Through e-mail and SMS, the following is now freely floating around, although it isn't quite new. A United Nations organization wanted to conduct a survey and told respondents, 'Please give your honest opinion about the food shortage problem in the rest of the world.' The survey failed because in Africa, they didn't know what food meant. In Europe, the didn't know what shortage meant. In China, they didn't know what opinion meant In Latin America, they didn't know what honest meant. In south Asia, they didn't know what please meant. And in the United States, they didn't know what the rest of the world meant.
Hidden in there, are some elements of the agricultural negotiations through the World Trade Organization. Agriculture and rural sector development are high on the United Progressive Alliance government's agenda, reflected in the national common minimum programme. However, the related issues primarily concern domestic reform agenda and have little to do with trade, although problems of Indian agriculture are invariably ascribed to WTO. The first obvious point to appreciate is that there was no attempt to liberalize agriculture and integrate it into the General Agreement on Tariffs and Trade framework before the Uruguay Round (1986-94), largely as a result of resistance from developed countries. The agricultural liberalization proposed in the Uruguay Round and set out in the Agreement on Agriculture is no more than imperfect and incomplete liberalization, in all the three strands of domestic support, export competition (subsidies) and market access.
In the course of the Uruguay Round, developed countries promised the quid pro quo of agricultural liberalization as a bait for including services, intellectual property and investment. That promised agricultural liberalization did not happen and that was not because developed countries were flouting any of the Uruguay Round clauses. There were problems within the AOA. In computing domestic support, there were boxes exempted from reduction commitments. All WTO agreements work on bindings, not actual levels of tariffs or support. If the bindings or base levels are set high, promised reductions will only be notional. That apart, there are safeguards and special safeguard clauses, not to speak of non-tariff barriers through sanitary and phytosanitary measures. However, this shouldn't be a cause for despondency. After all, we have attempted to multilaterally liberalize trade in manufactured products since 1947/48 and have not entirely succeeded. The agricultural effort is only two decades old. Post-mortems of the Uruguay Round AOA have been done several times and, in the last resort, are somewhat boring. In contrast, ante-mortems of the Doha Work Programme are much more interesting.
Indeed, ante-mortem is the right word to use. Agriculture was part of the built-in agenda of the Uruguay Round. In other words, even if a new round of multilateral trade negotiations had not started, we would have had to negotiate and review agriculture. But now, agriculture is formally part of the DWP, started in 2001, and those three strands of AOA have been refined further in a framework agreement in July 2004 and the Hong Kong Ministerial Declaration in December 2005. That does not mean we are any closer to an agreement. All we have is the skeleton, and the flesh is still missing. More than anything else, agriculture will determine the success (completion by end 2006) or failure (postponement to 2013) of the DWP. So far, the signs are not bright. The flesh is weak. And unless we make the spirit less willing by diluting the content of proposed agricultural liberalization, DWP will probably fail in the sense of getting postponed.
In trying to understand what is happening, one often tends to adopt a developed-versus-developing country prism. This is too much of a generalization. Not all developed countries are opposed to agricultural liberalization and not all developing countries support it. Developing countries that benefit from preferential duty access will suffer in relative terms, because there will be an erosion of benefits. Similarly, developing countries that are net food importers will also suffer because elimination of subsidies will mean higher global prices.
India belongs to neither category. From the Indian perspective, the quid, where one argues for reform in developed countries, is simpler. But often, the perception is that India does not have much to gain even if markets in developed countries are opened up. In the absence of domestic agro reforms, there are too many supply-side constraints. Since India has a peripheral export interest, India is therefore scoring no more than a debating point and is attempting to cement the G-20 coalition, which has countries with strong agro export interests, like Brazil. So runs the diagnosis and there is some element of truth in it. But one should not push the argument too hard. Anything between 10 and 13 per cent of India's export basket of goods comes from agriculture and $ 7 billion a year is not something to sniff at. Tea, coffee, rice, wheat, sugar and molasses, tobacco, spices, cashew, oilmeals, fresh fruits and vegetables, meat and meat preparations and marine products figure prominently, although marine products are not technically counted as agriculture within WTO.
In some of these categories, India's global market shares are large, and volumes in floriculture and horticulture are increasing. Debating point or not, the quid is not the problem. The problem is the quo, where one requires India also to open up and liberalize, because a situation where there are no reciprocal commitments is impossible.
There is no domestic support issue, since India is below the threshold. Nor is there an export subsidy issue, since there are no export subsidies that are agriculture specific. (There was one, but that has now been scrapped.) It thus boils down to market access, which means tariffs, since all quantitative restrictions have been converted into tariffs. In addition to G-20, there is a G-33 coalition of developing countries, with some overlap between the two categories. The G-33 is identified with asking for a special safeguards clause, apart from general safeguards, in case there is a sudden import surge and with special products, which will be exempted from tariff reduction commitments.
Special safeguards can also be through QRs. On tariffs, once we have excluded special products, there is a perception that we cannot afford to touch agricultural tariffs, since livelihoods are at stake. This is the reason why unilateral reform recommendations, like the Vijay Kelkar task force on indirect taxes, also leave out agriculture. But two points need to be made. First, there will be special and differential treatment for developing countries, or less than full reciprocity, in one form or another. And because of developed-country cussedness in resisting liberalization, India's tariff reduction commitments cannot be that much.
Second, any reduction commitment will apply to bound tariffs, not-applied tariffs and there is a gap between the two. The simple average of India's agro tariff bindings is 114.5 per cent and the maximum bound rate goes up to 300 per cent. The commerce ministry tracks imports of sensitive products and edible oils, milk and milk products, fruits and vegetables, rubber, cotton and silk, tea and coffee and alcoholic beverages figure in that list. Of these, edible oils and milk and milk products are certainly the most important. For oilseeds and fats, as against a bound rate of 168.9 per cent, in 2004, we had an average applied rate of 52.5 per cent. For dairy products, as against a bound rate of 65.0 per cent, in 2004, we had an average applied rate of 35.0 per cent. This gap suggests that we can afford to reduce bound tariffs, without hell breaking loose.
This are also special product exemptions and the special safeguards clause. For the most part, an agro tariff rate of 20 to 25 per cent should be more than enough to protect India's interests. In negotiations, we can thus afford to more aggressive and less defensive on agriculture. This is probably a perception that the commerce ministry also shares. Unfortunately, this is a perception that the agriculture ministry does not share, and therein lies the problem.