Oct 19, 1988

NO FREE TRADE SCENARIO CAN PROMOTE DEVELOPMENT.

GENEVA OCTOBER 17 (IFDA/CHAKRAVARTHI RAGHAVAN)óFeatures of agriculture in the third world are so greatly different and unique that no conceivable scenario of free trade could either promote economic development or raise general welfare levels in the third world, India has reportedly stressed.

The Indian view on the development dimensions of agriculture and what it implied in terms of agricultural trade policies and disciplines applicable to the third world, were reportedly presented orally last week at the Uruguay round negotiating group on agriculture.

The Indian delegate, Amb. S. P. Shukla, who spoke on this issue, is reported to have said that his delegation would elaborate and present these ideas in a paper over the next few days.

The paper is to be considered at the next meeting of the negotiating group, tentatively fixed for November 14-15.

While other delegates reportedly had no time to react or comment to the ideas presented by India, Brazil, a member of the Cairns Group of agricultural exporters, reportedly indicated that ideas on the lines of Indiaís was being considered within the Cairns Group and there could be further elaboration on this from the group.

The development dimension, India reportedly told the agriculture group last week, should be fully elaborated and dealt with in any strengthened and operationally effect GATT disciplines on agriculture, and not treated merely as an issue to be solved through "exceptions", such as a longer time-frame.

India had first raised the development issue within the group in December 1987. Since then, a number of participants, industrial and third world, have adverted to it, with some of them relating their own proposals as likely to serve development too.

In a reference to these, India reportedly said that while some of the proposals and ideas had some resemblance to the development issue, they had sought to give a different meaning to "development".

The "specificity of agriculture" in the Nordic proposals was not the same thing as "development".

While Japanís "food security" idea had some relationship to prevention of hunger in the third world, it was not the equivalent of development.

Food security for industrial countries with large resources and access to world markets was much simpler, while for third world countries it had to be more comprehensive.

Development also could not be a function of time, and could not be solved by providing third world countries a longer time-frame to conform to general rules.

Agriculture played a special role in third world countries, and its characteristiques were vastly different from that in the industrial world.

In the industrial countries, agriculture's contribution to GDP was low, often less than ten percent, while in the third world it was very high, often in the one-third to three-fourths range.

Agricultural employment in the industrial world was two to nine percent of economically active population, while in the third world it was more than 60 percent in many cases.

Unlike in the third world, agriculture was not a determinant of growth in the industrial world.

In a country like India, any given rate of growth of national income needed a corresponding growth in supply of necessities and basic wage goods. This underscored the role of agriculture in the entire development process. . I

There was a predominance of small and uneconomic holdings among peasant farmers in third world agriculture.

This coupled with increasing population and lack of job opportunities elsewhere, resulted in low productivity and overcrowding in agriculture, a large number of small and marginal farmers and landless labour, as well as inequality of incomes and assets.

Again, factor and product markets in the third world were highly imperfect. Small farmers had no easy access to credit, and often had to pay usurious rates of interest, and sell their output at distress prices to service debt.

The subsistence nature of the economy and low per capita incomes meant that elasticity of demand for food was very high. A very large proportion of the family budget went to purchase of food, unlike in the industrial countries.

In such a situation, the Indian delegate reportedly said, there was no possible scenario where free trade in agriculture could either promote development or raise general welfare levels.

Labour displaced from agriculture by free trade could not be absorbed in other sectors of the economy. Nor could third world countries rely on the vagaries of unstable world markets to provide the growing requirements of necessities to sustain any given rate of growth.

Economic development in much of the third world was primarily a function of agriculture development.

The nature of the peasant economy and the divergence between private and social benefits of infrastructural development, often meant that the government had to take the initiative and provide impetus through public sector facilities to improve productivity.

In such a situation, the pricing of services and the output from infrastructure facilities had to be on the basis of social benefits.

This made subsidisation essential both for general welfare and efficiency of the agriculture sector.

The state's role in agriculture in the third world, whether in providing subsidised inputs or in price support, was merely a response to imperfect factor and product markets, and could thus not be put on the same footing as the restrictive and distortive governmental interventions in industrialised nations.

Also, in the third world price fluctuations in agriculture not only affected producers and consumers but could have serious economic and socio-political consequences.

The special characteristics of agriculture in the third world could thus not be left to the vagaries of the market.

Agriculture required a strong leadership role from the state, and such a role could neither be called distortive nor restrictive.

Increasing domestic agricultural production and productivity was so fundamental and indispensable for development of third world countries that they should have the fullest freedom to apply whatever measures they found necessary to achieve this objective.

In respect of industrial countries, the Indian delegate reportedly said, any long-term framework for agriculture trade should provide for elimination of all exceptional treatment - whether under waives (as for the U.S.), protocols of accession (as for Switzerland) or derogations.

There should be a general prohibition of all subsidies and government support measures in industrial countries that affect agricultural trade.

Also, all non-tariff measures that have not been specifically sanctioned by GATT should be prohibited.

Industrial countries should also bind all tariffs on agricultural products at a low level, and eliminate trade-distorting sanitary and phyto-sanitary measures.

In the third world production subsidies should be seen as an integral part of their development and thus not affecting agricultural trade.

But if industrial countries agreed to enforce a prohibition on use of all trade-related subsidies, India suggested that third world countries should be willing to consider the feasibility of their undertaking some obligations in respect of export subsidies.

Any reduction of tariffs by the third world in respecter agricultural products should be a voluntary exercise.

All GATT exceptions favouring the third world, including exceptions under the balance-of-payments provisions to the general rules for ending quantitative restrictions should be applicable to the agricultural sector also.

Third world countries should also be able to impose export restrictions (generally prohibited by GATT) to deal with critical shortages of foodstuffs and other products.