WTO Negotiations and India's Stand_ Agriculture, NAMA and Services _ Backgrounders _ Trade & Development

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   You are here: Home | Trade and development | Backgrounders | WTO negotiations and India's stand: Agriculture, NAMA and services SHARECOMMENTS  WTO negotiations and India's stand: A griculture,NAMA and services By Abhijit Das From India's perspective it would be most crucial during the Doha negotiations to protect the interests of itsfarmers, even at the cost of foregoing benefits that might have otherwise been made in services and NAMAnegotiations India’s economic scenario  After growing at the so-called ‘Hindu Rate’ of growth of 3.5%, India’s Gross Domestic Product (GDP) growthaccelerated to 5.6% in the 1980s and averaged an unprecedented 6% in the period 1992-93 to 2003-04. Thegrowth rate in 2005-06 was 8.4%, and expectations are that India will be able to achieve a 10% rate of growth in the immediate future.In terms of the sectoral shift in GDP, the share of agriculture fell from 58% to 25% between 1950 and 2001, whilethat of industry increased from 15% to 26%, and the share of services increased from 27% to 49%. The servicesector accounted for almost 54% of the country’s GDP in 2005-06.India’s export of services has displayed one of the fastest growth rates in the world -- that is, over 17% per annum in the 1990s (when the world average was 5.6%). Service exports showed significant buoyancy during2004-05, doubling from US$ 25 billion to US$ 51 billion. They now account for 39% of India’s total expor ts. The service sector boom in India in the post-Uruguay Round period shows that India has a competitive advantage in several services sectors. However, employment in services has not increased in proportion to the rising share in GDP and trade in India, unlike the situation in the rest of the world. In 1999-2000, servicescontributed around 24% of employment in India, in contrast to 30% in middle-income countries, 70% inSingapore and around 35% in Thailand. This is perhaps the main reason why trade and economic growth inIndia has been seen as “jobless”.Trade already accounts for more than 30% of India’s GDP, an increase of almost 10 percentage points since2002. Therefore, the final outcome of the WTO negotiations would be an important determinant of overalleconomic growth in India. A major constraint facing the country is the persistence of infrastructure deficits: lack of reliable power supplywhich dampens growth impulses in different sectors of the economy, as well as inefficient and high cost of infrastructure such as roads, railways, airports, seaports and electricity.  According to various estimates, in view of its needs, India is currently spending a miniscule amount oninfrastructure. In contrast, China spends seven times as much as India in absolute terms.India’s negotiating stand at the WTO should be viewed within this context. This article does not question therationale for India’s continued engagement at the WTO. Instead, it seeks to explain developments in three areasof negotiation: agriculture, Non-Agricultural Market Access (NAMA) and services. It also attempts to captureIndia’s negotiating position on these issues, highlighting significant shifts on specific issues wherever thesehave occurred. Doha negotiations: Agriculture, NAMA and services In November 2001, following up on the Doha Ministerial Declaration, WTO members launched an ambitiousWork Programme covering negotiations on agriculture, Non-Agriculture Market Access (NAMA), services,dispute settlement, antidumping duties, subsidies, etc. In addition, intense work was envisaged in new areas of investment, competition policy, transparency in government procurement and trade facilitation, with the objectiveof initiating negotiations in 2003. In the Doha Ministerial Declaration, WTO members expressed their resolve tofind appropriate solutions to the implementation-related concerns raised by developing countries. Theseconcerns emerged out of the problems encountered by developing countries in the implementation of agreements finalised during the Uruguay Round.When launched, the Doha Round of trade negotiations was scheduled to be completed by January 1, 2005.However, like the preceding Uruguay Round, the Doha Round has encountered many roadblocks, and progresshas been slow. Unable to bridge the gap between differing positions on agriculture and what are known as the“Singapore issues” (investment, competition, transparency in government procurement, and trade facilitation),the Cancun Ministerial Meeting, held in 2003, ended without any results on the issues on the negotiating table.However, some of the contentious issues were settled in the July Framework Agreement of 2004. MORE RELATED ARTICLES The struggle for affordable medicines A brief history of theWTOCan multilateral tradework for the poor?Trade on human termsThe MDGs and the freetrade mantraBuilding a globalpartnership for developmentProtection for the rich;free play of marketforces for the poor Subsidising suicidesMarginalising themarginalisedHuligamma and BigMacMore media, lessdemocracyWhat do women standto gain from trade? SPECIAL SECTIONS Food securityPovertyLivelihoodsHuman rightsEnvironmentWater resourcesGovernancePublic healthHIV/AIDSGlobalisationTrade and developmentUrban IndiaWomenChildrenPopulationMediaEducationCorporate responsibilityDisastersDisabilitiesTechnology Trade & development HOMEANALYSISFEATURESBOOKS & REPORTSCHANGEMAKERSAGENDASPECIAL SECTIONSCONTACT US 6NOV2014SEARCH  Expectations from the Hong Kong Ministerial meeting, held in December 2005, were scaled down in advance of the meeting. Decisions on most of the contentious and substantive issues were postponed until 2006. Theseincluded decisions on the formula, specific numbers and timeframe (commonly referred to as modalities) for reduction in agricultural subsidies, and agricultural and non-agricultural tariffs. Despite major players in the WTOnegotiations meeting at regular intervals, consensus on the modalities continues to be elusive. Since July 24,2006, WTO negotiations have gone into suspension mode. Agriculture Under GATT, agriculture was subject to ‘soft’ disciplines compared to industrial products. In 1955, the UnitedStates obtained a permanent waiver from substantial obligations in agriculture. The European Unionimplemented an elaborate system of protection for its farmers through huge subsidies. This resulted in severedistortions in the production and trade of agricultural products. Some degree of discipline in agriculture wasintroduced through the Uruguay Round Agreement on Agriculture. When the Doha Round was launched, it wasexpected that a significant reduction, if not full elimination of the distortions, would be achieved in thenegotiations. These hopes may be belied. Opinion on the utility and effectiveness of the WTO as a forum for negotiating rules on agricultural tariffs andsubsidies is split. According to one view, in most developing countries agriculture is not so much a matter of commerce as one of livelihood. It may, therefore, not be appropriate to treat it on a par with industrial goods. Accordingly, disciplines on agriculture should not be included in trade agreements at the WTO. However, acontrary view also exists which perceives WTO negotiations as the only available vehicle for seeking a reductionin developed-country subsidies, which have significantly distorted global trade and agricultural production.Of all the issues being negotiated under the ongoing Doha Work Programme, none would have deeper implications for the vast multitude of poor around the world than the negotiations on agriculture. Agriculturaldevelopment represents a convergence of the main objectives of economic policy in developing countries:growth, stability and poverty alleviation. As trade can interact with these objectives in complex ways, the resultsof the agriculture negotiations could crucially determine the extent of policy flexibility available to developingcountries to pursue these goals in a manner consistent with WTO obligations.  Agriculture negotiations: Progress achieved  Negotiations towards an Agreement on Agriculture are being undertaken on what are called three pillars --domestic support, market access, and export competition. With respect to each of these pillars, differentdeveloping countries have differing interests, often conflicting in nature. The July Framework and the Hong KongMinisterial Declaration leave open a wide range of options within each pillar of the agriculture negotiations,which provide both risk and opportunity for developing countries. This has brought a considerable degree of complexity to the negotiations. Different country groups have been formed, based on commonality of interests onspecific issues, the most important among them being the G20 and the G33. India is a member of both thesegroups. Domestic support It is generally accepted that the agricultural subsidies provided by developed countries not only restrict theaccess of developing-country exports, but have also depressed world food prices. Subsidised exports bydeveloped countries also pose a threat to food and livelihood security in developing countries by depressingdomestic market prices. Reduction of agricultural subsidies by developed countries is, therefore, a crucial goalthat is being pursued by developing countries.The July Framework distinguishes between two broad categories of domestic support. Trade-distorting supportand non-trade-distorting support (that is, support with no or minimal impact on trade and production).Trade-distorting support is made up of various components. The July Framework foresees a substantialreduction of overall trade-distorting support, as well as each component of such support. The framework further states that there will be a strong element of harmonisation of trade-distorting support among developedmembers because higher levels of permitted trade-distorting support are required to be subject to deeper cuts.It has been estimated that under the existing WTO regime, the EU and the US have the flexibility to provide $ 100billion and $ 48.22 billion, respectively, of trade-distorting support. The actual level of trade-distorting subsidyprovided by them is less than the ceiling under the WTO. During negotiations in July 2006, the US offered toreduce the ceiling on its overall trade-distorting support by 53%, from $ 48.22 billion to $ 22.5 billion. Developingcountries had proposed a limit of $ 10.5 billion.The US offer must also be seen in light of the fact that its actual level of trade-distorting subsidies in 2005 wasabout $ 19.7 billion, and in some previous years substantially less than that. As the existing level of trade-distorting subsidies is below $ 22.5 billion, the 53% reduction in ceiling would have resulted in only ‘paper reduction’, without any actual cut on the ground. In fact, the US would have the space to increase trade-distortingsubsidies from $ 19.7 billion to the ceiling of $ 22.5 billion.This has been a matter of considerable disappointment for developing countries like India and other G20members, particularly because the US is seeking effective tariff reduction from developing countries in exchangefor paper reduction in its subsidies. The on-going agriculture negotiations also provide an opportunity for review and clarification of criteria of ‘greenbox subsidies’ -- the so-called non-trade-distorting subsidies -- with a view to ensuring that these subsidies haveno, or at most minimal, trade-distorting effects, or effects on production. Under the Uruguay Round commitments,countries can provide green box subsidies without any ceiling, provided these subsidies have no trade- or production-distorting effects.  It has been estimated that, under the green box category, almost US$ 90 billion subsidies are provided by theUS, the EU and Japan. There are considerable theoretical arguments and a certain amount of empiricalevidence that establish that green box subsidies significantly enhance production through different economiceffects. In short, green box subsidies provided by developed countries are adversely affecting the interests of farmers in developing countries. While the Doha Round negotiations do not envisage any reduction commitmentor ceiling on green box subsidies, proposals have been made by G20 countries to limit such payments tofarmers with low levels of income, landholding and production. This might indirectly prevent big farmers andagri-business from receiving handouts under green box.  A point that bears highlighting is that even if the most ambitious proposal of reducing trade-distorting domesticsupport is agreed upon -- which appears to be an unlikely outcome -- it would still provide considerable leewayto developed countries to grant billions of dollars of farm support. Further, the absence of strict disciplines ongreen box could undermine gains that may be achieved through a reduced ceiling on trade-distorting subsidies.This should be a matter of concern for developing countries. Market access Developed countries have consistently demanded that developing countries, including India, reduce their agricultural tariffs. However, it is widely understood that tariff liberalisation by developing countries could havesevere consequences -- such as large-scale unemployment, poverty and hunger -- unless they areaccompanied by a substantial reduction in, if not removal of, developed-country farm subsidies.It was agreed in the 2004 July Framework, and further elaborated in the 2005 Hong Kong Declaration, thatdeveloping countries would have the right to self-designate certain products as Special Products (SPs). SPswould be subject to flexible tariff reduction. Self-designation of SPs is required to be guided by indicators basedon criteria such as food security, livelihood and rural development concerns. While most developing countrieshave favoured broad coverage of products under SPs, some developed countries have suggested that SPs berestricted to not more than five products. The latter proposal would severely undermine the ability of developingcountries to protect the livelihood of their farmers against a surge in cheap and subsidised imports fromdeveloped countries.It is sometimes argued that, in order to address food shortages in India, the country should not be averse toreducing agricultural tariffs during the WTO negotiations. This argument is fallacious, as India can apply lowcustoms duty to facilitate food imports while continuing to keep high bound rates on agricultural products. Export competition The export competition pillar includes various forms of direct and indirect export subsidies, export credits, exportinsurance, food aid, etc. The most significant development in the export competition pillar has been the decisionat the Hong Kong Ministerial meeting to eliminate export subsidies by 2013. However, the actual impact of theelimination of export subsidies may be rather limited, given the fact that the amount of these subsidies -- lessthan $ 10 billion per year -- is significantly less than the amount of domestic support.  Agriculture negotiations: India’s stand  The agricultural sector is India’s most vulnerable sector. With the livelihood of around 650 million people in thecountry being dependent on agriculture, India’s interests in the negotiations on agriculture are mainly defensive.India’s offensive interests lie in reducing the heavy subsidisation in developed countries.India’s interests in agriculture have always been dictated by the need to safeguard millions of small farmers whooperate the majority of farm holdings in the countryside. Agriculture determines the very social fabric of India andis more a way of life and means of livelihood than a question of commerce. Further, India has 25 agro-climaticzones that, on the one hand, provide diversity to crop cultivation and, on the other, make crop rotation within afarm extremely difficult. Given these complexities in agriculture, India has essentially defensive interests inagriculture. India’s bound rates and applied agricultural tariffs are among the highest in the world. Further, the government has considerable flexibility to increase customs duties on most agriculture products, asthere is a substantial gap between the existing bound rates and applied customs duty. To illustrate, the boundrate on some edible oils is 300%, but the applied customs duty is 100%. Thus, the government has the flexibilityto raise customs duty on some edible oils. However, in respect of certain products like olive oil, the bound rateand applied customs duty are the same -- 45% -- leaving almost no flexibility for raising customs duty, even if theneed were to arise in the future.Keeping its agrarian crisis in view, India had made a strong pitch for according adequate tariff protection tocertain products by designating them special products. The products within agriculture regarding which India isextra sensitive with respect to trade liberalisation -- due to their potential for huge employment-generation andlivelihood concerns -- include cereals, edible oils and oilseeds and dairy products. Other agricultural productsproduced by small farmers and, therefore, sensitive for India are spices, ginger, cane sugar, etc. These need tobe protected against deep tariff reduction. As part of G33, India has strongly supported the need for developing countries to have a Special SafeguardMechanism (SSM) which would allow them to impose additional tariffs when faced with cheap imports or whenthere is a surge in imports. However, developed countries and some developing countries have sought toimpose extremely restrictive requirements for invoking SSM, which would render this instrument ineffective.  As far as agriculture is concerned, overall there does not appear to have been any major shift in India’snegotiating stand. It has firmly resisted making deep tariff cuts on agricultural products. At the same time, it isaggressively pushing developed countries to reduce their farm support. However, as part of the G20 it hasdiluted its stand on green box and blue box (subsidies provided for limiting production) subsidies. At the CancunMinisterial meeting in 2003, the G20 had sought a cap on green box subsidies and rejected any expansion of   blue box subsidies. However, by the time the 2004 July Framework was concluded both these demands appear to have been abandoned. India also does not seem to have made any headway in obtaining the right to applyquantitative restrictions on agricultural imports, a demand repeatedly made by stakeholders such as farmers’organisations and NGOs.While India’s negotiating strategy has been defensive, in general, there are several products in which it mayhave an export interest. These include cereals, meat, dairy products, some horticultural products and sugar,which may see a growth in export opportunities with reductions in tariff. India’s negotiating strategy should alsobe cognizant of the export opportunity that may be unleashed in the processed food sector, which has seensignificant growth over the past few years. It is here that the decision at Hong Kong to eliminate export subsidiesby 2013 assumes importance. Non-Agricultural Market Access(NAMA) In GATT/WTO, the term ‘tariff’ is used to refer to a customs duty levied at the time a product is imported into theterritory of any country. Tariffs generally have three functions: (i) to provide revenue to the government; (ii) toprotect the domestic product from competition with the imported product, as the latter becomes more costlybecause of the tariff; and (iii) to function as an instrument of development policy in discouraging non-priorityimports (such as luxury goods), while encouraging priority imports like capital goods and industrialintermediates. As the imported product becomes more expensive with the levy of a tariff than it would be withoutit, tariffs have a restraining effect on imports.GATT/WTO requires member countries to bind their tariffs at mutually negotiated rates with a commitment thatthe applied customs duty in a member’s territory will not exceed the negotiated level, which is referred to as the bound level  . When a country undertakes the obligation to ‘bind’ tariff on a product, it cannot raise the tariff on thatproduct beyond the ‘bound’ level. It may, however, apply a lower tariff at its own discretion. If a country has not‘bound’ the tariff on a particular product, it is free to put any level of tariff on it. The bound levels for a country areincluded in that country’s tariff schedule, which is kept in the WTO as a record. The negotiations on industrial tariffs are mainly on two issues: how to reduce tariffs by working out a formula for tariff reduction, and what percentage of products will be covered by tariff binding (commitment on bindingcoverage -- that is, the obligation not to raise tariffs beyond committed bound levels on a range of products thatare not currently covered by binding).Under GATT/WTO, there are different approaches to commitments on tariff reduction. The least onerousapproach for tariff reduction is to reduce the average tariff, with low reduction on products requiring high tariff protection and higher reduction on products not requiring special protection. A more onerous approach is toreduce tariffs on each tariff line on the basis of a linear formula, under which tariffs are proportionately cut by afixed percentage. The most onerous method for taking action on tariff reduction commitments is through a non-linear formula under which higher tariffs are cut more than lower tariffs. To illustrate, a product with an initial tariff of 70% will face a higher cut than another product with an initial tariff set at 40%. The extent of tariff cuts under anon-linear formula depends on the value of the coefficient. One commonly used non-linear formula is the so-called Swiss Formula (see below).Under GATT negotiations, developing countries were not required to reduce tariffs on a product-by-productbasis. Under the Uruguay Round commitments, they were required to undertake tariff cuts in the least onerousmanner -– through average tariff reductions. NAMA negotiations: Doha and beyond  Paragraph 16 of the Doha Declaration, which is on NAMA, has the following four elements: 1. Reduction/elimination of tariffs, including tariff peaks, high tariffs and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries.2. Comprehensive product coverage without any a priori   exclusions.3. Special needs and interests of developing countries and Least Developed Countries (LDCs) to be takenfully into account.4. Less than full reciprocity by developing countries and LDCs in reduction of tariffs.Certain features of the Doha mandate on NAMA bear highlighting. First, the Doha Declaration did not specifywhether tariff reduction should be undertaken on the basis of average tariff cuts or line-by-line formula-basedcuts. Thus, the possibility existed for developing countries to seek tariff reduction through the least onerousmethod of average tariff reduction. Second, although the coverage of products for tariff reduction would becomprehensive without a priori exclusions, the possibility exists for keeping certain tariff lines outside the scopeof tariff reduction. Third, the mandate provides for the special needs and interests of developing countries to be fully taken into account in the negotiations. Fourth, under the concept of ‘less than full reciprocity,’ developedcountries could be expected to undertake deep tariff cuts without commensurate concessions from developingcountries.These four features of the Doha mandate would suggest that the interests of developing countries would beprotected during NAMA negotiations. However, subsequent developments do not indicate that the negotiationsare proceeding in a direction that would address the main concerns of developing countries like India.In the July Framework it was recognised that the formula approach is key to reducing tariffs. It was specified thatcountries would continue to work on a non-linear formula, to be applied on a line-by-line basis. Certainflexibilities for addressing the concerns of developing countries were also envisaged in the July Framework. Asfar as NAMA negotiations are concerned, the crucial point is that the July Framework should be viewed only asproviding initial elements for further work, and should not be treated as having been accepted. At the Hong Kong Ministerial meeting of the WTO in 2005, it was decided that NAMA tariff reductions would be
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