international marketing - 1244
TRANSCRIPT
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ASSIGNMENT OF INTERNATIONAL MARKETING
On
Analysis of Indian Agriculture
Industry: WTO, GATT, EXIM & MIGA
Submitted to: Prepared by:
Prof. Thomas Frince Brijesh Vadalia (1244)
Centre for Management Studies
DHARMSINH DESAI UNIVERSITY
NADIAD
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Pg.No.1. WTO Agreement on Agriculture and its Implications... 3
1.1 Introduction ... 3
1.2 Agreement on Agriculture. 6
1.2.1 Salient Features... 6
1.2.2 Product Coverage... 9
1.2.3 Implementation Period... 9
1.2.4 Implications of the Agreement... 10
2. General Agreement on Tariffs and Trade 13
2.1 Features of the General Agreement on Trade and Tariffs. 13
2.2 Benefits for India .. 18
3. EXIM Policy 19
3.1 EXIM Policy 2004-09... 20
3.2 Scheme for Enhancing the Competitiveness of Indian Agriculture. 21
4. MIGA... 22
4.1 The Agribusiness Investment Challenge... 22
4.2 What MIGA Do. 22
4.3 How MIGA Help... 22
4.4 Types of Coverage. 23
Table of Contents
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1. WTO Agreement on Agriculture and its Implications
1.1 Introduction
India and the WTO
India has 6 percent of the worlds human population, 15 percent of the worlds livestock, 2
percent of the worlds geographical area, 1 percent of rainwater, 1 percent of forest, and 0.5
percent of pastureland. Consequently, the stress on the population-supporting capacity of natural
ecosystems is immense. The country has over 7500 km of coastline and about 2.1 million sq km
of exclusive economic zone in the oceans. Around 60 percent of the geographical area suffers
from soil erosion, water logging, and salinity.
Two-thirds of the total
450million heads of
livestock struggle for survival in crowded rain fed regions.
Nearly 70 percent of the population in India depends on agriculture. It was hoped that the
start of the WTO negotiations would pave the way for an arrangement reflecting the aspirations
of farming communities in India and other developing countries. The failure of the Seattle
Ministerial Conference in 1999 blunted that hope. Indian agriculture was perceived as badly hit
when, in compliance with its obligations under WTO on April 1, 2000, the Government of India
eliminated all import restrictions from more than 700 items, a large portion of which were
agricultural commodities. The remaining 700 or so items were freed from import restrictions in
2001. The result of this liberalization2 is that many agricultural commodities and processedfoods have entered the Indian market from different countries and are seen on supermarket
shelves. The political economy of agriculture as a result is at a crossroads where liberalization,
globalization and world trade3 have caused some concern in the Indian farming community.
Within the agriculture text proper there are border measures and domestic policy disciplines.
On border measures, QRs must be converted to tariffs, and tariffs brought down to 36 percent
(over six years) by developed countries and by 24 percent (over ten years) by developing
countries. Export subsidies must be reduced by stipulated percentages on both volume (21
percent for developed and 16 percent for developing countries) and budgetary terms (36 percent
for developed and 24 percent for developing countries). In addition, there is a minimum market
access commitment of5 percent, increasing to 5 percent over a period of six years.
Eight years after the Uruguay Round agreements entered into force, there is reason for the
wide spread dissatisfaction with the implementation of the agricultural sector liberalization.
There are times when agreements have not been implemented, or agreements have been
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circumvented and their spirits violated. The reasons are not far to seek. First, the Uruguay Round
was the first attempt to impose multilateral disciplines on agriculture. Second, the liberalization
proposed was an imperfect one, unlike the Dunkel Draft that which would have liberalized
agriculture much more.
It is now fairly certain that the rise in international prices due to agricultural trade reforms,
as predicted by many studies, may not pass on fully to the farmers and to developing countries.
In fact, one does not see a consistent increase in the spot export prices of agricultural
commodities. Despite the implementation of the reforms, there have been wide fluctuations in
the spot export prices of agricultural products. This should not, however, come as a surprise as
the international markets are very thin. Exogenous supply shocks arising out of over-production
or shortages in countries like India can cause sharp fluctuations in export prices, as the markets
are inherently thin. India may want to emphasize these points and bargain for concessions
somewhere else. If agricultural prices are not expected to rise, higher reduction commitments by
the developed countries in various forms of price and non-price support could be suggested
.
Indias priorities in the World Trade Organization (WTO) negotiations on agriculture cannot
but include the protection of domestic agricultural production and the welfare of farmers, what
with the political interests that prevail in an economy facing uncertain electoral issues. The
government has no choice but to bring in measures that seek to ensure food security, livelihood,
and rural development. Obtaining market access for products of export interest to India is also
high on the agenda.
Indias proposal, submitted to the World Trade Organization in November2002, states that
the country is in favour of methodologies for minimal tariff reduction and for provisions ofspecial safeguards against import surges. Currently, developed countries have these provisions
while developing and less developed countries do not. On domestic support, Indias proposal
calls for steep reduction in all forms of trade distorting domestic support by developed countries
and flexibility to developing countries to improve their agriculture, food, and livelihood security.
It also calls for immunity from challenges of Article 6.2 measures. Steep reductions in export
subsidies of developed countries and a call for disciplining export credit, guarantees, and
insurance provided by developed countries such as the United States are demanded . India is also
in favour of developing countries retaining marketing and transport subsidies on exports.
Developed countries through dirty tariffication, as agreed under the Uruguay Round, have clearly
and not so cleverly undermined agricultural trade liberalization.
After promising market access to agricultural goods in return for agreeing to widen the
scope of multilateral trade negotiations to cover trade-related intellectual property, trade-related
investment measures and trade-in-services during the Uruguay round, developed countries have
not reduced agricultural subsidies or lowered tariff and non-tariff barriers. They are now seeking
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further market access in new areas such as investment in return for market access in agriculture.
Developed countries should demonstrate their commitment to the multilateral trading system by
delivering what was already promised rather than continue asking for further concessions from
the poorer countries.
The Current Situation
Many blame import liberalization in general and the World Trade Organization in particular
for overflowing godowns and falling agricultural product prices in the country in recent times.
The impending removal of the last of the quantitative restrictions (QRs) on all agricultural
products has added to the fears for the future of Indian agriculture. While contractual obligations
and import liberalization forced on the Government have indeed considerably increased the
exposure to the world market, there has been a tendency to shift the blame for domestic problems
on to external factors.
The immediate challenge is what will follow the removal of QRs. There is no reason to
believe that there will be a flood of imports, only that protection can no longer be provided by a
ban on imports but by customs duties. With the plugging of loopholes that existed in the form of
zero tariffs on cereals and dairy products, agriculture will for now continue to enjoy a measure of
protection. Where the Government could fail - as it did in the case of edible oil imports is by
moving slowly on increasing tariffs whenever global or domestic prices fall. However, the fairly
high levels of tariff protection that India can now invoke could be under threat when the next
phase of multilateral negotiations on agriculture begins at the WTO.
This is the second issue, on which the Government has approved a set of proposals that willconstitute Indias initial negotiating stance. These talks will be completed only years down the
line. In its first set of proposals, the Government appears to have chosen to place greater
importance on protecting agriculture than on liberalizing farm exports. This is apparent from the
demand for constituting a Food Security Box that will facilitate higher levels of protection and
codify provisions that already exist in the WTO agreements.
The third issue is the functioning of the 1994 WTO deal on agriculture, which far from
boosting trade, has been used by the rich countries to increase farm subsidies. Experts in the
country have demanded a review of this agreement, but such a review underlies the preparatory
work now going on at the WTO for future talks. Besides, India has officially already madeproposals to address the implementation problems in the farm pact. Going further may force
India to offer more concessions on imports.
A fourth issue is intellectual property protection. Compelled as India was in 1994 to agree to
provide sui generis protection to plant varieties it had the choice of drafting its own legislation.
This could have contained innovative provisions to protect traditional rights. Yet, six years of
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procrastination and inter-Ministry squabbling have meant that no legislation has been enacted,
opening the door to disputes at the WTO from other countries.
Where imports have caused problems they have followed either leaden-footed decision-
making or the Government placing the interests of the consumers above that of the farmers . Both
were evident in the setting of tariffs for edible oils (mainly palmolein), which were raised only
recently. The larger problems that Indian farmers face are the result of high costs, low
productivity, falling public investment, poor market development and ultimately limited
purchasing power among one billion people. All these are domestic policies.
1.2 Agreement on Agriculture
The Agreement on Agriculture forms a part of the Final Act of the Uruguay Round of
Multilateral Trade Negotiations, which was signed by the member countries in April 1994 at
Marrakesh, Morocco and came into force on 1st January, 1995. The Uruguay Round marked asignificant turning point in world trade in agriculture. For the first time, agriculture featured in a
major way in the GATT round of multilateral trade negotiations. Although the original GATT
the predecessor of the World Trade Organisation (WTO) applied to trade in agriculture,
various exceptions to the disciplines on the use of non-tariff measures and subsidy meant that it
did not do so effectively. The Uruguay Round agreement sought to bring order and fair
competition to this highly distorted sector of world trade by establishment of a fair and market
oriented agricultural trading sector. The root cause of distortion of international trade in
agriculture has been the massive domestic subsidies given by the industrialised countries to their
agricultural sector over many years. This in turn led to excessive production and its dumping in
international markets as well as import restrictions to keep out foreign agricultural products from
their domestic markets. Hence, the starting point for the establishment of a fair agricultural trade
regime has to be the reduction of domestic production subsidies given by industrialised
countries, reduction in the volume of subsidised exports and minimum market access
opportunities for agricultural producers world-wide. The obligations and disciplines incorporated
in the Agreement on Agriculture, therefore, relate to (a) market access;(b) domestic subsidy or
domestic support; and (c) export subsidy.
1.2.1 Salient FeaturesThe Agreement on Agriculture contains provisions in the following three broad areas of
agriculture and trade policy:
(a) Market Access: On market access, the Agreement has two basic elements:
(i) Tariffication of all non-tariff barriers. That is to say, non-tariff barriers such as
quantitative restrictions and export and import licensing etc. are to be replaced by tariffs to
provide the same level of protection. Tariffs, resulting from this tariffication process together
with other tariffs on agricultural products, are to be reduced by a simple average of 36% over 6
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years in the case of developed countries and 24% over 10 years in the case of developing
countries. With India being under balance of payments cover (which is a GATT-consistent
measure), we had not undertaken any commitments with regard to market access and this has
been clearly stated in our schedule filed under GATT. The only commitment India has
undertaken is to bind its tariffs on primary agricultural products at 100%; processed foods at
150%; and edible oils at 300%.
(ii)The second element relates to setting up of a minimum level for imports of agricultural
products by ember countries as a share of domestic consumption. Countries are required to
maintain current levels (1986-88) of access for each individual product. Where the current level
of import is negligible, the minimum access should not be less than 3% of the domestic
consumption, during the base period and tariff quotas are to be established when imports
constitute less than 3% of domestic consumption. This minimum level is to rise to 5% by the
year2000 in the case of developed countries and by 2004 in the case of developing countries.
However, special Safeguards Provisions allow for the application of additional duties whenshipments are made at prices below certain reference levels or when there is a sudden import
surge. The market access provision, however, does not apply when the commodity in question is
a traditional staple of a developing country.
(b)Domestic support: Provisions of the Agreement regarding domestic support have two main
objectives first to identify acceptable measures that support farmers and second, to deny
unacceptable, trade distorting support to the farmers. These provisions are aimed largely at the
developed countries where the levels of domestic agricultural support have risen to extremely
high levels in recent decades.
All domestic support is quantified through the mechanism of total Aggregate Measurementof Support (AMS). AMS is a means of quantifying the aggregate value of domestic support or
subsidy given to each category of agricultural product. Each WTO member country has made
calculations to determine its AMS wherever applicable. Commitment made requires a 20%
reduction in total AMS for developed countries over 6 years. For developing countries, this
percentage is 13% and no reduction is required for the least developed countries. The base period
external reference price on which the reductions were calculated was 1986-88.
AMS consists of two partsproduct-specific subsidies and non-product specific subsidies.
Product-specific subsidy refers to the total level of support provided for each individual
agricultural commodity, essentially signified by procurement price in India. Non-product specific
subsidy, on the other hand, refers to the total level of support for the agricultural sector as a
whole,
i.e., subsidies on inputs such as fertilisers, electricity, irrigation, seeds, credit etc.
There are three categories of support measures that are not subject to reduction under the
Agreement, and support within specified deminimis level is allowed. These three categories of
exempt support measures are:
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1. Measures which have a minimum impact on trade and which meet the basic andpolicy specific criteria set out in the Agreement (the so-called Green Box measures
in the terminology of WTO). These measures include Government assistance on
general services like (i) research, pest and disease control, training, extension, and
advisory services; (ii) public stock holding for food security purposes; (iii) domestic
food aid; and (iv) direct payment to producers like governmental financial
participation in income insurance and safety nets, relief from natural disasters, and
payments under environmental assistance programmes.
2. Developing country measures otherwise subject to reduction which meet the criteriaset out in paragraph 2 of Article 6 of the Agreement (the so-called Special and
Differential Treatment or the S&D Box). Examples of these are (i) investment
subsidies which are generally available to agriculture in developing countries; and
(ii) agricultural input services generally available to low income and resource poor
producers in developing countries.
3. Direct payments under production limiting programme which conform to therequirement set out in paragraph 5 of Article 6 of the Agreement (the so-called Blue
Box measures). These are relevant from the developed countries point of view only.
Under the de-minimis provision of Article 6.4 of the Agreement, there is no requirement to
reduce support in this residual category whose value in any year, in the case of product specific
support does not exceed 10% for developing countries of the total value of production of the
basic agricultural product in question or of the value of total agricultural production in the case
of non-product specific support
.Where the support is below
10per cent, as in the case of India,
product-specific and non-specific de-minimis ceiling may be raised to those levels.
(c) Export subsidies: The Agreement on Agriculture lists several types of subsidies to which
reduction commitments apply. However, such subsidies are virtually non-existent in India as
exporters of agricultural commodities do not get direct subsidy. Even exemption of export profits
from income tax under Section 80-HHC of the Income Tax Act is not among the listed subsidies .
It is also worth noting that developing countries are free to provide three of the listed subsidies,
namely, reduction of export marketing costs, internal and international transport and freight
charges. In general, it may be noted that the virtual explosion of export subsidies in the
industrialised countries in the years leading to the Uruguay Round was one of the key issuesaddressed in the agricultural negotiations. While under GATT 1947, prohibition of export
subsidies for industrial products has been effective since 1956, in the case of agricultural primary
products, such subsidies were only subject to limited disciplines which, moreover, did not prove
to be operational or effective. As a result, in the 1970s and 1980s, success in international
markets for agricultural products was increasingly determined by the financial power and
largesse of national treasuries rather than the efficiency and marketing skills of agricultural
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producers and exporters. Export subsidies also became a major factor in depressing or
destabilising world market prices for many agricultural commodities. The Uruguay Round
marked a radical departure from the earlier GATT disciplines in the areas of agricultural export
subsidies. Members are required to reduce the value of direct export subsidies to a level of 36%
below the 1986-90 base period level over a six year implementation period. The quantity of
subsidised export is to be reduced by 21% over the same period. In the case of developing
countries, the reductions are two-thirds those of the developed countries over a ten-year period
and there are no reductions for least developed countries. Under the Agreement, export subsidies
are defined as subsidies contingent on export performance and the list covers export subsidy
practices such as direct export subsidies contingent on export performance; sales of
noncommercial stocks of agricultural products for export at prices lower than comparable prices
for such goods in the domestic markets; producer-financed subsidies such as government
programmes which require a levy on production which is then used to subsidise the export of the
product; cost-reduction measurse such as subsidies to reduce marketing costs for exports
including handling costs and costs of international freight; internal transport subsidies applyingonly to exports; subsidies on incorporated products i.e., subsidies on agricultural products such
as wheat contingent on their incorporation in export products made of wheat etc. All such export
subsidies are subject to reduction commitments in terms of both the volume of subsidised export
and budgetary outlays for such subsidies. As indicated earlier, such measures are virtually non-
existent in India and, hence, the issue of reduction of export subsidy on agricultural products is
not of particular relevance for India.
1.2.2 Product coverage
The Agreement defines agricultural products by reference to the harmonised system of
product classification. The definition covers not only basic agricultural products such as wheat,
milk and live animals, but the products derived from them such as bread, butter, other dairy
products and meat, as well as all processed agricultural products such as chocolates and
sausages. The coverage includes wines, spirits and tobacco products, fibres such as cotton, wool
and silk, and raw animal skins destined for leather production. Fish and fish products are not
included nor are forestry products.
1.2.3 Implementation period
The implementation period for the country-specific commitments is the six-year period
commencing in 1995. However, developing countries have the flexibility to implement their
reduction and other specific commitments over a period of upto 10 years. Members had the
choice of implementing their concessions and commitments on the basis of calendar, marketing
(crop) or fiscal years. A WTO Members implementation year for tariff reduction may thus differ
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from the one applied to export subsidy reductions. For the purpose of the peace clause the
implementation period is the nine-year period commencing in 1995.
1.2.4 Implications of the Agreement
Implications of the Agreement would differ from country to country and would depend
largely on the overall agricultural scenario in the country. Indian agriculture is characterised by a
preponderant majority of small and marginal farmers holding less than two hectares of land, less
than 35.7% of the land, is under any assured irrigation system and for the large majority of
farmers, the gains from the application of the science & technology in agriculture are yet to be
realised. Farmers, therefore, require support in terms of development of infrastructure as well as
extension of improved technologies and provisions of requisite inputs at reasonable cost. Indias
share of worlds agricultural trade is of the order of1%. There is no doubt that during the last 30
years, Indian agriculture has grown at a reasonable pace, but with stagnant and declining net
cropped area it is indeed going to be a formidable task to maintain the growth in agriculturalproduction. The implications of the Agreement would thus have to be examined in the light of
the food demand and supply situation. The size of the country, the level of overall development,
balance of payments position, realistic future outlook for agricultural development, structure of
land holdings etc. are the other relevant factors that would have a bearing on Indias trade policy
in agriculture.
Implications of the Agreement on Agriculture for India should thus be gauged from the
impact it will have on the following:
i) Whether the Agreement has opened up markets and facilitated exports of our products; and
ii) Whether we would be able to continue with our domestic policy aimed at improving
infrastructure and provision of inputs at subsidised prices for achieving increased agricultural
production.
Implications - Short Term
As far as opening of markets and impact on trade in agriculture is concerned, it may be
noted that the share of developing countries in world exports of food remained at 44% and of
agricultural raw materials increased insignificantly from 32% in 1994 to 34% in 1996, that is the
post-Agreement period. The average growth of developed countries imports of agricultural
products increased by just 1% during 1994-96. Nearer home, agricultural exports of ten Asian
developing countries increased from US $ 49252 million in 1994 to US $ 55902 million in 1996.
Indias share in total agricultural exports from developing Asia is 8%, behind Chinas 19%,
Thailands 17%, Malaysias 14% and Indonesias 10%. Indias exports of agricultural products
have increased from US $ 4151 million in 1993-94 to US $ 7054 million in 1997-98. No tangible
opening up of the markets has thus been noticed in the post-Agreement period so far. However, it
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may be premature on this basis to assess the long-term impact of the Agreement on opening up
of markets.
Regarding freedom to pursue our domestic policies, it is quite evident that in the short
term India will not be affected by the WTO Agreement on Agriculture. The safeguards provided
for developing countries give enough manoeuvre to insulate ourselves from any major impact of
trade liberalisation in agricultural commodities. India has been maintaining quantitative
restrictions (QRs) on import of825 agricultural products as on 1.4.97. QRs are proposed to be
eliminated within the overall time frame of six years in three phases 1.4.97 to 31.3.2003. (All
our trading partners barring the US have agreed to this phase-out plan and dispute with the US is
pending with Dispute Settlement Body of WTO for adjudication). Within the provisions of the
GATT Agreement India has bound tariffs at high levels of100%, 150% and 300% for primary
products, processed products and edible oils respectively. Therefore, the QRs can be replaced
with high import tariff in case we want to restrict imports of these commodities.
In India, for the present, the minimum support price provided to commodities is less than
the fixed external reference price determined under the Agreement . Therefore, the AMS is
negative. Theoretically, therefore, we could increase the product-specific support upto 10%, the
only restraint being the fiscal sustainability in the countrys context.Implications - Long Term
As mentioned earlier, for a large majority of farmers in different parts of the country, the
gains from the application of science and technology in agriculture are yet to be realised which
would require infrastructural support, improved technologies and provision of inputs atreasonable cost. The Agreement on Agriculture thus recognised this and developing countries
have been given the freedom to implement such policies under Article 6 relating to differential
treatment, but any attempt in future to dilute provisions relating to differential treatment for
developing countries could affect us adversely.
Regarding the impact of liberalisation of trade in agriculture in the long term, Indian
agriculture enjoys the advantage of cheap labour. Therefore, despite the lower productivity, a
comparison with world prices of agricultural commodities would reveal that domestic prices in
India are considerably less with the exceptions of a few commodities (notably oilseeds). Hence,
imports to India would not be attractive in the case of rice, tea, sunflower oil and cotton . On the
whole, large scale import of agricultural commodities as a result of trade liberalisation is ruled
out. Even the exports of those foodgrains which are cheaper in the domestic market, but are
sensitive from the point of view of consumption by the economically weaker sections are not
likely to rise to unacceptable levels because of high inland transportation cost and inadequate
export infrastructure in India. Through proper tariffication, however, we will have to strike a
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balance between the competing interest of10% farmers who generate marketable surpluses and
consumers belonging to the economically poor sections of the society.
It is also argued that because of increasing price of domestic agricultural commodities
following improved export prospects, farmers would get benefits which in turn would encourage
investment in the resource scarce agricultural sector. With the decrease in production subsidies
as well as export subsidies, the international prices of agricultural commodities will rise and this
will help in making our exports more competitive in world market . Given our agro diversity, we
have the potential to increase our agro exports in a substantial way. In the words of Shri A.V.
Ganesan, There will be growing pressure from the farmers to realise higher prices for their
produce and to narrow the gap between the domestic and external prices. Our industrialists are
pressing for a level playing field visa- vis foreign enterprises; our farmers will press for a level
playing field for the prices of their products vis--vis international prices. Both the pattern of
production and price expectations will increasingly be influenced by the demands and trends in
world markets.
On the one hand, the price incentive could be the best incentive and could give astrong boost to investment in agriculture as well as adoption of modern technologies and thereby
to the raising of agricultural production and productivity. On the other hand, the rise in domestic
prices would put pressure on the public distribution system and accentuate the problem of food
subsidy. Furthermore, freedom to export agricultural products without restrictions will also need
shedding the long-nurtured inhibition against their imports. The nature and character of State
intervention and State support will have to undergo qualitative changes in order not only to
realise the opportunities for exports, but also to cope with the implications of our agriculture
coming into increasing alignment with the international market place .
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2. General Agreement on Tariffs and Trade
2.1 Features of the General Agreement on Trade and
Tariffs
To get to a complete understanding of agriculture trade issue, it is important to look at the
historical developments culminating in the Agreement on Agriculture. The General Agreement
on Trade and Tariffs would be the first institution one must look at . The basic elements of the
1947 GATT were:
The Most Favoured Nation (MFN) Principle: The Most Favoured Nation (MFN) principle,or the principle of non-discrimination meant that each contracting party was required to
provide all other contracting parties with the same conditions of trade as the most favorable
terms it extends to anyone.
Reciprocity: Benefits of any bilateral agreements regarding tariff reductions or market
access should be extended simultaneously to all other contracting parties, and should be
equally reciprocated.
Transparency: This meant that the use of quotas should be limited, except in specific
conditions (those widely used for agricultural trade).
Tariff reduction: Since tariffs were the main form of trade protection in 1947, mostnegotiations focused on tariff reduction.
While these basic elements have remained, there have been some important exceptions and
waivers to this. Developing countries were given special status, recognising that their
industrialization process required them to impose more and different types of trade protection.
Later, from the 1970s, this was extended to a Generalized System of Preferences (GSP), which
promised differential and more favourable treatment to developing countries. The possibility of
preferential trade agreements was retained, because countries that offer each other more
favourable treatment within a customs union were allowed to waive full adherence to the MFN
clause. Agricultural trade was given special treatment, and was effectively excluded from theGATT Rounds until the Uruguay Round.
The Uruguay Round
The Uruguay Round (1986-94) is considered by both its defenders and its critics as a major
landmark in international trade negotiations. It has changed the terms of the world trade regime
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in many significant ways. In this round, besides negotiation areas of tariff and non-tariff
measures, three new areas were touched:
1. Trade in services,
2. Trade related investment measures (TRIMS),
3. Trade related intellectual property rights (TRIPS)
Because of differences among the 115 member countries, these negotiations could not be
finished within 4 years. The main areas of dispute were agriculture, textiles and TRIPS. To break
this deadlock in talks, Arthur Dunkel, the then Director General of GATT, unilaterally presented
a 433-page document on December20, 1991.11 The Final Act, which was signed in Marrakesh
in 1994 by 135 countries, consisted of an entirely new set of16 agreements that had superseded
the earlier GATT agreement. It created a formal international institution - the World Trade
Organization or WTO, which came into force on 1 January 1995- to oversee implementation of
multilateral trading rules.
It introduced many new areas under the purview of GATT and the WTO: agriculture,
textiles and clothing, services, trade-related intellectual property rights, trade-related investment
measures, subsidies, anti-dumping rules, public procurement, and so on. It allowed for trade
disputes to be brought before a Dispute Settlement Body of the WTO and for retaliation across
trading categories for transgression of rules. It enforced a shift from quantitative restrictions on
imports to tariffs, as well as greater predictability in tariff reductions by forcing every member
country to declare tariff bindings in all traded goods, and by promising tariff reduction over time.
Gains from the Uruguay Round at the time of signing the Marrakesh agreement, the
following kinds of gains were to benefit the signatories:1. Static gains due to a reallocation of resources to areas of comparative advantage
(that is, those that are relatively better at producing particular goods).
2. Efficiency gains that would result from reduced slack in economies that have been
highly protected.
3. Dynamic gains due to improved technical efficiency or lower input use per unit of
output and technological change.
The first was supposed to result from a shift in international production patterns . The
second and third were supposed to emerge from a stronger competition within and between
national economies.13 It was largely the promise of such gains that lured most developing
countries into signing the entire Final Act, even though many specific agreements such as those
relating to intellectual property and investment measures were seen as detrimental to their
interests, and some aspects of the other agreements were also problematic for them. Even the
Indian government presented a case in favour of signing the Marrakesh Agreement in terms of
the benefits that would come from increased exports of agricultural and textile products in
particular as well as more inflows of investment because of greater international trade in general.
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However, most of these expectations have not been realized so far. It turns out that many
of the projections of increased trade flows were far too optimistic. In fact, world trade growth has
been slower in the second half of the 1990s, after the signing of the Uruguay Round Agreement,
than in the first half of the 1990s. And many developing countries feel that they have even
greater problems of market access and protectionist barriers to their exports than they had before.
This is why implementation issues have become so important among developing countries in the
WTO.
The World Trade Organization (WTO) on January 1, 1995, succeeded the General
Agreement on Tariff and Trade (GATT). It was a watershed event in the history of global trade.
At present, the WTO has 146 member countries including India. The WTO deals with the tariffs
and quotas between the member countries and works to remove any anomalies. Agriculture was
also included in the WTO (Agreement on Agriculture)14. India, being one of the signatories of
WTO and after losing its appeal in the WTO, liberalized trade on agro-commodities as per WTO
norms.
Article 20 of the AOA15 ensured that these reforms are an ongoing process. Re-
negotiations in this regard take stock of the experience of the past years and explore the potential
for further commitments to the reform process. The Uruguay Round negotiations involved
discussions on new areas such as agriculture, textiles, garments, trade in services, trade-related
intellectual property rights (TRIPS), and trade-related investment measures (TRIMS), in three
distinct thematic groups. The first was reducing specific trade barriers and improving market
access for partner countries. Areas under this were tariffs, non-tariff measures, tropical products,
natural resource-based products, textiles and clothing, and agriculture. A second theme was one
of strengthening GATT disciplines and improving the rules under which GATT operated. Areasunder this theme were GATT articles, safeguards, MTN agreements and arrangements, subsidies
and countervailing measures, dispute settlement and functioning of the GATT system (FOGS) .
The third and final theme covered new areas including TRIPS, TRIMS, and services.
Agreement on Agriculture
The negotiations have resulted in four main portions of the Agreement; the Agreement on
Agriculture itself; the concessions and commitments Members are to undertake on market
access, domestic support and export subsidies; the Agreement on Sanitary and Phytosanitary
Measures; and the Ministerial Decision concerning Least-Developed and Net Food-Importing
Developing countries.
Overall, the results of the negotiations provide a framework for the long -term reform of
agricultural trade and domestic policies over the years to come. It makes a decisive move
towards the objective of increased market orientation in agricultural trade. The rules governing
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agricultural trade are strengthened which will lead to improved predictability and stability for
importing and exporting countries alike.
The agricultural package also addresses many other issues of vital economic and political
importance to many Members. These include provisions that encourage the use of less trade-
distorting domestic support policies to maintain the rural economy, that allow actions to be taken
to ease any adjustment burden, and also the introduction of tightly prescribed provisions that
allow some flexibility in the implementation of commitments. Specific concerns of developing
countries have been addressed including the concerns of net-food importing countries and least-
developed countries.
The agricultural package provides for commitments in the area of market access,
domestic support and export competition. The text of the Agricultural Agreement is mirrored in
the GATT Schedules of legal commitments relating to individual countries (see above).
In the area of market access, non-tariff border measures are replaced by tariffs that
provide substantially the same level of protection. Tariffs resulting from this tariffication
process, as well as other tariffs on agricultural products, are to be reduced by an average 36 per
cent in the case of developed countries and 24 per cent in the case of developing countries, with
minimum reductions for each tariff line being required. Reductions are to be undertaken over six
years in the case of developed countries and over ten years in the case of developing countries.
Least-developed countries are not required to reduce their tariffs.
The tariffication package also provides for the maintenance of current access
opportunities and the establishment of minimum access tariff quotas (at reduced-
tariff rates)where current access is less than 3 per cent of domestic consumption. These minimum access
tariff quotas are to be expanded to 5 per cent over the implementation period. In the case of
tariffied products special safeguard provisions will allow additional duties to be applied in
case shipments at prices denominated in domestic currencies below a certain reference level or in
case of a surge of imports. The trigger in the safeguard for import surges depends on the import
penetration currently existing in the market, i.e. where imports currently make up a large
proportion of consumption, the import surge required to trigger the special safeguard action is
lower.
Domestic support measures that have, at most, a minimal impact on trade (green boxpolicies) are excluded from reduction commitments. Such policies include general government
services, for example in the areas of research, disease control, infrastructure and food security . It
also includes direct payments to producers, for example certain forms of decoupled (from
production) income support, structural adjustment assistance, direct payments under
environmental programmes and under regional assistance programmes.
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In addition to the green box policies, other policies need not be included in the Total
Aggregate Measurement of Support (Total AMS) reduction commitments. These policies are
direct payments under production-limiting programmes, certain government assistance measures
to encourage agricultural and rural development in developing countries and other support which
makes up only a low proportion (5 per cent in the case of developed countries and 10 per cent in
the case of developing countries) of the value of production of individual products or, in the case
of non-product-specific support, the value of total agricultural production.
The Total AMS covers all support provided on either a product-specific or non-product-
specific basis that does not qualify for exemption and is to be reduced by 20 per cent (13.3 per
cent for developing countries with no reduction for least-developed countries) during the
implementation period.
Members are required to reduce the value of mainly direct export subsidiesto a level 36
per cent below the 1986-90 base period level over the six-year implementation period, and the
quantity of subsidised exports by 21 per cent over the same period. In the case of developing
countries, the reductions are two-thirds those of developed countries over a ten-year period (with
no reductions applying to the least-developed countries) and subject to certain conditions, there
are no commitments on subsidies to reduce the costs of marketing exports of agricultural
products or internal transport and freight charges on export shipments. Where subsidised exports
have increased since the 1986-90 base period, 1991-92 may be used, in certain circumstances, as
the beginning point of reductions although the end-point remains that based on the 1986-90 base
period level. The Agreement on Agriculture provides for some limited flexibility between years
in terms of export subsidy reduction commitments and contains provisions aimed at preventing
the circumvention of the export subsidy commitments and sets out criteria for food aid donationsand the use of export credits.
Peace provisions within the agreement include: an understanding that certain actions
available under the Subsidies Agreement will not be applied with respect to green box policies
and domestic support and export subsidies maintained in conformity with commitments; an
understanding that due restraint will be used in the application of countervailing duty rights
under the General Agreement; and setting out limits in terms of the applicability of nullification
or impairment actions. These peace provisions will apply for a period of 9 years.
The agreement sets up a committee that will monitor the implementation ofcommitments, and also monitor the follow-up to the Decision on Measures Concerning the
Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-
Importing Developing Countries.
The package is conceived as part of a continuing process with the long-term objective of
securing substantial progressive reductions in support and protection. In this light, it calls for
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further negotiations in the fifth year of implementation which, along with an assessment of the
first five years, would take into account non-trade concerns, special and differential treatment for
developing countries, the objective to establish a fair and market-oriented agricultural trading
system and other concerns and objectives noted in the preamble to the agreement.
2.2 Benefits for India
Reduction in export subsidies on farm products in developed countries will make Indianagricultural exports more competitive.
Exports will increase to $ 1.5 billion by 2005. Fruits, oil seeds, cotton, and milk productswill be benefited due to subsidy reductions.
There will be higher price realizations, which will help in improving the standard ofliving of farmers.
Countries will be forced to produce only what they are best at. This will mean increasedefficiency and higher productivity throughout India
.16
Environmental programmes are exempt from cuts in subsidies so that the environmentprotection programmes continue unabated.
India does not have to cut subsidies or lower tariffs as much as developed countries and ithas been given enough time to complete its obligations.
Distortions in the market place would reduce, which would benefit the end consumer.
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3. EXIM PolicyDespite being an agrarian economy, where the agricultural sector provides employment
to approximately 60 per cent of the population and contributes 25 per cent to the GDP of the
country, India has remained a marginal player in world agricultural trade. Currently, it has a
share of less than 1 per cent of the world trade in agriculture. The share of agricultural products
including coffee, tea and fisheries in the total exports of India was around 10.95 per cent in the
year2005-06.
There has been decline in agricultural imports. The agricultural imports decreased from
Rs 22057.49 crore in 2004-05, to Rs 21025.54 crore in 2005-06. The share of agricultural
imports to the countrys total imports has remained steady around 3.33 per cent. Imports have
registered a relative decline during April-September2006, when it was only 2.88 per cent of the
countrys total import. The import of vegetable oils fixed (edible), pulses, cashewnuts, cotton(raw and waste) and wood products dominate our agricultural imports.
Agricultural exports, on the other hand, have an increasing trend. Indias agricultural
exports have increased from Rs 39863.31 crore in 2004-05, to Rs 49802.92 crore in 2005-06.
During the current year (AprilSeptember2006), the value of agricultural exports was worth Rs
28157.52 crore compared to Rs 21673.25 crore for the corresponding period of last year,
registering a growth of29.91 per cent. The export of marine products, oil meals, rice, wheat, tea,
coffee, cashew and sugar dominate our agricultural exports.
Generally, there has been a surplus in agricultural trade over the years. The trade
surpluses in terms of value have been Rs 17805.82 crore in 2004-05, and Rs 28777.38 crore in
2005-06 respectively. The surplus is continuing during the current year and is worth Rs 17025.74
crore.
In brief, agricultural trade during April-September2006 shows a healthy balance which
can be boosted further if the export of agricultural products like marine products, rice (Basmati),
other cereals, tea, coffee, cashewnut, oil meals, and sugar, which dominate our agricultural
exports can be increased further. It may be seen from the trend that while in certain cases,
exports have increased, in others, a decline has been registered.
The factors, which areacknowledged to have limited our export and infrastructural inadequacies, as well as
unfavourable international prices, are mainly due to domestic support given to agriculture by
developed countries. Meeting the sanitary and phyto-sanitary requirements of most trading
partners also calls for substantial investment in developing quality standards and infrastructure
facilities.
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3.1 EXIM Policy 2004-09:
The Special Focus Initiative for Agriculture in the new Policy includes:
A new scheme called
Vishesh Krishi Upaj Yojana, which has been introduced to boostthe exports of fruits, vegetables, flowers, minor forest produce and their value-added
products.
Duty-free import of capital goods under the Export Promotion Capital Goods (EPCG)scheme.
Capital goods imported under EPCG for agriculture permitted to be installed anywhere inthe agri export zones.
Assistance to States for Infrastructure Development of Exports (ASIDE) funds to be alsoutilized for the development of agri export zones.
Import of seeds, bulbs, tubers and planting material has been liberalized. Export of plant portions, derivatives and extracts has been liberalized with a view to
promote exports of medicinal plants and herbal products.
Repeal of Cess:
The Agriculture Produce Cess Act, 1940, and the Produce Cess Act, 1966, were repealed
through a fresh parliamentary enactment. The Produce Cess Laws (Abolition) Act, 2006, was
notified in the Gazette of India on 26 September2006, in order to remove the cess on export of
agricultural products and to encourage the export of agricultural products.
The Doha Negotiations on the Agreement on
Agriculture in the World Trade Organization (WTO):
The Hong Kong WTO conference in December 2005 culminated in a declaration
endorsed by all the members of the WTO. While endorsing the July Framework, which was
adopted by the General Council of the WTO on 1 August 2004, the Hong Kong Declaration
further built upon its positions. It contained important prodeveloping country provisions in
market access, highlighting the development aspects in the WTO negotiations.
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The Hong Kong Ministerial Declaration mandated the conclusion of the agriculture negotiations
by April 2006. This deadline could not be met as there were major divergences in the positions
of members primarily on reduction of domestic support and reductions in tariffs along with
flexibility in market access like sensitive products, special products and Special Safeguard
Mechanism (SSM). An attempt was made through a mini-ministerial meeting from 29 June to 2
July 2006, to bridge the divergences and arrive at workable compromises. But the positions
remained deadlocked. The member countries later authorized the director general to consult the
major players and try and reduce the differences. But this attempt also did not bring about the
required convergence. However, at a recent informal gathering at Davos, there was a renewed
commitment on all sides to put the Doha negotiations back on track.
3.2 Scheme for Enhancing the Competitiveness of
Indian Agriculture:
Globalization has led to increased competition from international markets and pressure to
dismantle protectionist instruments. Agriculture in India is more a livelihood matter than a
commercial venture. Therefore, it is necessary to build capacities in the system, such that it is
able to withstand the forces of globalization and compete wherever possible. While there are a
large number of issues to be addressed in this context at the micro and macro levels, the scheme
titled Capacity Building to Enhance the Competitiveness of Indian Agriculture and Registration
of Organic Products Abroad aims to address some of the limited micro -level capacity-creation
issues. The scheme was launched on 28 November2006 with an outlay of Rs 1 crore for the year
2006-07. Capacity building under this scheme may be in the form of either academic/relevant
research, or in the form of creation of physical assets critical of agriculture in the internationalcontext. The scheme shall be operated on a cost-sharing basis with State Governments or other
private, semi-government, NGOs. There shall be an Empowered Committee (EC) which will
consider and approve the proposals and also monitor their implementation. The Department of
Agriculture and Cooperation will co-ordinate the work relating to the scheme and liaise with
eligible agencies for release and utilization of the sanctioned funds.
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4.MIGA: Cultivating Agribusiness Growth
In many parts of the developing world, lush soils, temperate climates and strong farming
traditions create an ideal environment to grow agricultural businesses. And as worldwide
demand soars for staples such as flour, sugar, coffee, and rice, savvy investors can earn strong
profits. With the worlds population projected to reach nine billion by 2050, the United Nations
estimates that the world needs to double food output. But obstacles abound, particularly for
companies venturing into countries with a history of instability and upheaval. Project financing
costs can be prohibitive, due to such risks. MIGA political risk insurance policies can reduce the
cost of financing. They often make the difference between a go and a no-go decision for project
sponsors and lenders concerned about the safety of their investments.
4.1 The Agribusiness Investment Challenge
While there will always be strong worldwide demand for foodstuffs, the fact remains thatagricultural investments are risky business, especially in the developing world. Food prices
remain volatile and its a long way from visualizing the opportunity in an all-but-abandoned
sugar plantation to realizing profit on a well-run, state-of- the-art sugar factory. Newly stabilized
governments could still be on shaky political ground. Unclear or incomplete laws on property
ownership complicate the profit picture. Restrictions on revenue repatriation could complicate a
projects finances even more, adding to the imbalance between foreign currency denominated
debt and local currency denominated revenue. And new threats, such as terrorism, add an
additional layer of uncertainty, potentially derailing even the most promising of investments.
Combined, such political risks contribute to high costs of capital. In fact, some lenders might not
be willing to lend at all, in the absence of political risk insurance policies.
4.2 What MIGA DoMIGAthe Multilateral Investment Guarantee Agencyis a member of the World Bank
Group. MIGAs mission is to promote foreign direct investment into developing countries to
support economic growth, reduce poverty, and improve peoples lives. We do this by providing
political risk insurance (or guarantees) against certain noncommercial risks to investments in
developing countries, as well as providing dispute resolution services for guaranteed
investments.
4.3 How MIGA HelpMIGA guarantees are well-suited to mitigate noncommercial agribusiness investment
risks, thereby lowering the cost of capital and helping an investment opportunity to materialize.
They reassure lenders that their investments are protected. They help equity owners over
hesitations that may loom large prior to deal signing, particularly for costly investments in high -
risk countries. And once a deal is in place, MIGA guarantees, backed by the World Bank Group,
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bring companies peace of mind, providing that added measure of security that can stabilize the
risk profile of an entire project and reinforce positive relations with host governments.
Agribusiness companies also face challenges related to the environmental and social aspects of
their investments. Key natural resources need to be managed effectively while yields are
increased to meet market demand. Investments in agriculture can play a significant role in
poverty reduction, but labor standards need to be met. MIGA has the experience to guide its
agribusiness clients in implementing social and environmental best practices in their operations.
MIGA places no limit on the size of the projects it supports. MIGAs Small Investment Program
offers a streamlined underwriting process for investors looking for coverage of less than $10
million.
4.4 Types of Coverage
MIGA expropriation coverage protects policyholders against government takeover of
assets, such as land, farm machinery or food processing plants. This coverage also guarantees
protection from creeping expropriation, a series of acts that eventually result in outright
nationalization or confiscation. MIGA transfer restriction coverage insures policy holders against
the possibility that governments would prevent earnings repatriation. The coverage also protects
against the risk of currency incontrovertibility. With these guarantees in place, lenders may be
willing to reduce borrowing costs, since this mitigates concerns that foreign companies might not
be able to get their cash out of a country, which would increase the potential for loan default.
Even when governments impose a moratorium on moving currency, as shareholders of MIGA,
they may agree to exclude revenues from projects backed by MIGA guarantees and permit the
transfer. This has been the case in a number of moratoriums since 1990.
MIGA coverage against war and civil disturbance protects policy holders in the event that
political upheaval causes direct destruction of assets, such as torched fields or damaged factories.
This coverage can also protect against loss of revenue if crops or food products cannot get to
market due to border closures. Guarantees insure against losses if the farm or plant falls inside a
war zone and farmers are not permitted to return to fields in time to harvest crops.
MIGA breach of contract coverage protects investors when governments are contractual
partners. While agribusiness investments do not typically involve government partners, this is an
additional component of MIGAs political risk insurance offerings.
Non-honoring of sovereign financial obligations coverage protects against losses
resulting from a governments failure to make a payment when due under an unconditional
financial payment obligation or guarantee given in favor of a project that otherwise meets all of
MIGAs normal requirements. It does not require the investor to obtain an arbitral award. This
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coverage is applicable in situations when sovereigns financial payment obligation is
unconditional and not subject to defenses.