FIELDWORK IN TRADE 

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By The Telegraph Online
  • Published 27.06.00
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Agriculture will be a crucial area of negotiations when the millennium round of world trade talks is taken up again in December. Agriculture is not a North-South issue. Like most trade issues, it is primarily an arena for the two traditional trade belligerents, the United States and the European Union. At the Seattle conference of the World Trade Organization, part of the US agenda was to see that agricultural agreements were implemented and insist the EU provide better market access. A major reason for Seattle's failure was the EU's intransigence over agricultural support. In the coming millennium round, India's position on agriculture should focus on three key issues: market access, domestic support and export competition. Other important issues are intellectual property, sanitary and phytosanitary standards, standards on genetically modified organisms and so on. Market access is basically about tariffication. India should insist that quotas on farm imports be replaced by tariff equivalents. Second, maximum tariff bindings on agricultural goods should not be more than 50 per cent. Third, tariff reduction on all agricultural goods should be across all commodities rather than an averaged measure. Fourth, India should push for a variable import levy system within the bound rate of 50 per cent. On domestic support, the ceiling should be 40 per cent, of which product specific and nonproduct specific aggregate measures of support should be 30 per cent and 10 per cent respectively. Second, reduction commitments should include each support measure, and a faster reduction of product specific rather than nonproduct specific subsidies. Third, India should resist moves by developed countries to treat negative product specific support as zero. In calculating aggregates support, both of these support measures should be added, even if product specific support is negative. Fourth, the majority of support measures provided by developed countries is either "green box" or "blue box". India should team up with the Cairns group of agricultural exporting countries and insist blue box measures should be part of aggregate support calculation. India is in a strong position regarding agricultural export subsidies since it provides few such subsidies. It only provides income tax exemption for profits from agricultural exports and freight subsidies for floriculture, vegetable and fruit exports. These are outside reduction commitments - India only has to notify the WTO once in two years on the extent of its export subsidy. The high levels of export subsidies given by some developed countries are a major concern for India. During 1986-90, the world's top five export subsidizers for any major product accounted for nearly all such subsidies worldwide. The US, the EU, Canada, Turkey and Hungary account for 95 per cent of export subsidies on wheat worldwide. For rice, 100 per cent subsidies come from Indonesia, the EU, US, Uruguay and Colombia. On sugar and dairy products, the EU is the largest provider of export subsidies. Sanitary and phytosanitary measures are emerging as one of the most trade distorting barriers. Though such standards are consistent with the national policies of WTO members, developed countries frequently use them as nontariff barriers. They do this by setting standards which are much higher than international norms, providing only a flimsy scientific reason. For example, Japan insists on a pesticide residue level of 0.4 particle per million in unmanufactured tobacco. The international standard is as high as 6 PPM. The Indian standard is 1-2 PPM. As a result, Japan does not allow unmanufactured tobacco from India on phytosanitary grounds. Under special and differential treatment for poor countries, there is a five year transition period for least developed countries and two years for developing countries on sanitary standards. But the first period expires in 2000. The other period expired in 1997. But a two year transition is inadequate for developing countries to revamp their internal systems. New Delhi should also look at other trade distorting policies emanating from weaknesses in the Uruguay round agreement. These include a large number of countries where the monopoly of government parastatals like state trading enterprises still continue. For example, many countries in central Europe, west and southeast Asia have government monopolies in tobacco. Even rich countries like France, Spain and Italy have government monopolies on tobacco. Import decisions by such monopolies lack transparency and are done without inviting international bids. Standards, which are continuous in nature, are emerging as the most trade restrictive practice in the post-Uruguay round scenario. Indian exporters are flooded with standards requirements from the West. Already Germany has imposed a variety of standards like Blue Angel, Rugmark and a host of ecolabels on carpets, apparels, textile materials and different agricultural products. There are also product specific standards like green dot, Duel system, the German Institute of Quality Control and labelling. The EU is following suit. It has environmental standards on genetic modification, bans on hormone boosted farm products, risk materials for mad cow disease, pesticide residue, azo dyes and so on. In the US market, green standards include labelling and transitional safeguards. Japan's trade restrictive standards include country of origin requirements and labelling. The Indian agricultural exports most likely to be affected by these ever multiplying labels are leather, textiles, commercial plantation products, shrimps, lobster, many dairy products, potatoes, mushrooms, bananas, mangoes, grapes, coffee, tea, rice seeds, tobacco and cut flowers, among others. India's agricultural exports are under peril due to two exogenous developments. However, India has little bargaining leverage. One reason is the growth of regionalism and bilateralism. Seattle's failure has tempted developed countries to switch to bilateral arrangements providing less market access to nonmembers. Article XXIV of the General Agreement on Tariffs and Trade permits regional trading blocs as a one time departure from the most favoured nation principle. This has caused enormous damage to Indian exporters because it encourages trade among the member countries of a regional bloc at the expense of nonmembers. After Seattle's failure, the EU is likely to push harder for regional trade deals that grant it preferential access to foreign markets. Recently it signed arrangements with South Africa and Mexico. The US may pursue a mooted free trade area of the Americas with greater vigour. Even Japan, which has resisted regionalism, announced after Seattle that it would pursue free trade deals with Singapore and place more stress on the Asia Pacific Economic Cooperation forum and the Association of Southeast Asian Nations. Another exogenous factor restricting market access has been the growth of intrafirm trade. According to the United Nations conference on trade and development, one third of world trade is intrafirm - between branches of a multinational company. Another one third is between multinationals and nonaffiliated companies. It is only the remaining one third of world trade which is outside MNC control. Over the years, MNC influence in world trade has grown tremendously. Agricultural commodities are no exception. In unmanufactured tobacco, 90 per cent of international trade is dominated by three firms: Dimon International, Standard Commercial and Universal Leaf. All multinational cigarette makers buy tobacco from these three firms. Trade in tobacco is thus largely between MNCs. While it may talk about market access, MFN principles, national treatment and so on, the Uruguay round agreement is helpless against such cartelization. Indian negotiators should keep this phenomenon in mind. Growth of countertrade between countries also distorts trade. In many cases, countertrade does not follow the MFN principle. US share in Japan's tobacco imports was once only 30 per cent. This rose to 95 per cent after a bilateral countertrade agreement in the late Eighties. Such bilateral agreements are WTO consistent so long as they follow the MFN principle. In practice, however, these are often in violation of the WTO. In December, Indian negotiators should insist that countertrade agreements, as well as many of the other trade practices listed above should be nondiscriminatory. The author teaches international trade and commerce at the Indian Institute of Public administration, New Delhi