The "Big Bang" in agriculture in the WTO

The Uruguay Round Agreement on Agriculture is up for review in 1999 at the WTO and it appears that the developed countries have already begun their preparations. It is about time that the South countries got down to work for this crucial review. In their preparations, they should assess the impact of implementation of the Agreement and suggest some improvements, in particular, removing impediments to staple food production.

by Bhagirath Lal Das

NEW DELHI: 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, so-called, 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, for example, as consumers, as casual and infrequent exporters and also as hosts of non-commercial agriculture.

South should produce own staple food

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 privatization 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 a 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 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 of a country, at least on critical occasions, thus constraining its sovereignty in external relations.

Assured provision of 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 the 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 also have 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.

Some points for examination

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 exports well in advance. It should be examined whether developing countries have, in actual practice, experienced such a handicap.

A similar examination also needs 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 a 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.

Improvements needed in the Agriculture Agreement

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 by 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 liberalization of trade in agriculture, 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%, the budgetary support for the export subsidy by 36% and the quantity coverage of export subsidy by 21% 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.

Level playing field distorted

This significantly distorts the level playing field of competition.

The developed countries must reduce these subsidies significantly. Merely reducing them by a 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% 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 the purchase of food for stocking and public distribution is exempt from the reduction commitment.

Problems faced by net food importing South countries

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 to undertake 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 liberalization 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 the 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 liberalization 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 organizations 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 organizations 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. (Third World Economics, 16-31 January 1998)

(Bhagirath Lal Das was formerly, India's Ambassador and Permanent Representative to GATT. Later, he was Director of International Trade Programmes in UNCTAD.) The above article first appeared in the South-North Development Monitor (SUNS).