Searching for the missing link: WTO and agricultural negotiations?

Nidhi Singh

March 21, 2017

I

PROLOGUE:  AGRICULTURAL NEGOTIATIONS AT THE WTO SO FAR

 

               An attempt to liberalize agricultural trade and incorporate it into the General Agreement on Tariffs and Trade (GATT) framework was made for the first time only during the Uruguay Round (UR) (1986-1994) and ever since then it is firmly rooted in the WTO framework. The successful completion of the UR trade negotiations marked a historic turning point in the reform of the agricultural trade system. The new agreements attempted to put disciplines on domestic support programmes through computation of an aggregate measurement of support (AMS).[1] The WTO’s Agreement on Agriculture (AOA) classifies domestic support or subsidies given by the government to farmers into different categories. An important type of subsidies or support is AMS.[2] The AMS is also called the ‘amber box’ and is a trade distorting domestic support.  The AMS means annual level of support (subsidies) expressed in monetary terms, provided for an agricultural product in favour of the producers (product specific) of the basic agricultural product and non-product specific support provided in favour of agricultural producers in general.[3]Reduction commitments followed on the base period AMS, if the computed AMS was found to be higher than the threshold level set for a country. Some policies[4] were exempted from AMS calculations. Further, trade-distorting quantitative restrictions (QR) on imports were required to be converted into tariffs and thereafter had to be reduced.[5] The tariff issue was addressed to some extent, however the problem of tariff rate quotas (TRQs) remained for a number of product categories. There was a reduction commitment also made on export subsidies on agricultural products.[6] However, evidence suggests that the promised agricultural market access liberalization has not happened as envisioned. The timeline below shows distinct phases of agricultural negotiations and the impasse since 1995:[7]

Phases Year Outcome
Phase I 1995-2000 This period represented the transitory phase and agriculture did not emerge as a direct issue in the discussions.

 

Phase II March 2000-March 2001 It led to more than 100 members submitting proposals outlining their future commitments, which in a way paved a way for a starting position for negotiations in agriculture under the WTO regime.

 

Phase III March 2001 This phase began with a stocktaking meeting and continued for a year. As a result, the Doha round of negotiations focused on liberalization of agricultural trade and WTO incompatibility with EU policies.

 

Phase IV March 2002-March 2003 ·      This phase of negotiations began with Doha Development Agenda (2001) as a reference point to determine the methodology to be followed during the actual reform process and scheduled to be concluded by March 2003 to facilitate discussions at Cancun (2003) and other WTO forums.

·      No consensus could be reached and the deadline passed.

·      The differences prevailed over various boxes of domestic support, tariff quotas, export subsidies, food aids and various provisions for developing countries.

 

Phase V July 2004

‘July Package’

WTO General Council came up with some broad agreement on a framework for further negotiations. By now G-20 had emerged as a strong lobby, thus articulating the interests of developing countries and a new element on domestic support was introduced.

 

Phase VI December 2005 The committee took up the proposals of G-20, US and EU in Hong Kong but no consensus could be reached on the ‘modalities’. Sharp differences between the developed and developing nations arose on various clauses of Agreement on Agriculture (AOA), which lead to further delay in concluding the new round.

 

Phase VII July 2006 The Geneva talks failed to reach an agreement about reducing farming subsidies and lowering import taxes.

 

Phase VIII July 2008 Negotiations started again at WTO headquarters but stalled over the refusal to compromise over the ‘special safeguard mechanism’ (SSM). Negotiations collapsed over issues of agricultural trade between US, India and China owing to the disagreement over SSM.[8]

 

Phase IX December 2013

‘Bali Package’

The ministers agreed to provide flexibility for developing countries to implement vital food security programs. The members also agreed that there is a need to amend AOA. The package also included a political commitment to reduce export subsidies in agriculture and keep them at low levels and to reduce obstacles to trade when agricultural products are imported through quotas.

 

Phase X November 2014 The General Council confirmed the commitments on Public Stockholding for Food Security purposes.

               The implementation of the UR commitments has been a tough task for several member countries and it has exposed vulnerability of various segments of agriculture to global market forces.[9] Most of the promised commitments of the UR did not materialize. It was expected that implementation of AOA would bring large benefits to developing countries. The biggest challenge to the agriculture of developing countries especially India in the post WTO period was posed by unprecedented and unforeseen decline in international agricultural prices. Because of this, exports of developing countries were badly hit and several countries were taken aback by import influx of those commodities in which they thought they had competitive edge. This adversely impacted the income of the farmers and employment. This led to a suspicion that developed countries argued the UR on AOA to their favor. A World Bank Study in 2002 reinforced this belief when it predicted that the greatest beneficiaries of Doha (2001) would be rich economies of Western Europe.  This eventually lead to member countries becoming more alert and hardening of positions particularly relating to high level of domestic support and export subsidies in OECD countries and access to market of developed countries.

 

II

AGRICULTURE AND WTO: REASONS FOR BEING A TALE OF UNEASY BEDFELLOWS

 

              Agriculture has become the lynchpin of the WTO agenda for both developing and developed countries. It is significant for developing countries including India, as around 75% of the population in developing countries live in rural areas and are dependent on agriculture for their livelihoods. Whereas in rich countries, most people work in service industry or manufacturing. In France, for example, three percent (3%) of population is engaged in farming, in United States less than two percent (2%).[10] Developing countries have both ‘offensive’ and ‘defensive’ interests in the talks.  The offensive interests are centered in the countries that are globally competitive producers of agricultural products. These countries (for example: Thailand and Argentina) aim for greater access to other countries’ markets for their produce and also force substantial reductions in domestic and export subsidies that wealthy countries provide to their own agricultural sectors. The resultant impact is lowering down of global prices, which ultimately hurts the developing country exporters.  The defensive interests of developing countries refers to the risks that large number of subsistence farmers and farm-workers become vulnerable in the event their income decreases because of forced reduction in agricultural tariff covering the crops that they grow. The situation becomes easy to be exploited because producers in other countries may be able to produce the same crops at cheaper costs owing to the economies of scale and impact of subsidies. On the contrary, the developing countries farmers may be driven off the land all together because of reduction in their overall income. For example: countries like India and Kenya are not risk-averse in such a scenario, as a result the poverty level does not plummet.

               Further, countries like United States has been asked by European Union (EU) and other developing countries to make a more generous offer for reducing trade-distorting domestic support for agriculture. But they are at loggerheads, given the fact that US insists on making more substantial reductions in tariffs and to limit the number of import-sensitive and special products that would be exempt from cuts by developing nations like India and Brazil and EU. It is interesting to note here that import-sensitive products are of greater concern to EU while the ‘special products’ to the developing countries because of their greater needs of development, food security and livelihood concerns.[11]

              Such basic disagreements over agriculture have prevented the launch of global trade talks in the past. However, the ‘Bali Package’ represents the first multilateral trade deal in nearly two decades but again it covers only a small fraction of the Doha Round mandate and leaves the difficult trade issues for future negotiations. The Bali package included some important agricultural issues, viz: (i) export subsidies; (ii) tariff-rate quota administration; (iii) temporary peace clause for a developing country’s above-market purchases of commodities for food-security stockholding programs.[12] The first major implementation included a July 31, 2014 deadline to finally conclude the Doha Round. But the negotiations again faced a setback when India raised concerns about the status of WTO’s work on food security issues and blocked consensus on implementing Trade Facilitation Agreement (TFA). India demands a permanent solution to exempt such programs from counting towards WTO subsidy limits- in which governments buy commodities from farmers at above market prices to distribute to the poor at the so called the Minimum Support Prices (MSPs). The impasse to an extent was resolved when in November 2014, US and India reached a bilateral agreement to move forward with full implementation.

III

EPILOGUE: MOVING BEYOND THE ‘MISSING LINK’

                 To solve this deadlock, the author poses a very basic question: Why the Industrialized world should care? The ‘missing link’ dilemma needs to be resolved at the earliest. The subsistence farmers in developing countries, food security concerns, tariff quota reductions are the ‘missing links’, which cannot be ignored by the wealthy countries beyond this point for reasons of economic self-interest, basic decency and global stability and security. The broad economic self-interest of developed countries lies in a stable and expanding global economy. It is not possible to sell goods and services produced by developed countries where almost half of the population lives in poverty. With more than 70 percent of developing world’s poor living in rural areas, it is essential to improve the income of small-scale farmers in order to achieve a world of higher, sustained growth and consumption. It is submitted that unless the concerns of developing countries are adequately addressed, it will be difficult to achieve a consensus in agricultural negotiations. Agriculture has become the choke point of global trade talks and it is need of the hour to break this impasse in order to establish a stable and sustainable global economic system. The ‘three pillars’ of agricultural negotiations-export competition, domestic support and market access achieved substantial commitments pursuant to the UR agreement. In order to further achieve bona fide progress for agriculture in the next phase of multilateral trade negotiations, concessions need to be made across the three negotiating pillars to avoid no-results for any individual nation. Further, it cannot be discounted that in future, developing countries may have to accede to greater market access not only to the benefit of developed nations but also to their own as it would lead to lower priced goods from international markets resulting in wider choice for domestic consumers. The Bali Package is a welcome deal, however ‘the missing links’ needs to be plugged in before moving forward in order to achieve a consensus at future WTO multilateral trade rounds.

*** 

REFERENCES

 

  • Timothy Josling, ‘Agricultural Trade Policy: Completing the Reform’, Institute for International Economics, Washington DC, April 1998.
  • Alokesh Barua & Robert M. Stern, ‘The WTO and India: Issues and Negotiating Strategies’, Orient Blackswan Private Limited, New Delhi, 2010.
  • Pitou van Dijck & Gerrit Faber, ‘Developing Countries and the Doha Development Agenda of the WTO’, Routledge Studies in the Modern World Economy, Routledge, 2013.
  • Debashis Chakraborty & Amir Ullah Khan, ‘The WTO deadlocked: Understanding the dynamics of International Trade’, Sage Publications, New Delhi, 2008.
  • Anwarul Hoda & Ashok Gulati, ‘WTO Negotiations on Agriculture and Developing Countries’, Oxford University Press, New Delhi, 2008.
  • Narlikar, Daunton & Stern, ‘The Oxford Handbook on The World Trade Organization’, Oxford University Press, 2012.
  • Constantine Michalopoulos, ‘Developing Countries in the WTO’, Palgrave Macmillan, Great Britain, 2001.
  • Anwarul Hoda, ‘WTO Agreement & Indian Agriculture’, Social Science Press, New Delhi, 2002.
  • Asian Development Bank, Arvind Panagariya, ‘The Global Trading System and Developing Asia’, Oxford University Press, 1997.
  • Bibek Debroy, Debashis Chakraborty, ‘The Trade Game: Negotiation Trends at WTO and Concerns of Developing Countries’ Academic Foundation, 2006.

[1]Debashis Chakraborty & Amir Ullah Khan, ‘The WTO deadlocked: Understanding the dynamics of International Trade’, Sage Publications, New Delhi, at p. 21.6

[2] For details See http://www.indianeconomy.net/splclassroom/91/what-is-aggregate-measurement-of-support-ams/ visited on March 8, 2017.

[3] Ibid.

[4] For example: The Policies placed under the Green Box, Blue Box.

[5] There was a difference between the developing and developed countries in terms of the reductions required and in terms of timeframe over which reductions had to be brought about.

[6] Ramesh Chand, Linu Mathew Philip, ‘Subsidies and Support in Agriculture: Is WTO Providing Level Playing Field?’, Economic and Political Weekly, August 11, 2001.

[7] This table has been prepared by the author after analyzing the WTO documents on Agriculture negotiations available at http://www.wto.org/english/tratop_e/agric_e/negoti_e.htm, as accessed on December 2, 2016 at 18 30 hours IST.

[8] Special Safeguard Mechanism is a measure designed to protect poor farmers by allowing countries to impose a special tariff on certain agricultural goods in the event of an import surge or price fall.

[9] Alokesh Barua & Robert M. Stern, ‘The WTO and India: Issues and Negotiating Strategies’, Orient Blackswan Private Limited, New Delhi, at p. 125.

[10] Sandra Polaski, ‘Agricultural Negotiations at the WTO: First, Do No Harm’, Policy Outlook, Trade, Equity and Development, June 2005.

[11] CRS Report for Congress, ‘WTO Doha Round: The Agricultural Negotiations’, January 2007, available at http://www.nationalaglawcenter.org/wp-content/uploads/assets/crs/RL33144.pdf, as accessed on December 3, 2016 at 13 30 hours IST.

[12] World Trade Organisation, ‘Bali Package Consultations’, available at http://wto.org/english/news_e/news13_e/mc9sum_07dec13_e.htm, as accessed on December 3, 2016 at 09 00 hours IST.

 

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