Essay for students on WTO and Indian Agriculture

India is one of the founding members of WTO which came into existence on January 01, 1995 replacing GATT (General Agreement on Tariffs and Trade) and promising the herald of new era in the rule based system of governing and promoting international trade concomitant with the needs of the on-going processor globalization.

WTO provisions related to international trade are now similarly applicable to agriculture which was brought within the fold of GATT in the Uruguay Round (1986-93) of multilateral trade Negotiations (MTNs).

Application of WTO provisions on agriculture involves many contentions issues and is an area of serious concern for developing countries which are primarily agrarian economies, Moreover, the world, despite growing interdependence and integration, is highly heterogeneous with regard to levels of development. This heterogeneity is very much noticeable when we compare the agricultural sector of developed and developing countries.

Support infrastructure like storage, processing, finance, marketing, transport and R&D facilities are much more advanced and organized. In sharp contrast, in a country like India, for millions of farmers who derived their livelihood from agricultural, it is still a way of life and not an occupation they have chosen for themselves. Indian farmers are mostly involved in subsistence farming with very little or no marketable surplus.

On the other hand, there have veer instances where in the USA farmers have been given subsidies worth millions of dollars to keep their farmland uncultivated. In India 70% of the holding are not of the economy size, making application of modern technology difficult and unaffordable for the farmers.

The developed countries like the USA, Japan and EU countries heavily subsidize their agriculture with high quality standards and aggressive marketing practices, these countries hold 72% share of world trade in agricultural products are keep the developing countries virtually at the periphery of world market.

The silent features 0f this agreement include three main provisions which have become effective 1 Jan, 2000.

Under access all non-tariff barriers like quota will be converted into tariffs. India has already removed quantitative restriction on all her import. It has now imposed protective tariff on imports of sensitive agricultural products in order to protect the interest of its farming community.

As far as the maximum limit of tariff is concerned no country is permitted to impose tariff beyond a certain limit. All industrialization countries are to reduce tariff by 36% within six years. For individual agricultural products tariff has to reduce by at least 15%. Developing countries like India have to reduce tariff by 24% within 10 years. On any individual agro product tariff cut has to be at least by 10%.

Under Export Competition the developed countries are to reduce the value of direct export subsidies by 36% over a period of six years and in volume terms 21%. The base period for these cut is 1986-90 or 91-92 if exports were higher in that period. Over the same periods the developing countries are to reduce the value of direct export subsidies by 24% and volume terms by 10%.

Under domestic support this issue is linked to providing state support to farmers in farm production. Under AoA (Agreement on Agriculture) the developed countries are to reduce AMBER BOX subsidies within 6 years by 20c starting from 1995 with 1986-88 periods as base. The same has to be reduced by 13c with in 10 years by developing countries.

AoA has classified all subsidies given to farmers into three categories AMBER BOX subsidies, BLUE BOX subsidies and GREEN BOX subsidies. Under AMBER box subsidies such domestic support its included which is meant to encourage farmers to produce more.

BLUE BOX subsidies are related to quantum of output and hence are considered minimally trade distorting. Such subsided is provided only up to certain limit of production. GREEN BOX subsidiary aid to farmers comes under this category. The developed countries have used provisions of AoA to further infest of their farmers.

The developed countries have used provisions of AoA to further the interest of their farmers. For example, they have remodeled AMBER BOX subsidies in such a way that these qualities to be put into BLUE or GREEN BOX subsidies. These countries are constantly pressuring the developing countries for greater market access for agricultural product but are not willing to bring down the level support that they provide to their own farmers.

Developing countries like India feel that they are being discriminated against in matter like tariff on food imports into developed countries. For example, in the name of mutual access, OECD countries impose very low tariff on imports from fellow members while similar imports from developing countries are subjected to higher tariffs.

The Nov. 2001 Doha round of ministerial talks were termed as “Development Round” because comprehensive development of the accepted as its agenda.

Theoretically, issues like production and trade of agriculture products along with domestic support and subsidy to it, compliance issues, intellectual property rights, special discriminatory practices and market access were to be discussed. But soon it became clear that on the ground developed countries were not willing to yield much to the developing countries for deeper market access. By the termination of this round it was clear that issue related to agriculture pushed other issues to the background.

For the developing countries safeguarding the interest of their farming sector is a matter related to the very survival and substances of there population. Moreover in a representative democracy like ours it would be a political hara-kiri if the government ignores the interests of farmers and agriculture under international compulsions.

In the Doha round of negotiations, while the developed countries were mainly concerned about issues like market access and IPR, the developing countries were concerned about food security, poverty elimination and economic growth with respect to the process of globalization. It is alleged by developing counties that the developed world shows only hypocritical concern about these issue.

In the farm bill in the USA and the collective farming policy in EU, agate support has been promised to the farmers than before. Sensing a major deadlock in future rounds of discussions on AoA, the agriculture ministers of EU countries presented a reconciliatory package in the last week of June 2003. In this they promised not to offer any subsidy to their farmer but insisted that agricultural income world still be protected. This is a wily move as it replaced a trade distorting measure like subsidy by protection of agriculture income which will not be treated as trade distorting and hence qualifies to be put in the GREEN BOX.

It would be a misnomer to call such protection as minimally trade distorting because it will influence the allocation of recourses in the since that in the absence of such protection fewer resources would be committed to agriculture protection will serve as an inceptive not to move resources away from agriculture leading to over production this surplus produce will be used to disallow imports from the developing world or for dumping in the world market. The worst aspect of this package was that not even a mention of reducing export subsidy found place in it.

The ministerial meet at Cancun in Mexico held on 10-14 sep. 2003 raised questions on the working of the whole apparatus of WTO.

The only major achievement on the part of the developing countries was that they did not succumb to the pressures of the developed countries. As expected the Cancun meet too was focused on agriculture G-5 group countries with India, china, Brazil, Argentina and South Africa as its members emphasized the urgency of the need to reduce farm subsidy in the developed countries especially in the USA and EU countries.

India played a pro active role in this initiative. It was highlighted that the cotton export dependent economies of the world like Chad, benign, male and Burkina Faso have suffered massively due to the farm subsidy that the USA gives to its 25,000 cotton growers.

Even Australia and New Zealand supported the stand taken by the G-21 group of the developing countries. The revised draft presented for negotiations was heavily titled in favour of the developed countries. It required the developing countries like India to reduce farm subsidy by 70% while EU members and the USA were required to reduce it by 41% and 36% respectively. The revised draft was a big blow to the heightened expectation of the developing countries.

At cocoon the developed countries did not yield much to the outstanding demand of the developing world but cleverly included issues like investment, competition, trade facility and government procurement to build pressure on the developing countries.

Honk – Kong ministerial conference ended in the same manner. The developing countries, led by G-5 opposed the proposals of US and European Union on the ground that they were against the interests of the poor countries. Doha round talks are at the moment floundering because of the uncompromising stands adopted by players such as EU, US and G-5.

The interesting part of the whole thing is not one can be said to be the main culprits because every Government involvement in the WTO negotiations is squarely accountable and answerable to its constitution and population back home, which means among other things, that no commitment can be made which will lead to weakening of the domestic support base beyond a point.

Politically the issue of AoA is so sensitive that no government, whether in the developed or the developing countries, is in a position to compromise with the interests of farmers in the name of collectivism.

Now the question arises that what should be Indian’s strategy? As things stand at present, the provisions of AoA do not appear to have a threatening impact on domestic support and export subsidy under AoA. The non-product specific support amounts to 7.5% of the value of agriculture production in India.

Since product specific support is negative, the Aggregate measure of support to Indian agriculture is still below the deminimise of 10 percent in terms of the Uruguay round stipulations. India has already suggested that AMS be calculated as the sum of the product specific and non-product specific support (WTO 2001). As the input subsides to resource-poor farmers are exempt from reduction commitments under WTO (these come under non product specific support), so the overall level of support given to Indian Agriculture is less than the minimum of 10% as set under WTO stipulations.

Agriculture sector in India has responded positively to the launching of macroeconomic reforms in 1991. With liberalization of exchange rate, the terms of trade for agriculture have shown a significant improvement. Private investment in agriculture registered a step rise in the post-reform period. For the first time since independence India has become a net exporter of foodgrain.

The fear that liberalization of imports would lead to massive influx of agriculture imports too has been found to be misplaced. Quantitative restrictions on imports have been lifted since April 2000. Though import like fruits, ketchup and meat products have increased, they still account for a miniscule of total agricultural imports.

Though there is clearly a need to be constantly vigilant and work in league with other developing countries and removal of tariff and non-tariff barriers, the major challenges the developed countries at WTO, we need to take measures which make Indian agriculture more competitive.

The fortunes of Indian agriculture which now accounts for about 20% of the GDP and provides employment to about 60% of labour force crucially depend upon greater investment, both private and public, in irrigation power, roads and the ability of agriculturists to access the modern technology specially the yield augmenting technology. Conditions need to be created for widespread diffusion and application of this technology by the farm sector.

To conclude, it can be said that WTO provisions pose no real threat to Indian agriculture though aspects related to IPR, removal of tariff and non-tariff barriers and market access need to be dealt with constant vigil and suitable expertise. Relevant institutional and legal changes (like in patenting) need to be brought about Equally import is the need to restructure, modify and revamp our agriculture sector so that it can rise up to the challenges thrown by growing integration with the rest of the world. The need of the time is to make it more efficient, modern diversified and competitive. The time to engineer a second Green revolution has arrived.