security, Vol I and Vol II. Rome: Food and Agricultural Organisation). This study has been conducted on the basis of the survey of experiences in 14 developing countries during 1995-98. The study shows that increases in food imports in most of these countries have been greater than the increases in their overall agricultural exports. Food imports had been rising rapidly in most of these countries, but there was no improvement in agricultural exports. Import surges in some products were quite common, particularly dairy products and meat. Import surges have undermined domestic production in several countries.
Some other studies conducted by some NGOs in EU and the US have given specific instances of the agricultural products from these areas being exported to the developing countries much below the cost of production. This has been done with the help of high subsidies. The studies have indicated that such exports have severely affected the domestic production in the developing countries.
Clearly the pattern and the structure of the guidelines followed in the Uruguay Round will not be appropriate for the ongoing negotiations on modalities. This pattern will be iniquitous and unbalanced, even if the differences in the percentages and time periods, as between the developed and developing countries, are wider than in the Uruguay Round. Entirely different pattern and structure are needed for the guidelines for commitments in agriculture in the current negotiations.
With the experience of the problems emerging out of the current agreement, it is advisable for the developing countries to suggest new set of elements for the guidelines that are being worked out in the ongoing negotiations Some suggestions are given in the subsequent sections for the guidelines for market access, domestic support and export subsidy commitments.
To read the full paper click here: http://www.twnside.org.sg/title/das8.htm
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