`Withdrawal of the state is the main problem'

Interview with Professor Abhijit Sen.

The WTO's Fifth Ministerial Conference concluded recently in Cancun without making much headway. However, new alliances were forged and developing countries returned home with the feeling that they had succeeded in at least preventing a bad multilateral agreement from taking shape. Abhijit Sen, Professor of Economics in Jawaharlal Nehru University, spoke to T.K. Rajalakshmi on some of the issues raised at the Cancun Ministerial on the negotiations around agriculture with specific reference to the Indian context. Professor Sen has served as the Chairperson of the government-appointed Committee on Agricultural Costs and Prices, as well as the Committee on Long-term Foodgrain Policy. Excerpts from the interview:

There are three pillars to reform of international trade in agriculture: domestic support, export subsidies and market access. While India has been taking an aggressive posture on the first two issues, it has been rather reluctant to yield ground on the third. Is this a feasible posture in international trade negotiations?

Before feasibility, one should see if it is a principled posture. I think it is a principled posture. On the first issue, we are in support of reducing distortions in international trade in agricultural goods. It is universally acknowledged that the greatest distortion is in the subsidies of developed countries. It is acknowledged by them and by everyone else. What it means is that world prices have to drop, that the countries like those in the Cairns group (Brazil, Argentina, Chile and Columbia) that have large export subsidies are forced to look for markets elsewhere, which means third country markets.

Given this situation, our stand has always been that there is a linkage between the two. If developed countries do not reduce subsidies and force us to cut our tariffs, essentially what will happen is that even the limited markets our farmers have will be taken away.

Our principled position is: We will talk about tariff reduction but only if they do something about domestic support. What they have done in domestic support is so far pathetic. Whether we can actually continue with this particular stand has to be seen. On that front, there are two types of issues. The first is: Are we likely to be able to maintain the sort of bound tariffs we have. The answer to that realistically, probably, is no. As I said, the Cairns group is interested in our market. China too has lowered its tariffs. We would like the reduction of our tariffs to take place gradually. It should be phased out as far as possible and as far as commodities are concerned, we should have a considerable say on which crops are we going to reduce our bound tariffs.

There are some bound tariffs in the Uruguay Round that are very high, around 300 per cent. We can make substantial reductions there and we would like to go easy where the tariffs are around 150 per cent. Then comes the question of technicalities of market access where formulas matter. The question is whether we should accept the Uruguay Round formula or the Swiss formula. We would prefer an Uruguay Round formula, which essentially prescribes an average tariff reduction. And we can choose the average by reducing our high tariffs substantially but certainly not adopt a Swiss-type formula, which will require us to bring all tariffs to some common level. We don't want this even though we have some of the highest tariffs in the world and this has been pointed out to us repeatedly. But at the same time, we have some of the poorest farmers in the world. These formulas matter eventually. We would preferably draw a line on the Swiss formula.

Would the reduction or elimination of export subsidies by the E.U. and the U.S. be of immediate benefit to Indian agriculture?

Export subsidies are actually given more by the E.U. while the U.S. gives what is called an export credit subsidy. We would gain more if the U.S. were to cut back on its subsidies on export credits. The U.S. has a substantial market in the Asian region, from which we could then - not all the time - get some part. The E.U. is more problematic as our markets do not overlap as much as the U.S. markets. But the main point is that U.S. export credits are not on anyone's agenda. It is on our agenda.

If the proposals on market access in the draft Ministerial declaration (first and second revisions) were to be renewed as the basis for negotiations, what should India's response be?

The real thing is that Stuart Harbinson (Chair of the Committee on Agriculture) had suggested first two bands and then three bands of tariffs. This was not in the Uruguay Round formula, which had suggested a 10 per cent overall cut across the board, but we had a certain flexibility. Harbinson's formula demanded larger cuts. The two-band formula was more suitable to us while the third band was a little bit difficult to accept as we have a lot of high tariffs that are near about a 100 per cent, which may have had to be brought down quite substantially. But Harbinson, as a starting negotiator, was something that could have been worked on. But the matter got much worse as the U.S. and the E.U. came up with a draft that was basically looking for a Swiss-type formula. We were looking for an Uruguay-type formula and we were surprised, as the E.U. position had earlier been similar to that of ours. The E.U.-U.S. draft was clearly the worst of all possibilities. India's response now will have to be governed to the extent it can take the 21 members along and there may be a problem as, even here, everyone would want tariffs to come down. On market access, our position is weaker than it was before the E.U.-U.S. draft. This is because at that time the E.U. was saying the same thing as we were, but now we are dependent on the Cairns group members. Our negotiating position should continue to be the Uruguay Round and there should be a much greater thrust towards safeguard mechanisms. One will have to refashion the start without altering it.

Have the 10 years of WTO disciplines exerted an influence over the fortunes of Indian agriculture? Or is the current state of India's agriculture the result of different factors?

The sad state of India's agriculture is fundamentally not due to the WTO. It plays a role but it is a relatively minor role. The real problem with Indian agriculture has been that since 1991 and especially since 1997 we have seen virtually low investment in the public sector. State governments have become bankrupt, the banking system has withdrawn from agriculture, the cooperatives are in a disarray and marketing systems have not improved. They have got distorted even further owing to the political demands from certain regions. So what is seen is wide differences in prices of wheat across the country. Basically it is the withdrawal of the state that is the main problem with Indian agriculture. What it does is, it makes agriculture less competitive. We have suffered as a consequence of the WTO in that it reduced, contrary to expectations, world agricultural prices. Developing countries found that they had to sell their goods to import manufactured goods. And when there were more agricultural commodities in the world market, the more the world prices fell. Our farmers have suffered from low world agricultural prices. Our edible oil sector has been very clearly affected by what has happened in the last 10 years or so. From about 95-96 per cent self-sufficiency, we are now reduced to importing nearly half of our total consumption of edible oil.

There is now a strong indication that the U.S. will not bother too much about multilateral forums like the WTO and would be focussing on concluding bilateral free trade agreements with key trading partners. What does that imply for Indian agriculture, the principles of multilateralism and India's position in the world trading system?

It does not worry me for two reasons. In bilateral trade, let us face it, the Americans will be sitting down at the table with us. We are too big a market to be ignored. They are already knocking at our doors calling for a bilateral discussion. This is happening in the area of services, investment and a number of WTO issues. As far as India is concerned, the real problem is that if we do take a serious bilateral approach we risk diluting or even losing the big capital that was shown to exist in WTO. Those who would lose most from bilateral trade will be the small developing countries. Multilateralism is always better than bilateralism. But a multilateral agreement that is worse than even unilateralism or bilateralism is not worth pushing for. In principle, multilateralism is better but it depends on getting a better deal. For the last 10 years, we have been given false promises and there has been a further regression on that. The fact is that the Third World made huge concessions and nothing was delivered to them. If the U.S. is threatening to go bilateral, then we should say okay. For the next three years, let there be nothing on drugs. Let us hold in abeyance anything we might have signed in TRIPS. Let us take just one issue, TRIPS and say, since you have not moved on agriculture, we consider TRIPS to be a closed chapter.

How would you characterise the current Ministerial round - as a failure, a success or a setback, in the context of international trade in agriculture.

There were deep divisions within the U.S. and the E.U. They were not able to sort it out. What they presented was something that they both knew in their heart of hearts would not be acceptable. They presented a whole draft that was essentially aimed at: one, not giving the developing world anything; and two, maximising their joint benefits, although they were not agreed on how to share it between themselves. Anything short of that would have meant a U.S.-E.U. division and I think developing countries said, look you ganged up - we did not ask for it. The ganging up was itself a bit tenuous but when developing countries got together - in any case there was very little to be done in the two or three days of the conference - things changed. But then even in that limited period, the E.U. was sparring at the U.S. for the high subsidies on cotton, arguing that the poorest countries were losing so much. The E.U. does not grow cotton itself. On the other hand, the U.S. made references to how some developed countries were not willing to give up, referring to export subsidies. The talks collapsed because they could not work out a package that was more acceptable to them and which they could offer to six or seven key countries. I think, the fact that the developing world got its act together was important. A bad multilateral agreement is worse than no multilateral agreement just as a good multilateral agreement is better than almost anything else.