Agriculture talks must first set right UR inequities

Under the WTO Agreement on Agriculture, the industrialized countries remain able to impose punishing tariffs and provide high levels of domestic support and export subsidies that are distorting world agricultural trade and production. It is thus imperative that the initial guidelines for the ongoing mandated negotiations in this sector be so formulated as to steer the talks towards redressing these imbalances that have weighed heavily on the South.

GENEVA: Negotiations have started at the World Trade Organization in the two areas of agriculture and services, and judged by the pronouncements of the main demandeurs, there is pressure to start the process from where it ended in the Uruguay Round (UR) of trade talks.

It is now well recognized that the WTO agreements contain significant deficiencies, imbalances and inequities - and cast a much heavier burden on the developing countries than on the industrialized countries (ICs).

The UR negotiations were premised on liberalization of trade by reducing tariff and non-tariff barriers. It is now obvious that the liberalization of trade in services has benefited the ICs and their suppliers, whereas the developing countries have enjoyed very little benefit. In agriculture and textiles and clothing, both of which come under trade in goods, in retrospect at least, it is clear developing countries have received little or no benefit but have had to take on iniquitous obligations.

In fact, in agriculture, as in textiles and clothing, a fraud has been perpetrated on developing countries in terms of liberalization of trade and improving market access for their exports.

Under the Agreement on Textiles and Clothing (ATC), the promise of liberalization of the trade in this sector and its progressive integration into GATT (by removal of discriminatory quotas) has been implemented by grouping all the products, the overwhelming majority of which are not under restraint, in the same category, and technically ‘liberalizing’ the unrestrained products without any meaningful liberalization of trade.

In the agriculture sector, the major developed countries have technically fulfilled their obligation of reducing domestic subsidies when, in reality, by a very clever use of the provisions of the Agreement on Agriculture (AoA) - thus reflecting faulty drafting of the rules - they have in fact increased the quantum of subsidy. This shows that the pronouncements of the ICs in the WTO about liberalization and reduction of subsidies in agriculture are not backed by political will.

In the initial phase of the negotiations on agriculture and services, modalities and guidelines that will determine the course of the negotiations and, to an extent, the outcome, will be set. It is hence necessary that developing countries get fully involved in the process and place their own proposals on modalities/guidelines and not follow the modalities/guidelines set in the UR, as the ICs would want. The UR modalities and guidelines were what resulted in the imbalances and inequities, and it will not be correct to follow them. It is important for developing countries to resist the pressure to do so.

Under Article 20 of the AoA, the new negotiations on agriculture are to be directed towards “the long-term objective of substantial progressive reduction in support and protection”. In this process, some of the factors to be taken into account are “non-trade concerns”, “special and differential treatment to developing country Members”, and the “objective to establish a fair and market-oriented agricultural trading system.”

Inequities in the AoA

The AoA requires a country to calculate its Aggregate Measurement of Support (AMS) for the base period as a measure of domestic support, and then reduce it from year to year.

But two categories of subsidies are exempt from being included in the AMS - and thereby from being reduced. One set of subsidies is given in Annex 2 (Annex 2 subsidy) and the other set in Article 6 (Article 6 subsidy) of the AoA. These are two ‘exempted subsidies’.

The base level for the AMS was taken as the average annual rate during 1986-88. A 24% reduction of the AMS was to be effected on this base during 1995-2000 by the ICs. However, the major ICs have reduced the AMS but increased the level of exempted subsidy by huge amounts - resulting in a very high rise in total domestic support, including AMS and the exempted subsidies. In the EC, the base level of total subsidy was nearly $83 billion and it increased to $95 billion in 1996. In the US, the corresponding level went up from $50 billion to $58 billion.

There is another measure of total domestic support, the Producer Subsidy Equivalent (PSE). In the EC, this increased from $100 billion in the base period to $130 billion in 1998. In the US, the corresponding increase has been from $41 billion to $47 billion. For the ICs as a whole, the corresponding increase has been from $247 billion to $274 billion. Thus, the provision of very huge domestic subsidies has continued in the ICs and has been increasing over the years.

[These figures are derived from calculations from published data made at the South Centre in Geneva.]

In respect of export subsidies, the commitment of the ICs is to reduce the budget outlay by 36% and the total quantity of exports covered by the subsidies by 21 percent. The base level for this is the average annual level for 1986-1990 and the reductions are to be done over 1995-2000. Some countries which had increased their level of export subsidies during 1991-92 were allowed to start with that higher level in 1995 and had to reduce at a fast rate so as to achieve the reduction target of 36/21 on the base level of 1986-90. Thus, even in the year 2000, the amount of subsidies on exports will continue to be as high as 64% of the base level.

Most of the developing countries did not have non-tariff barriers of the type which would have been converted into equivalent tariffs. [Their import control measures had mostly been taken under the WTO’s balance-of-payments provisions and were not required to be tariffied. But the WTO dispute settlement panels/Appellate Body have, through their rulings, effectively removed the use of this not only on industrial products but also with regard to agricultural products.]

Thus, unlike major ICs that had earlier been distorting the market by their use of non-tariff barriers, most of the developing countries did not have the benefit of introducing high tariffs through the process of tariffication under the AoA.

Most developing countries did not also have much domestic subsidy and export subsidy. They have thus been denied the flexibility of using these instruments beyond the de minimis limits in the case of domestic support. Except for a very few developing countries, for example,  Brazil, Cuba, Colombia, Venezuela, Korea, Thailand and India, which use some exempted subsidies, though at comparatively small levels, others have either no such subsidy or negligible levels of such subsidy compared to the total exempted subsidies of the ICs.

There is also the possibility of a serious problem emerging for the developing countries. With the removal of non-tariff barriers, the developing countries are exposed to the risk of import surges which will harm their domestic production capacity. A normal safety course would have been through the safeguard mechanism of GATT 1994, but injury may be technically difficult to demonstrate where such dispersed production as in agriculture is involved. Hence this recourse may not be practical.

Keeping this in view, the mechanism of special safeguard (SSG) has been evolved under the AoA. But it can be used only by countries which converted their non-tariff barriers to equivalent tariffs through the tariffication exercise. Most of the developing countries did not have such barriers and thus did not resort to tariffication. As such, they are not allowed to use SSG at present. This appears patently unfair.

With the strength bestowed by the huge subsidies on agricultural production in the ICs, the developing countries may be flooded with imports from the ICs. It is necessary for them at least to have the possibility of using SSG to safeguard their domestic production.

The high tariffs of the ICs on some important traded products and their high domestic subsidies as well as export subsidies are the major causes of protection and distortion in world trade in agriculture. According to the objectives of the negotiations for continuing the reform process under Art. 20 of the AoA, these must be corrected.

All these have particularly adverse impacts on the production and trade of the developing countries. The farmers of developing countries are economically very weak compared to their developed-country counterparts; and then they are faced with an unfair and unbalanced situation in trade and production because of the high import barriers in the ICs and the colossal subsidies to their farmers.

Redressing the imbalances

Any further negotiations for liberalization in agriculture should hence start with bringing about correctives to the current situation. The major ICs must eliminate or at least substantially reduce their domestic subsidies and totally eliminate export subsidies. They have already enjoyed the huge concession and benefit of retaining them to a substantial extent for the first five years of the workings of the AoA. This is an almost totally one-sided concession and benefit; a very large number of developing countries got practically nothing in return. It is time the ICs undertake the commitment of giving up these concessions and benefits which are distorting world trade and production in agriculture in a big way. The objective of the AoA is to end such distortion.

There is also another serious problem in the AoA that has repeatedly been pointed out by developing countries. The AoA is based purely on considerations of commerce. As a result, two special issues of concern to developing countries have not been attended to.

These two problems are: production of food in the developing countries for domestic consumption and protection of small and household farmers. These two factors were repeatedly stressed by developing countries during the preparations for the Seattle WTO Ministerial Conference last year. It is important that there is agreement that policies and measures of developing countries in regard to these two factors not be constrained by the AoA.

Another serious concern of developing countries is the cost of agricultural liberalization to net food-importing developing countries. The AoA pays only lip service to this issue. There is recognition of the problem but no effective solution. There is an urgent need for an effective mechanism to assist the net food-importing developing countries.

These issues should be accorded absolute priority in the agriculture negotiations. In order to restore some balance in the AoA, the initial modalities or guidelines for the negotiations should contain only these issues. Only after these problems have been solved in the initial phase of the negotiations should further guidelines or modalities for liberalization be set.

In this light, the initial guidelines or modalities may consist of the following:

   *      Substantial reduction of tariff peaks in agriculture in the ICs. The extent of reduction and the period over which the target is to be fulfilled should be finalized.

   *  The domestic subsidies in agriculture in the ICs should be eliminated/substantially reduced over a short period of time. Similarly, export subsidies in agriculture in the ICs should be eliminated over a short period of time, and this period should be set.

   *  A decision should be reached that food production in developing countries for domestic consumption as well as protection of small farmers and household farmers would be excluded from the disciplines of the AoA on market access and domestic subsidies. Negotiations should take place to determine the method of implementing the decision.

   *  A decision should be made that the SSG mechanism can be utilized by developing countries whether or not they have resorted to tariffication.

   *  There should be an agreement on effectively and directly assisting the net food-importing developing countries. The mechanism and method should be finalized.

   After these initial guidelines/modalities have been acted upon, further modalities/guidelines may be prepared. (SUNS4704)                                


About the author: Bhagirath Lal Das is a former Indian Ambassador to GATT and former Director of International Trade Programmes at the United Nations Conference on Trade and Development (UNCTAD).