The future is out there

An overview of the agreement cannot be attempted here. Suffice it to say that it refers to member countries opening up to the agricultural exports of other countries. It refers to committed ceilings on the tariffs they will impose on such imports to limit protection. And it requires countries to cut subsidies on agricultural production. The idea is to let their trading partners’ farm exports become competitive.

India under this agreement is not obliged to promise marketaccess. It does not have to agree that, say, at least 3 per cent of its domestic wheat consumption will be met through imports. Indeed it severely and physically restricts agricultural imports. Its commitments on tariff ceilings are prohibitively high. These are rates beyond which tariffs on these imports, once imports are freely allowed, will not be raised. These Indian “bindings” are in most farm products as high as 300 and 150 per cent.

While the agreement allows developing countries to have agricultural production subsidies of up to 10 per cent, India discriminates against its agriculture to the tune of a whopping 31 per cent. It does so by over-protecting its manufacturing industry and by imposing domestic levies and other constraints on farmers. All this distorts trade to the extreme disadvantage of the agricultural sector. So India taxes rather than subsidises its agriculture. Differently put, its Aggregate Measure of Support to agriculture, or AMS, is minus 31 per cent.

So much for thebackground. Now for what India should look to do for next year’s review of the Agreement on Agriculture.

Note that in spite of discriminating against agriculture, India produces enough to be a net exporter of grains. So it is fundamentally a competitive agricultural producer. If public levies on farmers’ produce are lifted and exports freed, economists such as Ashok Gulati of the Institute of Economic Growth say that India could export about 5 million tonnes of wheat, 4 million tonnes of rice, 3 million bales of cotton per year fairly regularly, and sugar occasionally.

Given that it is competitive, has a large export potential, does not subsidise its farmers, has high tariff ceilings for when it opens these imports, the conclusion is loud and clear: India has nothing to fear from aggressive liberalisation of world farm trade and a lot to gain from it. Of course, if it decided to aggressively demand concessions from other countries it would have to give up things such as some of its own ridiculously hightariff bindings. But the trade-offs are in its favour.

Consider that the European Union — and much of East Asia — is an inefficient agricultural producer, heavily subsidises its farmers, restricts farm imports and it becomes clear why India would gain from pushing for more liberalisation under the Agreement on Agriculture.

It has a readymade forum from which to do it: the so-called Cairns group. This is a grouping of 15 developed and developing countries who are efficient and large agricultural producers and exporters, including Canada, Australia, Argentina and Thailand. They would like developed countries which are inefficient and protectionist farm producers to open up.

Yet India, oddly, feels threatened by the Cairns group. It would apparently rath-er do without what is in its interest than itself open up without disadvantage. So it worries that the Cairns group’s demands would force it to open up its own agricultural imports.

Consider why there is an overlap of interests between the Cairns groupand India. The Cairns group, and the developing countries as a whole, are arguing that countries which discriminate against th-eir agriculturists (have a negative AMS) cannot be made to increase market access for countries which heavily subsidise their farmers. The latter must first cut their subsidies sharply. The government does not see it this way, but there is scope here to demand important quid pro quo from protectionist developed countries.pThe Cairns group wants the administration of tariff rate quotas to be improved. What might these be? In the Agreement on Agriculture, when countries committed access to their farm markets, they did the following deal: they would open, say, 3 per cent of their market in a particular commodity to imports at a tariff of, say, 15 per cent. This is a tariff rate quota. The rest of the imports of that commodity would be at, say, 80 per cent. In practice farm trade has been conducted within the quotas, because their tariff levels on imports outside the quota make othercountries’ exports uncompetitive. India surely either wants these quotas to be enlarged or removed or reformed in some way?.

The Cairns group wants export subsidies on farm goods abolished or progressively reduced. It wants AMS to be product-specific. At present countries, having agreed to cut overall farm subsidies, go and cut them in unimportant commodities while continuing to greatly subsidise their least competitive commodities. India’s subsidies are negative whether measured collectively or product-wise. It should demand product-specific AMS in the agreement. This will reduce the subsidies of its trading partners where they are least efficient and enhance the scope for increased exports.

As far as can be seen, it is the Cairns group position on state trading monopolies that most scares India. These countries resent canalising agencies because they are used to limit imports. The Indian government remains attached to its state trading monopolies. Why, though?

Look back to onions. If NAFED had notbeen the sole canalising agency for onion imports when prices were going through the sky, consumers’ sufferings would have been alleviated earlier. State trading monopolies are a source of inefficiency and corruption. If giving them up can get India even some the benefits outlined above, it is worthwhile for India to get rid of them and fall in step with the world’s large agricultural exporters.