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Agriculture and The World Trade Organisation

 | 
Gurdarshan Singh Bhalla
, 
Jean-Luc Racine
, 
Frédéric Landy

IV. Trade in agriculture and WTO: benefits and problems

11. Trade and Agriculture: Potential Benefits and Problems. A Reading from India’s Perspective1

Ashok Gulati

Texte intégral

Introduction

  • 1 This paper drew heavily from the book Trade Liberalization and Indian Agriculture by Ashok Gulati a (...)

1This paper dwells basically on two issues: (1) will India gain from opening up its agriculture to the world economy as envisioned under the Uruguay Round Agreement (URA) on agriculture; and (2) what should be India’s negotiating stand with respect to agriculture in the coming round of WTO 2000? To respond to these issues, we first quickly run through India’s commitments under URA with respect to market access, domestic support and export subsidies in agriculture, and where does India stand vis-a-vis its commitments (section II). In section III we discuss what would be the probable gains or losses if India completely opens up its agriculture, unilaterally, to the world markets. And finally, in section IV, we take up the issues that India may like to negotiate in the WTO 2000 round.

The agreement on agriculture and India’s commitments

  • 2 For this see Johnson (1971 and 1991), Anderson and Hayami (1986), Islam and Valdes (1990) and Tyres (...)

2It is well known that the Agreement on Agriculture, under the URA, is an attempt to reform world trade and production of agriculture, which is highly distorted by large-scale subsidies being extended to the agricultural sector in most countries. Studies reveal that these direct and indirect agriculture-related subsidies manifest themselves into distorted world prices of commodities.2 The domestic and export subsidies coupled with the complex protective measures such as quotas, variable levies and minimum import prices have depressed and de-stabilized world prices. Distorted world prices, in turn, resulted in a situation of “deceptive comparative advantage” preventing efficient producers around the world from realising the benefits of their true competitiveness. The objective of the URA, therefore, is to limit these distortions and hopefully eliminate them in due course.

3The Uruguay Round commitments in the area of agriculture fall under three main categories, namely, market access, domestic supports and exports competition, which are described below.

Market access

4Under market access commitments, all member countries of the GATT are required to (i) replace all types of non-tariff barriers with tariff barriers, and (ii) reduce the levels of tariffs under a time-bound programme. These levels are to be reduced by 36 per cent in the case of developed countries and by 24 per cent in the case of developing countries. The period during which these reductions are to be made varies from 6 years in the case of developed countries to 10 years in the case of developing countries. The least developed countries are not required to undertake these reductions. In addition to these commitments, this measure also calls for maintaining current access opportunities and the establishment of minimum access tariff quota. This minimum access tariff quota is to be established at reduced tariff rates for those basic products where the current market access is less than 3 per cent of domestic consumption. During the implementation period this minimum access tariff quota has to rise gradually to 5 per cent of domestic consumption. However, if there is a surge of imports due to unfair trade practices when these steps are being implemented, the special provisions of the agreement allow any country to impose additional duties. The extent of these additional duties will depend upon the difference between the import price and the trigger price.

  • 3 These zero tariff bindings have been agreed upon in earlier protocols of the General Agreement on T (...)
  • 4 Australia, Canada, the European Community, New Zealand, Switzerland and the United States requested (...)

5Where does India stand with respect to market access? India has bound all her tariff lines of agricultural commodities. As a result, it is not obliged to provide minimum access of 3 per cent (or 5 per cent in due course) of domestic consumption. India has submitted high tariff bindings of 100,200 and 300 per cent for most of its agricultural commodities (see Table 1 for commodity specific details). Most of these tariff bindings appear to be prohibitive if they are compared with actual tariffs or with current and past implicit rates of protection. It is important to note, however, that in the past, domestic prices of some products have occasionally exceeded border prices by even higher margins than these high ceiling bindings. Examples are copra and coconut oil (tariff binding 300 per cent), sugar (tariff binding 150 per cent), and some oilseeds (tariff binding 100 per cent). Nonetheless, not all the agricultural tariffs were bound at these prohibitive levels. The exceptions are rice, maize, sorghum, millet, and skimmed milk powder for which ceiling binding were zero3; soya oil, olive oil, rapeseed, colza and mustard oil for which the ceiling bindings are 45 per cent (compared with 300 per cent for other major oils); dairy products (0 to 40 per cent); natural rubber (25 per cent). So far, a zero ceiling binding in the case of rice, maize, sorghum and millet has been of very little relevance as India has been maintaining quantitative restrictions on the imports of these from other countries. The reason underlying this is the Article XVI E-B, which permits a country to impose quantitative restrictions on imports up to the end of the implementation period if there is a problem with her balance of payments account. And India has been seeking cover under this special provision. But this is not likely to continue for long. A tough stand has already been taken by her various trading partners on this issue. The USA has taken India to the Dispute Settlement Body of the WTO over this issue and the case is under consideration.4 In early 1998, agriculture provided about 800 items out of a total number of 2700 items being covered under quantitative restrictions. Thus the removal of BOP cover can have some consequences on imports of agricultural commodities.

6In view of the imminent removal of QRs, India has now re-negotiated tariff for those commodities in which the tariff bindings were low or even zero to reasonable levels ranging between 60 per cent to 80 per cent.

7But how big that would be depends upon how high the domestic prices are in comparison to import parity prices, which we shall take up a little later. At this stage, it is worth noting that India did start opening up her agricultural sector to world markets partly in response to its commitments to the WTO but largely as a part of her own economic liberalization program. Steps to liberalize agricultural trade were initiated in early 1994 followed by a number of bolder reforms during 1995 and 1996 (Table 1).

8In January 1994, for example, government abolished the minimum export price (MEP) of basmati rice; in March 1994 the import controls on sugar and cotton were removed; in October 1994 the MEP (export controls) of common rice was lifted, and controls over private sector exports of durum wheat were removed. Far bolder steps in 1994 were in the edible oil sector, which hitherto was highly protected through quantitative restrictions on imports and exports. Imports of palmolein were brought under open general license (OGL) policy with 65 per cent import duty in April 1994, while simultaneously allowing exports of vegetable oils in consumer packs up to 5 kgs.

  • 5 The exports were opened up in May, but since bulk of the procurement had already taken place, the F (...)

9In February 1995, a major decision was taken to put almost all-edible oils (with a notable exception of coconut oil) under OGL, attracting an import duty of 30 per cent. In the case of palmolein, this meant a massive reduction from 65 per cent to 0 per cent. In March 1995, imports of butter-oil and skimmed milk powder were decanalised and delicensed. In May 1995, exports of non-durum wheat were allowed subject to a quantitative ceiling.5 In May 1995, the scope of controls exercised over the coffee industry by the Coffee Board was also reduced and the bulk imports of roasted coffee were delicensed. In June 1995, import duty on pulses was reduced from 10 per cent to 5 per cent.

  • 6 During 1996-97 and 1997-98, there were special custom duties imposed across the board, 2 per cent f (...)

10In July 1996, import duty on edible oils (except for coconut oil) was reduced from 30 per cent to 20 per cent and in July 1998, the basic import duty was reduced to 10 per cent.6

  • 7 Doubts about the permanency of these reforms are evident from the recent bans on wheat exports in l (...)

11These reforms were to some extent motivated by the long delayed recognition of the considerable export potential of India’s major crops and in part by the widening gaps between domestic and international prices due to the devaluation of the Indian rupee. In addition, some of the trade policy reforms have also been in response to the short-term exigencies such as building up of stocks (foodgrains) and meeting domestic shortages (cotton, sugar and edible oils). Thus the reason for abolishing and relaxing export controls on rice and wheat was that the country had surplus stocks and the FCI was finding it difficult to handle these surplus stocks. Similarly, decanalisation of cotton, sugar and edible oil imports was to deal with shortages of these commodities in the domestic market and to control inflation. It might be said that the trade policy reforms initiated since 1994 were perhaps more in response to short term exigencies than as a part of the exercise to comply with India’s obligation to URA. To that extent, even doubts about their likely permanency can be raised.7 Nevertheless, Indian agriculture was exposed to world markets of some major commodities, and in the years to come, while granting some hiccups in the process, the direction seems to be towards a relatively freer economy.

Aggregate measure of support

12Aggregate measure of support (AMS) is the annual aggregate value of market price support, non-exempt direct payments and any other subsidy not exempted from the reduction commitment expressed in monetary terms. Thus, to estimate AMS for Indian agriculture, one would have to first work out the level of support for each basic product (like rice, wheat, cotton and so on) through (a) market price support, (b) non-exempt direct payments, (c) other subsidies not exempted from reduction commitments. Support, which falls under the purview of non-product specific (subsidies on various inputs which go to many crops) is totalled into one non-product specific AMS expressed in monetary terms. Policies which have been excluded from reduction commitments are government spending on research, disease control infrastructure and food security. These also include structural adjustment assistance, direct payments under environmental programmes and regional assistance programmes.

  • 8 The external reference price could be (free on board (f.o.b) unit value in a net exporting country (...)

13Non-exempt direct payments are to be computed by using the gap between external reference price and administered price or by using budgetary outlays.8 Input subsidies and other policies like marketing cost reduction measures are to be determined by using budgetary outlays. However, if budgetary outlays do not reflect the full extent of a subsidy, the subsidy has to be worked out by using the gap between the subsidised price of input in question and a representative market price multiplied by the quantity of that input which is used.

14If the product specific and non-product specific AMS does not exceed 10 per cent of the total value of agricultural product in the case of a developing country (5 per cent in the case of a developed country), the country is not required to reduce the product specific and non-product specific support. However, if the AMS exceeds 10 per cent of the total value of agricultural production, it is required to be reduced by 13.3 per cent in the case of a developing country (20 per cent in the case of a developed country) of the value that does not qualify for exemption during the implementation period. The period given for implementing this reduction is 6 years for developed and 10 years for developing countries. The least developed countries have been exempted from these reductions.

15Where does India stand with respect to AMS? India has basically two types of support operations for farmers. First, market price support, which is in the form of minimum support prices announced by the government for different commodities, based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). Second, the supports in the form of input subsidies, which are on inputs like fertilisers, irrigation, electricity, credit and seeds. The third type of support, which falls under the head of non-exempt direct payment, is not given to farmers in India. By adding up the product specific and non-product specific AMS, one gets the total AMS. The calculations for India show that AMS for 17 major commodities for which India maintains market support programme is negative (Table 2). This negative support (or net ‘implicit’ taxation) is due to the fact that prices of different crops are fixed by the government below their international levels (barring rapeseed, mustard and sugarcane).

  • 9 The calculations of product specific AMS for these commodities at farm harvest prices are also some (...)
  • 10 If one works out AMS as a percentage of the value of only those crops for which AMS has been calcul (...)
  • 11 In nominal terms, the increase in the support price of rice works out to be 54.55 per cent 1991-92 (...)

16The AMS in India has remained negative over the years and hovered within a narrow range during the period 1986-1994. The estimates of AMS, as given in Table 2, show that there is no significant change in the AMS over the triennium ending TE 1988-89 and TE 1994-95.9 But in terms of percentage to gross domestic product (GDP) from agriculture, the extent of taxation (negative support) has come down from minus 23 per cent to about minus 18 per cent during this period.10 The reduction in taxation during TE 1994-95 reflects the sharp increases in prices of commodities such as wheat and rice announced during 1992-93 and 1993-94.11 This taxation of the agricultural sector reflects the fact that negative support of some crops such as rice, wheat and cotton outweighs the positive support received by crops such as oilseeds and sugarcane and the subsidies on inputs such as fertilisers, irrigation water, electricity and credit. The result has been that agriculture in net terms remains taxed through trade policy.

  • 12 These 19 commodities are: rice, wheat, pearl millet, sorghum, maize, barley, gram, groundnut, rapes (...)

17The latest review of India’s trade policy by the GATT secretariat (WTO, 1998) also reveals that the product specific AMS to Indian agriculture, based on calculations of 19 commodities,12 in the year 1995-96, was-38.47 per cent of the value of these commodities. The non-product specific AMS was 7.52 per cent, thereby providing a total product and non-product specific AMS to the tune of US $ 23746 million, which comprises almost-31% of the value of these 19 commodities. A negative AMS exempts India from reducing its domestic support levels either in aggregate terms or for any individual crops.

Export competition

18In the area of export competition, the GATT agreement calls for reducing direct export subsidies by 36 per cent from their 1986-88 level in case of developed countries over a period of six years. The quantity of subsidised exports by the developed countries is to be reduced by 21 per cent during the same period. In the case of developing countries direct export subsidies are to be reduced by 24 per cent and the quantity of subsidised exports is to be reduced by 14 per cent These reductions in the case of developing countries are to be carried over a period of 10 years as against six years in case of developed countries. The least developed countries are exempted from these reduction obligations. Export subsidies included in reduction commitments are direct subsidies paid by the government or any other agency, including payments in kind; payments that are made from the proceeds of levy imposed on agricultural products; subsidies given to reduce the costs of marketing including internal handling, processing, international transport and freight subsidy on export shipments.

19Where does India stand in this regard? Indian exporters of agricultural commodities do not get direct export subsidy. The only subsidies available to exporters of agricultural commodities are in the form of: (i) income tax exemption on profits from export sales and, (ii) subsidies on costs of freight (export shipments) of certain products like fruits, vegetables and floricultural products.

20Since these payments by developing countries are exempt from the reduction commitments during the implementation period, these will not cause any adverse impact on agricultural exports from India, at least during this period. In order to encourage exports of agricultural products these subsidies can be continued for the time being. Once the export supplies become self-sustaining during the adjustment period, these will need to be withdrawn.

21It is well documented in literature that most of the developed countries operate export subsidy programmes to enhance their exports. According to one estimate (GATT Secretariat, 1993) developed country export subsidies amounted to $ 16.4 billion during the base period. These countries would be required to gradually reduce their export assistance programmes. This will open up new markets for developing countries like India, which are not subsidising their agricultural exports. Therefore, reductions in export subsidies and subsidised exports of developed countries will have greater implications for developing country exports. Countries like India could benefit not only from improved market access opportunities in the developed and developing countries, but also from the reduction of subsidised exports and trade distorting production, incentives prevailing in developed countries.

Potential gains and losses in trade

  • 13 The word “dirty tariffication” implies that some developed countries bound their tariffs much above (...)

22This brings us to our next question: will India gain from opening up its agriculture unilaterally? There is a large grey area about how different countries would react to commitments under URA, and how changes in the trade policies of each country would affect world markets. Although there have been attempts in studies to model the changes in world agriculture in response to URA, they suffer from severe limitations. A review of this literature reveals that changes in world prices of different agricultural commodities are going to be rather slow in response to the commitments under URA (Sharma, Konandreas and Greenfield, 1996; Goldin and Mensbrughee, 1996). One of the reasons behind this slow change is the “dirty tariffication” done by some developed countries such as the European Union (Ingco, 1995).13 It is, therefore, giving rise to a widely shared belief that, as far as agriculture is concerned, URA has achieved a great deal by defining rules for world trade in agriculture, but rather little in terms of the immediate opening up of markets (Martin and Winters, 1996). For this reason, it would be safer to presume that world agriculture would not change dramatically, at least for the next 5 to 8 years, and then work out the potential gains and losses resulting from India’s unilateral decision to open up completely its agriculture.

23Elsewhere (Gulati and Kelley, 1999), we have worked out in detail the implications of India’s opening up her agriculture through a multi-market model, here we briefly present our results. We first provide a brief review of the price wedge between domestic and world prices of major agricultural commodities, as prevalent in early 1990’s (Table 3). This offers an idea about the direction and degree of change that Indian agriculture can experience with liberalization of her agriculture. This is followed by the estimates of potential gains (or losses) in production and exports and imports under some alternative assumptions, including those relating to rationalization of input subsidies such as on fertilisers or irrigation.

24The price wedge as shown in Table 3 indicates that the production basket of the agricultural sector is likely to witness a change with trade liberalization. Commodities such as rice, wheat and cotton are likely to expand at the margin while some others, especially oilseeds will shrink (or stop expanding). Commodities likely to experience significant reduction in their domestic prices are edible oils and pulses, as their prices are much lower in the international market than in the domestic market. These changes in the production basket will be accompanied by contrasting changes in the consumption basket, i.e., increase in the consumption of those commodities whose prices fall and vice versa. The changes in production and consumption will ultimately affect the country’s exports and imports of these commodities. This is what is presented in Table 4.

25The methodology used is that of multi-market model. Rice, wheat and cotton are treated as exportable and pulses and edible oils as importables. Rice, coarse cereals, and sugar, are endogenized taking into account the limited size of the world market. Four scenarios are created assuming external trade liberalization and different degrees of rationalization of input subsidies. The results of simulation exercises under four scenarios (Table 4) suggest that with opening up of imports and exports of agricultural commodities at zero duty (scenario 1), rice exports are likely to go up to 3.76 million tonnes, wheat exports to 5.1 million tonnes, sugar to about 0.34 million tonnes and cotton to 0.55 million tonnes (more than 3 million bales) (Table 4). However, there would be imports of edible oils to the tune of 1.25 million tonnes and of pulses by about 0.97 million tonnes. As the subsidies on irrigation and fertilizers are rationalized, the exports of wheat may somewhat reduce, but still would be within the region of 2 to 3 million tonnes.

26Of course these results are based on the assumed supply response (for details, see Gulati and Kelley, 1999) of different commodities to price changes, and we feel that the results under alternative scenarios are reasonably robust. This suggests that overall, there is a potential gain to Indian agriculture resulting from trade liberalization. There are issues regarding the impact of all this on the cost of living of the poor and so on, which is not taken up here, but has been analysed in Gulati and Kelley (1999), which also is not very adverse.

Agriculture in WTO 2000: negotiating issues for India

27Given the results that India has potential gains from the liberalization of agriculture, it is but obvious that India should play an active role in supporting faster liberalization of agriculture and rationalization of the subsidy regime being practised in several developed countries. India need not be ‘defensive’ in opening up her own agriculture. If at all, it needs to be somewhat ‘aggressive’ in negotiating faster liberalization. There is enough scope for India to gain the agricultural markets, in several developed and developing countries. The constraints are likely to come from her own supplies rather than from world markets.

28Some of the issues that may come up for negotiations in the WTO 2000 round are discussed briefly, and also what India’s stand could be in that context.

29One of the issues that is likely to come up, which is of special interest to India, is the residual protection of rice markets in Japan, Korea and Philippines. These countries were given an exception in the last round. Rice exports clearly are of particular interest to India, and it is in her interest to press these three countries to open up their markets.

30The other issue that may come up for negotiations is the monopoly power of state trading enterprises (STEs). These STEs are a disguised form of insulating the domestic economy from the world markets. This is because they are often given monopoly power to import or export. In India these are termed as canalising agencies. More often than not, these agencies get instructions from the government to import or export, more as a ‘residual’ activity between demand and supply of a product than as a business activity resulting from price differentials and with a view to gain from trade. Thus, these STEs do not let the price signals come from world markets, and domestic allocation of resources remains oblivious to the price vector prevailing in the international markets. This must go, and India should press for the removal of monopoly rights of STEs over imports or exports, instead of opposing it, if India wants to capture the markets in other countries. These STEs exist in several countries like Japan, Canada, Soviet Union, China, and even India.

  • 14 FCI = Food Corporation of India; NAFED = National Agriculture Cooperative Marketing Cooperation; ST (...)

31Monopoly rights of Indian canalising agencies such as FCI, NAFED, STC, MMTC14, etc. must also go because of the inefficiency in their operations. The track record of many of these agencies shows that they buy when prices are on the rising part of the swing in world markets and sell when the prices are ruling low. The lags in decision making, due to bureaucratic and political interference, often do not lead to buying and selling decisions that are economically optimal. If these inefficiencies have to be cut, the monopoly power of these STEs must go.

32Another issue is of export subsidies, the EU and the USA have been using export subsidies to promote their exports. This distorts the world markets most, and sends wrong pricing signals leading to distortions in the production baskets around the world. This must come to a halt at the earliest, and India should take an aggressive stand on this. In fact it would be in India’s interest to join the Cairns group in pushing for a faster elimination of export subsidies. India has nothing to lose but only to gain out of this issue.

33Similarly, another area in which India needs to take an aggressive posture is the reduction in domestic support to agriculture. Since India’s net aggregate measure of support is negative, and is likely to remain so in the near future, it has nothing to lose. But if countries like Japan, Korea, and even the EU or the USA bring down their support to agriculture at a faster rate, India can be a gainer and so would be the world at large in terms of more efficient use of global resources. Again, India should join hands with the Cairns group in this regard.

34India must ask for a ceiling on the product-specific domestic support, say at 50 per cent and their reduction on product-specific basis. At present, it is the AMS of all commodities that is counted in aggregate terms. This leaves enough scope for a country to have abnormally high levels of support in some commodity or the other. This leads to large-scale distortions in that commodity market. This is particularly true of the dairy sector in the EU. This must go. The maximum support for any commodity must not be more than 50 per cent, and that too should be brought down at the earliest. India should seek the support of the Cairns group in this matter. This would open some markets for India’s dairy products in particular.

35India should negotiate revision in the maximum tariff bindings of those commodities that are bound at zero import duty or 5 per cent import duty as a result of earlier rounds of GATT. Of special importance are the skimmed milk powder, rice, sorghum, maize, millet and urea. Even a maximum tariff binding of40 per cent would be sufficient (for other agricultural commodities like wheat, India has 100 per cent tariff binding). India may open its imports of these commodities at zero duty but having a maximum tariff binding of 40 per cent would give her policy makers, enough leverage to liberalise their agricultural markets with reasonable stability. This is especially true for skimmed milk powder, whose market is quite volatile. (India has in the meantime re-negotiated its tariff bindings and has succeeded in revising its maximum tariff bindings in the above commodities to a reasonable level ranging between 60 per cent to 80 per cent).

36There is a feeling in some quarters in India that India, being a large and populous country, should seek a special treatment in WTO 2000 for her food security needs. There seems to be reluctance on their part to rely on world trade for food security beyond a point. While there is some weight in this argument, India need not really push for this in any big way. The reason is that Indian agriculture does not happen to be highly protected or subsidised that there is a danger of a sudden deluge of imports of agricultural commodities threatening her food security. This is especially true with respect to cereals, which is considered critical for food security. If anything, India is likely to gain in cereals. And the best strategy to ensure food security, therefore, would be to lobby for faster reduction of support to agriculture by the developed countries. It is the distortions in those exporting countries that have adversely affected the incentives of cultivators in the developing world, which affected investments in agriculture and thereby created uncertainty on the food security front.

37One major challenge that a country like India will have to face with the opening up of agriculture is containing wide fluctuations in prices within some acceptable price band. International prices of agricultural commodities are quite volatile, and there is a legitimate concern in poor economies that such wide gyrations in essential commodities hurt the poor more than the rich. Therefore, countries with a large population below or near the poverty line prefer relative stability in prices of essential agricultural commodities. One of the instruments that has been tried earlier to ensure that domestic prices do not fluctuate with world prices is variable import duty. This duty acts as a buffer between domestic and international prices. Use of this instrument leads to fluctuations in the revenues of custom duty, but leaves the domestic prices more or less stable at a pre-determined level. Under the URA, it appears that the use of this variable import duty is not permitted. It may not be a bad idea to negotiate for variable duty with an overall ceiling given by the bound rates of duty.

TABLE 1: MAJOR AGRICULTURAL PRODUCTS, IMPORTS TARIFFS AND TRADE POLICY STATUS

Commodity

Existing Tariff/Uruguay April 1996

Rounding Binding

Trade Policy Status

1991

1997

Exports

Imports

Exports

Imports

Animals

0

100

Mostly rtd

Mostly rtd.

Mostly rtd

Mostly rtd

Meat

Fresh, chilled, frozen

10

150

Mostly rtd

Restricted

Mostly rtd

Restricted

Processed

50

150

Mostly rtd

Restricted

Mostly rtd

Restricted

Processed-homog, meats, hams

50

55

Mostly rtd

Restricted

Mostly rtd

Restricted

Hides & skins incl leather

0

25

Restricted

Free

Restricted

Free

Fish and crustaceans

10

150

Free

Mostly rtd

Mostly rtd

Mostly rtd

Dairy products

Milk and cream

40

100

Restricted

Restricted

Restricted

Restricted

Yogurt

40

150

Canalised

Restricted

Free

Restricted

Powdered Milk (<1.5%)

0

0

Canalised

Restricted

Free

Free

Powdered Milk (>1.5%)

0

0

Canalised

Restricted

Free

Restricted

Powdered Milk (>1.5% sweet)

40

40

Canalised

Restricted

Free

Restricted

Butter

40

40

Canalised

Restricted

Free

Restricted

Butter oil

40

40

Canalised

Restricted

Free

Free

Cheeses

40

40

Canalised

Canalised

Free

Restricted

Rice

0

0

Mostly rtd.

Canalised

Free

Canalised

Wheat and wheat flour

Durum (hard) wheat

0

100

Restricted

Canalised

Free

Canalised

Other wheats

0

100

Restricted

Canalised

Restricted

Canalised

Coarse grains & Hours

Maize

0

0

Restricted

Canalised

Restricted

Canalised

Sorghum

0

0

Restricted

Canalised

Restricted

Canalised

Millet

0

0

Restricted

Canalised

Restricted

Canalised

Barley

0

100

Restricted

Canalised

Restricted

Canalised

Rye

0

100

Restricted

Canalised

Restricted

Canalised

Oats

0

100

Restricted

Canalised

Restricted

Canalised

Others

0

100

Restricted

Canalised

Restricted

Canalised

Processed Cereals

Baby foods

15

17.5

Free

Restricted

Free

Restricted

Bakers dough

50

55

Free

Restricted

Free

Restricted

Breakfast cereals

50

55

Free

Restricted

Free

Restricted

All other

50

Free

Restricted

Free

Restricted

Pulses

5

150

Restricted

Free

Restricted

Free

Vegetables

10

100

Mostly free

Free

Mostly free

Restricted

Dried mushrooms, onions and potatoes

10

100

Mostly free

Restricted

Free

Restricted

Fruits

Grapes and plums

50

35

Free

Restricted

Free

Restricted

Dried prunes

50

100

Free

Restricted

Free

Restricted

Preparations of fruits and vegetables

About 13 vegetables

Orange juice

50

100

Free

Restricted

Free

Restricted

Other fruit juices

50

55

Free

Restricted

Free

Restricted

50

85

Free

Restricted

Free

Restricted

Coffee (unprocessed)

10

85

Restricted

Restricted

Restricted

Roasted & decaff, coffee in bulk

10

100

Restricted

Restricted

Mostly free

Restricted

Tea

10

150

Restricted

Restricted

Mostly free

Restricted

Spices

50

150

Mostly free

Restricted

Mostly free

Restricted

Caraway seeds

35

100-150

Mostly free

Restricted

Mostly free

Restricted

Thyme, bav leaves

35

35

Free

Restricted

Free

Restricted Restricted

Oilseeds etc

35

Free

Restricted

Free

Canalised

Oilseeds

40/50

100

Restricted

Canalised

Mostly retd

Canalised

Oil cakes, meals and flours

50

150

Mostly free

Canalised

Free

Canalised

Soya, rapeseed, mustered, olive & colza oils

20

45

Restricted

Canalised

Mostly retd

Free

Other edible oils incl. Coconut &

20

300

Restricted

Canalised

Restricted

Canalised

palm oils

Canalised

Raw Cotton

0

150

Restricted

Canalised

Free

Free

Greasy wool

10

25

Free

Free

Free

Free

Jute, sisal etc.

0

40

Free

Free

Free

Free

Sugar

0

150

Canalised

Restricted

Mostly free

Free

Natural rubber

25

25

Free

Canalised

Free

Mostly free

Raw tobacco

50

100

Restricted

Restricted

Restricted

Restricted

Wood and Wood Products

25-50

25-40

Restricted

Restricted

Restricted

Mostly free

Source: Compiled from India’s Tariff bindings submitted to the WTO and the latest EXIM policy.
Note: ”Mostly restricted“ means that most products or product varieties in the category are subject to licensing or other non-tariff controls.

TABLE 2: PRODUCT SPECIFIC AND NON-PRODUCT SPECIFIC AGGREGATE MEASURE OF SUPPORT (RS. BILLION)

Support Type

TE 1988-89

TE 1992-93

TE 1994-95

Product Specific AMS

(a) Based on support

-242.25

-427.89

-48.31

prices

(-27.74)

(-26.33)

(-23.09)

(b) Based on farm

-151.03

-295.21

-295.94

harvest prices

(-17.29)

(-18.17)

(-14.14)

Non-product specific AMS

45.77

86.45

114.71

(5.24)

(5.32)

(5.48)

Total product specific and non-product specific AMS

(a) Based on support

-196.48

-341.44

-368.59

prices

(-22.50)

(-21.01)

(-17.61)

(b) Based on farm

-105.26

-208.76

-181.22

harvest prices

(-12.05)

(-12.85)

(-8.66)

Source: Gulati and Kelley (1999).
Notes:
1. TE = Triennium Ending.
2. The product specific AMS is the aggregate value of market price support for 17 commodities which is calculated by multiplying the difference between the world reference price and domestic price with the total production. The crops include rice, wheat, sorghum (jowar), pearl millet (bajra), maize, barley, chickpea (gram), pigeonpea (arhar), black gram (mash), green gram (moong), groundnut, rapeseed mustard, soyabean, cotton, jute, sugarcane and tobacco.
3. The non-product specific AMS is the aggregate value of input subsidies such as electricity, irrigation, fertilisers, credit and seeds.
4. Figures in parentheses are percentages to the total value of agricultural production (excluding forestry and fishery).

TABLE 3: PRICE WEDGES BETWEEN DOMESTIC AND INTERNATIONAL PRICES (TE 1993-94)

Nominal Protection Coefficient (Domestic price/reference price)

Price wedge (1-NPC)/NPC (%)

Commodity

Importable

Exportable

Importable

Exportable

Scenario

Scenario

Scenario

Scenario

Rice

0.50

0.62

100.00

61.29

Wheat

0.56

0.94

78.57

6.38

Sorghum

0.83

1.23

20.48

-18.70

Maize

0.76

1.21

31.58

-17.36

Chickpea

0.82

-

21.95

Pigeon pea

1.20

-

-16.67

Groundnut oil

1.40

-

-28.57

Mustard oil

1.96

-

-48.98

Coconut oil

2.29

-

-56.33

Sunflower oil

1.95

-

-48.72

Soybean oil

1.98

-

-49.49

Cotton

0.70

0.94

42.86

6.38

Sugar

0.81

0.87

23.46

14.94

Source: Gulati and Kelley(1999).
Notes:
1. Importable scenario = Domestic price/Import parity price.
2. Exportable scenario = Domestic price/Export parity price.
3. Normally, the extent of price wedge is gauged by the tariff for tax rates. However, when there are non-tariff barriers on international trade the implicit protection rates are used to find out the wedges (tariff or tax rate = [(1-NPC)/NPC] x 1 00).
4. The suggested changes in prices implied by the implicit rates of protection do not take into account the impact of India’s entry into the world markets as an importer or exporter.
5. TE 1993-94 implies triennium ending 1993-94.

TABLE 4: CHANGES IN SUPPLY AND DEMAND AND EXPORTS AND IMPORTS OF SELECTED COMMODITIES

Commodity

Scenario

Percentage change in

Exports

Imports

Price demand

Supply demand

Urban demand

Rural demand

(m tons)

(m tons)

Rice

I

6.61

0.78

-5.10

-4.01

3.76

-

II

7.15

0.38

-5.37

-4.51

3.77

-

III

10.33

-1.19

-6.97

-6.36

3.78

-

IV

13.52

-2.76

-8.58

-8.20

3.79

-

Wheat

I

6.38

4.95

-5.22

-3.64

5.10

II

6.38

4.80

-5.13

-3.78

5.06

III

6.38

2.88

-4.62

-3.33

3.72

IV

6.39

0.95

-4.11

-2.87

2.38

Coarse

I

-10.16

1.06

-1.82

1.37

-

Cereals

II

-9.61

1.12

-1.78

1.43

-

III

-9.66

1.72

-1.27

2.04

-

IV

-9.72

2.32

-0.77

2.65

-

Pulses

I

-.9.09

1.09

2.76

5.72

-

0.97

II

-.9.09

1.19

2.91

5.50

-

0.94

III

-.9.09

2.14

3.05

5.73

-

0.85

IV

-.9.09

3.09

3.29

5.95

-

0.76

Oilseeds/

I

-37.64

-9.96

19.88

24.19

-

1.25

Edible oils

II

-37.64

-10.09

19.91

23.76

-

1.24

III

-37.64

-11.35

20.06

23.88

-

1.33

IV

-37.64

-12.61

20.21

24.00

-

1.42

Sugarcane/

I

4.50

-0.73

-2.14

-0.12

0.34

-

Sugar

II

4.90

-1.10

-2.28

-0.67

0.35

-

III

10.10

-2.97

-4.02

-2.96

0.36

-

IV

15.22

-4.83

-5.76

-5.24

0.38

-

Cotton

I

6.39

9.58

-15.02

-13.51

0.55

-

II

6.38

9.44

-15.06

-14.31

0.56

-

III

6.38

6.60

15.12

-14.00

0.51

-

IV

6.38

3.77

-15.19

-13.70

0.45

-

Source: Gulati and Kelley (1999).
Notes:
Scenario I = Reducing excess demand of rice and aligning domestic prices of wheat, pulses and cotton to their border-price equivalents (export parity price in case of wheat and cotton and import parity price in case of pulses and edible oils).
Scenario II = Scenario I plus 50 percent increase in irrigation water charges.
Scenario ΙII = Scenario II plus 29 per cent increase in fertiliser prices (reducing fertiliser subsidies by 50 per cent).
Scenario IV = Scenario II plus 58 per cent increase in fertiliser prices (reducing fertiliser subsidies by 100 per cent).

Bibliographie

Bibliography

Anderson, K. and Y. Hayami (1989): The Political Economy of Agricultural Protection: East Asia in International Perspective, Allen and Unwin, in association with Australia-Japan Research Centre, Australian National University, Sydney.

Goldin, Ian and Dominique van der Mensbrugghe (1995): The Uruguay Round. An Assessment of Economywide and Agricultural Reforms, in Will Martin and L. Alan Winters (eds), The Uruguay Round and the Developing Economies, The World Bank discussion Paper no. 307, The World Bank, Washington, D.C.

Gulati, Ashok and Tim Kelley (1999): Trade Liberalisation and Indian Agriculture, Oxford University Press, Delhi.

Ingco, Merlinda (1995): Agricultural Trade Liberalisation in the Uruguay Round. One Step Forward, One Step Backward?, Paper presented at a seminar on Uruguay Round and the Developing Countries, The World Bank, Washington D. C, January 26-27, 1995.

Islam, Ν and A. Valdes (eds), (1990): The GATT, Agriculture and Developing Countries, International Food Policy Research Institute, Washington, D.C.

Johnson, D.G. (1971, 1991): World Agriculture in Disarray, St. Martin’s Press, New York (second edition in 1991).

Joshi, Sharad (1994): Answering Before God, Project for Economic Education, Friedrich Naumann Foundation.

Martin, Will and L. Alan Winters (1995): The Uruguay Round and the Developing Economies, The World Bank Discussion Paper no. 307, The World Bank, Washington D.C.

Sharma, Ramesh, Panos Konandreas and Jim Greenfield (1996): A Synthesis of Assessment of the Impact of the Uruguay Round on the Global and South Asian Agriculture, Paper presented at a seminar on The Uruguay Round Agreement: Implications for South Asian Agriculture, Kathmandu, Nepal, April 22-24, 1996.

Tyers, R. and K. Anderson (1992): Disarray in World Food Markets: A Quantitative Assessment, Cambridge University Press, Cambridge, New York.

World Trade Organization (1998): Trade Policy Review: India, Report by the Secretariat.

Notes

1 This paper drew heavily from the book Trade Liberalization and Indian Agriculture by Ashok Gulati and Tim Kelley published later on by Oxford University Press (1999).

2 For this see Johnson (1971 and 1991), Anderson and Hayami (1986), Islam and Valdes (1990) and Tyres and Anderson (1992).

3 These zero tariff bindings have been agreed upon in earlier protocols of the General Agreement on Tariffs and Trade (GATT). For example, rice, plums, fresh grapes, and dried skimmed milk were committed to zero tariff binding in 1947 (Geneva Protocol, 1947). Some other commodities like maize, millet, spelt were bound at zero import duty in Torquay Protocol of 1951. Sorghum was bound at zero import duty in Geneva Protocol of 1962 (Dillon Round).

4 Australia, Canada, the European Community, New Zealand, Switzerland and the United States requested dispute settlement consultations with India. Pursuant to these consultations, bilateral, mutually agreed solutions were reached with Australia, Canada, the European Community, New Zealand and Switzerland as well as with Japan, which had third party interests. But at the request of United States, a panel was constituted in November 1997 to examine the allegation that continued maintenance of quantitative restrictions by India is inconsistent with its obligations under the WTO Agreement (WTO. 1998. 1 p.82).

5 The exports were opened up in May, but since bulk of the procurement had already taken place, the FCI did not release wheat to exporters till October, 1995. In 1996, first the export quota of wheat was reduced to 1.5 million tonnes from 2.5 million tonnes and in late 1996 exports of wheat and wheat products were completely banned.

6 During 1996-97 and 1997-98, there were special custom duties imposed across the board, 2 per cent for infrastructure and 3 per cent for covering oil pool deficit. In 1998-99, there was an additional 4 per cent duty, to provide a level playing field to domestic producers, but edible oils were exempted from this. Thus the effective duty on edible oils in 1998-99 still works to 15 per cent. The import duty on coconut oil, however, was 45 per cent in 1998-99.

7 Doubts about the permanency of these reforms are evident from the recent bans on wheat exports in late 1996 followed by some restrictions on rice exports as well.

8 The external reference price could be (free on board (f.o.b) unit value in a net exporting country and cost, insurance and freight (c.i.f.) unit value in a net importing country) and administered price could be domestic support price. The difference between the external price and domestic support price is multiplied by the quantity eligible to receive the administered price. The reference price shall be based on the years 1986-87 to 1988-89. The external reference price needs to be adjusted as necessary for quality differences in order to make it comparable with the domestically produced product.

9 The calculations of product specific AMS for these commodities at farm harvest prices are also somewhat in line with those obtained on the basis of support prices, except in relative magnitudes. The farm harvest prices have been used as an alternative set of prices because support prices have no meaning in the case of those commodities where no support operations are carried on by the Government Besides, farm harvest prices are supposed to be closer to the prices which farmers get for their produce As per GATT methodology there is some lack of clarity on two things:
(i) Whether to use the prices that farmers actually get or support prices as announced by the government;
(ii) Whether in proceeding beyond TE 1988-89, as the domestic prices change, the border prices for comparison should be of corresponding years or of the ones that prevailed during TE 1988-89. Economic logic suggests the use of border prices of the corresponding years.

10 If one works out AMS as a percentage of the value of only those crops for which AMS has been calculated, the taxation would turn out to be even higher. According to Joshi (1994), AMS based on this method stood at 68.88 per cent during TE 1988-89. Joshi has used support prices to work out the value of these crops. However, if one works out the value of these crops using farm harvest prices, the taxation turns out to be - 42 per cent for the same period. Although there is a downward bias in our calculations, if one uses world reference prices of rice, wheat and cotton at their export parity levels (rather than import parity levels) the bias is not so great. For example, we calculated the AMS for the TE 1994-95 based on support prices and export parity prices of rice, wheat and cotton (import parity prices of other crops). The calculations show that the AMS is - 11.54 per cent of the value of GDP in agriculture and-22.03 per cent if we take the value of only those crops for which the AMS has been calculated. Further, if we compare the external reference prices with farm harvest prices of these crops, the AMS works out to be -2.55 per cent of the GDP in agriculture and-4.87 per cent if we take the value of only those crops for which the AMS has been calculated. Clearly, interpretations will vary depending on which format of calculation one chooses.

11 In nominal terms, the increase in the support price of rice works out to be 54.55 per cent 1991-92 and 1994-95. For wheat it is 55.55 percent.

12 These 19 commodities are: rice, wheat, pearl millet, sorghum, maize, barley, gram, groundnut, rapeseed, toria, cotton, soyabean, urad, moong, tur, tobacco, jute, sugarcane and mustard.

13 The word “dirty tariffication” implies that some developed countries bound their tariffs much above the price difference between their domestic prices and world prices, which prevailed during the base period. As a result, the effective reductions in their tariffs, at least for the first 6 years, are going to be almost negligible.

14 FCI = Food Corporation of India; NAFED = National Agriculture Cooperative Marketing Cooperation; STC = State Trading Corporation; MMTC = Minerals and Metal Trading Corporation of India.

Auteur

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