Background:

WTO has come centre-stage not merely in policy discussions but in the minds of the common man, particularly in the rural agriculture sector. Though delayed, it is necessary that WTO, international trade, global sourcing and supply become an integral part of our thinking at all levels. The reason is that, whatever are the merits and demerits, globalisation and integration of economic flows are irreversible. The country appears to have lost precious time in detractions and dilations, discovering time and again as to the "why" and "what" of this process. We may have lost the available lead-time to improve the knowledge, capacity and competence of our farming community to exploit the opportunities. Due to the confusing signals abound, the response of the entire policy and institutional framework has also been inadequate. Thus, there are several lost opportunities of "gate-controls" against imports as also of providing domestic support within the acceptable framework of the AoA.

WTO has been in existence since 1995 with 138 countries as members. India is a founder member. Its predecessor GATT that was a network of contracting parties has had a longer history. The aim of these multilateral agencies is to bring about free trade that would be non-discriminatory, by removing trade barriers such as duties, quotas, controls and subsidies. The vision is of free flowing goods and services based on efficiency that would support equitable development in the world.

GATT 1947 did not cover agriculture. It covered non-agricultural products. Agriculture was brought into the commodity frame with the WTO in 1995. The implications of the emerging trade regime were evident from the Uruguay Rounds of the GATT since 1986. It has always been clear that the road to a free trade is not smooth and this aspect has been well demonstrated and dramatized in several writings. Obviously, the way forward is full of challenges, for the developing world.

In the international arena, as in any other walk of life, power counts. Power is with the few - particularly, the G-7 - despite years of North-South dialogue; stiff targets for ODA and appeals from the UN system to refrain from competing in primary commodities to the detriment of the developing world. Power has been used by each of the members of the multilateral agencies keeping in view the perceived interests of their countries - economic interests, problems of their own relatively disadvantaged and the political realities in the near term. Thus, power has been and continues to be used individually and severally to secure the perceived short-term interests of each country.

In this game, free, efficient and equitable trade in goods and services is a distant vision. The near reality is that it is still negotiated trade, albiet, in grand form and yet there is hardly any option but to integrate with the system. The implications of withdrawal/isolation, which is being propagated by some, are as harsh as living in the forest for fear of the traffic in the city! Alternatively, India would have to enter into a complex network of bilateral agreements with several countries on several products. Such an option would imply less transparency and would be conditioned by the weakness in bargaining power along several products and commodity lines. Such options are hypothetical as all other nations, including China, are clamoring to become members of WTO as developing countries. In fact, those who are arguing for protectionism in agriculture and textiles must bear in mind that the developed countries are also pursuing this line of protectionism for these sectors. The need is to break open their markets quickly for freer trade by arguing against protectionism and artificial/selective barriers. In a way, it is a happy augury that the multi-lateral system is trying its best to be a good referee, giving its views and judgment, and also be an honest broker, in letting the negotiations and dialogue continue keeping in view the larger vision.

In this specter, it is not as though the "haves" have been en bloc against the "have-nots" among nations. There are differences among the developing world arising from their own resource/trade advantages as well as fiscal and foreign exchange concerns. Consequently, there are different noises at different points and agreements, are mainly on the abstract intents and broad agenda. Thus, developing countries seek through the Group of 77 and G-15 removal of export subsidies in general and yet the unanimity whittles down when it is applied to some specific product that may affect a members food security or inflation.

The Agreement on Agriculture (AoA) did not make news all these years since 1995 despite the need for having it as top agenda. It has become an important issue in the recent past possibly by coincidence with other developments. One is that the period for compliance with the agreements is drawing close. The second is that the growth in agriculture sector continues to stagnate so much so that it is now a serious concern for the country, as a whole. For those who do not want to see the historical neglect of this sector, an external reason like the WTO is a handy relief. This sector, which accounts only for about a quarter of GDP also covers over 60% of the population. There has been decline in the rate of growth, and the GDP in absolute terms. Thirdly, there is over supply and price glut in many commodities.

Fourthly, and most importantly, the visibility of foreign goods has possibly triggered a fear psychosis. These goods are both officially imported (liquor and apples) and unofficially routed. (Cigarettes from Bangladesh welt of goods from China, through Nepal). The officially imported accounts for a very small share of the overall market. The unofficial route not being a freeway also limits the quantity and the market share. Yet, the visibility being high there is an obvious fear, which if channeled well can generate competitive responses from the domestic producers. Fifthly, the ability of the State to support the agriculture sector and the PDS has come under severe strain due to unmitigated fiscal difficulties, which, in turn, impacts, on the withstanding capacity of this sector against sturdy competition. Sixthly, the country has to also worry about inflation and hence has to maintain price levels of essential commodities, which could imply that cheap imports (such as, say, the palm oil), would be justifiable in the interests of food security. All these in combination have appeared anti-thetical to the historical assumptions and hopes of the common farmer. Understandably, this has generated political anxiety.

It is obviously for this reason that several Chief Ministers have joined the WTO-bashing exercise. All political leaders have an important stake in the AoA and must obviously discuss the full complexity of the issue and the short and long-term implications. They also need to help in evolving a cogent system to exploit the opportunities provided by the AoA and defend the existing competitive positions by an equally complex set of actions. The Indian policy has to reckon all issues surrounding multi-lateralism, integration of economies, and the impact of AoA on foreign exchange, fiscal pressures, inflation, food security, GDP, poverty and the like.

As is well known, agriculture is the most sensitive of sectors for all countries, as it provides livelihood to sizeable populations who also are the relatively vulnerable groups. For many societies, agriculture is a way of life. For India, agriculture is existence for nearly two-thirds of the population. The Agreement on Agriculture of WTO initiated a reform process by which all countries progressively reduce their protectionism. The AoA covers three important areas of macro-policy viz. market access, domestic support and export subsidy. The special features of the developing world has been sought to be addressed by reference to (a) improved market access for products of special interest to developing country members, (which in the past was recognised by the UN system but which did not produce much result), and (b) food security.

The Agreement on Sanitary and Phytosanitary (SPS) measures may eventually help the developing world in ensuring that the developed world does not use the health and safety reasons unreasonably as another means of denying market access. (The U.S. and EU have a particularly poor record in this respect). In the short run, however, the developing world has to face the shocks of rejection such as those due to D.D.T residues in food items or buffalos milk not being accepted as milk. Similar is the case with the TBT. (These two, however, are not the focus of this discussion).

Market Access

India has had a long history of protectionism arising from concerns of self-sufficiency and the related need for import-substitution. This was particularly for cereals, which now ironically, are in huge surplus with the burgeoning stocks with the FCI despite a sizeable population below the poverty line. (As per one estimate, it takes over Rs.5/- for the State to deliver a benefit of Rs.1/- to the target group). Pulses had a more liberalized environment and the access to edible oils, especially in the recent years, has been good. The AoA requires that member countries address the following three areas:

i. Replace quantitative restrictions (QR), controls and other barriers by an import duty. Thus, the removal of QRs in respect of several items by the commerce ministry implies an opportunity to import but at a cost by those who can afford.

ii. Reduce tariff levels over a period of time effective 1995. Developed countries to reduce over six years all customs duties, including those resulting from tarrification, on a simple average basis by 36% with a minimum rate of reduction of 15% for each tariff line. The developing countries have been accorded a differential treatment (see Annexures). Thus, India is required to reduce tariffs over a 10-year period from 1995 i.e. by 2004. The reduction is to be by 24% average subject to a minimum by 10% for each tariff line.

Overall, India offered tariff bindings at 100% for raw commodities, 150% for processed agro-commodities, and 300% for edible-oils (except Soya oil). The average for 686 tariff lines is 115%, while the average basic duty was 35% in August 2000 (according to Ashok Gulati). In most items, the duties were way below the required Bound rate. The country obviously preferred to have a lower rate as a policy in most of these items. It is possible that an important policy concern, at least in respect of major commodities has been that of maintaining food security and inflation. For instance, if the edible oil imports, which are about 40% of the consumption, had been levied the Bound rate, there would have been a surge in domestic prices, inflation and possibly a negative impact on food access. Ashok Gulati's research reveals that other SAARC countries also have a far lower basic duty than the Uruguay Round Bound rates. The differential is highest in the case of the least developed amongst these (Bangladesh - 198.8% Vs 24.3%) and least in the better developed Sri Lanka (50% Vs 22.3%).

iii. Provide minimum access to items, which were severely restricted and hence not imported historically. This meant providing 3% opportunity as a commitment, raising to 5% by 2001 for the developed world and by 2004 for countries like India. This means opportunity for India to penetrate impregnable markets abroad on the one hand and on the other, opening such markets within the scope of existing domestic demand. Thus, India is committed in quantitative terms to provide for market access in areas like maize, barley, rice, wheat, diary products, meat, vegetables, sugar, eggs, fruits, cotton, coffee, chocolate, oilseeds, and vegetable oils even as it can penetrate other markets with its surpluses, if it musters up "customer value" through quality, branding and positioning.

In case of special circumstances there can be a remission either temporarily or to a marginal extent. For instance, Japan and Korea have not bound their tariffs on rice, which is considered a staple food, and their concerns of food security in this respect are high. It is also the case with meat in Israel. It is reported that some countries, including India, have not yet submitted their market access proposals. This can be a politically sensitive issue considering that the clamor for protection can be from several States for their main produce. (Some would argue that Andhra rice should be protected from such an access or given lesser access. So would be the case with wheat or maize from another State. The time frame and scope of exclusion is not unlimited and there is obvious negative trade-off elsewhere.)

Domestic Support

The second aim of the AoA is to reduce the Aggregate Measure of Support (AMS) or domestic support. Historically, all nations have lent support to agriculture through various subsidy schemes, grants, promotion programmes, price supports, concessions, waivers, and the like. These supports and subsidies tend to distort prices and affect the ability of countries for trade equitably. These mechanisms also have an insidious effect of creating incentive/disincentive mechanisms that would distort production systems. They also have a fiscal dent on developing countries' economic performance.

The support being lent is varied among nations. The most support is obviously in the developed countries, especially the EC. It is reported that East Asian countries like Japan and Korea along with a few Northern European countries provide a support level of 60% (as measured by Producer Support Estimates). The other EC countries lent a support of 44% while the U.S.A. gave 20%. Australia and New Zealand lent 7% and 2% respectively. As against this, it is reported by (there has been some controversy over this) that in India and some other South Asian countries, the product specific support has been negative, in most of the years for most of the commodities.

The domestic support has been categorized under three heads - Green Box, Amber Box, and Blue Box denoting the types of support and their acceptability. Green Box subsidies are non-actionable and comprise of subsidies such as those for research, development of backward areas, environmental protection and the like. However, this list is subject to review and the eventual aim is to remove some parts of these as well. The Amber subsidies are actionable. The Blue Box contains direct payments under production limiting programmes. In the calculations of Aggregate Measured Support, direct payments to farmers under defined conditions and below a stated level is exempted. In the case of developing countries, the minimal support for product specific and non-product specific measures can be upto 10% of the value of total agricultural production as against 5% for others.

The essential issue in the aspect of domestic support is centered around the short-term impact of such reduction on developing countries such as India.

The domestic support in India is in any case negative for most products. Even the cases, which have a positive support, are mostly in the non-actionable zone. Hence, there is actually scope for increasing the domestic support unlike in the case of developed countries. But does our country have the ability to shore up support to the agreed de minimus of 10%? Obviously, there are issues of resource availability.

Consequently, it would be prudent to seek a de minimus of 0% for the developed world than have the impractical facility of 10% for the developing world. Such a pressure on other countries may increase the price competitiveness of the products from the developing countries. It is obvious that once the subsidies (both domestic and exports) are removed, the price-attractiveness of the agriculture commodities and products from the West will be much lower. This may temporarily enhance the export markets for countries like India to other net food importing countries. Long term of course, quality and overall value count in addition to price - a serious lacuna in the Indian agriculture system at present.

The flip side, however, is the possible adverse impact of such a measure on the food security of several African countries - as they may have to pay more. This may imply higher price lines for select commodities in India as well (such as oil) and higher outflow of foreign exchange. Of course, it can be argued that such higher prices may induce more production and greater self-sufficiency in our country in the long run. The dilemma here is the risk of short-term inflationary and forex pressures versus long-term sustainability of the agricultural sector.

Export Subsidies

The Agreement on Agriculture also entails reduction of export subsidies. In several of the Western countries agricultural production increased on account of the domestic support consequent to which there has been excess supply since 1980s in diary, cereals, wheat, meat and beef. Export subsidy was adopted as a policy for some of these products consequent to which the element of such subsidy has reached significant proportions. For instance, it is estimated that the export subsidies were US$ 21.3 billion in 1995, which are reduced to about US$ 13.8 billion by now. Switzerland was the largest user of export subsidies (5%) while the US used about 2%. The reported export subsidy in European Union and US is in the Annexures. These reveal that several of the commodities of interest in India are being subsidized heavily. Export subsidies also come in indirect fashion in terms of subsidized financing and special export credit arrangements, which are difficult to estimate and hence can be an additional factor.

The concern about export subsidies is primarily because they distort prices and create volatility in the world market. They also are known to impact local economies. For countries such as India the implication is to increase the pressure on both direct and indirect subsidies being extended in the food exporting countries. Currently, the export subsidies, which are subject to commitments for reduction under the AoA, are:

It is reported that some developed countries have not met the obligations of reducing the domestic support and export subsidies. Is there sufficient pressure on them from the developing world? Are some happy with the transfer of a hidden aid implicit in status quo? Are those who are asking for protection of domestic markets actually providing rationale to the developed world to get away with lax implementation?

Perspectives on the way forward

Obviously, WTO has been a bogeyman for the public for too long crated by cynical viewpoints. It is time political distractions are replaced by realism. The reality is that out of the three areas India's obligations are mainly in respect of market access. But market access is not a one-way traffic of inflow only. There are obvious opportunities for India in other markets, which have been missed to an extent. However, outflow is determined by how far the farmer is integrated with the needs of the global consumer. First, through information, then by knowledge and competence to produce and deliver, not just to the hungry sub-Saharan Africa which requires commodities, but the more discerning and higher networth consumers. Actions are needed at both collective and atomized levels.

The presence of foreign goods and products to a marginal extent may actually be helpful and create indirect benefits of a long lasting nature. They can set new benchmarks in the farmers and the local consumers and create a competitive spirit pulled by the value propositions. This shift from maximizing production to optimizing for consumer value would be a critical step in the New World. Years ago, Japanese benefited by such learning in the manufacturing sector, which has since been successfully emulated by a few western corporates.

It is by now well known that the credit flow to the agriculture sector has been very poor; storage facilities inadequate; power shortages high; transportation weak and expensive. Domestic competition has also been stymied by states zealously guarding their borders. All these need multi-pronged effort from the government directly. The onus, is doubtless, high on the government to activate "war rooms" and do appropriate gate keeping and assume activist role in the WTO forum to protect our interests. More importantly, there is need for greater information to the public on the rational for adopting a tariff rate or market access rate, howsoever controversial it might be. The agenda obviously is long, tortuous, complex and expensive in many ways. Without diluting this responsibility, there is another effort required from the government - that of capacity building among farmers

Strategy:

Overall, the strategy to meet the challenge of WTO should probably be centered around:

a) Increasing domestic competition through liberalization and deregulation.
b) Monitoring & managing cross-border flows dynamically and more aggressively than competing countries.
c) Capacity building of farmers, food processing units and traders through knowledge on the dynamics of new trade, consumer profiles, quality standards, range of products, demand-supply-price dynamics, branding etc.
d) Institutional support - mainly credit flows, insurance.
e) Infrastructure support - transport, storage and distribution channels. f) More aggressive lobbying, activism and strategies in WTO fora.

Annexure
Commitments by Member Countries under AoA

Annexure

USAGE OF EXPORT SUBSIDIES (US$ MILLION)

Annexure
EU AND US 2000 EXPORT SUBSIDY CEILINGS

European Union

Annexure
Special and Differential Treatment for Developing Countries