Chasing the Agricultural Market Access Mirage

with Prabhash Ranjan

First published in The Business Standard on July 23, 2005

When the heads of the earth’s most powerful countries met at the G8 summit in Gleneagles, Scotland earlier this month, there was no shortage of prose to underscore the importance of trade for development, particularly for the least developed nations of Africa. Less than a week later, when trade ministers from 30 World Trade Organisation (WTO) member countries, including those from the G8, met at Galian, China to accelerate the pace of negotiations under the Doha Round, progress was agonisingly slow. The Mini-Ministerial meeting that got over on 13th July was, it seems, let down as always by the perennial slip between the cup of wishful hopes and the lip of harsh realities of the negotiating process.

If trade is to help make poverty history, then agriculture is the area where progress needs to be made urgently, as more than two-thirds of the people living below poverty work on farms in the developing world. The meeting disappointed, although a fresh proposal from the Group of 20 (G20) countries to provide ‘the basis for further talks on methodology to cut tariffs in agriculture’, provides a ray of hope. What does this offer in bridging the yawning gap between developed and developing countries on the methodology of agricultural tariff reduction and does it safeguard the interests of the Southern countries adequately?

Based on the tiered approach given in the July Package for tariff reduction, G20 has proposed that the tariff rates of developed countries be divided in five bands and that of developing countries into four bands and then tariffs within each band be subjected to linear cuts. (More bands for developed countries, simply because they have a higher variance between maximum and minimum tariff rates for different products.) Higher tariff bands will then be subject to greater linear cuts in order to meet the target of high tariff reduction, as warranted by the Doha mandate and the July package. Further, the proposal states that the tariff reduction by developing countries would be less than two-third of the reduction undertaken by developed countries. This proposal of G20 is significant as it is the first attempt to operationalise the tiered approach for reducing the agricultural tariffs. Initial reports emanating from Dalian suggested that EC and US favour this proposal although the Cairns group countries such as Australia and Switzerland were against it.

In protecting the interests of the developing countries that G20 represents, two premises are important. Firstly, developing countries have a defensive interest in protecting their vulnerable farm economies. Any tariff-cutting exercise should not impose an undue burden on them to drastically reduce their tariff rates and bear the adjustment costs. Secondly, tariff-cutting exercise should lead to substantial improvement in market access for developing countries by steeply cutting the tariff rates in developed countries. In other words, from a developing country perspective, any tariff cutting methodology should be soft on developing countries and hard on the tariffs of developed countries. The negotiating issue would then be the degree of softness and hardness of the tariff cutting methodology.

The G20 proposal meets the defensive interests of developing countries well. By proposing a linear approach for developing countries, the proposal ensures that the tariff cutting exercise would be soft on developing countries. For instance, for a country like India that has an average bound tariff rate of 116 percent in agriculture and maintains a bound tariff rate of 100 percent or more on 536 products out of 671 products (HS 6 digit level), a linear approach for tariff reduction is an appropriate way forward in the tariff cutting exercise.

However, the G20 proposal falters on the latter issue of substantially improving market access for developing countries. Developing countries face formidable tariff barriers in developed countries in the form of tariff escalation. For instance, in Japan, the bound tariff rate on raw sugar is 224 percent and this climbs to as high as 328 percent for refined sugar. Canada levies 9 percent on raw sugar and 107 percent on refined sugar. The respective bound tariff rates for raw and refined sugar in EU are 135 per cent and 161 percent respectively. The story is the same if one looks at the tariff rates on cocoa beans vis-à-vis chocolate or fresh orange vis-à-vis orange juice. The net effect of these differential tariffs on raw and processed commodities is that it is difficult for developing countries to move up the chain of value addition. The G20 proposal that advocates a linear approach would lead to less reduction in tariffs as compared to the non-linear Swiss formula. It should instead have called for developed countries to undertake steep reduction in their tariff structures by adopting a non-linear approach embodied in the Swiss formula within the five bands.

The G20 submission also proposes the maximum tariff limit to be capped at 100 percent for any individual product in developed countries. This high tariff cap is rather generous of the G20, considering the fact that developed countries such as Japan, EU and the US have 579, 85 and 45 products respectively, that have bound tariff rates equal to or more than 100 percent.

One must not ignore the importance of the G20 proposal in breaking the impasse and bridging the divide between the developed and developing countries on the tariff reduction formula. Nevertheless, it is pertinent to ponder the cost that such an agreement imposes on the developing countries that have a lot at stake and too few good cards to play with. In the negotiations ahead, US, EU and other developed nations will no doubt demand, and perhaps secure milder cuts and higher tariff caps. It could be interpreted that the G20 proposal is closer to the ‘fallback position’ rather than the ‘negotiating position’ for developing countries. Further, there are indications to suggest that if developed countries do agree to this G20 proposal, they could ask developing countries for concessions in other areas of trade negotiations such as industrial products, where India is already in a tight spot on the issue of tariff reduction methodology.

No doubt, the present round of negotiations is an opportunity for developing countries to negotiate and bargain for greater and deeper cuts in the tariff rates in developed countries. Missing this opportunity will only postpone the reforms in agricultural trade much to the detriment of the farmers in the South and progress has so far been slow. As Celine Charveriat of Oxfam puts it candidly, at the current rate, countries would not even have agreed on the seating plan, let alone a framework for agricultural reform by the time the WTO Ministerial Meeting happens in December 2005!

However, the G20 should not press for an agreement at any cost, as having no agreement is always better than a bad agreement. At Cancun in 2003, the G20 had demonstrated its resolve in wrecking the talks rather than accepting a negative agreement. Developing countries have to be vigilant to ensure that unlike in the Uruguay Round, the Doha Round leads to a balanced outcome. Better an agreement about the seating plan on the deck of a sinking ship than on a ship sailing into the past.