World Trade Organization And Agriculture Sector

The World Trade Organization (WTO) is influencing trade practices all across the globe. For the purpose of uniformity and enforceability, WTO has formulated a framework to be followed by all its signatories. Such is the impact of WTO that almost every industry, whether in agriculture, manufacturing or services sector, is affected by its policies. Pakistan is an agrarian country where agriculture contributes 21% to the GDP, employs 45% of the labor force and, along with raw & processed agricultural supplies, generates 65% of the total export earnings. In light of the importance agriculture holds for Pakistan, a study of WTO in relation to this sector is particularly apt. This article seeks to analyze how far Pakistan’s agricultural sector has been and can be affected by WTO.

In WTO an argument regarding agri. took place which IS, in fact, the result of final act of Uruguay Round which was held in April, 1994 In Morocco, Uruguay Round gave importance to the agri. sector for the first time and it was made a part of multi-lateral talks of GATT. Under this round it was admitted that there existed so many distortions in the agri. sector. Therefore, the need is to create transparency and competition in world agri. by removing distortions.

The distortions which exist in the agriculture sector at the world level are due to local subsidies. In has been observed that the industrial countries have been giving subsidies to their agri. sector since long. As a result, there have been bumper increases in the agri. outputs, whith are being sold by the developed countries under dumping. Moreover, the rich countries have imposed a lot of restrictions on the agri. imports from the developing countries. The purpose behind all these measures is to provide incentives to their farmers, raise their incomes and attain comparative advantage artificially in the agri. goods.

Thus, the basic agreement on agriculture which took place under WTO is aimed at creating a fairness in the world trade of agriculture. But for this, the DCs ( as well as LDCs) will have to abolish subsidies which they give to their farmers alongwith the subsidies which are given against agri. exports by the DCs. As a result, each country will have the access in the markets of other countries for selling out its agri. products. All such means that the agreement on agriculture (AOA) has three main components : (1) market accesses, (2) domestic subsidies or domestic support and (3) export subsidies. They are discussed below.

1.  Market Access

In connection with market access to the world markets, the AOA has two important components,. as :

(a)     The market access requires that all the members of WTO will use tariff as a protective measure by removing the quantitative restrictions (QRs) like quota and export and import licences, etc. Then the tariff rates will be decreased. In this agreement., it has been settled that the DCs will reduce tariffs by 36%. during the period of 6 years. While the developing countries will reduce tariff by 24% during the period of 10 years.

(b)   Each member country will have to import a certain proportion of its domestic consumption of the agri. goods from the member country. The same situation of market access will have to be created which existed during 1986 –88. If the imports of any country are nominal then the minimum access must be 3% of its domestic consumption. Such minimum access will be increased to 5% for the DCs till the year 2000, and for the LDCs till 2004. However, the importers will be able to impose additional duties if they prove that there is a surge of imports in their country. They have been given the name of Special Safeguard Measures.

2.  Domestic Support

Two objectives have been presented regarding domestic support in AOA, as : (i) identification of some acceptable measure with which farmers could be supported, (ii) avoid such n support of farmers which could create distortions in trade. These are concerned with DCs which excessively provide domestic support to their farmers. In order to know the amount of domestic support the Aggregate Measure of Support ( AMS) is used. With AMS, it is assessed that at average how much subsidies are being provided for each category of agri. good. In order to determine its AMS each country has made necessary estimations. If they are found 5% in case of DCs and 10% in case of UDCs, then they are not required to further cut their supports. In other cases, the DCs will bring a 20% reduction in their AMS in 6 years, while the UDCs will have to bring a 13.3% reduction in their AMS in 10 years.

The AMS has two parts; one is concerned with subsidies attached with the goods, while the other is concerned with non-product subsidies. The subsidies concerned with product are linked with that total support which has been provided with each individual agri. good. In this respect, the support price of that agri good will be kept in view. Whereas the non-product subsidies are linked with the total support which has been provided to whole agri. sector, i.e., how much subsidies have been provided by govt. on inputs_ like fertilizers, electricity, seeds, water and finance. All those support measures which have minimum effects on trade — known as Green Box Measures, need not decrease any further. These expenditures are faced by the govts in respect of research, pests controls, agri. training, extension services, and food security storages. Same is the case with those support measures which are concerned with Special and Differential treatments or S and D Box which are faced by the developing countries regarding agri. investment, or by providing subsidies to the poorest farmers.

3.   Export Subsidies

Because of export subsidies the prices of so many farm products in the world markets become unstable. Thus, under AOA, it has been decided that the member countries will reduce direct export subsidies by 36% within the period of 6 years. Again, during this period the quantities of exports which are produced on the basis of subsidies will be reduced by 21%. While in case of developing countries such reduction will be 24% within the period of 10 years. However, the very poor countries will not have to decrease such subsidies.

Abolition of Domestic Subiidies and Export Subsidies

In the WTO forum, the domestic as well as export subsidies have attained much more importance, and the DCs and the LDCs are taking the issue of subsidies very seriously. As told earlier, the subsidies are unfair trade practices as they lead to trade distortions. Because of domestic subsidies, the farmers get prices higher than the market prices. In this way, the surplus quantities of agri. goods come into the market of US, EU and Japan. Then to sell them out in the foreign markets, the subsidies are given to exporters so that they could sell them cheaper in the foreign markets. On the other side, the countries which neither provide domestic nor give export subsidies, their products are high priced in the foreign markets and they cannot compete with those of the DCs. This is the distortion effect of subsidies on trade. Thus, in the different Ministerial meetings of WTO, stress is being laid upon the removal of such subsidies. According to an estimate, the DCs are spending $ 1 billion per day on subsidies to the farmers. Again, it is said that in Japan, govt. spent $2555, US spent $ 1057 and EU spent $803 on a cow in the form of subsidy. According to another estimate, EU spends 46% of its budget on farm subsidy and the major part of it goes to France. The govt. of US faces $ 19 billion annually against subsidies to the farmers. One-third of the agri. products produced in US are exported, mostly on export subsidies. Consequently, the farm products of the developing countries compete with those exported by the DCs. The agri. goods exported by the DCs under dumping are seriously affecting the farmers and the agri. outputs of the developing countries. According to an estimate, the LDCs are suffering losses equal to $24 billion per year due to such subsidies.

The abolition of subsidies was also stressed upon in Doha Declaration in 2001. But the DCs always resisted. The issue of subsidies was also discussed at Cancun Ministerial meeting of 2003. in July, 2004, ‘ in Geneva, the DCs agreed to abolish these subsidies and export credit guarantees having the period of more than 6 months. In connection with subsidies, three parties are engaged in negotiations as US, EU and the Group of G-20 which includes Pakistan , India, China and Brazil like countries which are less developed countries. The Group G-20 is desirous to abolish the subsidies as earliest as possible. But US, due to its cotton, and Germany due to its beef and sugar are demanding a longer period to abolish their subsidies. Again., US has reservations against Ambor-box and De-minimises support. It means that the issue of subsidies is not being resolved yet. Then it was discussed in December, 2005 when the Ministerial meeting of WTO was held in Hongkong.

World Trade Organization (WTO) and Pakistan‘s Agriculture

Pakistan is basically an agri. country where agri. sector contributes to 21% of the GDP; about 45% of the population is associated with agriculture not only a big profession for the people of the country, but it is also a way of life; it provides the necessary raw material in the form of cotton, sugar-cane etc. to run the textile and sugar industries; and above all most of our exports whether in raw form, semi-finished and finished form are concerned with agri. sector.

But this agri. has to face the problems like rising costs of production, constant support prices, losses due to falling prices and no gain due to rise in prices, shortage of water, red tapism in the extension services, malpractices in the procurement services and reduced credit facilities. In the situation of dire-poverty, abundance of small farms having the area less than 5 acres, out-dated techniques of production, mass illiteracy, rigid and orthodox behaviour, provision of subsidies on certain agri-inputs and mechanism of price-support program, whether we will be able to meet the challenges once the WTO rules on agri. are implemented in the year 2005.

WTO, which succeeded GATT, started its operation since January 1,- 1995 is aimed at liberalizing World trade, consequent upon removal of quantitalive and qualitative trade barriers. Moreover, the artificial measures like granting of subsidies to domestic producers and purchasing of agri. goods by the govt at the prices higher than open market prices will have to be abolished with the view of increasing competitiveness at the worldl level, as this would have the effect of a better allocation of world’s resources. Moreover, this will lead to provide the goods at the cheapest price being produced on the basis of _comparative cost doctrine, will augment the welfare of habitants of the world.

Some experts are of the view that still WTO has a lot of work to do; it does not have a complete set of perfect agreements; and it is the agri. sector which does not have any clear agreement. Again, the “Trade Related Aspects of Intellectual Property (TRIPS)” agreement is also vague. The ‘Agreement on Agriculture (AOA)’ and TRIPS are directly related to the agri. sector. The WTO regime on agriculture comprises the AOA, the Sanitary and phyto-Sanitary (SPS) Measures, the Technical Barriers to Trade (TBT) and TRIPS, which are all-interlinked to each other. The first seminar on the AOA was held in Pakistan in 1999 ______  four years after joining the organization. This shows the lack of awareness and interest in this regard. The WTO cell of the ministry of commerce now has a working group on agri, alongwith five other groups on different agreements on the WTO. Now the question is what we should do when following Doha Declaration of WTO on 15 November 2001, 142 countries of the world had recognised the provisions under Article 20A. Again, after January 2005, (1) we will have to open our markets for the foreign goods making the market access, (2) the domestic support prices will have to be abolished and (3) the export subsidies will have to be withdrawn. Then there rises the issue what are the implications of above said changes or what are effects of WTO on our agri. sector.

1.    Openness of Markets for Foreign Goods

After the implementation of WTO we will have to open our markets for the foreign agri. goods. Consequently, there exists the possibilities that cheaper sugar, cheaper cotton and even the cheaper wheat will easily enter our markets. In such situation, not only our textile and sugar industries will be out-competed, butrour farmers especially the small farmers will also be discouraged when -Rey have to face the rising cost of production after the withdrawal of subsidies on electricity, fuels, fertilizers and other inputs. The agonies of our agri. sector will further increase, following the implementation of WTO rules.

2.    Abolition of Domestic Support Prices

WTO, following the drive for globalization, wishes to promote free forces of demand and supply and free markets. Accordingly, it likes to abolish the state-run mechanism of support prices whereby the govt machinery purchases the surplus amount of food and agri goods at a minimum price announced by govt. each year. But, most of farmers in Pakistan, due to financial reasons, are unable to store their commodities. As a result, they have to sell their produce at the earliest possible time. If the procurement price system is abolished, the increased production after harvesting will result in depressing down of their prices and, then the yields of the farmers. Moreover, like most of developing countries, we are highly entrapped in market imperfections. Then, how the market mechanism will reward properly to the poor farmers; and how they would be producing efficiently following free market mechanism.

 3.   Withdrawal of Export Subsidies

The large sectors like Textile in Pakistan have started modernizing to face the challenges of Post—WTO era. But this is not the case with the farming community, as its major part is illiterate and conservative. In Doha Declaration, it was agreed to phase out the subsides on agri. exports, given by DCs, but there was no commitment of any steep cut in these subsidies. Then there rises the issue that, why we should abolish domestic subsidies when US, EU and Japan are not compromising on it. The US inject has increased its agri. subsidies .

recently. On the other hand, we had promised with ADB to abolish the subsidies for a loan of mere $ 350 million. Our expbrts of agri. products, particularly food items hive not been upto the mark. Qlobal trade in agri. grew by 51% in the period 1986-98, but Pakistan’s exports increased by only 1%. We have a meagre 0.38 to 0.6 percent share in global agri. trade. Exports of India and Sri—Lanka have increased by 167% and 68% respectively in the same period. The withdrawal of subsidies on agri. exports will further reduoe the share of Pakistan in World’s agri. exports. Again, we are facing the problem of efficiency. In this regard, we are lagging behind around 30-100%. The infra-structure and human complicated in the sense that agri. can give positive and negative impacts having an impact upon natural environment. The first type of relationship seriously.

on agri. vary widely reflecting the differences in climates, topography and to get ready for competition. We must use 10% of agri. income, that is sector and environment and (3) finally we shall see the measures _ present discussion, we shall (1) see the relationship between between agriculture sector and environment.

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