Keywords: contract on agriculture india, agriculture agreement
The possible welfare gains and likely beneficiaries for the facilitation of agricultural world trade developed by the Contract on Agriculture remains a matter of debate and concerns. Which means impact of the Agreement on Agriculture on creation, price structure and trade in agricultural sector needs proper introspection and evaluation from Indian perspectives. The paper attempts to judge and analysed the impact of the agricultural reforms as a result of the Contract on Agriculture on the Indian agricultural economy and its position in world trade.
The Contract on Agriculture was shaped on Apr 1994 at Marrakesh, Morocco as part of the final Take action of the Uruguay Round of multilateral trade negotiations which arrived to push on 1st Jan. 1995. This was a result of the long drawn talks on General arrangement on Tariffs and Trade (GATT) targeted at checking of International marketplaces and to reform world trade which was highly distorted. A significant reason for the formation of the Contract on Agriculture was the need to reduce high surplus creation in agricultural sector in the global item markets through the 1980`s and early 1990`s. This was brought on by the increasing degrees of support and cover in a number of developed countries as some of the greatest agricultural exporters competed on the basis of their authorities`s capacity to subsidised development and exports of agriculture while limiting access to their markets to keep out foreign agricultural products of their domestic markets. Therefore the core target of AOA was to establish a fair and market oriented trading system which was to be carried out for an interval of 6 years in developed countries and 9 years in developing countries. With this, agriculture was brought under the new guidelines of world trading system for the very first time. You can find 3 main top features of the Contract:
- Market Access
- Domestic support.
- Export subsidy.
The market access required that tariffs for agricultural product fixed by specific countries be reduce to equal tariff to be able to permit free trade and encourage liberalisation in world trade. Under this, the AOA required the alteration of most non tariff barriers into tariff barriers. This process was known as Tariffication. This was to be integrated for an interval of 6 years for the developed countries and 10 years for the growing countries, least developed countries were exempted from executing such reductions.
Domestic support was geared to reduce the subsidies distributed by governments of their country for agricultural development and related activities. The full total home support should be below the level of de minimis in a maximum period of three years for developed countries and 5 years for growing countries. This was to reduce price distortion and unfair competition in agricultural world trade.
Export subsidy seeks to reduce subsidies of export related to agricultural products and ban the advantages of new subsidies. This directed to safeguard small and marginal farmers in home countries especially in developing countries.
Another focus on of the Arrangement was the provision of special and differential treatment for the security of the interest of the growing countries. Furthermore, there are provisions of Special Products and Sensitive Products, which are to be exempted from stringent discipline of the above provisions of tariffication process. Provision of Special Products designates a certain volume of products of the expanding countries that would be exempt from tariff reduction requirements and other disciplines in order to protect and promote food development, livelihood security and rural development worldwide. The idea was to protect the growing countries and least developed countries from unfair competition in world market and to create a global trading system where each individual country can come together and trade on similar footing without the discrimination and distortion by the greater useful countries of the world.
However, the possible welfare profits and likely beneficiaries for the facilitation of agricultural world trade produced by the Agreement remains a matter of controversy and concerns. Therefore the impact of the AOA on development, price framework and trade needs proper introspection and evaluation from Indian perspectives. The composition of the Contract on Agriculture as it is out there today appears to be slightly imbalanced, since it enables countries subsidising the agriculture sector closely to retain a considerable part of their subsidies up to the finish of the implementation period while those countries that have been not using these methods previously are prohibited to use these procedures in future beyond the de-minimis limit. Therefore, ways to bring about more equity in to the framework of the Contract has to be sought.
Until the liberalisation of 1991, India was typically and intentionally isolated from the entire world markets, to protect its economy also to achieve self reliance. India`s international trade was put through transfer tariffs, export taxes and quantitative limitations. So far it had used an inward looking economic policy before attempts to liberalise its economy. The Green revolution that was created in 1990`s further caused reforms in agricultural sector and increase its creation. This in a way opened the gate for participation on the globe overall economy through the production of excessive agricultural goods. Thus, India`s current economic climate shifted from subsistence overall economy to production for exports in the world market. At the moment, Indian agriculture contributes to 24% of GDP, however agriculture exports makes up about less than 1% of world trade in agricultural goods while a major share of the world`s exports are given by developed countries which accounts for around 64%.
Indian agriculture is characterised by an overpowering majority of small and marginal farmers positioning significantly less than two hectares of land, significantly less than 35. 7% of the land, is under any reassured irrigation system. Farmers, therefore, require support in conditions of development of infrastructure as well as expansion of improved technology and procedures of requisite inputs at fair cost. There is absolutely no doubt that over the last 30 years, Indian agriculture is continuing to grow at an acceptable pace, but with stagnant and declining world wide web cropped area it is indeed going to be always a difficult task to keep up the development in agricultural development. The implications of the Arrangement would thus need to be evaluated in the light of the meals demand and supply situation. How big is the country, the amount of overall development, balance of obligations position, reasonable future prospect for agricultural development, composition of land holdings etc. are the other relevant factors that would have a bearing on India's trade plan in agriculture. Implications of the Arrangement on Agriculture for India should thus be evaluated from the impact it will have on the following:
i) Whether the Agreement has opened up marketplaces and facilitated exports of products; and
ii) Whether India would be able to continue with its domestic policy targeted at bettering infrastructure and provision of inputs at subsidised charges for attaining increased agricultural production.
With India being under balance of repayments, it has not performed any commitments under the Uruguay Circular Contract on Agriculture (AOA) which constrain it from following its developmental policy with regard to agriculture or which entail any action immediately. The only determination India has carried out is to bind its tariffs on most important agricultural products at 100%; processed foods at 150%; and edible oils at 300%. However, it is needed to study the implications of removal of quantitative limitations on market access, subsidy to farmers and tariffs on imports. One of the major effects of the Contract was that India has been keeping Quantitative constraints (QRs) on certain agricultural import products. Beneath the provision of the marketplace gain access to, such QRs should be eliminated latest by Apr 1st 2001. Immediate results was increased import of cheap and highly subsidized agricultural products which led to decline of home agricultural prices in India since 1999-2000. This adversely influenced small and marginal farmers who resorted to offering off their agricultural lands to corporate and business and MNC`s at a very nominal prices. This further distorts local agriculture and rural structure of the current economic climate that are largely dependent on agriculture for success. For example in Andhra Pradesh farmers were then hit with a crash in international prices, low rates of tariff applied on imports of commodities like edible oils, sweets, etc. and the removal of quantitative constraints. Therefore another WTO cell was create as these areas felt that the central government weren't doing enough to safeguard the eye of such expresses from the adverse impact of the Agreement. It is designed to adapt state insurance policies to changing occasions and to affect future federal negotiating positions. This obviously shows that the AOA was more good for the developed countries as it furthers opened up new market opportunities for them to exploit using their cheap agricultural products.
However, Additionally it is argued that with the checking of world market segments under the provision of Market gain access to and the lifting of QRs on imports of certain agricultural products, potential customers on exports have increased which business lead to an increase in price of domestic agricultural commodities, this would imply that farmers would get benefits which would encourage investment in the resource scarce agricultural sector. Also, with the reduction in creation subsidies as well as export subsidies, the international prices of agricultural goods will rise which will help to make India`s exports more competitive in world market. Given the agro diversity of India, it gets the potential to increase agro exports in a major way.
A. V Ganesan, recommended the thought of using the purchase price motivation as a driving a car pressure to increase productivity as farmers are introduced to world market segments there will be growing pressure from the farmers to get higher prices for their produce and also to narrow the gap between the home and external prices. Both the pattern of development and price expectations will significantly be influenced by the needs and styles in world marketplaces. Therefore, the purchase price incentive could be used to give a strong boost to investment in agriculture as well as adoption of modern technologies and thus to the raising of agricultural development and efficiency. Furthermore, liberty to export agricultural products without limitations will also need losing the long-nurtured inhibition against their imports. Thus the Agreement on Agriculture is thought to provide a website link between domestic reforms and international reforms by giving constraints that route domestic plan change in the right way.
India had a brief history of food price inflation rendering it difficult to export agriculture processed products. The meals price inflation was at the amount of 11% during 1991-98, though the level has come down to 4. 5% during 1998-2006. Therefore, if increase in cheap imports further reduces the food price, it will not increase the condition of the farmers but instead their condition will deteriorate unless large gains are created through food established developing export-enhancing strategies. However, with agriculture subsidies and export campaigns, developed countries still continue to dominate the entire world agriculture market. More than 67 per cent of world food exports during 2001-03 comes from the high-income countries, while countries such as India where more than 65 per cent people survive on agriculture, added only one 1. 1 % of food exports. For instance, In India, the dairy products sector has been hit hard by subsidized exports from the European union. In 1999-2000 India brought in over 130, 000 tonnes of European union skim dairy powder. This was the consequence of EUR 5 million export subsidies which were provided to EU producers. EU subsidies to butter exports are also extortionately high. Therefore, butter oil import into India has grown at an average rate of 7. 7% annually. It has experienced a dampening effect on prices of ghee in the local market. Ironically, India is the largest producer of dairy on the globe. Furthermore worrying for India is that we now have now symptoms of declining efficiency growth for most agricultural products in India that may have severe implications for the majority of the population.
To ensure the welfare of our farmers from the influence of the lifting of Quantitative Limitations, high import tariffs of commodities needs to be maintained. The Agreement does not in any way constrained the ability to restrict the import of goods since India has already reserved the to impose high degrees of import obligations of 100%, 150% and 300% on most important products, prepared products and edible oils respectively. Also credited to India`s balance of obligations (BOP) reasons certain products are permitted to continue to be under the QR`s category. With appropriate tariffication process, the unfavorable impact of such QRs can be rectified. In previous years, a number of agricultural and horticultural products put on the free set of imports have been brought to the peak rate to ensure satisfactory security to Indian farmers.
India has a poor total aggregate solution (below 10%) of domestic support which implies that there is absolutely no compulsion to reduce tariff. India is under no obligation to lessen its domestic support. Also, India does not provide any export subsidies which requires reduction commitments under the export subsidy determination. The Arrangement on Agriculture lists various kinds subsidies to which lowering commitments apply. However, such subsidies are practically non-existent in India as exporters of agricultural commodities do not get direct subsidy. The Contract allows infinite support to activities such as (i) research, pest diseases control, training, extension, and advisory services; (ii) open public stock holding for food security purposes; (iii) domestic food help; and (iv) income insurance and food needs, rest from natural disasters and obligations under environmentally friendly assistance programmes. Moreover, investment subsidies given for development of agricultural infrastructure or any kind of support directed at low income and tool poor farmers are exempt from any commitments. Most of our major rural and agricultural development programs are covered under these procedures. Therefore, the Agreement does not constrain our procedures of assets in these areas.
It is expected that decrease in local support and export subsidy by the developed countries will lead to a reduction in creation in their countries and can eventually give opportunity for expansion of exports from the expanding countries that will create a well balanced export and import situation on the globe trading system. India, using its cheap labor, diverse agro-climatic conditions and large agricultural sector will surely gain through development of international trade in agricultural product. India`s agricultural exports have been growing since 1995and at the moment this can be a world wide web food exporter constituting higher talk about for exports in agriculture than manufactured exports. Therefore, India is likely to gain if the EU, the united states, Japan and other major agriculture subsidisers significantly reduce their farm subsidies. For instance, United States spent US$ 4 billion as subsidy to support its 25, 000 cotton makers (US$160, 000 per designer) in 2003. Additionally it is argued that in countries such as USA, subsidies are loved by a preferred few; usually producing corn, whole wheat, cotton, soybean, and rice, while growers of 400 other crops hardly get any such subsidy. It could profit India if other countries lower tariffs to its plantation exports on products such as cotton, basmati rice, fish or meat etc. However, the share of Indian exports in agriculture is sliding down as compared to manufacturing. These labour-intensive exports are expected to grow considerably faster and potential areas include textiles and food control translating into benefits across a big band of farmers and contributing to stabilising their incomes. India has demonstrated comparative advantages in almost all the products it exports, and even in those products it imports. Therefore, India relishes a large selection of products where it might successfully boost its capacity to export.
The rural-urban split is increasing progressively in India but India cannot holiday resort to other balancing options such as subsidy like the developed countries are doing. This is due to large populace of India as majority of the population is dependent after agriculture for livelihood. Therefore the solution for dealing with the rural-urban divide lies in large scale work technology through industrialization and extension of agriculture handling and exports.
In the short-term the Arrangement on Agriculture might not exactly have an effect on India much because both its domestic support and export subsidy are negative I, e less than the minimal 10% in product specific local support. Moreover, the safeguards provided in the Contract for the expanding countries protect India from any major impact of liberalization of the world trade. However, in the long run, due to good thing about cheap labor that India loves, the price tag on production are lower than any countries, therefore in spite of its lower efficiency when compared with the developed countries, the prices for agricultural product eg. as regarding grain, tea, sunflower oil and cotton, will still remain lower than the earth price. Because of this, import to Indian market segments will never be attractive as the local market prices in such products continue to be lower than the international standard. Hence, the impact of large scale imports anticipated to liberalization of the world overall economy will not be much.
The Uruguay Round of AOA experienced a built-in provision for review and renewal of its coverage to consider not just increased trade but also such objectives as food security, varied rural development and the reduction of inequalities between developed countries and expanding countries and minimal developed countries. In general, to assess in-depth the consequences of the URAA on trade, on agricultural insurance policy and on cover levels. This is to be chose at the next circular of multilateral talk to be held at the fourth WTO ministerial discussion in Doha, Nov. 2001 that was geared to be completed by Jan. 2005. India`s stand at the discussion included Non trade concerns which include food security and environmental cover. India is particularly nervous about food security which includes not only adequate supply of food but also stability in its resource. India was of the stand that no deep change has been made in subsidy position of the developed countries even after the agreement.
When the AoA was released in Uruguay there were so many goals however the results failed to reach the anticipations of several countries. Inside the Doha round, the concerns of the developing countries and the developed countries differed. The developing countries wished to focus only on the implementation (or non implementations) and review of the Uruguay arrangement. Developed countries' point of view, however, was for new issues ( eg :Singapore issues), viz, investment, competition, trade facilitation and transparency in government procurement, besides environment and internationally recognised core labour benchmarks.
The Doha round clearly demonstrates India`s affinity for the negotiation continue to be at variance from the eye of the least developed countries as India has a more favourable agricultural condition than any of these countries. Many of these countries are net importers of food and the subsidy in the exporting countries makes them better off. Furthermore, under the Everything But Hands (EBA) initiative of europe, the LDCs have quota - and duty-free usage of the EU market, a facility that was never open to India. Also, India will depend on highly on its service sector industry; therefore, the problem has become highly tense for India, especially in view of the fact that the developed countries have were able to web page link agriculture subsidy with the marketplace access in services and industry. If europe must do more on agricultural tariffs, and the united states must do more on reducing agricultural subsidies, then India also needed to do more on professional tariffs. That is a confusing situation for India.
The Doha Development Round of trade discussions was geared to be concluded by January 2005. However, the improvement thereafter has hardly been in the positive route. There is a deadlock of Doha Ministerial meeting and it was still left for even more work and causing negotiations. The reason behind the failing of the negotiations largely falls on the role of america, which departed from Cairns group and joined EU, the later having too ambitious agenda on including investment and competition. Countries like Australia, New Zealand and Canada (of Cairns Group) favour a completely market oriented way and oppose trade distorting subsidies and protectionist regimes of EU and Japan. While EU continued to be against fast monitor approached to liberalization. Expanding countries like India, Pakistan, Sri Lanka, ASEAN etc spotlight need for role of agriculture in their economies and seek to preserve domestic policy flexibility to guard food security concerns.
In India, more than half of the population is still based mostly upon agriculture for subsistence even after governments continued attempt to bring about upsurge in industrialization and technological progression. Therefore, agriculture remain a key importance for the sustenance of the population and also constitute a significant show in the country's economy. Agricultural self applied reliance sorts a essential underpinning for the growth of the GDP of any agrarian growing economies since good agricultural development provides purchasing power to a large most a population, which in turn spurts industrial expansion. Self-sufficiency in food production has, therefore, specific developmental point of view instead of a purely commercial point of view. Hence, it is important that the expanding countries like India need to be provided with the requisite overall flexibility within the AOA to follow their authentic non-trade concerns of food security. More specifically, producing countries need to be allowed to provide local support in the agricultural sector to meet up with the problems of food security and to be able to maintain the need of rural career.
Investment in Indian agriculture has been declining for a relatively good years. Within the framework of international trade, there is an added urgency to change this development and increase investment in research, built in market development, storage space and ware-housing facilities, street development, creation of facilities for effective and quicker travel and development of technological systems of standard setting up and grading. Open public costs on research and technology, infrastructure creation and rural development will raise India's AMS. More importantly, up-to-date information on home and international prices and demand should be made available to farmers through various consciousness programs and training. India also have to raise the quality of agricultural products to internationally accepted benchmarks, i e, those of the Codex Alimentarius Percentage (for food additives, veterinary drug and pesticide residues, contaminants, ways of examination and sampling, and codes and rules of hygienic practice).
The AOA is criticised on being insensitive to real human development or enhancing expectations of living, and being too insistent on liberalization. The model of agricultural trade liberalization advertised by the AOA also stimulates industrialized and export-oriented agricultural production, favouring trans nationwide commodity professionals and processors over small-scale farmers thus regardless of all the procedures provided under the Contract, it is further attacked on not considering the problems faced by the tiny and marginal farmers. The success of the agreement to a certain degree also is determined by what lengths the developed countries are prepared and focused on the reason for helping the growing countries for development through a process of good and unrestricted trade in agriculture. It is also argued that the contract have little to liberalised trade also to improve market gain access to and reduce coverage as safeguard in many countries continue to be very high and allowable export subsidies still threaten the stableness of world markets.
Global agricultural plans affect many economies in a similar way. Growing countries may be more vulnerable to distortions and changes in global trading guidelines in the agricultural sector, nevertheless they also determine the implications of agricultural trade liberalisation in some countries. Vulnerability of countries due to global plans and trade liberalisation plan maybe inherent to their market such as; Strong reliance on agriculture for income, occupation and forex earnings, heavy dependence on food imports and food aid and relatively high degree of sector openness. These conditions may render a country's economies susceptible to developments and instability levels of world agricultural prices, long term changes with respect to access barriers to exports marketplaces and global plans affecting the competitiveness of imports in domestic markets. With liberalisation of agricultural sector much priority is been given for increasing international trade which is not any replacement for inducing a domestically focused agricultural development. Indeed most food is produced for local usage in developing countries in support of a small proportion is bought and sold internationally, which means that a entirely trade-oriented strategy has little relevance for most expanding countries. Therefore agricultural reforms in International trading system like the AOA might not exactly have much impact on a country's monetary growth particularly the developing countries if the reforms are applied without proper evaluation of own country's economic proper position. Since agriculture constitute the major show of many raising economies, the implementation of such reforms and also the involvement in world trade without proper precautionary measures may cause problems which such developing countries may well not afford. Therefore, it is necessary to develop a strong local market scenario which is consistent with exterior prices, with appropriate guidelines to ensure the protection with their economies from the unneeded and unfair competition in world marketplaces. However, if such reforms are disciplined in its execution and also each country is serious enough to make such commitments for the welfare of the world trading system, it might lead to a balanced and equivalent world markets. This might in a way solve the problems of poverty, inequalities and business lead to increased efficiency and improve the standard of living of the world inhabitants.