MILINDO CHAKRABARTI
AN outcome acceptable to all members of the WTO out of the Doha negotiations that began in November 2001 is in all probability going to be delayed further. The Doha Declaration committed members to comprehensive negotiations aimed at substantial improvements in market access, reduction of all forms of export subsidies, and substantial reductions in trade-distorting domestic support in respect of trade in agriculture. Global leaders had all agreed “that special and differential treatment for developing countries shall be an integral part of all the elements of negotiations, and shall be embodied in the schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective, and to enable developing countries to effectively take account of their development needs, including food security and rural development.
”Yet six years down the line, no firm negotiated deal is in sight. Rather, if the
Chair of the Special Session of the Committee on Agriculture held on the April 30,
is to be believed, “We are at the very end of this exercise
one way or the other,” and there has been a clarion
call, “for honest talk … to promote a greater seriousness of purpose… and, thereby, facilitate the decision
making we so desperately need now…” Another
instalment followed on May 25, identifying conflicts
across nations on issues like special safeguard mechanisms
and green box particulars, among others.
Such frustrations result from two proximate factors,
one circumstantial and the other factual. The circumstantial
obstacle is in the form of imminent
expiry. If the agreement is not signed by June, the US
President will lose his fast track authority to approve
international trade agreements, which means the US
Senate/Congress will then oversee them. This is why
the US wants to hurry.
To elaborate, the US administration’s executive
authority to negotiate trade agreements with a guarantee
that the Congress would pass them with no amendments and limited debate – no legislative
obstacle, to be precise – will expire on June 30.
It is doubtful, given the Democrat dominance in
the Congress post-November 2006 elections, if
President Bush will be able to actualise an extension.
Doubts are strengthened as one recalls, historically, that President Clinton was denied this privilege by the Republican-led Congress, even though the fast track authority had been continuously in force from 1974 till 1994. On May 23, the Pennsylvania House of Representatives approved a resolution calling on the Congress to defeat the renewal of President Bush's fast track trade authority. Legislatures in Alabama, Hawai, Maine, Montana and Vermont have approved similar resolutions, and nine other states are considering action to prevent the Congress from renewing the ‘fast track’ authority when it expires on June 30. The ranchers and cattlemen, prairie farmers, the Presbyterian Church – common people from all walks of life – also appear to be against any attempt to extend the tenure of the ‘fast track authority’, even though there is a simultaneous apprehension about a possible secret deal being struck between the Democrats and the Republicans. The situation will be crystal clear by the time you read this column as the deadline of June 30 will expire by then.
However, the available trends suggest that the US President is all set to lose this authority. The experience, however, provides an important lesson for the states that constitute federal India – the existence in the US of legislative mechanisms that bind the Union government to accommodate the demands of the state governments through an appropriate consultation process before committing to an international treaty that may have considerable impact on the welfare of the state’s citizens. The centre-state commission set up recently to redefine the statutory relationship between states and the union government should take up this issue immediately. The factual impediments are much more compelling. Between 1994 when the Uruguay Round was completed and today, several studies have come up that found that the resultant global gains from an agreement on agriculture – portrayed to be very high then – were very insignificant in actuality. We shall concentrate on some such representative studies to find the truth. A study by Hertel* that models the distributional effects of WTO agricultural reforms begins with an assertion that “trade theory is about whose hand is in whose pocket and trade policy is about who should take it out!” It observes that the wealthiest of rich country farmers predominantly gain from protection while farm households in poor countries pay the price.
Using a Doha Scenario elaborated in the July 2004 Framework Agreement (WTO, 2004) and comparing the results with simulated estimates under a fully liberalised scenario, the exercise reveals the distribution of gains/losses across developed and 15 selected developing countries. Some stylised features from the findings are worth mentioning: Australia and New Zealand stand to gain the most among the rich countries under both scenarios in respect of terms of trade, even though Japan derives the highest welfare gain, coupled with the highest terms of trade loss. None of the OECD countries suffer welfare losses under both the scenarios. However, the welfare gain is much higher under an ideal free trade scenario. Developing countries show mixed results with Brazil, Peru, Malawi, Colombia Thailand and Chile emerging clear winners in respect of terms of trade appreciation – higher in a fully liberalised agricultural trade scenario than that realised through the Doha-2004 framework of agreements. They also maintain a simultaneous appreciation in welfare.
The rest of the countries are clear losers. An examination of the welfare impacts on rich country farm households clarifies why there is so much opposition to agricultural reforms, especially in the developed world. The average decline of on-farm income in Japan is 16 per cent under the Doha scenario and 28 per cent under the full liberalisation scenario. The corresponding figures for EU are six per cent and 13 per cent, respectively. The average loss in on-farm income is not that significant. But the welfare impacts on representative households in each of the 11 wealth classes across the five US producer groups are different. The loss to the richest – and most likely influential – producer groups are quite large. In the case of rice producers it is nearly 20 per cent of farm income. The estimated impact of liberisation of agriculture by the rich countries, on the change in poverty ratio across the developing countries, reveals a significant decline in the incidence of agricultural poverty.
This revelation encourages Hertel et al to forcibly argue, “Clearly the same reforms that reduce the incomes of the richest farm households in the US and other developed countries boost those of the poorest farm households in some of the poorest countries in the world. Obviously, the very policies that assist the richest farmers create poverty among poor country farm households. The diversified household strata (bothurban and rural) also show substantial poverty reductions in a number of cases – particularly Brazil, Chile and Thailand. On the other hand, higher food prices consistently push more of the non-agriculture, self-employed and the transfer-dependent households into poverty.” Some further interesting studies can be cited to underscore the source of tension vis-à-vis complete global reforms in the agricultural sector. I shall take up some of them in the next issue, by which time it will also be clear if President Bush had succeeded in pushing the agenda for an extension of the fast track authority.
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