Financial Daily from THE HINDU group of publications
Saturday, Jul 12, 2003
Elusive benefits of market access
India's stance was that investment and like issues have no place whatsoever in the WTO. It appears that this firm stance taken by the then Commerce Minister, Mr Murasoli Maran, is being diluted by his successor, Mr Arun Jaitley.
Mr S. N. Menon, Additional Secretary in the Commerce Ministry, said at a conference that: "India is still not fully convinced that the issues should be part of the multilateral trade framework under the WTO but negotiations are a dynamic process. If we get market access we may have a look at it." He further expressed concern that there had not been much progress on agriculture negotiations, without which Cancun could be a failure.
The trade-off, according to these officials, is that the gains from market access, especially in agriculture, would be adequate justification for accepting the losses on account of the Singapore issues. Implicitly, it is presumed that India does stand to gain substantially by opening of the food markets in the developed countries.
There is a distinct difference between the US and the EU on this issue. According to a US Department of Agriculture release, the EU currently provides export subsides on agriculture products to the tune of $2 billion annually, against only $200 million by the US.
The US has made proposals in the WTO to substantially lower tariffs on imports of agricultural produce such that "no individual tariff exceeds 25 per cent after a five-year phase-in period." Similarly, the US has proposed to limit the use of trade-distorting support to 5 per cent of the total value of agricultural production.
These proposals are generally in line with the demand made by developing countries such as India for opening up the food markets of developed countries.
Though the EU is resisting, at present, one may safely assume that it will give in during the negotiations. A Minnesota-based NGO holds that "the US and the EC have basically made clear that they are not interested in each other's markets. With the members of the Cairns Group (of agricultural exporter countries), the US and EC are focussed on the markets of developing countries."
It is likely, therefore, that the main issues of access to food markets of the developed countries will be settled in favour of the developing countries at the Cancun Ministerial. But are these countries likely to gain substantially from this concession?
Global competition among developing countries is leading to lower prices of the agricultural products. Economist C. H. Hanumantha Rao says: "The unshackling of agriculture through market reforms in developing countries such as China and Vietnam has led to high agricultural growth... A number of exercises on the post-Uruguay Round scenario have concluded that the expected rise in prices of farm products on account of reduction commitments by the developed countries would be mitigated, even neutralised, by the surge in output... The recent price trends are consistent with the above prognoses."
The expected gains to the developing countries from opening of the agricultural markets are not likely to materialise because of the intense competition in this sector.
The increase in the price of Indian coffee may not take place subsequent to the opening of the developed country markets because the increased supply from Vietnam may lower the price.
On the other hand, the Singapore issues will increase the monopolistic profits that accrue to the developed countries from investment, competition policy and other items on the Singapore agenda. It would appear that the developed countries stand to gain both from providing market access in agriculture as well as the Singapore issues.
They would get cheap agricultural produce of the developing countries; and also be able to establish their monopolies in the developing countries. It is a win-win situation for the developed countries and lose-lose one for the developing countries.
The developed countries can buy out the farmer lobbies who constitute barely two per cent of their populations by providing hefty `Green Box' (non-trade distorting) subsidies. The balance sheet of the WTO is as follows.
The developed countries gain economically twice from lower prices of agricultural products and from deeper monopolistic control through Singapore issues.
The developing countries lose twice. The assumption that free trade is beneficial is correct in the long run. But as Keynes said, in the long run we are all dead. There is need to re-examine the supposed benefits from agriculture more deeply.
Oxfam International, for example, recognises in a briefing paper, that agricultural trade "could play a key role in the fight against poverty. But, in practice, the rules that govern world agricultural trade benefit the rich rather than the poor. "Rich countries spend vast sums of money protecting the interests of their producers, while at the same time forcing poor countries to open their markets to subsidised imports... Developing countries should not sign a new agricultural agreement, if their vital development needs are not adequately addressed," it says.
The implicit assumption is that agricultural trade is inherently beneficial for the developing countries and the problem lies only in the implementation issues. This line of thinking ignores Hanumantha Rao's comment that "there are no gains to be made because of the decline in prices".
The thinking of the Central Government and Oxfam alike ignores the difference between the nature of agriculture, on the one hand, and capital and technology markets, on the other. The agriculture market is competitive while technology and capital markets are oligopolistic.
The result is that competition turns into a benefit for the importing developed countries; and the Singapore issues-led control of technology and capital markets further strengthens the same.
India must not, therefore, agree to the Singapore issues as a quid pro quo for progress in agriculture. Rather, it must ask for more relaxation for TRIPs and patents laws.
(The author, a freelance writer, can be contacted at firstname.lastname@example.org)
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