On the world trade front

The WTO regime holds inherent dangers for the Indian farm sector.

APPROPRIATELY for its role as a regulatory body that has intrusive powers of jurisdiction over diverse economic activities, the World Trade Organisation (WTO) has become a natural focus for livelihood anxieties and grievances in a time of uncertainty. It has become almost axiomatic today for concerned observers of the crisis that has enveloped the agricultural sector, to lay the blame entirely at the doorstep of the WTO.

The Punjab Legislative Assembly at a recent sitting resolved that the impact of the WTO regime on agriculture in the State had been uniformly adverse, and urged the government to take up its damaging consequences with the Central authorities. Karnataka C hief Minister S.M. Krishna has lent his voice to the chorus of demands for a radical review of international trade arrangements. Also adding their voices to this plea have been the Chief Ministers of Haryana, Andhra Pradesh and Bihar.

This story, as with all others that originate in the realm of demonology, is slightly overdrawn. The WTO does of course have the potential to bite deep into the material well-being of the Indian agricultural sector, but its main impact still remains to b e played out. Following prolonged and often acrimonious negotiations with major trading blocs under WTO auspices, India agreed early last year to phase out all quantitative restrictions (QRs) on imports on an accelerated schedule. Part of the agreement w as implemented over the course of 2000-01, but the complete phase-out of QRs will take place only in the next financial year, that is, with effect from April 1, 2001. If the farm sector already has cause to feel aggrieved at the WTO regime, then clearly it has greater reason to fear what could come after the pivotal date of April 1, when it will lose all protection against imports except through tariffs.

The explicit assurance that the government has given to the farm sector and others who may have reason to feel apprehensive is that it retains sufficient flexibility by way of tariffs to offset any unsettling surge in imports. Of the 2,714 products that were subject to import restrictions till 1999, no fewer than 1,285 were shifted to the open general licence list in April that year. The following year, another 715 products were decontrolled, leaving only the remaining 714 for the final phase of import decontrol this year.

Tariffs are governed by certain binding commitments that India made before the WTO at the time of its accession to the WTO regime. Official sources argue that of the 1,429 product lines that have been decontrolled or stand on the verge of being decontrol led, India has infinite flexibility to impose tariffs of its choice in no fewer than 863. This means that India is not bound by any commitments on the highest level of tariffs that can be imposed on the imports of these products. In the case of another 3 62 product lines, moreover, India's binding commitments on tariffs are in excess of the actual applied duties on imports, and in the case of no fewer than 238 of these, the difference is greater than 20 percentage points. Consequently, in a situation of distress for domestic producers, India would have a wide measure of latitude to increase protective tariffs.

This would have provided some measure of reassurance for domestic agriculturists, had not the record of invoking these powers been rather dubious. A recent case in point is the decontrolled import market for edible oils, where substantially increased tra nsactions have been taking place. Although the government enjoyed the discretion to raise tariffs as a measure of support for domestic oilseeds growers, who suffered a serious erosion of earnings, it delayed such action till distress had mounted to acute levels.

Clearly in this episode the government was influenced more by the consumer, who had an interest in keeping prices low, than by the need to protect agricultural earnings. Since India began large-scale imports of edible oils in the 1970s, the government ha s perhaps realised that ensuring cheap availability of these commodities - essentially an item of consumption for the politically voluble middle classes - has undoubted advantages.

More than the compulsions of the WTO, the government today seems absolutely befuddled by the task of balancing between the interests of producers and consumers. The intervening tier of traders, once the ruling party's natural constituency, also figure as a major factor influencing policy decisions.

The costs of waffling could in future be rather more severe. Once QRs are finally lifted in April, the government will be called upon to make a series of decisions on the tariff levels that would be appropriate. Broadly, three levels of binding commitmen ts have been given to the WTO, all of which seem to endow India with a great measure of autonomy in determining tariffs. On raw commodities, India has given a commitment to limit the import tariff to 100 per cent. On processed agro-commodities, the speci fied level is 150 per cent, whereas for most edible oils (with the exception of soya oil), the tariff binding offered is 300 per cent.

A series of nimble-footed responses may be warranted by the current state of global trade in agricultural commodities, which is marked by rapidly crumbling prices. Although all nations are obliged under WTO rules to reduce agricultural subsidies which ar e deemed "trade distorting", the application of these rules have been conspicuously asymmetric. Detailed guidelines have been evolved to compute the "aggregate measure of support" (AMS) that agriculture enjoys in relation to the base years of the WTO agr eement, which is the period 1986-88. And depending upon the stage of development, every country is required to scale down by an agreed quantum the AMS it affords.

India is in the comfort zone as far as these norms are concerned, since it has claimed before the WTO that agriculture in the country, far from enjoying any positive subsidies, is actually negatively protected by the administered price regime. The last s ubmission made by India before the world trade body was in 1995-96, when it claimed that the product specific subsidy it provided was negative to the tune of 38.5 per cent of the total value of agricultural production. The non-product specific support, w hich includes the subsidies on fertilizer, credit, electricity, irrigation and seed, was positive to the tune of 7.5 per cent of total output in agriculture.

Crucially, these figures are computed in relation to the reference prices of 1986-88, in dollar terms. If the depreciation of the rupee since then were to be taken into account, the figures on the quantum of official support that Indian agriculture enjoy s would look rather different. Although this has not yet become a contentious issue in the WTO councils, it is possible that truculent trading partners may raise it in future.

The other disquieting feature of the global trade situation in agriculture is the relentless increase in subsidies in the advanced countries. Agriculture was, till the very last days of negotiations, considered a potential "deal breaker" because of funda mental divergences between the European Union (E.U.), Japan and the U.S. The compromise involving these three major trading entities, when it was crafted, allowed for a number of exemptions from the subsidy discipline envisaged, which they have since uti lised to the hilt.

Income support programmes for the farm sector are a key area of exemption. Since the late-1980s, both the U.S. and the E.U. have favoured the mechanism of directly funding farm incomes rather than propping up prices through assured purchase commitments. Under the system of deficiency payments that the U.S. and the E.U. practise, farmers are compensated directly by governments if prices of their produce fall below a certain level. Since this effectively means that the farmer is able to sustain situations of glut in the agricultural market, there seems little basis for the argument that income support is less trade distorting than price support.

Apart from these exemptions, the developed countries also benefit from relatively less stringent requirements with regard to the reduction of export subsidies. While countries that had no export subsidies in operation at the conclusion of the WTO agreeme nt are prohibited from introducing them, heavily subsidising exporters such as the countries of the E.U. and the U.S. were obliged to reduce export subsidies by the relatively modest order of 36 per cent over a period of six years.

The consequence of this rather loosely balanced system of rights and obligations has been evident. According to recent estimates, the total support rendered to the agricultural sector by the countries comprising the Organisation of Economic Cooperation and Development (OECD) increased from $308 billion in the reference period (1986-88) to $347 billion in the most recent three-year period for which data are available (1997-99).

This means effectively that the global market continues to be awash in highly subsidised agricultural products, which could penetrate developing country markets with potentially destabilising consequences. And the tough-minded trade negotiators at the WT O headquarters in Geneva have recently been indicating that they will vigorously challenge any country that seeks to replace QRs with high tariff walls as an equivalent method of protection. What this means for Indian agriculture, clearly, is a period of considerable threat and uncertainty.

It is not as if the threat of an import flood is the only inherent danger for the Indian farm sector in the WTO regime. Under the agreement, all member-countries are expected to introduce sui generis legislation giving plant varieties a measure of intellectual property protection. Although India's own effort to introduce an appropriate legislation has dragged on for years and been through several stages of deliberation in parliamentary committees, no final draft has emerged. The broad contours of the proposed legislation follow the European law on plant varieties protection, which grants exemptions for both breeders and farmers.

But recent changes in European law have placed a number of qualifications on the exemptions that a farmer is granted to recycle or sell his seed. Indications are that India has also been tending to follow this example, with a proposed law that greatly in creases the criminal liability that the farmer would face for any violation.

Since it came into existence, the WTO has been a vaguely perceived threat for agriculturists around the world, threatening their autonomy and promising to yoke them to the remorseless demands of global trade. Propagandists for globalisation have often en ough scoffed at these apprehensions, pointing out that the actual impact has been nowhere near as dire as the naysayers had predicted. But with the continuing inclemency of the global economic environment and the imminent end of the last of the safeguard s they enjoyed, India's farmers could soon be directly encountering all the damaging consequences of the WTO regime. Whether the Indian government has the residual political will to protect their interests, however, remains a debatable question.