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Agriculture and The World Trade Organisation

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

VI. After Seattle

15. Issues for the New Round of Negociations: an India Perspective

G.S. Bhalla

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Seattle and afterwards

1The WTO meeting at Seattle during December 1999 was an eye opener for the World Trade Organisation. It was assumed earlier that in spite of some opposition, there exists an overwhelming support for the WTO objective of bringing about multilateral trade liberalisation.

2Seattle proved that opposition to the WTO is not just marginal but quite overwhelming. One group, the anarchists, mainly middle class youth from developing countries who do not believe in markets, wanted to destroy the WTO as a symbol of a capitalist system they detest. They indulged in violent demonstrations.

3There were four other groups along developing/developed and reformist/abolitionist dimensions. Further, the opposition was not merely from NGOs and small disgruntled anarchists, but also emanated from powerful trade unions in the USA.

4The demonstrators from the USA and other developed countries created much of the noise of course. They consisted mainly of labour unions and a combination of consumers’ environmental and anti-globalisation groups. Some wanted stricter environmental and labour standards to be imposed. They were opposed to the entry of cheap goods produced by cheap labour from the developing countries, as this was likely to have an adverse impact on their jobs. Some of them felt that the WTO had become too powerful and encroached upon the sovereignty of different countries by forcing them to conform to the rules laid down by it. The free trade rules often resulted in overriding other legitimate concerns like food safety.

5As against this, the participants from the developing countries had a completely different agenda. Most of them were not much concerned about cheap imports or child labour. Their major concern was to make the WTO more equitable between the developed and developing countries. NGOs from developing countries criticised the WTO for quickly advancing causes in which developed countries were interested (such as intellectual property rights), while moving slowly, if at all, in areas of great importance to poorer countries (like agriculture and textiles). Most of them either opposed or did not actively support the introduction of labour and environmental standards for fear of tilting the WTO’s institutional power and agenda away from poorer countries. Some groups however also advocated the elimination of the WTO or the exclusion of agriculture from the WTO framework.

6But most groups from the developing countries underlined the inequity built in the WTO which had given much more power to the developed countries by allowing them to maintain very high levels of tariffs and export subsidies thereby denying market access to the exports of developing countries. They advocated the removal of all trade and non-trade barriers and elimination of export subsidies.

7In brief, while the agenda of developed countries NGOs and Trade Unions was against the very spirit of GATT and free trade, the agenda of developing countries was to reform the WTO with a view to making it more equitable between the developing and the developed world.

8The lesson learned from Seattle is that the WTO cannot afford to appear to be working in the interest of only the developed world. It has to keep in mind the concerns of developing countries that because of being poor, do not have the same bargaining power as the developed countries.

Major issues for negotiations in the millennium round of Agreement on Agriculture (AoA):

9India, like most other developing countries, is fully committed to the WTO’s objective of multilateral trade liberalisation, which is expected to increase international trade and benefit all the trading partners. There exists a general consensus among the Indian scholars that the Uruguay Round (UR) of GATT negotiations and the setting up of the WTO is a major landmark since it has, for the first time, provided the institutional framework for freeing multilateral trade in agriculture. The Agreement contains reduction commitments by both the developed and the developing countries of both domestic and export subsidies and their replacement by tariffs. It is expected that the hoped withdrawal of huge support to agriculture by the developed countries would result in providing a major incentive for agricultural exports from the developing countries.

10But this notwithstanding, it is being increasingly realised that because of various trade and non-trade barriers imposed by the developed countries, the developing countries are unable to reap the potential of increased exports. Not only do they face the problem of market access in agricultural and agro-processing areas, huge export subsidies on many products makes their products non-competitive in the world market. The WTO Agreement has not fully succeeded in addressing these issues.

11It is in this context that India has tried to articulate its views about various issues to be taken up in the Millennium round of negotiations on AoA. In India as in many other developing countries, a need is felt of more explicitly addressing the relevant tools which hinder market openness including protectionism tools such as high levels of tariffs, export subsidies, trade related quotas and non-trade barriers. Some of these are outlined below.

High protection levels in the developed countries

12The first major problem is very high level of tariffs on agricultural imports in developed countries. In practice, despite reduction commitments, the developed countries have been able to maintain very high tariff ceilings since their existing tariff levels in the base period 1986-88 of UR negotiations were already very high, sometimes well over 300%. Consequently, for several considerations, the levels of tariffs and actual tariff ceilings imposed are much higher in comparison to those prevailing in the developing countries. The average tariffs for the OECD countries for the first year of implementation of tariff reductions (i.e. 1995) was 214% for wheat (186% for wheat flour), 197% for barley, 154% for maize, and 11% for rice, respectively. On the other hand, in the developing countries, the average bound rates of duty for the three major cereals, namely wheat, maize and rice were about 90%.

13The main suggestion for future negotiations is to bring down excessively high tariffs to some moderate levels. Tariff reductions for developing countries should be half the levels of developed countries. The ultimate aim should be to reduce the percentage of tariff levels for each commodity in all countries in the range of 50% to 75%. This tariff rate should not be calculated as an average for all commodities, but should apply to each and every commodity.

Export subsidies

14The second major problem is that under Agreement on Agriculture, a relatively small number of developed countries, which have been using export subsidies, were given the opportunity to use these subsidies. These countries continue to give large export subsidies to agricultural commodities. Total support in the OECD countries in 1998 was about US$ 362 billion, higher than US$ 326 provided before the Uruguay Round began. The highest transfers are by the EU followed by Japan and US (OECD, 1998). Again, during 1996, per farmer transfer in the EU, USA and Japan were US$ 17474, US$ 27240 and US$ 30091, respectively.

15The combination of high import tariffs and high export subsidies has dual ramification. First, developing countries are unable to get the desired share of the global market. Second, developed countries may encroach upon their markets through cheap imports.

16Another issue related to export subsidies is that the current agreement does not include export credit schemes under the reduction commitments. Clearly, rich countries with large resources can afford to extend export credit to boost their exports. In the new agreement there is a need to include these in the reduction commitments.

17In the next round of negotiations, there is a clear need for arguing for the abolition of all export subsidies including export credit within a certain specified time period of 2 to 4 years.

Other support

18The subsidies given under “blue box” (payments under production limiting direct payment programmes, etc.) and “green box” (Research, Insurance etc.) also lead to increases in subsidised output in developed countries. The “blue box” is essentially an agreement between the US and the EU for giving certain support for decoupling and withdrawal from farming (Jostling, 1998).

19The main suggestions in this regard are to empty and lock the “blue box” and to tighten the criteria for inclusion of support under the “green box”. There should be a ceiling on all forms of direct payments and these should be included in the calculation of the aggregate measure of support (AMS).

20High import tariffs and high export subsidies imply that the problems faced by the developing countries arising from the implementation of AoA could be two-fold. One, they would not get the desirable share in the larger markets because of the continuing policies of protectionism. And, two, their own markets may be targeted by the subsidised products from the developed countries. In addressing these problems, there have been attempts to prioritise the twin issues of trimming the subsidies and market access. The suggested priorities appear to have been guided by the domestic compulsions of the countries. Thus, while countries with significant surpluses have been more inclined to pitch for better market access, domestic market considerations have driven others to argue for a rapid phasing out of export subsidies.

Sanitary and phytosanitary (SPS or quarantine) policies

21The Agreement on Sanitary and Phyto-sanitary Measures is designed to address legitimate concerns of members to maintain certain levels of safety and protect human, animal or plant life or health. However, in practice, many developed countries use blunt quarantine instruments that restrict imports well beyond what is necessary, achieving the above objectives either through an outright ban on many products or by imposing tariff levels well beyond 100% in some cases (Anderson, 1998). Some of the new environmental and safety requirements also perform the same function.

22In future negotiations there is a clear need to eliminate discretion in the application of sanitary and phyto-sanitary standards. All the countries should accept the standards specified by the Codex Alimentarius Commission.

Other barriers

23Finally, there are several other areas that need consideration. One is special safeguard mechanisms which allow developed countries to trigger import restrictions, in case import quantities surge or prices plummet. This should be phased out, for example, by adjusting the trigger each year. The level of trigger price in the meantime could be set as the lowest external price in calculating the initial tariff equivalent.

24Exception to tariffication is the second area. This applies mainly to rice in Japan and Korea. In order to protect their own highly high-cost producers, these two countries have excluded rice from tariffication under the special safeguards. There is no justification for the continuation of these safeguards.

25The third area is the arbitrary administration of tariff related quotas (TRQ) by developed countries which enables countries to lock in preferential access to traditional trading partners and keep the new ones out.

26The fourth area is export credits and export promotion. These are just export subsidies by another name and should come under stronger discipline. The OECD has recommended that the export credit be treated in the same way as those for other products. Export credits add to export subsidies of developed countries and militate against the interests of developing countries.

27Finally, the fifth area is IPR and TRIPS issues. New plant varieties and animal breeds are examples from agriculture of intellectual property rights. Access by poor farmers to biotechnological innovations has food security implications. For example, the use of ‘terminator’ genes that prevent seeds from reproducing forces farmers to buy seeds rather than grow their own seed stock. Similarly, the development of plant varieties that rely on particular herbicides for weed control, locks farmers into using these herbicides.

28In the next round of negotiations, there is a need for a total overhaul of the whole system of import and export subsidies and the level of exemptions on the lines suggested above. The negotiations have also to address the issues of non-tariff barriers like reasonable levels of sanitary and phyto-sanitary requirements, and the implications of IPR and TRIPS particularly on small farmers. Finally, the negotiations should keep in mind the impact of liberalisation on small farmers, in terms of their ability to withstand competition and benefit from trade liberalisation. Most important, the issue of food security remains of fundamental importance for all the developing countries.

29It is also important to realise that agricultural trade liberalisation under the WTO, particularly for those countries with low levels of income, is not likely to provide tangible benefits on its own. For these countries, it is necessary to increase productivity of agricultural resources, develop human capital and skills, and ensure effective rural infrastructure to realise the potential benefits of liberalisation. For success, the important factor is to develop appropriate linkages to ensure price induced output expansion and promote agro-processing for effective value additions.

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© Éditions de la Maison des sciences de l’homme, 2002

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