Nov 15, 1988

DEVELOPMENT DIMENSION AS INTEGRAL PART OF TRADE RULES.

GENEVA, NOVEMBER 11 (IFDA/CHAKRAVARTHI RAGHAVAN) In integrating agriculture trade into GATT with strengthened and more operationally effective GATT rules and disciplines, the development dimension should be fully elaborated and treated as an integral part of the system, India has suggested.

The Indian suggestion, in a proposal tabled for the Uruguay round negotiating group on agriculture, is to be discussed by the group at its meeting on November 14-15.

The negotiating group has so far received mainly proposals from the U.S., the Cairns Group (both proposals on behalf of the group and individual proposals from its members), the EEC, and on behalf of a number of net food-importing countries.

The U.S. and Cairns Group proposals call for free trade and elimination of domestic support. The EEC does not go so far, but does envisage gradual reduction of such support.

Some of these proposals envisage a longer time frame for full implementation by third world countries and/or temporary exemptions from prohibition of domestic support, but subject to some conditions.

But India has suggested tackling development as an integral part, neither as an end issue to be tackled after framing general rules nor merely in terms of time-span for special and differential treatment.

This issue had been flagged by India at some earlier meetings. But it has now been formulated and presented as a proposal, which would have to be taken into account before formulating any accords at Montreal or in agreeing upon any basis for the negotiations after Montreal.

While fully elaborating and treating as integral part of the system the agricultural dimension, any long-term framework for trade in agriculture, the Indian proposal suggests, should ensure scaling down or elimination of distortions and restrictions originating in industrialised countries within a specified time-frame.

Towards this end, the framework should include as elements:

--The elimination of all provisions for exceptional treatment whether maintained under waivers, protocols of accession or other derogations,

--Elimination of all subsidies and other government support measures having an effect on agricultural trade,

--Prohibition on use of non-tariff measures not specifically provided in GATT,

--Binding of all tariffs an agricultural products at a low level,

--Reduction or elimination of trade distortive effect of sanitary and phyto-sanitary measures.

As for third world countries, the Indian proposal suggests the inclusion of a number of specific provisions.

In general, it would recognise that increasing domestic agricultural production and productivity is the sine qua non of development of third world countries.

The special characteristics of the agricultural situation in these countries and the pivotal position of the agriculture sector in the development process "demand a strong leadership role from the state".

In third world countries government measures to increase agricultural production and productivity, and ensure stability and equity, are recognised as an integral part of the development programme of third world countries.

Such government measures may involve direct or indirect government support, including subsidy or price control. They may be commodity specific or general, and may be designed with different social groups or regions or view, or may be applicable across the board.

There should be a presumption in the framework that use of such measures do not have an effect on agricultural trade.

In this connection, the Indian proposal has given an illustrative list of such government measures - measures to develop infrastructural facilities, including research and development: production subsidies in the shape of subsidised credit or other inputs: price support measures; stabilisation of supplies and prices through stocking and distribution policies; and consumer subsidies including dual pricing.

On export subsidies, the proposal suggests that in a situation where the industrialised countries endorse a prohibition on use of all subsidies, third world countries should be willing to examine the feasibility of undertaking obligations in respect of export subsidies, consistent with their development and competitive needs. As in the case of tariffs on industrial products, reduction of tariff on agricultural products should remain a voluntary exercise for third world countries, in accordance with their individual development, financial and trade needs.

The exceptions to the general rule on elimination of Quantitative Restrictions (QRS), the Indian proposal suggests, should continue to apply to agriculture in third world countries.

Special mention should be made in this connection of the balance of payments restrictions under article XVIII: B and temporary export restrictions for dealing with critical shortage of foodstuffs and other products under article XII: 2A.

There should also be a new provision added to article XI, recognising the right of third world countries to apply quantitative restrictions to ensure stable and adequate supplies of basic wage goods indigenously.

Earlier, the Indian paper argues the case for the development dimension of agriculture to be dealt with as an integral part of the new rules and disciplines in GATT, and the basic differences in agriculture in industrial and third world countries warranting such treatment.

The principal problem to be dealt with in the negotiations on trade in agriculture, the Indian paper says, would be the persistent and growing agricultural protectionism in some industrialised countries.

The policies and techniques of these countries have not only restricted export opportunities for the exporting countries, but have also resulted in increasing instability in world agricultural markets.

Elimination of such protectionism and integration of agriculture within the disciplines of GATT would lead to expansion of and greater stability of world trade in agriculture.

However in doing this, the developmental role of agriculture in the third world has to be specifically recognised.

Historically, farm price support and procurement measures have played an important role in stimulating agricultural production in the industrial world.

There is a strong case for elimination of such protectionism in the industrialised countries. But conversely, the role of agricultural support measures for economic development of the third world must be fully recognised.

Most of the proposals before the negotiating group, India notes, are based on features of agriculture in industrialised economies.

However, these proposals overlook the vastly different features of agriculture in a large number of third world countries, and the unique role agricultural sector in the process of development.

"In developing economies, economic development remains primarily the function of agricultural development."

The characteristics of the peasant economy in the third world make private benefits greatly diverge from social benefits in regard to development of agricultural infrastructure. Since there is no adequate accumulation of surplus in the great majority of agricultural households, this prevents development of such facilities in the private sector.

Government initiative for development of public sector infrastructural facilities is essential for productivity improvements in agriculture. The pricing of services and output resulting from such facilities is done on the basis of marginal rather than average costs.

Also, where social benefits are substantially higher than private benefits, subsidies improve welfare and are necessary for efficiency.

Solutions of these problems cannot be left to the care of market forces, nor could the performance of this role (by the state) as trade distortive or restrictive and therefore undesirable.

"Equally, it is important to recognise that increasing domestic agricultural production and productivity is a sine qua non of development and developing countries should have the right to apply whatever measures considered necessary to achieve this objective."