On a recent visit to India, Colin Powell, US Secretary of State, was questioned about the US actions taken to stop work being given to Indian software firms commonly known as Business Process Outsourcing (BPO). Powell is reported to have presented a totally unconvincing and wide-off-the-mark reply that India should liberalise imports in agriculture to make up for the job losses in the US caused by BPO.

Before that, another high-level person from the US, US Trade Representative Robert Zoellick, is reported to have made a similar suggestion for liberalisation of imports in India. A little earlier, when the Commissioner for Trade of the European Commission (EC) Pascal Lamy came to India, he is also reported to have made strong demands for the lowering of tariffs in agriculture.

These concerted and rather well-orchestrated calls for liberalisation of trade in India, particularly in agriculture, are quite provocative. It is widely known that India was compelled to remove all import controls on all products, including those in agriculture, by April 2001 at the instance of the developed countries, particularly the US.

Now tariffs, i.e., customs duties, are the only means of protecting the country’s industry and agriculture against foreign competition. And the competition is extremely unfair. Asking developing countries to dismantle their remaining defences in agriculture against the grossly unfair export thrust of the major developed countries is an example of wholly unreasonable demands and extreme insensitivity to the condition of agriculture in countries like India.

While asking developing countries to withdraw the remaining protection afforded to their farmers, the major developed countries themselves, particularly the US and the countries of the European Union (EU), are continuing with high protection to their own farmers through heavy subsidies and other means. The multilateral framework of international trade, embodied in the WTO agreement on agriculture, provides a special and privileged position to the developed countries.

The developed countries continue to provide domestic subsidy to their agriculture in a big way. In fact, they provide an annual domestic subsidy of over US$300 billion. An April 2001 study of the OECD secretariat – a developed countries’ organisation – indicates that the developed countries provide domestic subsidy to the extent of about 40% of their agriculture production.

The domestic subsidies in the WTO agriculture agreement are broadly of two categories: (1) those that must be reduced annually and (2) those that are exempted from reduction commitment. The OECD study also indicates that 60% of the domestic subsidy of the developed countries is excluded from any reduction commitment.

The major developed countries have therefore applied a clever trick: they have reduced the reducible subsidies according to the obligations, but have increased the subsidies that are exempted. In this manner, they have technically fulfilled their obligations, and yet actually enhance the total subsidy. Another study of the OECD (2000) indicated that the total support estimate (a comprehensive measure of domestic subsidy) in the developed countries increased from the annual amount of US$276 billion during 1986-88 to US$326 billion in 1999.

The ostensible reason given for exempting some subsidies from reduction is that they do not distort trade. However, this is not the correct plea, as subsidies to the farmers in the developed countries, whether of one category or the other, enhance their staying power and thus enable and encourage them to continue with non-viable farming. To that extent, they do distort production and trade; hence it is erroneous to call them non-trade distorting.

The result of all these subsidies is that the major developed countries have been able to keep their agriculture prices much below their cost of production. For example, an ActionAid report of 2002 points out that the UK was selling its wheat at the price of £70 per tonne when the cost of production was £113 per tonne. In this manner, the major developed countries are able to send artificially cheap exports to the developing countries like India, putting the Third World farmers to very unfair competition and exposing them to grave risks.

Though the developing countries are also allowed to give some subsidies, this is an empty right, as they do not have adequate financial resources for this purpose.

The developed countries, particularly the European Union, provide a high export subsidy to their agricultural exporters. Though there have been annual reductions of such export subsidies, the level of the subsidy is still high and works out to about US$7 billion per year. The US has abolished its direct export subsidy, but it provides indirect subsidy to export through measures like export credit, which are not covered by the commitment of reduction.

While the developed countries justify their domestic subsidy in agriculture on the ground of providing support to farmers who, they fear, may go totally out of business without it, there is absolutely no justification and rationale for them to give export subsidy in agriculture in any form. Through the export subsidy in all its forms – direct and indirect – they are attacking the livelihood of millions of small farmers in developing countries like India. It is wrong business practice, but more than that, it is also extremely unfair and even unethical for the developed countries’ governments to pay their farmers heavy amounts to take away the livelihood of poor farmers in developing countries.

The developing countries are not allowed to give export subsidy, as most of them were not giving such subsidy when the WTO came into force, i.e., 1 January 1995, and no new subsidy could be given thereafter. Besides, even if they were allowed to give it, they would again not be able to do so as they do not have adequate financial resources.

The developed countries have the special facility of protecting their farmers against imports through a mechanism called the Special Safeguard (SSG) used when the import is high or the price becomes low. The criterion for eligibility of countries to use this special provision is such that the developing countries, except a very few, cannot use it. Thus this provision too operates in a grossly unbalanced and unfair manner in the sense that the developed countries which are already providing so much subsidy to their farmers are able to provide them this additional direct protection against import, while the developing countries which cannot and do not provide such assistance to farmers are prohibited from using this special protection for them.

The severe adverse impact of the developed countries’ policies and measures on the agriculture of the developing countries has been widely studied and recorded. In particular, organisations like the UN Food and Agriculture Organisation (FAO), OXFAM, ActionAid, IFPRI (the International Food Policy Research Institute), etc. have brought out reports giving specific examples of the damage to the developing countries.

The Rapporteur of the Sub-Commission on the Right to Food of the UN Human Rights Commission has brought out a report in March 2004 which states that the subsidies in the developed countries have displaced farming in the developing countries, causing a loss to them of about US$24 billion a year in agriculture and agro-industrial income. According to the report, the EU is responsible for more than half of this loss, and the US for a third.

In the background of such an unfair and unbalanced situation in agriculture, the major developed countries, particularly the US and the EU, are putting pressures on developing countries to remove whatever remaining flexibility we have to protect our farmers. There is a need to resist these measures resolutely. Also, there is a need to change the relevant provisions of the WTO agreement on agriculture. Currently we have got an opportunity to do it.

Negotiation in the area of agriculture has been going on for the last two years to decide on what should be done regarding domestic subsidy, export subsidy and tariff in this sector. Predictably, there are grave differences between the major developed countries and the developing countries on almost all issues. The negotiation has not made any progress.

The US and the European Commission (EC) – which negotiates on behalf of the countries of the EU – have come to a mutual agreement and have presented a joint position. They have followed the principle of ‘mutual forgiveness’ in their position, in the sense that they are soft towards each other’s subsidies. And predictably, they are united on asking the developing countries to reduce their tariffs in agriculture substantially.

In moves that are welcome, a number of the developing countries have joined together to oppose the joint position of the US and EU. These developing countries, including Brazil, China, India, Argentina, Indonesia and South Africa – commonly known now as the ‘Group of 20’ – have presented a common position asking the major developed countries to remove/reduce their subsidies.

Another group of about 37 developing countries have also come together to propose that the agriculture of the developing countries should be treated in a different way altogether. They have proposed that the developing countries should have sufficient flexibility of policies regarding the agricultural products which are important for food production, for small farmers and for the rural economy. Currently informal talks are going on, but the developed countries have not shown any sign of softening their positions.

In the background of what has been said above, it appears desirable for us to take the following line in the negotiation, build up support around it and pursue it with determination:

1) The developed countries should eliminate their export subsidy immediately, say within a maximum period of one year.

2) The developed countries should progressively eliminate their currently reducible subsidy within a maximum period of 4-5 years.

3) The developed countries’ subsidies that are currently exempted from reduction should be brought under the discipline of reduction and should be eliminated progressively within a maximum period of 4-5 years.

4) The Special Safeguard provision for the protection of farmers, currently for use almost exclusively by the developed countries, should be available for use also by the developing countries.

5) The developing countries may select some products which are important for food production, for small farmers and for the rural economy. They should have the flexibility to keep higher tariffs, impose direct import control and provide domestic subsidy in respect of these products.

6) Until the developed countries have eliminated all domestic and export subsidies, the developing countries’ tariff commitments and their commitments not to impose direct import controls should remain suspended in respect of the products coming from the developed countries that apply these subsidies.


About the writer: Bhagirath Lal Das is a former Secretary to the Government of India. Earlier he was India’s Ambassador and Permanent Representative to the General Agreement on Tariffs and Trade (GATT).