The removal of QR
The first impact would be felt on the domestic prices. As the Uruguay Round seeks to boost agricultural trade via substantial cut in subsidies and other such forms of protectionism, the prices in member countries are expected to move closer to the international market.
Average world yield is higher compared to India 27 per cent for paddy, 249 percent for maize, 41 percent for pulses and 61 percent in the case of repeseed. Similartly, India’s cotton yield is only half of the world average. Sugarcane is the only major crop where India’s yield in higher than the world average but recovery level in India is quite low.
Quantitative restriction on imports is maintained under Article XVII B of the GATT agreement.
The WTO requires dismantling of all sorts of physical barriers on import and replace these with suitable tariffs in a phased manner. Till 1997, India had been enjoying waiver to this clause as applicable to developing countries having balance of payment problem. In January 1997, the US supported by some developed countries contended that as per IMF India had overcome its BOP problem and therefore the country should come out with a plan to phase out QRs on imports.
The IMF has recommended that India since 1995, is not having difficulty in meeting its BOP obligations. The SAP initiated in 1991, has been instrumental in increasing India’s foreign exchange reserve.
India’s stand on this issue has been that the sources of increase in foreign exchange reserve are of temporary nature and hence their sustainability is debatable. Therefore India sought waiver to remove QRs on imports citing the still precarious nature of BOP.
The Ministry of Commerce in consultation with the Department of Agriculture had prepared a detail phase out plan for the removal of QRs spanning over a period of five to seven years. Currently, three phases of decreasing duration have been suggested : Fy 1997-2000 (Ist phase). Fy 2000-2002 (II phase) and Fy 2002-2003 (III phase). The phase out programme is being done on the basis of sensitivity of a particular crop from the point of view of:
(i) its implications on the principal vocation of majority of our farm population and,
(ii) its importance as a staple item of food.
Since the USA did not agree to this phase-out, the end of most of these measurements is clearly in sight. The US is demanding the removal of QR on imports into India as early as March 2000.
After the Removal of QRs
It is difficult to predict the precise impact of liberalisation of agriculture imports on agricultural sector and other segments of the economy because the post GATT period is expected to witness signifi-cant changes in input prices, cost of production and output prices in different countries as they adjust their policies to meet the new obligaitons.
The first impact would be felt the domestic prices. As the Uruguay Round seeks to boost agriculture trade via substantial cut in subsidies and other such forms of protection, the prices in member countries are expected to move closer to the international market. Indian agriculture has the advantage of cheap labour. Therefore despite lower productivity, the prices of agriculture commodities are considerably less with the exception of a few commodities.
For one thing imports to India would not be attractive in the case of rice, tea, sunflower oil and cotton. Analysts and policy planners in the government for the time being have ruled out massive exports of food-grains which are cheaper in the domestic markets but sensitive from the point of view of consumption by the economically weaker sections because of high transportation costs and poor export infrastructure!
For wheat and maize the situation in some years can turn favourable for improts depending on domestic and international supply position.
There is a strong possibility of rise in imports of sugar and edible oils after the removal of QRs, which would exert downward pressure on their domestic prices.
Finally, what the cost benefit analysis reveals. In sectors where the country is in a position of exporting food items like rice, tea etc, is hindered by poor infrastructure and other related problems whereas strong possiblitiles exists of the country witnessing massive imports of sugar and edible oils.
In plain words, while the removal of QRs on one hand is going to increase imports of several items, much to the benefit of the consumers who would pay less. Exports are not likely to increase. The country is all set to spend considerable amount of forex on imports hence there is no way to replenish the same.
There is a substantial projected surplus of tea of 123.00 million tonnes and coffee of 220 million tonnes. Rest for all other items vary from 3 to 8 million tonnes (excepting for items like rubber, spices etc where there is a miniscule surplus). In the immediate future, with present agriculture scenario, there is no indication of the country in general and agricultural sector in particualr gaining substantially from free market. Hence the protagonists of free market will have to find new paradigm other than increasing of export after full-scale implementation of the provisions of the WTO.
Some studies have predicted that the removal of QRs on imports would lead to dumping and transfer of excess production by exporting countries that would impart high instability in the farm income of domestic producers. The case of Latin American countries is an example. Under the liberalisation per capita GDP between 1980 and 1990 is reported to have declined by 9 percent. While the list of countries that faced severe crisis after going in for full-scale liberalisation is virtually unending, those gaining substantially after liberalisation can be counted on fingers.
On the question of price volatility, studies have shown that the world price have been more volatile than Indian prices. Based on
this it is inferred that dismantling trade barriers on imports would increase volatility of Indian prices and farm inocmes and the majority of small and marginal farmers would not be able to withstand such price shocks.
The domestic production is much more volatile than the global production, which means that the price instability, because of supply side factor is much higher in India compared to global market. Even after this the domestic price is less than the global prices mainly because of the following :
Indian agriculture enjoys advantage of cheap labour. Therefore, despite lower productivity the domestic prices remain considerable lower with the exception of oilseeds etc.
The frequent government intervention to check sharp fluctuations in prices in domestic economy also helps keep prices lower.
Third World Disunity
The countries constituting the Third World have been broadly divided into two different blocks one who are major exporters of agricultural goods like Argentina, Thailand and others, who are also members of Cairns group and the major importers of agricultural products. The contradiction between the two groups, has never come to such fore as is being seen on the formulation and implementation of Agreement on Agriculture.
The major exporter countries like Argentina, Thailand etc have joined hands with the First World nations like Australia, Canada and US in demanding to bring in liberalisation in agriculture on lines of liberalisaton in other sectors. They are demanding the WTO to prize open market for agricultural products. For achieving this end they have demanded an early total elimination of exprot subsidies, deep cuts in tariff along with removal of non-tariff barriers and the elimination of trade distorting domestic support measure.
The other groups who are not food importers see the above demands as a threat to their already fragile agro-sector. Despite domestic support measure the net importer countries are short of food. They fear that without protection to their agriculture sector, they would produce even less than their present capacity. They are also wary of the fact that the removal of export subsidies as envisaged in the exporter countries charter would raise the cost of food suiting the exporter country but a higher food bill for the importers. The major importer countries happen to be from the LDCs and hence a higher food price would mean more starvation, malnutrition and an overall famine like situation. So these countries are vehemently opposing this Cairns groups agenda.
The Agreement on Agriculture (AoA) has driven a wedge in the much touted Third World unity. It was being argued that there is a possibility of united Third World to force the latter to come on terms with the developing countries agenda. The reason given is that in the last four years, there has been a considerable disillusionment with the heavy pro-rich tilt of the WTO. In almost all the Third World nations there have been protests and demonstrations against the globalisation in general and the WTO in particular. Taking this widespread angle as a clue India organized a conference of G-15 countries to discuss on the tactical line to be taken in the Seattle meeting and to come up with a common developing countries approach on the major issues. But the effort failed to produce result as on the vital agricultural front, clear cut contradictions emerged. In this division India seems to be the major loser.
India tried to tackle the issue by demanding differential provisions for developing countries. In a presentation to the WTO India supported the complete abolition of export subsidies except as a special and differential provision for developing countries. It also demanded a degree of flexibility for developing countries to improve the overall availability of foodgrains as well as enhance the income level of the rural poor.
The prospects of getting differential provisions for the developing countries are however not very bright. The developed world is unlikely to support such move. Apart from the developed countries, even the developing countries of Cairns group would also like the market of food importing countries open. The exporters include some of the influential developing nations of Latin America and South East Asia.
They would form a powerful and assertive alliance with the countries of developed world such as US, Canada and Australia jeopardising the overall bargaining capacity of the Third World. In light of this development it would be very difficult for the entire developing world to effectively put its agenda, and safeguarding its interest. Contradictions of the Third World that give a virtual free hand to the developed countries to further their own interest.
India’s dilemma stems from the attempt to tread the middle path. Now it fears to lose the support of both groups. ‘‘India’s support to the issues raised by food importing countries may well have contributed to the lack of interest in the G-15 from member countries that also belong to the Cairns group. At the same time the food importing countries have reason to complain as well especially about India’s support for the removal of export subsidies in the developed world. The apprehension that the removal of export subsidy will raise international food cannot be lightly brushed aside’’.
The majority of net food importer countries are very poor, least developed and heavily indebted. The additional expenditure on food purchase might act as the last straw on the camel’s back. It is likely that to arrive at some compromise USA and its allies might intervene and to protect the maximum interest of Washington and Co.
The precise nature of the outcome is diffucult to predict but the changes that are being contemplated would have a far reaching impact on India that cannot be brushed aside.
[ Excerpted from ‘India and WTO’ by Pratyush Nilotpal, Published by Cipra Books, B-31, Anand Complex 2nd floor, Subhash Chowk Laxmi Nagar, Delhi-110092 Price : Rs 500, $ 50 ]