Dec 2, 1988

RULES NEED "DEVELOPMENT CLAUSE" CONCEPT.

GENEVA, NOVEMBER 30 (IFDA/CHAKRAVARTHI RAGHAVAN) The new rules and disciplines for trade in agriculture, being negotiated in the Uruguay round, should incorporate "the concept of a 'development clause' - particularly for countries of Africa and Asia - which would recognise the distinctive role of small-scale farmers," according to a just published paper by the Commonwealth Secretariat in London.

The study notes that most third world countries are net importers of the products covered by the Uruguay round GATT negotiating group on agriculture, and liberalisation of trade "would almost certainly lead to higher prices an international markets in the short run."

Nevertheless, free trade could still be in the long-term interests of these countries, provided they are able to protect their agriculture until such time as its productivity and their development is raised further towards the levels of industrial countries.

But for the present, the study says, most third world countries have "good reason to resist attempts to force them to open up their agriculture to greater competition."

Many of these countries have tended to neglect this sector until recently, but are now seeking to encourage their farmers to invest in and otherwise improve their production capacity and productivity on a long-term basis.

There are also "good reasons" why agriculture is recognised as a 'special activity for development', the study points out.

Maintenance of agriculture is vital to provide some sort of livelihood for millions of people in rural areas. In its absence there would be a market acceleration of the rural-urban drift, "probably with catastrophic social and economic consequences from the dislocation of activity in the countries concerned."

Agriculture also provides linkages between, and fosters the development of other sectors critical for development, as well as being vital for life itself, and is thus an activity in which it is necessary to treat comparative advantage in a dynamic way.

In a world of 'freer trade', the report suggests, many of the third world countries would prove to have, or be able to develop, an international comparative advantage in producing and exporting a significant proportion of the staple agricultural products at present exported under subsidy by the major industrialised countries.

"Yet for most developing countries, liberalisation would be likely to cause or exacerbate balance of payments problems in the short and maybe medium term, and substantial financial support would be needed to help them overcome these difficulties.

"For all these reasons," the report adds, "this paper attaches special importance to the concept of a 'development clause' which - particularly for the countries of Africa and Asia - would recognise the distinctive role of small scale farmers."

The report analyses the agricultural policies of various participants in the international trading system (U.S., Japan, EEC, other OECD countries, third world countries, and centrally planned economies), and their levels of protection, and the effects of liberalisation in agriculture.

The report notes that in the Uruguay round agricultural products are being dealt with in three separate negotiating groups:

Cocoa, coffee, tea, bananas, rice, jute and some oilseeds and oil are dealt with under tropical products. Forestry products under natural resource group.

The agriculture negotiating group itself is dealing chiefly with cereals, some oilseeds/oils, meat and dairy products, sugar and cotton.

The work of three other groups also impact on agriculture - that on subsidies, non-tariff measures and tariffs.

According to some of the published studies on liberalisation, including scenarios where everyone liberalises and others where only the OECD countries liberalise, there are "some interesting implications" for third world countries.

If the OECD countries alone liberalised their agricultural markets, the total welfare in the third world countries would fall - as the increase in welfare of third world producers would not be adequate to offset fall in that of their consumers due to higher market prices for domestic and imported supplies.

If both groups liberalise, total welfare of third world countries in aggregate would have arisen. There would be a "fairly small decrease" in welfare of producers in protective countries, but this would be far outweighed by an increase in that of consumers.

However, even in this situation, welfare would have increased in all third world countries except those of Bangladesh, Brazil, Cuba and Thailand.

The report notes that while many factors, some of a non-economic nature, have made third world countries reluctant to any element of 'reciprocity' in the Uruguay round, the results of liberalisation, worked out in various models, would pose a problem in the negotiations.

Various models of liberalisation show that not only would the total welfare of all third world countries be reduced by such liberalisation, but that the welfare of some of the poorest and most populous, notably those of India and China, would decline quite substantially - by two billion dollars or more annually.

And even if third world governments participate fully in the liberalisation process, at least one very poor country, Bangladesh, and one very influential one, Brazil, would have their welfare reduced.

But another recent study by the Australian centre for international economics, purports to show that "there are substantial gains in total welfare" from a reduction of agricultural subsidies and import barriers in the industrialised world.

This study takes account of effects of agricultural trade liberalisation, not only on the agricultural sector, but on the remainder of the economy.

However, the report notes, it makes "some arbitrary simplifying assumptions", such as that in third world countries all agricultural prices are exogenously determined and change only in response to alterations in protection policies of industrialised countries, and that liberalising agricultural trade in industrial countries would increase world trade by ten percent.

Analysing the various proposals before the agricultural negotiating group, the report notes that the grant of special and differential treatment to third world countries in agriculture is not without opponents - such as the U.S.

Third world countries are also concerned over the linkages between food security, food self-sufficiency and 'food sovereignty'.

Taken as a whole, third world countries lack foreign exchange reserves or access to trade credit to quickly buy unexpectedly large amounts of food on international markets, especially when during periods of widespread crop failure and food shortage, prices are high and markets volatile.

Analysing a possible way forward in the negotiations, the report suggests incorporation of a developmental clause through special and differential treatment to third world countries, at various stages of the liberalisation process.

In the first stage, industrial countries should guarantee to third world net importers of food, equal access to their buffer and other stocks of basic agricultural products at the lower of

either world market prices or domestic prices of the stocking country.

In the second stage, negotiators should agree on treatment of third world agriculture in the long term.

Third world countries should be able to protect their domestic agricultural production by means of tariffs, in line with their stage of development and degree of food self-sufficiency, and irrespective of their balance of payments position.

They should also be able to use incentives, including-subsidies, for developmental purposes:

--Raising agricultural production to meet minimum levels of self-sufficiency and safeguard food security,

--Act as a catalyst in helping fulfil wider economic and social policy activities,

--Undertake ancillary activities such as agricultural extension, research and development, inspection/grading, pest/disease control, provision of market information, and training,

--Carrying out of structural-and sectoral adjustment programmes involving agriculture, and promoting investment in agriculture.

Industrialised countries should also give assurances that they would fully respect the S and D treatment and not demand reciprocity, and ensure that their policies do not adversely affect interests of producers and consumers in third world countries.

They should also maintain or enhance food aid, and increase transfer of real resources to third world countries for development of their agriculture, including processing.

The way the agricultural negotiations are conducted would also have important repercussions for the third world, the study warns.

The report notes that except for Argentina, few third world countries would put grain are high on their list of priorities as agricultural exporters.

As net importers most of them would suffer foreign exchange losses because of higher import prices due to liberalisation.

But liberalisation would be among foremost objectives of U.S., Canada and Australia.

Some temperate oilseeds, oils and oatmeal would be of some interest to some - Brazil and Argentina in Soya for example - and of comparable interest to the U.S.

Probably more would be interested in beef negotiations Argentina, Brazil, Colombia, Indonesia, Mexico and Venezuela.

But the interests of industrialised countries in such negotiations would be less.

The greatest interest of third world countries would be in sugar - of particular importance to Brazil, Cuba and Philippines, but equally so to a number of small countries like Fiji and Mauritius.

But this is not a product on which either the U.S. or EEC would be keen to negotiate, having regard to the interests of their producers of sugar beet and of substitutes such as high fructose corn syrup.

The evidence suggests, the report concludes, that commodities for which market access is most likely to be improved would be those where principal beneficiaries among exporters would be from major players, such as on wheat and maize.

Those least likely to receive attention would be those where major players would not gain, such as on sugar.

This does not seem to bode well for many third world countries, the report says.

However, it argues that they might still be able to make "major gains" in market access for commodities of particular importance to them, if they became parties to an agreement an liberalisation of trade in grains, even if their own such actions did cause them some short-term costs.

However, the report provides no factual basis for this conclusion.