The agricultural trade imbroglio

Published : Feb 14, 2003 00:00 IST

The all-or-nothing strategy of the developing countries, pursued with the hope of winning major trade battles by offering small concessions in areas like agriculture, faces a stumbling block in the form of a discord over agriculture.

AGRICULTURE is proving to be the principal bottleneck for those within and outside the World Trade Organisation (WTO) trying to push through a new international trade agreement. Initiated in early 2000, under the mandate provided by the Uruguay Round's Agreement on Agriculture, negotiations for further liberalising global agricultural trade have been under way for close to three years now. Three factors have now imposed a degree of urgency on that process. First, the Doha Ministerial Declaration had set March 31, 2003, as the deadline for working out numerical targets, formulas and other "modalities" through which countries can frame their liberalisation commitments as part of a new agreement. That deadline is approaching and late January witnessed more discussions in Geneva to complete the "modalities" stage in time. This is required to ensure that the Doha commitment to submit final proposals before the Cancun Ministerial meeting (scheduled for September 2003) is met.

Second, the Doha declaration made agricultural negotiations one part of a `single undertaking' to be completed by January 1, 2005. That is, in a take `all-or-nothing' scheme, countries had to arrive at and be bound by agreements in all areas in which negotiations were to be initiated in the new round. This means that if agreement is not worked out with regard to agriculture, there would be no change in the multilateral trade regime governing industry, services or related areas either and no progress in new areas, such as competition policy, foreign investment and public procurement, all of which are crucial to the economic agenda of the developed countries.

Third, it is now becoming clear that even more than last time, forging an agreement in the agricultural area is bound to prove extremely difficult, since disagreement prevails within the camp of the developed countries itself.

Some countries, especially the Cairns group of exporting countries (Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand and Uruguay) have proposed an ambitious agenda of liberalisation in the agricultural area. Tariffs are to be reduced sharply, using the "Swiss formula", which would ensure that the larger the proportionate reduction in the tariff rate, the higher is the bound or applied tariff in a country. The formula arrives at the level to which tariffs in a country would be reduced by multiplying the existing (bound or applied) tariff by a numerical factor, and dividing the result by the sum of the current tariff rate and the numerical factor. The factor for developed countries proposed by the Cairns group is 25. Thus, a country with a tariff rate of 100 per cent on a particular product would have to reduce the rate to 20 per cent (2500/125), whereas a country with a 75 per cent tariff rate would have to reduce it proportionately less to 18.75 per cent (1875/100). Further, in keeping with the Special and Differential treatment requirement, the factor for the developing countries is proposed at 50, making their reduction requirements much smaller (to 33.3 and 30 per cent respectively in the case of a 100 and 75 per cent tariff).

Besides tariff reduction, the Cairns group has called for an enhancement of the minimum import levels of particular commodities by using lower tariffs (tariff rate quotas), argued for a sharp reduction in the aggregate support that can be provided using impermissible support measures, supported the scrapping of the so-called Blue Box measures fashioned during the Uruguay Round to appease the European Union (E.U.) countries, and recommended stricter guidelines for assessing whether particular measures of support fall under fully permissible Green Box provisions.

These ambitious demands notwithstanding, it is clear that an agreement on modalities in time for the March 31 deadline is unlikely to materialise.

Around the time of the January 22-24 meetings of the agricultural negotiators, the European Union Agricultural Commissioner Franz Fischler made it clear that the March 31 deadline will be missed. Fischler reportedly declared that the deadline set at Doha was for the chairman of the agricultural negotiating group to present his proposal for modalities and that did "not mean automatically that the next day all members of the WTO will agree to that proposal". In any case, with discussions on the reform of the E.U.'s Common Agricultural Policy expected to continue well into the summer, the E.C. does not yet have a fully formulated position to adopt in the course of the negotiations. Thus, the March 31 deadline cannot be met.

Till such time as these issues are cleared it is not at all certain that an agreement on agriculture, which is a prerequisite for the completion of the `Doha Round' of trade negotiations, can be ensured by 2005. Those in a hurry to get to that goal are in for a disappointment. But that prospect is not new. WTO members have already missed a December deadline for an agreement on patents and the supply of essential commodities, because of the intransigence of the United States. They have also missed the deadline to work out modalities for special and differential treatment of developing countries.

In the media's blame game seeking to identify the culprit holding up progress towards an agreement on agriculture, once again the lead contender is the E.U. The grounds for this focus on the E.U. are, however, shaky. The U.S. too offers substantial support to its farmers, and has significantly hiked this support through the Farm Security and Rural Investment Act of 2002. Outlays on farm programmes in the U.S., principally income and price support programmes, averaged more than $15 billion a year between 1996 and 2002, and had touched a high of $32.3 billion in 2000. The 2002 Act promises on paper to keep this high support going, by authorising expenditures totalling $118.5 billion over a six-year period ending 2007.

The actual figure is expected to be much higher. It is well-known that this support goes disproportionately in favour of a few large commercial farms, which accounts for a majority of supplies to the U.S. and international markets.

Inasmuch as such support, even if provided in the form of direct income payments "decoupled" from actual production, indirectly affects farmers' production and pricing decisions, they influence availability and prices in world markets. That is, they do distort world trade, even if the Uruguay Round agreement claims they do not. What the 2002 Farm Act indicates is that the U.S. has no intention of cutting back on such support, and is unlikely to accede to any agreement that warrants such a cut. The reason why this implicit stance of the U.S. does not lead to its identification as a bottleneck in the current negotiations on agriculture is that almost all of this support is in the form of Green Box measures, or measures of support that are acceptable under the Uruguay Round agreement because they are ostensibly "non-trade distorting".

Not surprisingly, the U.S. proposals advanced in the course of the work programme that began in March 2002, combine (i) a plea for export subsidy abolition; (ii) recommendations for increased market access through quota abolition, tariff reduction and enhanced tariff-rate quotas (or a minimum level of imports of each commodity that needs to be ensured with lower tariffs); and (iii) a case for either doing away with domestic support that does not fall in the Green Box category or the substitution of such support with outlays on new Green Box measures. That is, the U.S. proposals are clearly not in the direction of reducing state support for agriculture, but of manipulating the agricultural support regime in the direction of what was defined to be non-trade distorting in the course of the Uruguay Round.

Seen in this background, the new stand on agricultural support still being discussed among E.U. members is by no means bizarre. The European Commission's recently released proposals for reform of the Common Agricultural Policy (CAP) do not promise any cut in total spending. But they do not point to any substantial increase either, since the E.U. leaders agreed last year to a 1 per cent ceiling on annual increases in the farm budget. In addition, the proposals currently being discussed make an effort to link subsidies less directly with production, thereby rendering them non-trade distorting.

The difficulty the E.U. faces is that of mooting and then winning agreement among its members on doing away with export subsidies and on making a complete transition to Green Box measures. Since the support afforded to agriculture in E.U. countries is large and multifarious, a complete transition is not easy to achieve. France, for example, which receives more money from the CAP than any other country, is vehemently opposed to that transition, with vocal support from President Jacques Chirac. As a result, the E.U. in its proposals submitted in December to the agricultural negotiations committee has called for retaining the Blue Box and for continuing with the Peace Clause, which protected Blue Box measures from being challenged during the implementation period of the Uruguay Round. That is, the E.U. wants the right to openly and transparently support and protect its farmers, and wants adequate elbow room within the agreement to do so. But the fact that it is unwilling to go the U.S. way, by opting for less transparent support measures that have been defined as acceptable, helps those who paint it as the stumbling block on the road to free trade.

The reason for the peculiar situation is that through the manoeuvres made during the Uruguay Round, especially the famous Blair House accord, the rich nations managed to obtain concurrence of the Cairns group and the support of the developing countries for an agreement that provided inadequate market access and little reduction in protection in the developed countries in the agricultural area.

This they did by holding out the threat of trade chaos if no agreement was reached and by promising (i) that this was an interim arrangement which would be assessed starting a year before the completion of the implementation period; (ii) that the worst form of domestic support such as the Blue Box measures would be dropped at that point; and (iii) liberalisation would be further intensified starting in 2000.

Unfortunately, not only has the experience with the implementation of the not-so-liberal Uruguay Round Agreement on Agriculture been wanting on many counts, but there is strong pressure to continue with the manoeuvring by dressing up all support measures in green, as is the case with the U.S., or by just refusing to meet the Uruguay Round commitments, as is true of the E.U.

This makes it extremely difficult to once more win the Cairns group's concurrence and the developing countries' support for a new Agreement on Agriculture, which offers merely a small advance along an older protectionist route.

Unfortunately for the developed countries, they had gone for the "single undertaking", all-or-nothing strategy with the hope that they can use small concessions in areas like agriculture, drug patents and Special and Differential treatment to win major battles in the areas of competition policy, foreign investment and public procurement. But with no agreement among them even on those concessions and an agreement on agriculture proving a stumbling block, those visions born of greed are threatening to blur. The threat to the forces of corporate globalisation comes not just from the anti-globalisation movement outside. An important enemy seems to lie within, as well.

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