Focus

Ans: Mr. Pranab Mukherjee, the then Minister for Commerce, in his inaugural address at the Symposium on the ‘Impact of the Uruguay Round on Agro Exports’, held in August, 1994 had stated: " Coming to the area of Trade in Agriculture … I would like to emphasise that India was one of the leading developing nations which initiated from the very beginning of the Uruguay Round of discussions at Punta Del Este in September 1986, that "Agriculture" should be brought within the purview of GATT. The need for liberalisation in the world trade in agriculture was felt due to extensive subsidisation by the developed countries which led to distortion in the prices of agricultural commodities. As a result, the poor and developing countries like India were finding it difficult to have access to the markets of agricultural products in the developed and developing countries."*

Q.2: Will the Agreement on Agriculture jeopardise subsidies to our farm sector?

Ans: There has been a concern that subsidy for Indian farmers will no longer be possible under WTO Agreement on Agriculture.

The concern is misplaced because India is under no obligation under the WTO Agreement on Agriculture to reduce any of the subsidies given to our farmers. This is because the total aggregate value of subsidies given to farmers namely, subsidies on fertilizers, electricity, seeds, pesticides and cost of credit available to all crops as well as agricultural commodities is well below the ceiling prescribed in the Uruguay Round agreement.

The following is the opinion of the then-Minister for Commerce: "An opinion is sometimes expressed that subsidy, both product-specific and non-product-specific, to the farm sector might get jeopardised due to the GATT Accord. I do recognise that some sort of support, both product-specific and non-product-specific, is needed to achieve the objective of food security and to be self-sufficient in food production. Calculations have been made by eminent experts like Mr A.V.Ganesan that in the base years 1986-87, 1987-88 and 1988-89, both product-specific and non-product-specific subsidies provided by the Government of India to the farming sector, without taking into account the concessions provided for in the Agreement, were negative to the extent of Rs.19,000/- crores.* This implies that we would have to further subsidize agriculture to the tune of Rs.19,000/- crores to even come in the range of positive subsidies let alone above 10 per cent, which is a near impossibility in the foreseeable future. Hence the agreement would impose no obligation whatsoever on us to make any reduction in the present levels of agricultural subsidies." **

Moreover, developing countries have been provided three additional exemptions, namely, (1) investment subsidies which are generally available to agriculture; (2) agricultural input subsidies generally available to low-income or resource-poor producers; and (3) domestic support to producers to encourage diversification from growing illicit narcotic crops.

* Figures by experts may vary; but all calculations indicate our AMS is negative

Q.3: Will India's farm sector be affected by imports as a result of the minimum market access provisions?

Ans: The concern about minimum market access in agriculture is also misplaced. India in its schedule filed in the WTO at the time of signing the Uruguay Round had indicated that it was not under any obligation to provide minimum market access, on account of it being under BOP problems. Even in the event of removal of Quantitative Restrictions (QRs) maintained on Balance of Payment (BOP) grounds, during the implementation period India would not be obliged to provide any minimum market access. The then Minister for Commerce had stated: "…imports at tariff rate of 100% for primary agricultural products, 150% for processed agricultural products and 300% for edible oils as bound by us, would be prohibitive and make imports an extremely unviable proposition. Hence the apprehension that the Indian market would be flooded with imported agricultural goods is unfounded".^*

Ans: In case any import surge is noticed or apprehended, Government can suitably calibrate the applied rates of custom duties within the bound rates and can also initiate trade remedial measures including anti-dumping action, imposition of countervailing action or safeguard action under specific circumstances as provided under WTO agreements.

Ans: No. It is to be noted that operations of PDS in India are not subsidies to the farmer or the producer, but are consumer subsidies meant for the rural and urban poor to meet their food requirements. Such consumer subsidies are exempt from WTO discipline, and this is clearly written in the Agreement. Further, India has stated in its Schedule of Commitments in WTO that concessional sales of foodgrains through the PDS and other schemes with the objective of meeting the basic food requirements as a social safety net are in conformity with the provisions of the Agreement. The Schedule has been verified and accepted by our trading partners. The apprehension is, therefore, baseless.

Q.6: Will the WTO agreement interfere with India’s ability to follow its own agricultural policies and programmes?

Ans: No. All our developmental schemes can be continued under the WTO Agreement on Agriculture. These include our subsidies for research, pest and disease control, marketing and promotion services, infrastructural services, including capital expenditure for electricity, roads and other means of transport, marketing and port facilities, irrigation facilities, drainage systems and dams etc. For developing countries like India, there are some agricultural subsidies which are also permissible and need not be reduced. These are investment subsidies which are generally available to low income and resource poor farmers. The types of subsidies mentioned above account for the bulk of the agricultural subsidies provided in India.

We are carrying on with our policies and programmes. The Government has recently announced the first ever National Policy in Agriculture. Agricultural package for this year, inter alia, has been designed to stimulate growth through measures to encourage better management of food economy, removal of constraints on the movement of food grains within the country, enhanced credit flow to farm sector through institutional channels (increased to Rs.64,000 crores in 2001-2002 i.e. an increase of 24%), special initiatives like the credit linked subsidy scheme for construction of cold storages and rural godowns, reduction of rate of interest (from 10% to 8.5%) for funding the storage of crops, thus enabling farmers to enhance their holding capacity to sell later at remunerative prices and excise exemptions to food processing etc.

Ans: It is enshrined in the Preamble to the Agreement on Agriculture (AoA) that commitments under the reform programme for trade in agriculture should be made in an equitable way among all Members, having regard to non-trade concerns, including food security. Article 20 of the Agreement, which mandates negotiations for continuation of the reform process, also recognises that non-trade concerns, such as food security should be taken into account in the negotiations.

Ans: Food Security as defined by FAO is the physical and economic access for all people at all times to enough food for an active, healthy life with no risk of losing such access and as such is directly connected with livelihood in the developing countries.

The Bali Declaration of the Non-Aligned Movement and Other Developing Countries defined food security as "access to food for a healthy life by all people at all times" (NAM, 1994). It recognised that, in spite of a substantial increase in the world’s food output, the number of people suffering from hunger and malnutrition has increased during the last decade in many developing countries. The Bali Declaration reaffirmed that "food security should be a fundamental goal of development policy as well as a measure of its success".

"A secure food system should be equitable, meaning, as a minimum, dependable access to adequate food for all individuals and groups both now and in the future".

Ans: The social and economic vulnerability of agriculture in developing countries is generally reflected in parameters such as substantial contribution of agriculture to their GDP, low level of commercialisation of agriculture, low productivity, weak market orientation, preponderance of small and marginal uneconomical operational landholdings, lack of infrastructure, dependence on monsoon, susceptibility to natural calamities, and dependence of a very large percentage of population on agriculture for their livelihood etc. Such vulnerability fully justifies the extension of special provisions to the developing country members for ensuring their food and livelihood security concerns.

For all the above reasons and also because it would not be possible for developing countries to provide alternative sources of employment for the rural poor, it is critically important that agriculture remains a viable source of livelihood to the large percentage of population dependent on it.

Accordingly, it is felt that food security which is not only of great economic relevance but also a very important socio-political concern in large agrarian economies like India needs to be addressed upfront in the ongoing negotiations on agriculture.

Ans: The Agreement on Agriculture was a part of the Uruguay Round of agreements which were negotiated during the period 1986-1993 and was signed in April 1994 at Marrakesh. It came into force on 1.1.1995. The Final Act of Uruguay Round signed by 120 countries brought in for the first time the liberalisation of world trade in agriculture. It was decided at the time of signing of the agreement in 1994 itself that negotiations for further progressive liberalisation and to take care of problems, issues and concerns arising from the existing agreement on agriculture should start on 1.1. 2000. Accordingly, such mandated negotiations have commenced. Initial proposals for negotiations are being received in the WTO. As agriculture is the bone of contention for developed and developing countries, WTO – watchers feel that the negotiations are likely to continue for a few years as there are serious differences amongst the major players.

Ans: The Agreement is perceived as likely to create opportunities for our agricultural exports. For that to happen the industrialised countries have to substantially reduce their subsidies and provide increased market access. However, the OECD*^* countries have increased their total support to agriculture from US$308 bn in 1986-88 to US$361 bn in 1999. Reduction of their subsidies will naturally raise the prices of agricultural products in the world market and this will make our exports more competitive. Liberalisation measures in agriculture world-wide will create market openings which will be available to us provided we rise up to make use of the opportunities.

In a recent publication by Ashok Gulati and Tim Kelley, it has been stated that: "India would be a net gainer from trade liberalisation and rural incomes would rise….. Countries like India could benefit not only from improved market access opportunities in the developed and developing countries, but also from the reduction of subsidised exports and trade-distorting production incentives prevailing in developing countries"^*.

These are the expectations according to many experts, provided the developed countries agree to substantially reduce their huge subsidies and mega-tariffs according to the letter and spirit of the Accord.

Q 12: How optimistic can we be in thinking that India will succeed in getting the approval of all proposals from all countries at the WTO?

Ans: The extensive use of subsidy and the protectionist measures practised by the developed countries throughout the post World War period led to large scale distortions in the trade in agriculture products, thereby adversely affecting the export potential of the developing countries. Given the intrinsic competitive advantage of the developing countries in agriculture, as well as their dependence on agro-exports for bulk of their export earnings, a restrictive global trade regime in agriculture has been one of the most effective barriers to sustained acceleration of agricultural production and export in the third world countries.

Different countries have different interests in the multilateral regime for agriculture.

As the then – Commerce Minister has stated: "When the GATT Accord is analysed, it should be kept in mind that all the provisions of an international Agreement cannot be beneficial to each and every country. Neither the mightiest power like United States of America nor a small tiny island country like Solomon Island can claim that their interests have been fully protected in this multilateral trade agreement. Very recently, I received a copy of The New York Times where one can see advertisements from the big companies of the U.S.A appealing to people to put pressure on their Senators and Congressmen to refuse ratification of the GATT Accord. Hence there is ome element of trade-off in all such agreements – to achieve something in one sector, it is necessary to make concessions in another."* - This is the general situation in all multilateral negotiations.

The original General Agreement on Tariffs and Trade (GATT) 1947 applied to trade in agriculture also, but it allowed various exceptions to the rules on non-tariff measures and subsidies, which led to severe distortions in world agricultural trade. For instance, the GATT 1947 allowed countries to use export subsidies on agricultural primary products whereas export subsidies on industrial products were prohibited. The GATT rules also allowed countries to resort to import restrictions (e.g. import quotas) in the agriculture sector under certain conditions, notably when these restrictions were necessary to enforce measures to effectively limit domestic production. The result of all this was a proliferation of impediments to world agricultural trade, including by means of import bans, quotas setting the maximum level of imports, minimum import prices, non-tariff measures maintained by state-trading enterprises, etc.

This insulation of domestic markets was in part due to the fact that in the aftermath of the Second World War many governments were concerned primarily with increasing domestic agricultural production so as to feed their growing populations. Import access barriers, particularly in the developed world, ensured that domestic production could continue to be sold. At the same time export subsidies were increasingly used by them to dump their surpluses on to the world market, depressing world market prices. This factor and low world food prices reduced the incentive for farmers in developing countries to increase or even maintain their agricultural production levels. To get to the roots of this disarray in world agriculture, it was felt that the disciplines of GATT, which traditionally focussed only on import access problems, should be extended to measures affecting trade in agriculture, including domestic agricultural policies and the subsidisation of agricultural exports*.

Six years after the conclusion of the Tokyo Round of Negotiations (conducted between 1973 & 1979), GATT member governments decided to prepare for a new round of multilateral trade negotiations. By the time the GATT members met in Punta del Este in 1986 to launch the Uruguay Round of Trade Negotiations, consensus had been reached that it was necessary to reform agricultural policies in order to achieve trade liberalisation in agriculture. The idea was to progressively reduce trade distorting subsidies, improve import access and curb export subsidies in agriculture. These negotiating ideas were further developed in subsequent consultations till some broad agreement was hammered out. The Agreement on Agriculture (AoA) as its stands today has formed part of the Final Act of the Uruguay Round of Multilateral Trade Negotiations (1986-1993) and it was signed as part of the Uruguay Round Agreement by the member countries in April 1994 at Marrakesh in Morocco. It came into force on 1 January, 1995.

The Agreement known as the Final Act of the Uruguay Round, representing the outcome of the seven-year long multilateral trade negotiations, was signed by the then Minister of Commerce at the Ministerial level meeting held at Marrakesh on 15 April, 1994. A suo moto statement was subsequently made by the then - Commerce Minister in the Lok Sabha on 19 April, 1994. The statement, inter-alia, stated that: "There was endorsement of the results of the Uruguay Round as a whole from all countries, developing and developed".

The Agreement on Agriculture contains provisions in 3 broad areas of trade and agriculture policies: market access, export subsidies and domestic support.

Market access for agricultural products is to be governed by a 'tariffs only' regime. That is to say, the agreement states that there can be no restrictions on farm trade except through tariffs. This means that non-tariff barriers such as quantitative restrictions on imports (i.e., quotas, import restrictions through permits, import licensing etc.) as were in existence before the Agreement came into being, were to be replaced by tariffs on imports to provide the same level of protection and then were to be followed by progressive reduction of tariff levels. Tariffs resulting from this "tariffication process" as well as other tariffs are to be reduced by a simple average of 36 per cent over 6 years in the case of developed countries and 24 per cent over 10 years in the case of developing countries. However, developing countries like India who had not converted their quantitative restrictions into tariffs, were allowed to have ceiling bindings which were not subjected to these reduction commitments.

India had bound its tariffs at 100% for primary products, 150% for processed products and 300% for edible oils, except for certain items (comprising about 119 tariff lines), which were historically bound at a lower level in the earlier negotiations. Out of these low bound tariff lines, bindings on 15 tariff lines which included skimmed milk powder, spelt wheat, corn, paddy, rice, maize, millet, sorghum, rape, colza and mustard oil, fresh grapes etc. were successfully negotiated under GATT Article XXVIII in December 1999 and the binding levels were suitably revised upward to provide adequate protection to the domestic producers. India has also not taken any commitment to provide minimum market access opportunities which other countries who had tariffied their QRs had to undertake to the extent of 3% of its domestic consumption going upto 5%, at the end of the implementation period. Though India is not entitled to use the Special Safeguard Mechanism of the Agreement, which can be used only by countries which had tariffied, yet it can take safeguard action under the WTO Agreement on Safeguards if there is a surge in imports causing serious injury or if there is a threat of serious injury to the domestic producers.

Domestic Support measures, according to the Agreement, are meant to identify acceptable measures of support to farmers and curtailing unacceptable trade distorting support to farmers. These measures are targetted largely at developed countries where the levels of domestic agricultural support had risen to extremely high levels. Domestic support is divided into two categories viz., (a) support with no, or minimal, distortive effect on trade (often referred to as "Green Box" and "Blue Box" measures) and (b) trade distorting support (often referred to as "Amber Box" measures).

The trade distorting domestic support is measured in terms of what is called the "Total Aggregate Measurement of Support" (Total AMS), which is expressed as a percentage of the total value of agricultural output and includes both product specific and non-product specific support. The Agreement on Agriculture stipulates a reduction commitment of total AMS by 20 per cent for developed countries in 6 years (1995-2000) and by 13-1/3 per cent by developing countries in 10 years (1995-2004), taking 1986-88 as the base period. However, domestic support given to the agricultural sector upto 10% of the total value of agricultural produce in developing countries and 5% in developed countries is allowed. In other words, AMS within this limit is not subject to any reduction commitment.

In India the product-specific support is negative, while the non-product specific support i.e., subsidies on agricultural inputs, such as, power, irrigation, fertilisers etc., is well below the permissible level of 10% of the value of agricultural output. Therefore, India is under no obligation to reduce domestic support currently extended to the agricultural sector.

Disciplines in the area of Export Subsidies required developed countries to reduce, over a period of 6 years, the base period (1986-90) volume of subsidised exports by 21 per cent and the corresponding budgetary outlays for export subsidies by 36 per cent. For developing countries these reductions are 14 per cent in volume terms and 24 per cent in budgetary outlays over a period of 10 years.

Export subsidies of the kind listed in the Agreement on Agriculture, which attract reduction commitments, are not extended in India. Also, developing countries are free to provide certain subsidies, such as subsiding of export marketing costs, internal and international transport and freight charges etc. India is making use of these subsidies in certain schemes of Agricultural & Processed Food Products Export Development Authority (APEDA), especially for facilitating export of horticulture products.

It is now an established fact that the Uruguay Round did not bring about trade liberalisation in agriculture to the desired extent. There were no significant reductions in domestic support as well as export subsidies by the developed countries. Although the Agreement on Agriculture achieved a great deal by defining rules for international trade, its achievement in terms of immediate market opening has been limited. The anticipated gains from agricultural trade liberalisation, therefore, have eluded the developing countries till now.

During the Uruguay Round, it was expected that following the Agreement, distortions in agricultural trade would be reduced and scope for exports of products from developing countries would increase. The anticipated increase in exports of agricultural products from developing countries has not been realised. It was also expected that the contemplated fair trading regime would help the efficient producers in realising higher prices for their products. On the contrary, prices of most agricultural commodities are declining in the world markets. It was anticipated that due to the reduction in domestic support in developed countries, cereal production would shift from developed to developing countries. Empirical evidence, however, shows that there has not been much change in the pattern of world cereals production and exports.

A number of developed countries have continued to provide high domestic support to their agricultural sectors. At best the policies in many developed countries have only been cosmetically altered by shifting the support from one "box" to another. The continuation of the high domestic support to agriculture in many developed countries is a cause of concern as they encourage over-production in these countries leading to low levels of international prices.

It is obvious, therefore, that benefits to developing countries in terms of increasing their exports will only occur after complete elimination of export subsidies and substantial reduction in domestic support in the developed countries has been effected. In this context, India has demanded a substantial reduction in the trade distorting domestic support and elimination of export subsidies by developed countries.

Market Access in the developed countries is also hampered by their maintaining high tariffs on products of interest to developing countries besides a plethora of non tariff barriers. In a recent study of 14 countries, Food & Agricultural Organisation (FAO) concluded that there was little change in the volume exported or in diversification of products and destination. Tariff peaks continue to block exports from developing countries to the developed world. Tariffs still remain very high in certain sectors, specially, in cereals, sugar and dairy products. Tariff escalation (increase in tariff with successive stages of processing) block exports of value-added products from developing countries to the developed countries. Stringent Sanitary and Phytosanitary (SPS) measures continue to be a major barrier in diversifying exports in horticulture and meat items. Fresh commitments have, therefore, to be negotiated to substantially improve market access for products of particular interest to developing countries. Since entry of new comers is difficult in the existing tariff quota (TRQ)* regime, India is demanding substantial expansion of TRQs pending their eventual abolition. It is (also) essential that administration of tariff quotas should become more transparent and equitable.

* TRQ is a trading mechanism that provides for the application of a customs duty at a certain lower rate to imports of a particular good up to a specified quantity (in-quota quantity) and at a higher rate on imports of that good when it exceeds the in-quota quantity.

To sum up, the expectations about reductions in domestic support or export subsidies prevailing in the developed countries at the time of conclusion of AOA have not materialised. Market access has thus been effectively denied to developing countries.

As far as India is concerned, it has been possible to maintain without any hindrance the domestic policy instruments for promotion of agriculture or for subsidised targeted supply of foodgrains. The domestic policy measures like the operation of the Minimum Support Price (MSP), the public distribution system (PDS) as well as provision of input subsidies to agriculture have not in any way been constrained by the

Agreement. In fact, certain provisions contained in Annex 2 of the Agreement (popularly known as the 'Green Box') give us the flexibility to provide support for, research and extension services, pest and disease control, marketing and promotion services, infrastructure development, payments made for relief from natural disasters, payments under regional assistance programme for disadvantaged regions and payments under environmental programmes.

In the recent budget announcement, a tax holiday for five years and 30% deduction of profits from income for the next five years to the enterprises engaged in the integrated business of handling, transportation and storage of food grains has been given.

As agriculture constitutes a vital segment of the Indian economy, finding greater market access for India's agricultural products, especially in the developed country markets, would therefore, be one of the important issues during the negotiations. Food security of our people, protection of the interests of domestic farmers and their livelihood as well as the need for export maximisation will be the guiding principles during the ongoing negotiations.

(i) Import duties on a number of agro and other items have been increased. For example, the duty on areca nut has been raised from 35% to 100%, on poultry products from 35% to 100%, on wheat from 0% to 50%, on skimmed milk powder from 0% to 60% for imports beyond the tariff rate quota (TRQ) of 10,000 tonnes; on apple from 35% to 50%, on rice from 0% to 70%, on broken rice and paddy from 0 % to 80%, and on sugar from 27.5% to 60%

(ii) In the Budget 2001-2002 customs duty on tea, coffee, copra and coconut as well as desiccated coconut has been increased from the present rate of 35% to 70%. The rate of duty on crude edible oils, except soyabean oil, which ranged from 35% to 55%, has been increased to a uniform rate of 75%. Similarly the duty on refined oils which ranged from 45% to 65% has also been hiked to 85%. Customs duty has also been enhanced on import of crude palm oil by vanaspati manufacturers from 25% to 75%. However, sick vanaspati units would pay @ 55%. It needs to be mentioned in this connection that customs duty on edible oil has to harmonize the interests of both domestic producers and consumers.

In the Budget Speech for the year 2001-2002, the Finance Minister has categorically assured that the interest of farmers would be adequately safeguarded and the Government would move swiftly whenever there is a perceptible threat on account of imports. It has also been announced in the budget that countervailing duty equivalent to state excise duty would be levied on imported alcoholic beverages.

(iii) Import of all packaged commodities have been subjected to compliance of all the conditions of the standards as are applicable on the domestic packaged commodities in accordance with the Weights and Measures (Packaged commodity) Order 1977.

(iv) Import of 131 products has been made subject to compliance of the mandatory Indian quality standards as applicable to domestic goods. For compliance of this requirement all manufacturers/ exporters of these products to India are required to register themselves with Bureau of Indian Standards (BIS). The list of 131 products includes various food preservatives and additives, milk powder, infant milk food etc.

(v) An Inter-ministerial Group headed by Commerce Secretary was constituted on 28/7/2000 to assess the likely impact of the removal of QRs on imports and to suggest suitable corrective measures. Departments of Agriculture & Cooperation; Consumer Affairs; Small Scale Industries and Agro & Rural Industries; Chemicals & Petro-chemicals; Fertilisers; Petroleum and Natural Gas; Animal Husbandry & Dairying as well as the Ministries of Heavy Industries & Public Enterprises and Information Technology have been represented in the Group.

Although maintenance of quantitative restrictions (QRs) on imports is not permitted as per Article XI of GATT, the government can, if the situation so warrants, utilise the mechanism of raising the applied tariffs within the bound rates, if such a gap exists and take measures such as anti-dumping action, safeguard actions and imposition of countervailing duties, which are permissible under certain specified circumstances under the WTO Agreements, in order to provide protection to the domestic producers. Imports are being closely monitored and the government are determined to ensure through the appropriate use of the above mechanisms that imports do not cause any serious injury to the domestic producers.

From the import data for the period April –October 2000 it is seen that the import of wheat, rice, coffee, fresh fruits, millets, sugar cane individually have not been more than Rs. 15 crore, which is insignificant compared to the total domestic production of these items.

Increase in imports of certain agricultural commodities like edible oil, areca nut, skimmed milk powder was noticed recently. In case of edible oils (crude and refined), the duties have been regularly revised to check the growth in imports. Similarly import duty on skimmed milk powder and areca nut have also been increased. The increase in duty on skimmed milk powder has been very effective and the imports have come down heavily. The total import of this item, which stood at Rs. 101 Crore during the year 1999-2000, has come down to less than Rs. 3 Crores during the first seven months of the financial year, 2000-2001.

There are apprehensions in certain quarters that the prices of tea, coffee, pepper, natural rubber, raw jute, milk and cream have declined significantly on account of a surge in imports. Whereas prices are mainly a function of demand and supply, the demand for a particular product depends to a great extent on consumer preferences. An analysis of the import data (as shown in the table below) reveals that there has been no significant surge in the imports of these items. It will not be correct in general to attribute the present decline in domestic prices of such commodities except edible oils to import surges or to our WTO commitments for the domestic sector.

Items	1998-99	1999-2000	1999-2000(April -November 1999)	2000-2001 (April- November 2000)
Coconut	0	Negligible (0.37)	Negligible (0.01)	0.87
Tea	64.82	25.75	20.23	16.08
Coffee	14.39	6.50	5.31	10.75
Pepper	60.8	47.44	35.00	41.6
Natural rubber	91.17	59.78	45.40	25.5
Raw jute	86.38	143.81	83.78	39.71
Milk and cream	12.31	96.90	91.45	5.66
Edible oil	7588.93	7983.8	6240.61	4472.03

Annex 2 of the Agreement on Agriculture contains provisions pertaining to public stock holding for food security purposes, permitting governmental stock holding programmes for food security purposes in developing countries whose operation is transparent and conducted in accordance with officially published objective criteria or guidelines shall be considered to be in conformity with the provisions of the Agreement provided that the difference between the acquisition price and the external reference price is accounted for in the AMS.

Yes. The government has held extensive consultations with various stakeholders, including state governments, farmers' organisations, political parties and Non-Governmental Organisations (NGOs) for preparing India's negotiating proposals for the ongoing WTO negotiations under the Agreement on Agriculture which commenced in the year 2000. Regional consultations with state governments, farmers' organisations and NGOs were held at Ahmedabad, Kolkotta, Cochin and New Delhi on 31 January 2000, 27 March 2000, 7 April 2000 and 10 June 2000 respectively.

A Core Group consisting of officials of all concerned Ministries/Departments and noted agro-economists and academicians was constituted by the Ministry of Agriculture in May 2000 to monitor preparations for the negotiations on the WTO Agreement on Agriculture. Further, inputs were invited from the Agriculture Universities for finalisation of Indian negotiating proposals and information was also solicited from our Embassies abroad on the likely stance to be adopted by the countries in which they are located.

A letter was addressed in July 2000 to Chief Secretaries of all the state government inviting inputs for finalising India's negotiating proposals. They were also requested to appoint nodal officers in their respective States to deal with WTO matters. Subsequently, some state governments have appointed nodal officers. Department of Commerce have also nominated the Joint Secretary (Trade Policy Division) as the nodal officer for liaising with the State Governments on a regular basis.

Agriculture Minister wrote in August 2000 to the Chief Ministers of States and all political parties inviting their suggestions on the proposed Indian stand. Ministry of Agriculture organised a Conference chaired by the Agriculture Minister on 13-14 September 2000 attended by the representatives of farmers, political parties and state governments, specially for holding consultations with all the stakeholders in the negotiations. The Commerce & Industry Minister wrote to Chief Ministers of all the State Governments and all political parties in October 2000 inviting their inputs for finalisation of India's negotiating proposals. Besides this, from time to time consultations have been held with noted academicians and experts and detailed studies were also got conducted by reputed institutes. A meeting of experts took place on 16 November, 2000 to finalise India's negotiating proposals, while a meeting of the WTO Coordinating Group of Secretaries was held on 30 November, 2000 to give final shape to India's proposals.

India has submitted its initial negotiating proposals to the World Trade Organisation (WTO) for the mandated negotiations under the Agreement on Agriculture in the areas of market access, domestic support, export competition and food security with the objective of protecting its food and livelihood security and creating increased market access opportunities with a view to promoting its agricultural exports. These proposals were approved by the Cabinet Committee on WTO matters.

India may consider submitting additional proposals including by way of clarifications or expansion of existing proposals or new issues, depending on the developments in the ongoing negotiations in the WTO Committee on Agriculture.

Indian proposals submitted to WTO on 15.1.2001 can broadly be classified into the following 2 categories:

It is enshrined in the Preamble to the Agreement on Agriculture (AoA) that commitments under the reform programme for trade in agriculture should be made in an equitable way among all Members, having regard to non-trade concerns, including food security. Article 20 of the Agreement, which mandates negotiations for continuation of the reform process, also recognises that non-trade concerns, such as food security should be taken into account in the negotiations. Food Security as defined by FAO is the physical and economic access for all people at all times to enough food for an active, healthy life with no risk of losing such access and as such is directly connected with livelihood in the developing countries. The food security concerns can be meaningfully addressed in the current negotiations only by ensuring that disciplines, especially in the area of market access and domestic support, sub serve the food security interests of developing countries.

2. Agriculture is a way of life, in most developing agrarian economies. Rapid growth of agriculture is essential for ensuring food security and alleviation of poverty. In developing countries agriculture still contributes significantly to their overall GDP and it employs a large proportion of the work force. The land holdings are, however, very small, unirrigated and dependent on the vagaries of nature. Further, the agricultural practices are labour intensive with relatively low intensity of farm inputs. Consequently, the farm productivity in such countries is low. As most farmers in countries like India are engaged in subsistence land farming, their participation in international trade is quite marginal. The food needs and supply gaps in developing countries are developmental problems and thus all their policies for agricultural development aim at harnessing the potential for increasing productivity and production in the agricultural sector. Given these characteristics of agriculture in developing countries with very meagre domestic support and the virtual absence of export subsidies, by no stretch of imagination can these policies be considered trade distorting.

3. The critical importance of the agriculture sector in developing countries as also its distinctive characteristics vis-à-vis developed countries can be appreciated from the following factors:

4. Accordingly, it is felt that food security which is not only of great economic relevance but also a very important socio-political concern in large agrarian economies like India needs to be addressed up-front in the ongoing negotiations on agriculture.

5. The low-income developing countries would like to be able to produce their food requirements, in the light of constraints that a number of developing countries have faced in the past in procuring their foodgrain requirements from international markets. Moreover, since a majority of the population is dependent on agriculture for their livelihood in these countries, such countries being able to have a certain level of self-sufficiency would also facilitate in taking care of a large number of the work force engaged in agriculture.

6. The extent to which the food gap of developing countries can be met by imports is also constrained many a times by their meagre foreign exchange resources. The entry of large consuming countries in the world food grain markets can lead to an upswing in the prices, which would in turn compound the problems of these countries. Besides, the world commodity market for basic food grains is significantly more volatile than the domestic food grain market in most of the developing countries. International price fluctuations, if transmitted to the domestic economies of developing countries, can seriously affect the prices of food grains and food entitlement of the poor. The inadequate physical and institutional infrastructure for managing large quantities of import of food grains and their distribution particularly in rural areas further makes it undesirable for the developing countries to depend on imported food for meeting their domestic requirements.

7. Further, the ability of farmers to respond to market signals through a shift in the cropping pattern or a relocation in order to maintain their income entitlements is hampered on account of low literacy levels, limited infrastructural facilities and dependence of a very large number of farmers and agricultural labourers on this sector.

8. The income entitlements of majority of people in the developing countries are directly linked to domestic agricultural production. In a liberalized trade policy framework, this entitlement is often threatened due to surge in subsidised imports. Several commodities like wheat, coarse grains, oilseeds, vegetables oils, sugar, dairy products, fruits and vegetables which are of great significance for food security in developing countries have been subjected to high levels of export subsidies by the developed countries. By artificially depressing the international prices, these subsidies in developed countries lower the farm incomes of otherwise efficient producers in importing countries and thus adversely affect their livelihood. It is in this context of high trade distortions being practised in developed countries that the developing country members would require an appropriate level of tariff protection. As such any reduction in tariffs by the developing countries could be considered only after substantial reduction in trade distorting domestic subsidies and elimination of export subsidies. For the same reasons the developing countries should be allowed to revise the bound levels of their sensitive items, which may have been bound at low levels during the earlier negotiations, to levels at which similar categories of products were bound during the Uruguay Round of negotiations.

9. FAO in its paper on ‘Issues at stake relating to Agricultural Development, Trade and Food Security’ has concluded: "significant progress in promoting economic growth, reducing poverty and enhancing food security cannot be achieved in most of these countries without developing more fully the potential capacity of the agriculture sector and its contribution to overall economic development". Given the diverse conditions and varying stages of agricultural development in developing countries, the need for making relevant provisions to enable them to pursue policies aimed at increasing agricultural production and productivity is thus necessary. From the present structure of the Green Box it is observed that most of the provisions are not widely used by the developing world, tailored, as they have been to the conditions prevalent in the developed countries. It is therefore, imperative that the Green Box should have provisions for the general development of agriculture including its diversification in developing countries, which in turn would help them to take care of their rural employment and food security. For instance, input subsidies given by developing countries for crops wherein productivity levels are below the world average should be covered under the Green Box. Sufficient flexibility should, therefore, be allowed to developing countries to administer such policies.

10. Another possible option for providing the necessary support to the farm sector in developing countries which in turn would lead to increased production helping them to achieve a certain amount of self sufficiency in food grains could be by way of exempting the product specific support given to low income and resource poor farmers from AMS calculations. This would be in addition to what has already been provided in Article 6.2 of the AoA for exempting non-product specific support provided to low-income resource poor farmers.

11. Another aspect of AoA to be reviewed is the product coverage as prescribed in Annex-1 of AoA. It is observed that commodities like rubber, jute, coir and forestry products are excluded from the ambit of the Agreement despite the fact that they are primary agricultural products and are a source of livelihood for a sizeable rural population in developing countries. The justification for inclusion of the above mentioned products is the same if not greater than for products like raw hides and skins, animal hair, furskins etc., which are already covered under Annex-1.

12. Experience in implementation of the Agreement has shown that despite the disciplines mandated under it, the playing field continues to be uneven between the developed and developing countries. The structural imbalances of the Agreement as also the wide divergence in the agricultural policies being practised in various countries appear to be the main contributors to this scenario. The ongoing negotiations, therefore, provide a good opportunity for taking suitable measures for rectification of the anomalies, which have surfaced during the implementation of AoA in the last 6 years. Thus, a number of suitable measures in the areas of market access, domestic support and export subsidies would necessarily have to be addressed in a co-ordinated manner so as to enable the developing countries to take care of their food security and livelihood concerns.

13. It is by now well established that despite reduction commitments, the level of distortions in agricultural trade continues to be high. The anticipated benefits in terms of an increase in exports for developing countries have consequently not materialized. On the other hand to maintain the income entitlement of people engaged in agriculture it is imperative that the developing countries are allowed to maintain tariffs commensurate with their development and trade needs while at the same time undertaking relevant measures to enhance productivity and improve the quality of output. In this context, it should also be noted that the "Food Security and Livelihood Concerns" of developing countries are on a totally different plane and should not be confused or equated with the non-trade concerns advocated under "Multifunctionality of Agriculture" by a few developed countries with a view to provide legitimacy to and thereby perpetuate their trade distorting subsidies. A very low percentage of the population in the developed countries is engaged in agriculture and the livelihood of their population is not under any threat as it is in most developing countries. Further, despite having an underdeveloped agricultural sector, developing countries do not wish to practise trade distortions and would instead demand the removal of all trade distorting support from the current Agreement for the entire membership.

For large agrarian developing countries like India, food security is an important and integral element of national security. Physical access to food in developing countries can be ensured only through a certain minimum level of self-sufficiency. Further, the subsistence and livelihood of farmers in large agrarian economies can also be seriously jeopardised due to cheap/subsidised imports. Other factors like the limitations of developing country farmers to change to other crops or to shift from agriculture to manufacturing or services, and the inability of developing countries to set apart required foreign exchange resources for making purchases from the volatile global markets, as also the difficulties in ensuring timely distribution of imported food grains to remote and backward areas are also significant issues in safeguarding the food security and livelihood in these countries. Given the fact that more than 50% of the population in most of the developing countries is totally dependant on agriculture for their livelihood, the following measures would constitute a ‘Food Security Box’ for developing countries:

One of the important objectives of the world agricultural trade reforms is to expand market access opportunities across products and countries. The process of tariffication and reduction in tariffs was expected to provide market access to products from efficient producers of agricultural commodities. Even after six years of implementation of the Agreement on Agriculture (AoA), the access for products from developing countries, however, continues to be impeded in the developed country markets due to their high trade distorting domestic support policies coupled with high tariffs, tariff peaks, tariff escalations and a plethora of non-tariff barriers. A detailed analysis of these factors has already been made in an earlier paper, submitted by a group of developing countries including India (G/AG/NG/W/37 dated 28^th September 2000).

2. India would further like to highlight the fact that the opening of the markets, in the post Uruguay Round phase, has taken place mainly in the developing countries. The share of exports from developing countries, which constitute over three fourths of the WTO membership, continues to remain around 30% of the world trade in agriculture. This is less than what it was 25- 30 years ago. The anticipated increase in exports from developing to developed countries, thus, has not materialised. Among the three major developed regions, Western Europe is the most important market for agricultural exports from developing countries, but the share of total agricultural exports from developing countries into Western Europe has declined from 28½ per cent in 1994 to 28 percent in 1998. The share of agricultural exports of developing countries into Japan has also fallen from 14½% to 11½% during this period.

3. In several country studies done by FAO on implementation of the Agreement on Agriculture in developing countries, it has been observed that there was "asymmetry in the experience between the growth of food imports and the growth of agricultural exports. While trade liberalisation had led to an almost instantaneous surge in food imports, these countries were not able to raise their exports". It has further been observed that the process has marginalised small producers and added to unemployment and poverty. The studies conclude that the challenge for these countries lies in being able to maintain an appropriate mechanism to safeguard the livelihood of the people engaged in agriculture.

4. Given the volatility of agricultural commodity markets and the inability of farmers in developing countries to bear risks arising out of violent fluctuations in international prices, an effective safeguard mechanism for preventing a surge in imports becomes absolutely essential for preserving the livelihood of farmers. The provision of general safeguards available under the Agreement on Safeguards would be extremely difficult to invoke, as farming in developing countries is an unorganised family based economic activity involving a majority of the population. Moreover, the time taken to invoke these provisions would render the entire proceedings infructuous, as by the time action is taken, farmers would have already suffered due to the adverse impact of volatile markets. There is thus a requirement for providing an effective safeguard mechanism on the lines of the Special Safeguard provisions (Article 5 of AoA) including provisions to put quantitative restrictions, which could be used by developing countries irrespective of tariffication for all products that they consider sensitive. On the same count developing country members must be allowed to maintain existing level of tariff bindings keeping in mind their developmental needs and the high distortions prevalent in the international market.

5. Agriculture is a way of life, in most developing agrarian economies. Rapid growth of agriculture is essential for ensuring household food security and alleviation of poverty. In developing countries agriculture still contributes significantly to their overall GDP, employs a large proportion of the work force, despite having uneconomical very small, unirrigated land holdings dependent on the vagaries of nature. Further their agricultural practices are labour intensive with relatively low intensity of farm inputs. Consequently, the farm productivity is low. As most farmers in countries like India are engaged in subsistence land farming, their participation in international trade is very marginal. The food needs and supply gaps in developing countries is a developmental problem and thus all their policies for agricultural development aim at harnessing the potential for increasing productivity and production in the agricultural sector. Given these characteristics of agriculture in developing countries and the absence of export subsidies and meagre domestic support, it is obvious that developing countries are not in any way responsible for the current distortions in international trade in agriculture.

6. It is by now well established that the selective extension of high domestic support and export subsidies to a few commodities in the developed countries has not only eroded the competitiveness of products originating in developing countries but has also introduced an unfair competition for local producers and threatened their livelihood. Therefore, any tariff reduction commitments can be considered by developing countries only after substantial reduction has actually been effected by the developed countries in all the three areas of market access, domestic support and export subsidies.

7. The preamble of the Agreement on Agriculture recognises that the process of reform of trade in agriculture initiated during the Uruguay Round is a continuing process. The mandated negotiations would only carry forward the commitments made under the reform programme. Thus, it is important that for the currency of the negotiations the reform process should be continued and not come to a standstill. Moreover, experience in the implementation of the agreement is an important component of the ongoing negotiations and it is by now well established that the anticipated benefits of liberalisation of trade in agriculture have not materialised for developing countries. It is, thus, important that the WTO membership particularly the developed countries undertake to carry forward the reform process during the currency of the negotiations at an accelerated pace. As a proof of their commitment to the reform process and also to ensure that the reform process continues even during the negotiations, a down payment by way of bringing down their tariffs by at least 50% from the level existing as on 1.1.2001 during the first year of negotiations itself would go a long way in building confidence among the less developed members of the WTO.

8.It has been observed that many products of export interest to developing countries will continue to face high tariffs as the AoA commitments "required reductions on an unweighted average basis for each country's agricultural products, thereby leading to maintenance of high tariffs on some products like sugar, rice or dairy products by making substantial reductions on less sensitive tariff lines in which there is little trade".

9. The average tariffs in OECD countries in 1995 were 214 per cent for wheat, 197 per cent for barley, 154 per cent for maize. A joint UNCTAD/WTO Study on the post Uruguay Round Tariff Environment for exports from developing countries (1997) reports that QUAD countries maintain an extremely large variation of tariff rates. Their tariff peaks reach 350 per cent and above in extreme cases for some products of interest to developing countries. One fifth of the peak tariffs of the US, a quarter of those of EU, about 30 per cent of those of Japan and about one seventh of those of Canada exceed 30 per cent. The Study further reports that the most important areas with the highest tariff rates include the major agricultural staple foods, cereals, meat, sugar, milk, butter and cheese as well as tobacco products and cotton. In EU, for instance, the out of quota tariff for bananas is 180%; in Japan these tariffs range between 460 to 600 per cent for dried beans, peas and lentils and in the U.S., groundnuts in shell attract a tariff of 164%. This Study also emphasizes that even after full implementation of the AoA, tariff wedges will continue to be significantly high on account of tariff escalation, which is a major factor preventing developing countries from diversifying and increasing their share of processed agricultural exports. Recently Japan has levied a tariff of about 1000% on rice.

10. Article 13 of the Agreement on Agriculture is one of the outstanding examples of AoA having actually awarded special and differential treatment in favour of developed countries. During the operation of this clause developed country support policies have enjoyed exemption from possible countervailing actions in certain situations as specified in the Article. This has further skewed the terms of trade in favour of developed countries. With a view to making the playing field even, it would be appropriate that the peace clause is abolished for developed countries. However, developing countries should as a special and differential treatment be given the flexibility of use of peace clause for a period of at least 10 years.

11. The Special Treatment provided under Section A of Annex 5 of AoA which is presently enjoyed by only 3 or 4 countries for a few agricultural products like rice and cheese, should be done away with and tariff should be the only measure to regulate the imports.

12. The tariff rate quotas (TRQs) established to provide minimum market access opportunities have also perpetrated trade distortions by legtimising quantitative restrictions, generating quota rents and denying market access to new comers. Allocation of quota licences with wide differences between in-quota and out of quota tariffs in the OECD food importing countries has a potential to generate excessive quota rents. Non-transparent administration of TRQs and preferential trade arrangements has contributed to low quota fill in several commodities. It is, thus, strongly felt that the TRQ system should not be allowed to be ‘embedded’ in the trade rules as it could easily become a form of ‘managed’ trade, which would be a retrograde step in terms of the progressive liberalisation envisaged in the agricultural sector.

1. Agriculture is the only sector of the world economy still marked by the existence of export subsidies. The disciplines evolved in the Uruguay Round Agreement on Agriculture have proved to be grossly inadequate to correct these most trade distorting policies maintained by about 25 WTO member countries. The developing country members of WTO have serious concerns in regard to these subsidies as they destabilise and depress the international market prices impacting adversely farm incomes in developing countries.

2. Export subsidies encourage inefficient production of agricultural commodities in developed countries while discouraging domestic production in food importing countries. They also introduce an unfair competition for the local producers and are totally inconsistent with a market-oriented framework for world agricultural trade. The principal commodities, which have high incidence of export subsidies, include wheat, coarse grains, oilseeds, vegetable oil, sugar, dairy products and fruits and vegetables, which also happen to be products of export interest to many developing countries.

3. Under the export subsidy reduction commitments for the developed countries, the value of subsidies is to be reduced by 36 per cent from the base period 1986-90 and the volume of subsidised exports is to be decreased by 21 per cent in six years. The measurement of the reductions of the subsidies is to be on the basis of commodity aggregates.

4. The information on the use of subsidies with respect to volume commitments and budgetary outlay commitments indicates that by and large all the countries have complied with their overall reduction commitments at the aggregate level. However, as per the data compiled by WTO Secretariat, the actual use of subsidies in terms both of budgetary outlays and volume has increased for some particular items in major subsidising countries between 1995 and 1998. (G/AG/NG/S/5, 11 May, 2K)

5. The implementation of AoA during the last about 6 years has also revealed that many member countries have shifted export subsidies between products from year to year so as to target a few specific commodities and have also ‘rolled over’ unused subsidies to the following year resulting in a cumulative depressive effect on prices in that year, eroding the competitive advantage of other exporting countries. There is thus an immediate need to formulate effective measures to prevent the rolling over of unused subsidies to the next year.

6. The export credits, guarantees and insurance programmes have not been included in the export subsidy reduction commitments under AoA. Mainly resource rich countries in order to maintain and enhance their exports operate these schemes, which are actually in the nature of export subsidisation. The absence of clear guidelines governing export subsidisation in the AoA has led to circumvention of export subsidy reduction commitments. The provision of export credit guarantees and price discounts for buyers substantially influences the quantity and direction of exports. The operation of such schemes has also to a great extent neutralised the effects of export subsidy reduction commitments under the Agreement.

7. Article 16 of the Agreement on Agriculture refers to the Ministerial Decision on Measures Concerning Possible Negative Effects of the Reform Programme on Least Developed and Net Food Importing Countries thereby making it an integral part of Agreement. The concept of food aid, a prominent form of external assistance, is by nature and intention specifically designed to enhance food security. It refers to some external resource transfer, normally in kind of food commodities, which provides food directly to beneficiaries in the recipient country or to the government in support of its food security or other developmental objectives. Food aid essentially evolved from surplus disposal programmes of the early 1950s. In recent times however, it has undergone lot of changes and has become increasingly complex. Some of the proposals by other member countries have highlighted the fact that the current provisions of Article 10.4 of the Agreement on Agriculture need to be revised and strengthened to prevent the abuse of food aid mechanism. The alarming tendency of donor countries to increase aid with a view to developing their markets negates the very spirit of this mechanism. The ongoing negotiations should immediately address this issue to bring about greater transparency in the provision of food aid, which should be offered regardless of the world market prices. The recent General Council decision directing the Committee on Agriculture to follow-up on the Ministerial Decision is a first step towards this direction, which however, needs to be, complemented by the entire membership by suggesting suitable guidelines for food aid as distinct from export subsidies.

8. Another significant dimension of the current provisions on disciplining export subsidies under AoA is that countries, which notified the use of export subsidies in their original schedules could continue to use them, albeit in a restrained manner, while the countries which did not notify the use of subsidies in their original schedules are not permitted to introduce them thereafter (Article 3.3). Besides, AoA deprives the developing country members of their right to provide export subsidies, which are otherwise permitted under Article 27, read with Annex VII of the Agreement on Subsidies and Countervailing Measures (ASCM). There is thus every need to restore the rights negotiated by the developing countries under the ASCM.

9. The preamble of AoA recognises that the process of reform of trade in agriculture initiated during Uruguay Round is a continuing one. Thus, it is extremely important that during the currency of the negotiations, the reform process should be continued and not come to a standstill. Moreover, the experience in the implementation of AoA is an important component of the ongoing negotiations and it is by and large well established that the anticipated benefits of liberalisation of trade in agriculture have not materialised for the developing countries. It is therefore important that the WTO membership particularly the developed countries undertake to carry forward the reform process at an accelerated pace even during the negotiations. As a proof of their commitment to the reform process and for carrying it forward, it is proposed that developed countries should make a down payment during the year 2001 by way of effecting a reduction of 50% in the value as well as in the volume of subsidised exports from the level existing on 1.1.2001.

1. The long-term objective of the Agreement on Agriculture (AoA) to "establish a fair and market-oriented agricultural trading system", was sought to be achieved "through the establishment of strengthened and more operationally effective GATT rules and disciplines". One such set of disciplines comprised the domestic support reduction commitments, which were undertaken under the AoA by Member countries with an aim to correct price distortions and allow market forces to determine the level and composition of agricultural production.

2. A significant feature of AoA was the distinction between support measures that were considered trade distorting and therefore, subject to discipline and those with "no or at most minimal trade distorting effects" and which could be allowed to be maintained without any ceiling or reduction commitments. Some countries complied with the reduction commitments regarding Aggregate Measurement of Support (AMS) by restructuring their domestic support policies/programmes. Some of them have also shifted their potentially ‘trade distorting’ measures from the Blue box into the Green Box. An analysis based on Secretariat Paper (G/AG/NG/S/12 dated 15.6.2000) reveals that there is an appreciable increase in expenditure under the Green Box in 1997/98 over the base period in major developed countries. In most cases it has also resulted in an overall increase in the quantum of support to their agricultural sector. Certain countries have also taken undue advantage by including the quantum of Blue Box support in their initial base period calculations of AMS, as in the subsequent years there were no reduction commitments for this category of Blue Box support. Such countries thus, got the unintended benefit of being able to achieve reduction in their domestic support without actually having to effect any reduction.

3. Among the Green Box measures, the expenditure on 'de-coupled income support' and direct income payments has increased substantially during the implementation period. The share of the total direct payments under the Green Box measures is estimated to have increased from 23 per cent in 1995 to 43 percent in 1998 (G/AG/NG/S/2-19^th April, 2000). The ‘de-coupled’ support and other supports under paras 5,6&7 of Annex 2 (Green Box) and the production limiting subsidies under Article 6.5 (Blue Box) of AoA are not as minimally trade distorting as is made out on account of the following reasons:

4. The provisions of Annex- 2 of the AoA particularly paras 5, 6 & 7 have enabled high subsidising countries to enhance their overall level of support to agriculture. This is evident from the Producer Support Estimate (PSE) figures for all OECD countries, which have increased from US $ 246 billion in 1986-88 to US $ 283 billion in 1999. For a few developed countries, the PSE is not only high as compared to the base period but has also risen sharply since 1997. As also borne out by data from OECD, Total Support Estimate (TSE) in OECD countries in 1999 amounted to US $ 361 billion which is much higher than the $308 billion TSE figure during the period 1986-88. This TSE figure of OECD countries is approximately six times of the total value of the current annual agricultural production in India.

5. Agriculture is a way of life, in most developing agrarian economies. Rapid growth of agriculture is essential for ensuring household food security and alleviation of poverty. In developing countries agriculture still contributes significantly to their overall GDP and employs a large proportion of the work force. The land holdings are, however very small, un-irrigated and dependent on the vagaries of nature. Further, the agricultural practices are labour intensive with relatively low intensity of farm inputs. Consequently, the farm productivity in developing countries is low. As most farmers in countries like India are engaged in subsistence farming, their participation in international trade is marginal. The food needs and supply gaps in developing countries is a developmental problem and thus all their policies for agricultural development aim at harnessing the potential for increasing productivity and production in the agricultural sector. Given these characteristics of agriculture in developing countries with very meagre domestic support and the virtual absence of export subsidies, by no stretch of imagination can their domestic agricultural policies be considered trade distorting.

6. Moreover, developing countries suffer from an inherent disadvantage of limited financial resources as compared to resource rich countries, and are, therefore, not in a position to have a high subsidy regime. Article 7.2 (b) of the AoA also institutionalises this disparity by allowing the high subsidising countries to maintain 80 per cent of their base level AMS while prohibiting the low income countries from going beyond the de minimis level of 10% of the value of their agricultural production. This makes the AoA provisions inequitous and discriminatory. It is also noted that most of the items in Annex-2 are not widely used in the developing world, tailored, as they are to the conditions prevalent in the developed countries. Given the diverse conditions and varying stages of agricultural development in developing countries, the need for making some additional provisions to enable them to pursue policies aimed at increasing agricultural production and productivity is thus necessary. For instance, input subsidies given to crops wherein productivity levels are below the world average should be covered under the Green Box. Sufficient flexibility should therefore be allowed to developing countries to administer such policies through the Green Box.

7. The social and economic vulnerability of agriculture in developing countries is generally reflected in parameters such as substantial contribution of agriculture to their GDP, low level of commercialisation of agriculture, low productivity, weak market orientation, preponderance of small and marginal farmers, uneconomical operational landholdings, lack of infrastructure, dependence on monsoons, susceptibility to natural calamities, and dependence of a very large percentage of population on agriculture for their livelihood etc. Such vulnerability fully justifies the extension of special provisions to the developing country members for ensuring their food and livelihood security concerns.

8. Another possible option for providing the necessary support to the farm sector in developing countries, which in turn would lead to increased production, helping them to achieve a certain amount of self-sufficiency in food grains, could be by way of exempting the product specific support given to low income and resource poor farmers from AMS calculations. This would be in addition to the exemption given to non-product specific support provided to this category of farmers under Article 6.2 of the AoA.

9. It was expected that with the domestic support reduction commitments under AoA, production of agricultural products (notably cereals) in highly subsidised countries would fall and the output in non- subsidising and, therefore, low-cost producing countries would expand by 2000. However, as a consequence of the asymmetrical provisions of the AoA and their lackadaisical implementation by the developed countries, the post-AoA experience establishes that the anticipated production changes in terms of levels and locational shifts have not materialised. This is also borne out by the recent FAO production estimates, which indicate that there has been insignificant change in World cereal production between 1995 and 1999.

10. Moreover, selective extension of high domestic support to a select few commodities in developed countries has effectively neutralised the competitiveness and the potential market access that would have been available to developing countries. For example, commodities of interest to developing countries like dairy, meat, sugar, poultry, cereals and fruits and vegetables etc. have been extended maximum support/subsidies in developed countries, which has negated the comparative advantage of developing countries in these commodities.

11. Article 13 of the Agreement on Agriculture is one of the outstanding examples of AoA in fact having accorded a special and differential treatment in favour of developed countries. During the operation of this clause, developed country support policies have enjoyed exemption from countervailing action. This has further skewed the terms of trade in favour of developed countries. With a view to making the playing field even, it would be appropriate if the peace clause were abolished for developed countries. However, developing countries as a special and differential measure should be allowed the use of peace clause for a further period of at least 10 years. It is also felt that a rationalisation of the subsidies/support exempt under Article 13(a) & (b) is required. While Annex 2 measures, which are minimally trade distorting, should continue to be exempt under Article 13(a) during its currency for developed countries, the ‘trade distorting’ measures under Annex 2 (paras 5, 6 & 7) should actually be clubbed with the measures listed out in Article 13(b) as they are as trade distorting as the Blue Box payments covered under Article 6.5 and thus do not merit separate treatment.

12. During the course of implementation of AoA, certain operational problems have also been encountered by the developing countries in the calculation of AMS for the purpose of estimating the domestic support. These include effect of inflation and exchange rate fluctuation on the methodology of calculation of AMS. The rate of inflation varies widely between countries. The average prices in developing countries in 1996 were 656% higher than in 1990 compared to only 19% in industrialised countries (International Financial Statistics Yearbook quoted in AIE/33).

13. The depreciation in currencies has also rendered any comparison between the base year and current year AMS figures quite meaningless. For example, the value of the Indian currency (Rupee) in 1999-2000 has depreciated by over 70% of its value in 1986-87 vis-à-vis the US dollar.

14. In the context of calculation of AMS, it is observed that in calculating the "product specific" or market price support component of AMS, if an Applied Administered Price is lower than the External Reference Price (ERP), the result will be a negative figure. The non-product specific support, given the nature of methodology of its quantification, will either be zero or a positive figure only. The Aggregate Measure of Support, as the name itself implies, is the sum of all measures comprising domestic support to the agricultural sector. It is only such a summation of negative and positive support, which truly reflects the total domestic support given to the agricultural sector. Thus, negative AMS values, which are indicative of the fact that an Administered Price is at a lower level than the corresponding External Reference Price, should be reflected appropriately through negative figures. Members should, accordingly, be able to use negative Product specific support to offset positive Non-product specific support to arrive at Aggregate Measure of Support under the Agreement.

15. Besides, the provisions for S&D treatment for developing countries also need to be spelt out in terms of concrete obligations taking into account their experience in implementation of the AoA, the differing levels of economic development, the role of agriculture in economies with a large rural population and the need to preserve food and livelihood security taking into account the vulnerability of their agricultural sector.

16. In view of the uneven playing field due to continued high level of distortions in agricultural trade, it is extremely important that developing countries have the flexibility to use appropriate policies to address the problems facing their agricultural sector. The developing countries do not intend to use these measures for achieving an unjustified share in the world market. The ongoing negotiations are, thus, an appropriate opportunity to take stock of the fact that the trade policies being practiced by developed countries have created serious trade distortions and need to be effectively disciplined. Necessary corrective action will have to be taken to allow the emergence of developing countries as equal trading partners.

17.The preamble of the Agreement on Agriculture recognises that the process of reform of trade in agriculture initiated during the Uruguay Round is a continuing process. The mandated negotiations would only carry forward the commitments made under the reform programme. Thus, it is important that during the currency of the negotiations the reform process should be continued and not come to a standstill. Moreover, experience in the implementation of the agreement is an important component of the ongoing negotiations and it is by now well established that the anticipated benefits of liberalisation of trade in agriculture have not materialised for developing countries. It is, thus, important that that the WTO membership particularly the developed countries undertake to carry forward the reform process during the currency of the negotiations at an accelerated pace. As a proof of their commitment to the reform process and for continuing the reform process, a down payment during the first year of negotiations itself would go a long way in building confidence among the less developed members of the WTO.