"Agricultural issues need to be approached with a two-track strategy"

Interview with Biswajit Dhar, Head, Centre for WTO studies, Indian Institute of Foreign Trade. 

CP: Why has agriculture been touted as one of the most significant issues for developing countries in the Doha Round of negotiations?

BD: Agriculture is the most significant sector for Developing Countries (DCs) considering the large population that is dependent on this sector. Lets look at India's case. Even after going through the process of industrialization, the population of workforce dependent on this sector still remains at about two-thirds of the total. And while the share is decreasing, a fairly large number still prevails for other DCs that are in India's category; this is why the agreement on agriculture and particularly its review has become so important for the DCs.
This is so because of the inherent problems in the agreement. I will concentrate on the major problems of the agreement. The first is that the basic structure of the agreement is tilted in favour of developed countries. DCs are crippled due to an absence of a rule on special and differential treatment. And, the second problem is the way the agreement has been implemented. It leaves a lot to be desired. At the end of the Uruguay Round (UR), DCs expected considerable reduction in subsidies in developed countries. Contrary to expectations, developed countries have increased subsidies, thereby taking advantage of prevalent imbalances. Consequently, DCs agenda was very clear. They identified the agricultural sector to provide food security and livelihood for a majority of the population. Certain countries like India were also thinking of dividing this sector into tradable and non-tradable commodities. This would help them realize the sector's potential by giving them better market access in larger markets. The market access problems were however, getting into a jam because of the high level of subsidies in developed countries; and also, because of high tariffs on certain products that are of export interest to developing countries. In the negotiations, therefore, DCs like India had both a defensive and an offensive interest. Under the UR negotiating framework, DCs were rewarded substantial compensations in agriculture, for greater market access in their countries through removal of QRs on imports and a slight relaxation on the TRIPS issue. 


CP: Could you put some numbers to these arguments?

BD: The number gains were in a broad aggregative sense. The World Bank, the OECD and others threw around different models. In one of the projections, the OECD-WB model talked about a gain in income to the amount of around US $213 billion for the world as a whole. The interesting part about this was that only one-thirds would accrue to the DCs, among which India, China and Korea had the bulk of the share. It was predicted that LDCs won't gain much; but India stood to gain, which was something to look forward to. Intuitively, once market distortions like subsidies and tariffs get reduced, low cost producers like India stand to gain due to an appreciation in prices. Once these distortions were removed, the market would provide appropriate signals to farmers, who could then adjust their production in response to these signals. Farmers in DCs had an advantage in this case because of their cheap technology and low cost of production. When international prices rise, it reduces the risk of cheap imports too, thereby widening the domestic market further. Ideally, once the levels of protection are lowered, we gain better market access to both domestic and foreign markets. 


CP: Are there any other factors that hinder India's agricultural progress?

BD: One must not forget that the WTO is not the sole determinant of our agricultural fortunes. There is considerably more that needs to be done domestically. In my view, we need to approach this issue with a two-track strategy. So, while we attempt to create a space for our agricultural goods internationally, it needs to be ensured that the domestic market does not get affected.
What has happened though is that while trying to negotiate on a global scale, we have ignored the problems on the domestic front. It is a known fact that the gains in productivity are gradually slackening, since the end of the green revolution. There is also the problem of very high cost inputs, which is jacking up the cost of production. This is a major problem currently. Due to the ineffective implementation of the agreement on agriculture the prices of commodities are coming down, which lands us in a double whammy; On the one hand, the cost of production is rising, while on the other, the prices are falling. In this respect, there is a complete reversal to the ideal scenario that I referred to earlier. High protection is essential to protect our farmers from cheaper imports. A similar situation exists in other DCs, except for a small number of agricultural exporters like Malaysia, and some Latin American countries. Except those countries, which have a sizeable interest in the international markets, most other DCs have a subsistence agricultural sector; and it is these countries that are now looking down the barrel.


CP: There are broadly two-aspects to the agricultural negotiations - one are the trade concerns and the other are the non-trade concerns. Which is the most crucial for DCs? 

BD: Both concerns. This is exactly what I was talking about when I said that we have both an offensive and a defensive interest. Our defensive interests, like food security and livelihood are encapsulated within the non-trade concerns. Most farming in our country is for subsistence. These farmers participate in the market only at the margin, and hence are most vulnerable to cheap imports. This will erode their little marketable surplus, thereby reducing their capacity to meet their non-food needs. 
Trade concerns obviously refer to market access. The crosscutting issues within these are tariffs and subsidies. High tariffs and subsidies create problems for both trade prospects and non-trade concerns.



CP: Most countries have put forward their proposals on agriculture. If you had to identify certain contentious issues on which these countries are willing to stick their neck out, what would they be?

BD: From a DCs perspective, these issues would certainly entail a reduction in subsidies by developed countries. It may seem paradoxical that why should developing countries employ high tariffs once subsidies granted by developed countries get reduced. In my opinion, this contradiction gets resolved once we consider the current market scenario, where any reduction in subsides is meaningless in terms of improving the discipline in the market. 
Stuart Harbinson, the Chairman of the WTO on Agriculture, in his paper has tried to give a broad framework of the possible changes that could take place in the existing Agreement on Agriculture (AoA). In his proposals, he hasn't advocated the case of reduction of domestic support strongly. This is because both the EU and US are heavily committed to giving high subsidies to the farming community. The US legalized a Farm Act last year, according to which domestic support between 2002 and 2011 would inflate by US $180 billion. The EU has a larger share for subsidies than the US; and once the Eastern European countries join in, there will certainly be an enormous rise in the amount. Undeniably, there will be a huge increase in subsidies; the issue is by how much. Given such a scenario, DCs demand for higher tariffs are legitimate. 


CP: You mean DCs should increase tariffs for greater protection? 

BD: No! Not increase, but retain tariffs at previous levels or agree to minimum cuts. There have been various kinds of formulas, which have been tried out but one is unsure about their prospects. India has been amongst the most vocal DCs. It will be very difficult for her to settle for substantial cuts in tariffs. At the moment, we are intent on keeping our tariffs at a reasonably high level, while we diligently attempt to discipline the subsidies, fully cognizant that it may be futile.


CP: I return to my previous question. For which issues are various countries willing to stick their neck out for? 

BD: The US is the unofficial leader of the Cairns Group, which is essentially demanding better market access in developed countries. The US, in particular, has very aggressively campaigned for a reduction in tariffs in DCs, arguing that DCs comprise of the largest and the most protected agricultural markets in the world. Tariffs in developed countries are in any case low; so they don't have much to offer. This is the US position. The Cairns group, however, doesn't go that far because its majority comprises of DCs. The Cairns group, while demanding better market access, are concerning themselves chiefly with a reduction in subsidies. The US is talking about reduction of subsidies, which are trade-distorting in character. There have three types of subsidies that have been identified, of which Green Box is non trade-distorting. The US has been supporting the group only through its Green Box measures. 
The EU, on the other hand, has no intention of reforming the agricultural system. Neither do they want to reduce tariffs substantially, nor reform their domestic support; their only demands are controls on export subsidies, export credit and food aid. The US currently grants quantum support through measures like export credit and food aid. 
Comparably, the EU agenda is more transparent. It has no intentions of reforming the agricultural sector, and therefore will go into the negotiations with a few points in hand. The US, on the other hand, is trying to project that it has a major agenda for reforming agriculture; but, in effect, it will do nothing. Superficially, they may try to clamp down on trade-distorting support, but, unless they repeal the Farm Act of 2002, we can expect quantum increase in domestic support in the next few years. 


CP: Doesn't the EU also want to retain the Green Box measures?

BD: True. The EU has very little ambitions in this sector, and this is exactly what we may see in their proposals. There will be no hypocrisy in their proposals. While the US may strongly voice their support for major reforms, yet will not initiate any action on the same count. 


CP: In that case, where can we expect reform then?

BD: In my opinion, we may not see any reform if the present trend continues. This impasse will continue unless somebody breaks this rule of the jungle. 


CP: What are the prospects for agriculture then from the current round? 

BD: My apprehensions are that there could be some deal between the US and the EU. At the moment, the EU would appear to be a natural ally to most developing countries. This is so because disciplining of subsidies is not in the control of DCs either. And, unless subsidies are disciplined, tariffs cannot be brought down. The DCs agenda on this is very clear; until subsidies are lowered, it is impossible to expect any market discipline. 


CP: Do you foresee developing countries arguing for increase in their current levels of tariff support, if subsidies do not get reduced substantially? 

BD: This was one of the suggestions that if the impact of subsidies does not get reduced then, there would have to be a compensation mechanism, which will work through the tariffs. Earlier, very few developing countries had the right to use special safeguards. Now, they are being used by DCs in a more general manner. However, there are technical details like the trigger price and the tariff level that still need to discussed more comprehensively. 
Even though safeguards are only temporary measures, one could argue that they are effective in combating perceived threats from cheap imports. The length of time for which they can be used becomes immaterial, once they provide the option for recourse.
DCs are also aware of this tricky situation. Increasing tariffs will involve considerable costs for them. In the past, when we increased our tariffs on certain commodities, other tariffs had to be correspondingly reduced. That is the way the WTO system functions. For every bit of protection or a safeguard mechanism, there will be some compensation elsewhere. In terms of strategy, it is not really a bad idea that we are not going overboard on the issue of increasing tariffs. It will not be granted to us in the first instance, and then it may be difficult for us to argue for it later. It would be better for us to have certain measures in place where we can protect our own markets.


CP: How do you think India should approach these agricultural negotiations?

BD: I think the issues we have raised upfront are very valid. We raised the issue of non-trade concerns, including both food security and livelihood. Our basic contention was that agricultural policy making had to have a larger perspective; it cannot be purely trade-based. Our aim is to make the system more flexible, lest the farming community back home refuses it. I think that the negotiators are aware of the situation among the affected groups. There cannot be a repetition of the imbroglio that resulted due to lack of understanding during the UR negotiations. We will therefore, not accept any agreement that is lop-sided or does not address some of our core issues seriously. 
In the past, several analysts have argued that India's real advantage lies in exports. Since the UR negotiations have assured us that international markets will open up, we need to shelve our anti-export sentiment, and try to realize the sector's export potential. There persist two problems in this export-orientation thesis. The first is if we go overboard trying to produce commercial crops, we may effectively ruin our cropping pattern by substituting non-food crops for food crops. Developed communities like the EU and the US have recently become major producers of food crops like rice, wheat, maize etc. DCs enjoy a comparative advantage in producing cash crops. If the market diktat were to be followed, then it could be dangerous for us because it may make us dependant on them for food. This could destroy our balance of payments situation substantially. DCs have been warned of such pernicious effects by multilateral organizations like the Food and Agricultural Organisation (FAO) and the World Food Summit initiatives. Secondly, for export-oriented growth, we will need to commodify the agriculture sector, since access to international markets will not be easy to gain. The EU and the US have made use of an increasing number of non-trade barriers to protect their sectors. The quality of our products will not be able to survive international competition at the moment. So, unless we fundamentally reform our domestic production system, it is not going to be easy to get market access there. This is why I emphasize on the need to modernize domestic production techniques. The kind of products that we sell in our markets is not going to be accepted anywhere. This has weakened the argument for making agriculture an export-oriented sector. 


CP: Are we looking to address these non-tariff barriers, like food safety standards and environmental standards?

BD: We are. But, it is not a part of the agricultural negotiations. It is a part of the negotiations on SPS and TBT. They don't get linked here. That is another problem area. All the market access issues do not get addressed in the agricultural negotiations. We don't use TBT or SPS to the extent that developed countries do. We would have liked to raise this issue as a larger market access problem; but we can't do it because SPS is not a part of the AoA.


CP: Aren't those bodies looking at the issue of standards for agricultural products?

BD: They are. SPS is entirely concentrated on agricultural products. TBT is also being used. Yet, I am sure in both these agreements, countries are free to use their own national standards. Consequently, there is derogation from national treatment, which is provided for in both these agreements. The slower these agreements move, the better it is for developed countries that use these discriminatory practices.


CP: You have made the case for the liberalization of agriculture benefiting developing countries. And in liberalization, the international prices are going to rise. Now, there are quite a few DCs, which are actually net importers and are likely to be affected by the increase in prices. How is that being addressed?

BD: There is a separate decision on net food importing DCs and LDCs. A part of that decision was that these countries will be provided technical assistance and capacity-building measures to strengthen their domestic agricultural sector, apart from concessional aid for food imports to meet their current food needs. Again, this is a part of the larger objective of ensuring food security. These decisions will provide a facilitating environment to ensure that the countries can depend on their own domestic production to be self-sufficient. Green Revolution in India was a set of techniques that were aimed at these very objectives. Unfortunately, the process of Globalization and trade liberalization has put the clock back. And, as I have already mentioned that the FAO and the World Food Summit have already taken initiates to deal with such problems. 


CP: Is there a strong linkage between high protection on geographical indicators and the agricultural negotiations?

BD: The EU has made that linkage but I don't think that it will be accepted by anyone. What could be important is the other part of the non-trade concerns, which the EU has raised in the form of multifunctionality. These comprise animal welfare payments, environmental protection etc. This will raise the subsidies bill of DCs considerably. 


CP: In the final analysis how do you see things progressing from now because there is a missed deadline on modalities? What is happening currently and how is it likely to progress?

BD: At this moment, it is very unclear how things will progress. We can only hope that nothing disturbs the Cancun process. I mean if the EU and the US strike a deal, then it could be a fait accompli for the DCs. Everyone is aware that the making or breaking of Cancun depends on agriculture. If the EU and the US submit a joint proposal, which is disagreeable to the DCs, then we would get the blame for wrecking the multilateral system; If they don't come up with a solution, then we are no better than we were before. At this point, there seems to be no resolution to break this deadlock; we will have to wait for the Cancun negotiations to start before making any further predictions.


CP: On the one hand, we are asking them to come to an agreement and on the other hand if they do come to an agreement, that may not be acceptable to us.

BD: That is the crux of the problem. Nobody wants to take the blame for missing the deadline. All claim that there was a common consensus among DCs, and the progress of negotiations was impeded because the EU and the US could arrive at no compromise. In retrospect, the UR negotiations were clinched because the EU and the US signed the Blairhouse Accord. The Blairhouse Accord had disastrous consequences for the DCs. 


CP: Shouldn't we be more proactive here and come out with our own proposals?

BD: Sure, at both the government and the civil society level. I think a large part of the interventions in the WTO have originated from civil society concerns. Civil society has a considerable role to play and unfortunately for India, civil society hasn't really taken up the issue as much. This really surprises me. The kind of interest that civil society groups had during the UR negotiations or immediately thereafter hasn't been repeated since. I can safely generalize this for multilateral processes in particular. The kind of co-ordination expected from civil society groups in India hasn't been witnessed yet. It is surprising that western groups have raised most issues of concerns to developing countries. 


CP: Is that because the DCs civil society is more inward-oriented and they are not well aware of the international issues?

BD: Certainly, that is one of the problems. But, even the problems that we raise, we do not articulate them well enough. For instance, even if we concentrate on issues like agriculture or environment, we should be documenting all problems for different regions or sections that are affected. They should have in hand case studies, anecdotes and similar material to mount a strong case. We need to be more proactive on issues of concern to our country. 
For agriculture, we can't depend on government statistics. They do not provide us with comprehensive statistics. This is where the civil society groups can contribute most. They need to carry out ground research, prepare strong cases and keep a check on government activities. It would be a gargantuan task to identify countries with whom we share a common cause; but the more important concern at this point is to get our own act in place.


CP: Finally, how would you react to the proposal that Harbinson has put forward?

BD: It is very low on ambitions, at least on the issues that concern us, like the subsidies issue.


CP: And what about the other non-trade concerns?

BD: This is still in the melting pot. We have to wait and see how much protection do these concerns get. The list of special products that we can give higher protection to is yet to be decided. All these issues are still on the negotiating table and we might benefit if some of the proposals on domestic support are taken on board. But, I think what will happen is that the Harbinson's text will go through, which will mean that our tariffs will come down on a large number of products. We will not be able to identify the strategic products. The list of strategic products may vary over a period of time. This dynamic situation has been created due to subsidies. Unless we solve this basic problem, any amount of tariff reduction is going to be totally useless. Our focus should be to attack subsidies in developed countries.