The Ongoing Negotiations on Agriculture: Some Observations Parthapratim Pal TERI

Difference in Role of Agriculture in Developed and Developing Countries

Agriculture as a Percentage of GDP

35 32 31 30 25 24 22 20 15 15 10 10 5 3 2 0 Low income Countries South Asia Middle income Countries High income Countries

Source: World Development Indicators 2005

1990 2003

Employment in Agriculture as a percentage of Total Employment

80 70 60 50 54.4

51.5

55.3

44.3

64.1

62.1

70.1

64.2

44.4

41.1

40 30 20 23.4

17.6

30.8

26.9

10 5.1

3.9

0 Developed East Asia South Countries & EU East Asia and Pacific South Asia Latin America Middle East and North Africa Sub Saharan Africa World 1995 2004

The Objective of AoA

•

Given these problems, it was felt before the Uruguay Round that there was an:

“urgent need to bring more discipline and predictability to world agricultural trade by correcting and preventing restrictions and distortions including those related to structural surpluses so as to reduce the uncertainty, imbalance and instability in world agricultural markets.”

Ministerial Declaration launching the Uruguay Round.

With these objectives, the AoA intended to bring agricultural trade under the disciplines of a multilateral trading system by: • Reforming trade in agricultural sector.

• Making policies more market-oriented.

• Reducing the distortion present in the agricultural trade sector by substantial and progressive reductions in agricultural support and protection.

• The focus of the Agreement are on three broad areas. They are: –

Market Access

– –

Domestic Subsidies Export Subsidies

Experience with UR AoA…Agriculture has remained a distorted sector

• • • • • •

Explicit non-tariff barriers were removed in most cases.

However, tariff remained very high, World average agricultural tariff is around 60%, while average industrial tariff is less than 8%. Also tariff peaks and tariff escalation is widespread in agriculture. Increasingly other WTO measures like SPS and Anti dumping are used as protectionist tools by many countries.

Most importantly, there has been no meaningful reduction of subsidies Price volatility in agriculture has not declined for most crops

Share of Developing Countries in World Agricultural Exports by Region, 1990-2003(Percentage) 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 All Developing Countries

of which: Africa

Developing Asia

and Latin America the Caribbean Middle East 39 6

15

16 39½ 5½

16½

15½ 2 2

Source: WTO Secretariat, TN/AG/S/19

39½ 5½

16

16 2 40 5

15½

17½ 2 41½ 5½

16

18 2 42 5½

16½

17½ 2½ 40 4½

16

17 2½ 40 4½

15½

2½ 41 5

16½

17½ 17½ 2½ 41½ 5

16½

17½ 2½

160 140 120 100 80 60 40 20 0 Movement of Price Indices During the WTO Implementation Period Non-Fuel Price Index includes Food and Beverages and Industrial Inputs Price Indices Food and Beverage Price Index, includes Food and Beverage Price Indices Food Price Index, includes Cereal, Vegetable Oils, Meat, Seaf ood, Sugar, Bananas, and Oranges Price Indices Beverage Price Index, includes Cof f ee, Tea, and Cocoa

Volatility of International Commodity Prices Volatility of International Commodity Prices of some Major Commodity Groups: Measured by Instability Index

18.00

16.00

14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00

Non-Fuel Price Index, includes Food and Beverages and Industrial Inputs Price Indices Food and Beverage Price Index, includes Food and Beverage Price Indices Food Price Index, includes Cereal, Vegetable Oils, Meat, Seafood, Sugar, Bananas, and Oranges Price Indices Beverage Price Index, includes Coffee, Tea, and Cocoa Agricultural Raw Materials Index, includes Timber, Cotton, Wool, Rubber, and Hides Price Indices Pre WTO Post WTO

Some Interesting Figures from FAO

Food Security Map of India

Source: (MSRF)

Special Products

• ‘Special Products’ (SPs) can be defined as

‘

agricultural products of particular importance to farming communities in developing countries for reasons of

food security, livelihood security

and

rural development

’ • SPs will attract lower level of tariff reduction commitment than other agricultural products. • Special Products is a component of WTO’s Special & Differential (S&D) provision • Special Products should not be confused with ‘Sensitive Products’

• • •

Why do we need Special Products?

Role of Agriculture in developed and developing countries are different An open trade regime may threaten food and livelihood security because: • Secular decline in commodity prices • Increased Volatility It was realized during the Uruguay Round that free trade regime may not contribute to food security and

self-sufficiency in food is important

. • • • • Supply uncertainty, Thin market Argument Foreign exchange constraint Political economy of food dependence

Special Safeguard Mechanisms

• Special Safeguard Mechanisms or SSMs are a set of provisions through which a WTO Member country can temporarily impose higher than bound tariff rate on the import of a particular product if there is a surge of import or a sudden dip in import price of that product. • A similar provision called the ‘Special Safeguards’ (SSG) was available in the Uruguay Round AoA but only a handful of WTO Members (39 out of 149) were given the right to use it. • The new SSM provisions will be available to all developing and least developed country Members of WTO.

Why SSMs?

• To tackle the international price volatility of agricultural commodities-surges in imports can threaten (otherwise viable) domestic production base • In a tariff only regime, international price volatility gets directly transmitted to domestic markets • Agricultural Market Access Negotiations will lead to lowering of the tariff overhang (the gap between bound and applied tariff rates). No other form of safeguards available.

Some Questions Remain

• Country Eligibility?

• Product Eligibility?

• Linkage with Special Products, Sensitive Products?

• Proof of Injury Requirement?

• Should SSM be only Tariff based or can QRs be temporarily imposed? • Possible loopholes and need for additional domestic regulations

SP and SSM: Final Thoughts

• Both Special Products (SP) and Special Safeguard Mechanism (SSM) are useful defensive mechanisms. However, a lot will depend on the details.

• Developing countries must ensure that developed countries do not use these concessions to lower the level of ambition of agricultural negotiations • It must be kept in mind that these instruments cannot be used against imports from Regional trading partners.

Key dates Mentioned in the Doha declaration

• Formulas and other “modalities” for countries’ commitments: by

31 March 2003

• Countries’ comprehensive draft commitments: by

5th Ministerial Conference,

10-14 September 2003

(in Cancún, Mexico) • Stock taking:

5th Ministerial Conference, 10 14 September 2003

(in Cancún, Mexico) • Deadline: by

1 January 2005

, part of single undertaking.

The Actual Progress

• Article 20 Negotiations • The Doha Development Round • In Search for the still elusive

MODALITIES Text

: – Original deadline was 31 st March 2003 - Missed – The Harbinson’s Text (March 2003) -Rejected – The Derbez Text (September 2003) - Rejected – The July Framework- July 2004 – BREAKTHROUGH – “July Approximation” (July 2005) - Failure – Hong Kong –December 2005 – Limited Progress –

April 2006- New Deadline for Modalities - Missed

Final Words

•

Negotiations on agriculture moving very slowly, the HK Ministerial is a Modest Success: Small Defensive Gains and No Major Losses. But the hard bargaining begins now

•

Developing Countries must link tariff reduction to subsidy reduction

•

The G20 Initiative is a Key Movement. It is important that they stand together

•

Two Key Questions :

–

Should we be defensive or aggressive?

–

India’s negotiating strategy- Running with the hare and hunting with the hounds?

•

Finally, bigger threat to Indian agriculture seems to be coming from Regional trading Agreements rather than WTO Agreement on Agriculture.