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Devinder Sharma on trade, agriculture, and the WTO
October 2001 : With the World Trade Organisation (WTO) debating on the utility and futility of launching a new round at the proposed ministerial at Doha, Qatar, in mid-November, Devinder Sharma discusses the implications on Indian agriculture.
If you want to feed a man for a day, give him a fish;
But if you want to feed him for life, teach him how to catch fish.
--- a Chinese proverb
There seems to be no respite on the agriculture front. With the international prices remaining sluggish, and with the developed countries refusing to reduce subsidies under one pretext or the other, the dice is heavily loaded against millions of farmers in the developing countries. With the World Trade Organisation (WTO) debating on the utility and futility of launching a new round at the proposed ministerial at Doha, Qatar, in mid-November, agriculture issues have been pushed to the background. Outside the WTO secretariat, however, agriculture trade is being aggressively pursued. And while the world awaits the outcome of the forthcoming Doha Ministerial, agriculture trade norms are being further distorted and abused in what appears to be a desperate effort to attain and retain global supremacy. The United States, for instance, is in a neck-to-neck race with the European Union on retaining the supremacy over agriculture trade. While steadily expanding foreign demand -- brought on by income gains, trade liberalization, and changes in global market structures -- have helped American exports double over the past 15 years to $53.5 billion estimated for the current fiscal year, its market share has dropped from 24 per cent of global agricultural trade in 1981 to 18 per cent in 2001. The EU, on the other hand, has increased its performance from 13.5 per cent to 17 per cent, in the consecutive period. "Losing six points over 20 years may not sound like much, but every percentage point loss of market share amounts to $3 billion in lost export sales and a reduction of $750 million in agricultural income. But, the good news is that every percentage point we can recover will add $3 billion in export sales and $750 million to agricultural income each year," Mattie Sharpless, Acting Administrator, Foreign Agriculture Service of the US Department of Agriculture had recently told the Senate Agriculture Committee. The US, therefore, has adopted an aggressive posture. After ensuring that the developing countries are made to conform to the WTO obligations of phasing out or lifting of quantitative restrictions that allow easy penetration of the American farm commodities and the processed products, it is now preparing for the final assault. The new policy is directed at the 600 million "new consumers" in Asia and Southeast Asia and another 400 million in Latin America and Central America. It also meets "an eye for the eye" with the EU's Common Agricultural Policy. And in this 'clash of civilisations' the battle is primarily between the developed and the developing countries, between industrial agriculture and food security, between value-added functional foods and growing hunger. Take the case of farm subsidies. The US and the EU are both at logger-heads when it comes to blaming each other, but in reality draw strength from their respective policies to increase and strengthen subsidies. Agricultural subsidies not only distort the market but also push land prices to artificially high levels and jeopardize current as well as future agreements. It was, therefore, made obligatory for the developed countries to phase out their subsidies as per a formula agreed upon. In reality, agricultural subsidies have been on an upswing in both the US and the EU. There are no signs of any move to drastically prune agricultural subsidies. A new farm bill, which replaces the emergency payments that the US Congress has voted each of the last four years to supplement the subsidies farmers receive under the 1996 farm law, which expires in 2002, very cleverly shifts the focus from commodity subsidies to water and land conservation. It means an overhaul of the present Depression-era policy that largely rewards only farmers of cotton, wheat, corn, soybeans and rice. These subsidies have so far helped only eight per cent of the big farmers to expand their acreage and increase production. It provided an average household income was $135,000. The new Bill provides for a support of a staggering US $ 170 billion to US agriculture in the next ten years. The new policy argues that all farmers should benefit if federal farm aid shifted from its singular focus on commodity subsidies and instead helped underwrite greater access to foreign markets, more conservation programs, expanded research into pest and disease control and better infrastructure. While officially it is being dubbed as a reorientation programme to help not just big wheat and corn farmers but all farmers, in reality is a shameful and clever camouflage to provide more subsidies to America's domestic agriculture. What worries the US is the generous domestic supports and export subsidies being doled out by the EU, much of it as direct support to farmers. The Organization for Economic Cooperation and Development (OECD) estimates total EU production supports was to the tune of US $114.5 billion in 1999, compared to $54 billion for the United States. The OECD itself provides a massive support of US $ one billion a day to its farmers and protection provided by both tariffs and non-tariff barriers, including unjustified sanitary and phytosanitary measures, remained very high. As per the WTO commitments, US had promised to reduce its domestic agricultural subsidy to a maximum of US $ 19.1 billion. Instead of bringing down the subsidy level, the US is now preparing to be the global leader in farm subsidy support. Paradoxically, the EU, one of the leading proponents of trade liberalization has one of the most protected agricultural sectors in the world through its Common Agricultural Policy. Such is the double standard of the EU that it forces developing countries, through the western-dominated World Trade Organization (WTO), to open up their economies when Europe's agriculture sector is the most subsidized in the world. And at the same time, EU continues to befool the global community with its unilateral proposals like 'everything but arms', essentially opening up its market for the least developing countries which it knows will never pose any threat to its domestic production. The EU, which too is faced with a strong criticism of its ever-increasing support for agriculture, is now trying to protect the subsidy shield under the newly coined phrase of 'multifunctionality', which harps on conservation and beautification of the rural landscape. In fact, the EU Agriculture Commissioner, Mr Franz Fischler, had been seeking 'support' from the developing countries, including India, to back its 'multifunctionality' concept. Taking a cue from the EU, the US too has begun to chant the conservation mantra and for obvious reasons. The former secretary of the USDA, Dan Glickman, used to call it as 'multifaceted' agriculture. Add to it, the subsidy support for market intervention. Since the Uruguay Round agreement, the EU and the Cairns Group, have increased their market development investments by 50 percent to US $1 billion annually. The US feels a little let down here because in contrast, its market development spending has been virtually flat at about US $250 million. Market development activities are critical in the present-day consumer-driven marketplace. In comparison, developing countries cannot simply afford any investment for product promotion and marketing. Developing countries on the other hand have been forced to 'discipline' their subsidy norms as per the WTO's Agreement on Agriculture. While the WTO allows for a maximum limit of ten per cent of subsidy support under the Aggregate Minimum Support (AMS) clause, in reality a majority of the developing countries have already dispensed with farm subsidies and have even dismantled agricultural extension systems. India, which provides an annual subsidy of US $ 1 billion for its 100 million land holdings, is also busy dismantling the public distribution system in a phased manner. All these measures were projected to increase the international prices of agricultural commodities thereby making it convenient for developing countries to have a bigger share in farm exports. Nothing of this sort happened. Instead, countries like India, sitting uncomfortably over a record food grain surplus of 60 million tonnes, have failed to find a market. On the other hand, exports from the western countries continue to be on a steady rise. "Dollar for dollar, America export more meat than steel, more corn than cosmetics, more wheat than coal, more bakery products than motorboats, and more fruits and vegetables than household appliances," Mattie Sharpless said, adding that agriculture is one of the few sectors of the US economy that consistently contributes a surplus to its trade balance. In fact, the US projections for the current year are that 53 percent of its wheat crop,47 percent of cotton, 42 percent of rice, 35 percent of soybeans, and 21 percent of corn will be exported. This has only been made possible by the heavy subsidies and the removal of trade barriers or QRs by the developing countries. In terms of high-value products, especially horticultural products, its exports constitutes the main economic activity. Nearly 71 per cent of the almonds, 62 per cent of the cattle hides and 51 per cent of walnuts produced in the country are exported. In addition, the fastest growing sector of the American exports comprises the consumer-oriented high-value products like meats, poultry, fruits and vegetables, and processed grocery products. Incidentally, while it brings in revenue from exports, this is also the worst environmental damaging production system. Exports of these US products however is expected to reach a record US $22.5 billion in 2001. The glaring inequalities in agricultural trade are the result of unjust reforms. In an increasingly globalised world with a rules-based multilateral trading framework, the time is well overdue to truly reform global agriculture. In a bid to establish a fair and market-oriented agricultural trading system, there has already been an acceptance for the elimination of all forms of export subsidies; substantially improved market access, including through deep cuts in tariffs, the curtailment of tariff peaks, the removal of tariff escalation, substantial increases in all tariff quota volumes, strengthening of tariff quota administration rules, and elimination of remaining non-tariff measures; and elimination of trade-distorting domestic support. In addition, enhanced special and differential treatment provisions across all areas were necessary to address the needs of developing countries. Agriculture trade reforms are of particular importance to the developing world. Distortions in world markets for agricultural products undermine the ability of many developing countries to create strong agricultural sectors and achieve sustained economic growth. Better market access in a world free of trade-distorting subsidies is essential for promoting development and eliminating poverty in developing countries. After all, trade in farm commodities and food products is directly linked to the survival of nearly 70 per cent of the populations in developing countries. How can true reforms in agricultural trade be ushered in a manner that it fully integrates developing countries in the multilateral trading system? In a manner that free trade in agriculture help in raising farm incomes, remove poverty and the developing countries attain sustainable food security that is based on the principle of food self-sufficiency? No amount of tinkering with tariff and non-tariff barriers, domestic agricultural subsidy and export subsidies, and the various boxes that protect the developed countries farm interest and in turn their national economies is going to help the developing countries achieve freedom from hunger and malnutrition. A true reform in agriculture is only possible when the global community accepts the guiding principle that food for all is an international obligation. It can only be achieved when the need for national food self-sufficiency becomes the cornerstone of the WTO's Agreement on Agriculture. And it can only be put into practice when the developed and the developing countries refrain from a battle of food supremacy to reorient efforts to bring equality, justice and human compassion in addressing the mankind's biggest scourge - chronic hunger and acute malnutrition. In essence, a true reform in agriculture trade must begin by capping the production capacity in the developed and industrialised countries. A true trade reform can only be put into practice when the food production base shifts to developing and least developed countries. After all, what is the economic and social justification for the US to produce 700 million tonnes of foodgrains a year when all it requires for its domestic need is not more than 400 million tonnes? Why should the EU be allowed to persist with the Common Agricultural Policy that has doubled the intake of herbicides, multiplied the use of fungicides by six times and increased the area sprayed with pesticides by almost a hundred per cent in the past two decades? Why should the Cairns group, a group of 18 food exporting countries, be allowed to corner a third of the global trade in agriculture thereby upsetting the food production capability of many a poor nations? Why can't the same effort and resources go into strengthening the capacity of the poor and deprived to produce enough and that too locally? Adopting the same principles of global trade, which 'discipline' the inequalities in mounting trade surplus on the one hand and the increasing trade deficit on the other, agriculture too is in a dire need of a reform package that is aimed at feeding the world at large rather than encourage further exploitation of the poor and marginalised. The world cannot move towards a trade paradigm that is aimed at creating a permanent wedge between the North and the South, between the rich industrialised countries and the poor developing countries, between the have and have nots. Such a paradigm shift in multilateral trade is harmful in the long run, and is sure to lead to hitherto unknown disastrous socio-economic consequences. WTO's Agreement on Agriculture, therefore, needs to be further reformed. Agricultural economists and policy makers should, for once, suggest measures that brings rural prosperity and builds food security all over the globe rather than draw policies that helps consolidate big businesses. To maintain a global balance, and in addition to the measures that have already been spelled out, the three major planks of the fresh agenda for change in the international free trade paradigm should be:- WTO should cap the production potential of the major food producers. Under the rule-based system of growth, all countries should be directed to limit its surplus production of agricultural commodities to not more than 20 per cent of its domestic demand. This would mean that the shortfall in production from these food-exporting countries enables food-deficit countries to reorient their policies to improve domestic production. With the threat of highly subsidised food grains and products being dumped onto the poor countries no longer looming large, small and marginal farmers can rebuild the lost confidence in farming.
- WTO should phase out the environment-unfriendly agricultural practices under a given time frame. For instance, the EU should be directed to drastically reduce and phase out the cultivation and production of sugarbeet. Such a measure would not only be an economic relief but also a step in the right direction towards the oft-touted 'multifunctioanality' concept. In turn, it would also mean the restoration of millions of lost jobs and livelihoods in the developing countries, which were earlier producing sugar from sugarcane and meeting the world's demand.
- Food security, based on domestic food self-sufficiency, should in future be the guiding principle for all international negotiations on agriculture. Food security cannot be left to the mercy of the market forces. Developing countries should be in a position to restore measures that protects the livelihood security of its farming communities.
| Devinder Sharma is a New Delhi-based food and trade policy analyst. Among his recent works include two books GATT to WTO: Seeds of Despair and In the Famine Trap |