Policy Watch: Daring to say boo!

An usually pliant India prepares to drive a hard bargain at the review of the WTO's agreement on agriculture.

Krishi Bhavan in New Delhi, which houses the Union Agriculture Ministry, normally has a sleepy air about it. Over the past few weeks, though, its corridors are abuzz with activity. Bureaucrats go into endless huddles, preparing to take on the might of the World Trade Organisation (WTO). The trade body's Agreement on Agriculture is due for review in December and preliminary consultations to determine actual bargaining positions were kicked off in end-June. India is to present its stand on July 15. If a sneak preview of the position paper that has been prepared is anything to go by (See The Indian Position), Indian negotiators are preparing to drive a very hard bargain indeed.

The Geneva Agenda

ť Have non-tariff barriers been dismantled and tariffs reduced to the required levels?
ť Is minimum access for imports being allowed?
ť Is the phasing out of domestic subsidies proceeding according to schedule?
ť Are export subsidies being withdrawn according to schedule?

The Indian Position

ť Bound rates can be lowered to 50 per cent.
ť In return, India must get greater market access.
ť Developed countries must reduce their domestic and export subsidies to the required levels.
ť Export subsidies must be abolished altogether.
ť Export credits, guarantees, and deferred payments must be included in the list of export subsidies.
ť Special safeguard provision must be available to all developing countries instead of just a few.
ť The special and differential treatment provisions for developing countries must be strengthened.

The government will agree to lower bound rates of tariffs across the board to 50 per cent in exchange for greater market access to developed markets, abolition of export subsidies, and discontinuation of special treatment for developing countries. Says a top agriculture ministry official: ''We will not compromise on our food security concerns and the freedom to determine our agriculture policy.''

Agricultural economists like Anil Sharma, 35, Principal Economist, National Council of Applied Economic Research, feel India is in a position to adopt an aggressive stand. Developed countries, the logic goes, can be forced on to the backfoot during the negotiations as they haven't kept their part of the bargain.

The Agreement on Agriculture, part of the 1995 Uruguay Round of Multilateral Trade Negotiations, attempts to reduce distortions in agricultural trade caused mainly by the huge domestic and export subsidies that developed countries-especially the European Union (EU) and the US-give to their farmers. With production costs cut sharply, farmers in these countries tend to overproduce, leading to a glut and depressed prices. These products are then dumped in other countries even as the producing countries protect their own markets through tariffs. In retaliation, developing countries also erect high tariff walls and non-tariff barriers like quantitative restrictions to protect their agriculture sector.

The Agreement seeks to liberalise agricultural trade and increase market access by replacing non-tariff barriers with tariffs and a gradual lowering of these tariffs, as well as the phased reduction of domestic support and export subsidies for agricultural items.

Five years on, things do not appear to have changed a great deal. It's not as if there haven't been any gains at all. Says Sharma: ''Earlier it was a jungle raj out there. Now there is some discipline.'' Senior scientist at the Council for Scientific and Industrial Research Brajesh Jha, 34, points out that prior to the Uruguay Round, 58 per cent of the tariff lines were bound in the developed countries and only 18 per cent were in the developed countries. Now, however, WTO member-countries have bound tariffs for all agricultural items. Moreover, market access has also increased through tariff-rate quotas, under which minimum import has to be allowed at concessional tariffs.

But the era of protectionism is not over. Says B. Bhattacharya, 56, Dean, Indian Institute of Foreign Trade (IIFT): ''The distribution of benefits from agricultural trade liberalisation has been uneven. While developing countries have opened their agricultural sector, developed countries have not reciprocated by reducing their subsidies.''

It is not that the Agreement has been violated; it's just that it has several loopholes. The reduction commitments relate to the total value of subsidies and not individual items. So, countries give less sops to some items, while retaining high subsidies for other commodities that have a significant share in world trade. Jha cites the example of EU subsidies on tobacco. The subsidies for certain varieties, like chewing tobacco, has been reduced while that for flue-cured Virginia tobacco, the most widely-traded variety in the world, has not been reduced at all.

Or, take the case of US export subsidy on milk products. The subsidy is much higher in the case of exports to the south-east Asian region (which is closer to Australia and New Zealand-both major producers and exporters of dairy products) than to other countries. Tariff quotas are also used to cloak selective market access. The EU, for example, levies 300 per cent duty on mushrooms. Indian mushrooms have been set a quota of 3,000 tonnes at a lower rate of duty, even though India is in a position to export more. Poland, on the other hand, has a quota of 39,000 tonnes, though it has never been able to supply more than 13,000 tonnes.

All this gives enough of a handle to India to wrest major concessions in terms of market access for its products. India has an edge in several areas-processed foods, horticulture, floriculture, poultry and meat products-but cannot compete globally because of the high level of export subsidies. India's share in world agricultural exports hovers around 1 per cent. However, in order to get greater access, India will also have to open up its market. Says the senior agriculture ministry official: ''The Agreement is a forum for reciprocity. Your ability to ask for concessions depends a lot on what you are willing to offer.''

Fortunately, agricultural subsidies in India are not WTO-incompatible and so it need not make any concessions on that score. But it does have a fairly high degree of protection. Right now India has QRS on several items, which will have to be replaced by tariffs in 2001. India has already negotiated high bound rates of 100 per cent, 150 per cent and 300 per cent on primary products, processed foods, and edible oils, respectively. It is here that India will have to yield. But instead of buckling under pressure, India can use this for bargaining. Says the agriculture ministry official: ''Our argument will be simple: reduce your subsidies first, only then will we reduce our tariffs.''

That's why the generous offer to reduce bound rates to 50 per cent across the board is coupled with stiff demands like abolition of export subsidies altogether. Here India could get the backing of the 18-member Cairns Group-which includes Australia, New Zealand, Thailand and the Caribbean countries-which is a strong votary of unrestricted trade. But the Cairns Group will also demand that India reduce its bound rates significantly. And any reduction in bound rates will have the agricultural lobby up in arms, alleging that the government is endangering the country's food security by allowing a flood of imports. Agrees Senior Fellow, Research and Information Systems for the Non-Aligned and Other Developing Countries, Biswajit Dhar, 41: ''The government has to ensure that food security is maintained and protect rural livelihood.''

Others don't agree. Avers Jha: ''Other countries can also use the same argument to limit access to their markets.'' Government officials complain that the food security argument is stretched to absurd limits. Laments one: ''We are required to protect all sections, be it apple-growers in Himachal Pradesh or cardamom cultivators in Kerala. That gives us very little leeway in negotiations.''

Bhattacharya and Sharma feel bound rates should be in the range of 50-100 per cent. Insisting that a tariff rate of 50 per cent is prohibitive enough, Sharma cites the example of wheat, import duty on which was raised from zero per cent to 50 per cent last year. ''Thanks to that, imported wheat just cannot compete with Indian wheat, despite the fact that global prices are at their lowest ever level,'' he points out, deflating the argument that Indian farmers will be adversely affected by cheap imports. The government, understanding the concerns of the farmers' lobby, is in favour of pressing for the tariffs being reduced gradually.

But all these concessions have to be conditional on western nations reducing their subsidies and providing greater market access, argues Sharma. If they don't agree, then the developing countries must press for continuation of high tariffs and the extension of the special and differential treatment they enjoy. Developing countries get more time to reduce tariffs and are allowed slightly higher tariffs than developed countries.

India's success at Geneva will depend on which group it aligns itself with. Jha advises a mix of support from different groups. India must align with the Cairns Group to battle export and domestic subsidies, and side with the least-developed countries to get concessions to protect Indian farmers.

Ultimately, though, there's some doubt about how much increased market access will help Indian agriculture. Jha argues that once a market is opened up for one country, all 137 WTO members can compete for that market under the most favoured nation provision. Then, it will be the competitiveness of Indian agriculture that will be under test. Admits a senior official: ''Let's get it straight. There is little chance of India taking advantage of greater market access in both the short- and medium-term, which can be as long as 10 years.'' But then, that's another story.