Development Box Proposals and Their Potential Effect on Developing Countries

INTRODUCTION

A. KENYA

Barasa, T. (2002). Non-trade Concerns in the International Agricultural negotiations - Views from Kenya, paper presented at conference on ‘Agriculture Beyond Trade’, Paris 8-10 January 2002, Agriculture Trade Policy Programme, Kenya

FAO (2000). Agriculture, Trade and Food Security: Issues and Options in the WTO Negotiations from the Perspective of Developing Countries, Vol. II Country Case Studies, Kenya

Government of Kenya (2000). Interim Poverty Reduction Strategy Paper 2000-2003. April 18 2000.

Government of Kenya, Ministry of Trade and Industry, 2002. Personal correspondence, February 2002

IFPRI (2000). Food Security and Trade Negotiations in the World Trade Organization: A Cluster Analysis of Country Groups, Trade and Macroeconomics Discussion Paper 59

Jayne, T., Argwings-Kodhek, G. (1998). Consumer response to maize market liberalization in urban Kenya, http://www.aec.msu.edu/agecon/fs2/kenya/maize_mkt_rfm.pdf

Jayne, T., Yamano, T., Nyoro, J., and Awuor, T. (2000). Do Farmers Really Benefit from High Food Prices? Balancing Rural Interests in Kenya’s Maize Pricing and Marketing Policy. Tegemeo Institute for Agricultural Policy and Development, Policy Brief No. 1, September 2000

WTO (2002). The Development Box, Non-paper presented by Dominican Republic, Kenya, Pakistan and Sri Lanka at the Special Session of the Committee on Agriculture, 4-8 February.

42. Malawi is a landlocked country with a population of 11 million. Over three quarters of the population live in rural areas. It is one of the world's poorest least-developed countries, with an estimated GDP per capita in 1999 of US$190. About half the population live below the poverty line and social indicators are low relative to the rest of Sub-Saharan Africa. Annual GDP growth has fallen from 8% in 1996, to less than 2% in 2000.

43. Malawi’s post-independence period was characterised by high levels of state intervention and import substitution. Government policies have changed considerably since economic reforms were introduced in the mid-1980s. In relation to trade, reforms have centred on liberalising and simplifying the trade regime and promoting greater international integration through bilateral, regional, and multilateral agreements.

44. Malawi’s agricultural sector generates one-third of GDP, contributes 90% of export earnings and provides employment for 85% of the population. The main staple food is maize. Tobacco, tea and sugarcane contribute 70% of the country's export earnings. Malawi’s dependence on primary commodities poses particular policy challenges.

45. Since deregulation, tariffs are now the main trade instrument affecting agriculture. Controls on the production and marketing of traditional crops by smallholders have been removed. The marketing monopoly of the state-owned Agricultural Development and Marketing Corporation (ADMARC) was eliminated in 1987. Price controls on maize were removed in 2000 and the grain purchase practices of the National Food Reserve Agency have been curtailed to meet only disaster requirements. Farm inputs, such as seeds and fertilisers, are now supplied mainly by the private sector, although the government-run Targeted Input Programme continues to subsidise farm input provision to the poorest farmers.

46. Membership of overlapping preferential agreements with different geographical coverage, trading rules and goals makes Malawi’s trade regime complex. Malawi supports the view that least developed countries should have flexibility to apply domestic-support measures necessary to develop agriculture and food security, but has not yet formally supported the Development Box proposals.

47. Malawi’s agriculture is composed of two main sub-sectors: smallholder farms and large agricultural estates. Smallholder farms provide 80% of Malawi's food requirements and 20% of agricultural exports. The sub-sector is characterised by low input/low output production and low resource endowment. It is estimated that one-quarter of smallholder farmers cultivate less than 0.5 ha of land.

48. The estate sub-sector is Malawi’s principal foreign exchange earner, contributing over 80% of agricultural exports (mainly tobacco, sugar and tea). The share of the estate sub-sector in total agricultural GDP has increased from 12% in the early 1970s to over 20% at the end of the 1990’s. During this period the sub-sector has contributed almost two-thirds of all agricultural growth.

49. Maize is the major staple food crop, grown on two-thirds of the total arable area. It is the most important crop for smallholder producers. Following recent reforms, many smallholders also produce burley tobacco (previously restricted to estate farms) and have increased production of drought resistant crops such as cassava and sweet potato. These crops were previously discouraged in favour of maize. It is estimated that only 15% of smallholders have access to sufficient land to produce a marketable surplus, and over half of smallholder households supplement their consumption needs with off-farm income.

50. Agricultural development is an important component of the government's Vision 2020 and Poverty Reduction and Growth Strategy. These place a high priority on agriculture as a means of alleviating poverty and providing economic growth. Within the context of these broad strategies, the government has for some time been developing a sector wide initiative for agriculture - the Malawi Agriculture Sector Investment Programme (MASIP).

51. Communal land ownership, and the lack of a functioning land market, is a critical constraint to agricultural development. The government is attempting to improve access to, and security of, land ownership, and is currently formulating a National Land Policy.

52. Food security has been a major concern of the government for over 20 years and in the past has been viewed as synonymous with maize self-sufficiency. As a result, considerable public resources have been allocated to increasing maize production at the expense of other, often more suitable, crops. However, the area planted to maize has remained constant and production continues to be dominated by rain-dependent, low-yielding varieties.

53. To promote food security, the government has historically intervened in the maize market. Until the mid-1990s the marketing of maize was regulated through controls on producer and consumer prices, administered by ADMARC. The market was partially liberalised in 1994, when private traders were allowed to market maize within a price band regulated by ADMARC. However, it became increasingly difficult for ADMARC to contain prices within the prescribed band. As a result, in 2000 the government abandoned price controls and fully liberalised the market.

54. ADMARC continues to dominate the maize market and still owns almost all the maize storage facilities. ADMARC’s strong position and continuing uncertainty over future government policy has deterred traders from entering the market on a large scale. In 1999, the government created the National Food Reserve Agency (NFRA). The reserve stock is currently set at 60,000 tonnes, held either as physical stocks or in a financial fund depending on the perceived need for the reserve. The intention is that the level of the reserve will be progressively reduced to 30,000 tonnes as the private sector develops greater capacity in the market.

55. The initial effect of maize market liberalisation was a general increase in maize prices. This posed a threat to food security, as most farmers are net-buyers of maize. However, bumper maize harvests in 1999 and 2000 placed downward pressure on prices. Increased planting of cassava and sweet potato, and a recovery in maize production in neighbouring Mozambique also helped dampen concerns.

56. Although the government has abandoned price controls on maize, it remains unclear whether it would revert to price controls in the event of producer prices falling or consumer prices rising to levels considered politically unacceptable.

3. Agricultural trade ⁵

57. Malawi is a member of the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC). It is a signatory to a bilateral trade agreement with Zimbabwe, and is negotiating similar agreements with Mozambique, Tanzania, and Zambia.

58. In addition, Malawi is party to various non-reciprocal preferential trade agreements that make its regime complex, inconsistent and difficult to manage. These include:

• the EU, under the Cotonou Agreement and ‘Everything But Arms’ initiative
• the US, under the African Growth and Opportunity Act
• other developed countries under the Generalized System of Preferences (GSP)
• South Africa, under a separate agreement.

59. Trading partners receive different access conditions to the Malawi market depending upon which agreement they are in, and the stage of implementation of the agreement by the partners. Members of more than one agreement can trade with Malawi under either agreement. The same applies to Malawi's exports to these markets.

60. Tariffs are Malawi's main trade policy instrument. The average MFN tariff has fallen steadily from 21% in 1997, to 14% in 2001. Government is preparing new anti-dumping legislation and introducing rules on countervailing and safeguard measures, with a view to meeting the provisions of the relevant WTO Agreements.

61. Malawi's export regime is relatively open. Since 1998, all export taxes have been removed and exports are not subject to quotas. Export licences are maintained on a few products to protect the environment and ensure domestic supplies (e.g. fuels and maize).

62. Agriculture contributes the bulk of Malawi’s exports. In the period 1997-2000, agricultural crops accounted for 85 percent of the value of all exports, tobacco contributing 63 percent. Agricultural exports are overwhelmingly dominated by tobacco (see Table B.1). Minimal export diversification has occurred over the last decade.

Source: FAO

63. Since embarking on trade liberalization in the late 1980s, Malawi has substantially rationalized its tariff structure. Malawi has bound its tariffs for most agricultural products at a ceiling rate of 125%. Lower ceiling rates apply to selected products: 50% on rye, barley, and oats; 55% on cocoa paste, butter, and chocolate, and other foods with cocoa; of 65% on cocoa powder.

64. Applied tariffs are substantially below the bound rates. Overall, agriculture is the most tariff-protected sector, with an average applied MFN tariff rate in 2001 of 15% -- marginally above the all product average of 14%. Within agriculture, the average applied MFN tariff varies from zero to 25%. Imports of cereals are subject to tariffs ranging from zero to 10%.

65. Malawi has no recourse to the SSG. The government is re-drafting its anti-dumping and countervailing legislation to conform fully to WTO requirements.

66. As an LDC, Malawi has no commitments on domestic support measures. A breakdown on support measures as a proportion of the value of production is not available. Subsidies have mostly been removed in any case, support that remains either relates to exempted categories or is well within the de minimis levels.

67. As an LDC, Malawi has no commitments on export subsidies.

68. Malawi has not formally supported Development Box proposals. The government believes however, that the multilateral trading system should provide greater flexibility for least developed countries to apply domestic-support measures necessary to develop agriculture and food security.

69. Malawi is technically one of the proponents of the African Group proposal (WTO 2001), although it did not take part in the Group’s discussion regarding the paper. Relating to the DB instruments, this paper proposes the following:

• Under market access obligations, credits should be accorded to developing countries for autonomous liberalisation.
• Developing countries should be given the option of maintaining the current level of bound rates on key staples.
• An appropriate Agricultural Safeguard mechanism for developing countries, as an S&DT measure, should be developed.
• The AoA should be reviewed so as to: (a) increase flexibility in the use by developing countries of the de minimis measures; (b) allow developing countries with zero AMS to provide such support if required under their development programmes; and (c) provide that input and investment subsidies available to low-income farmers and resource poor farmers be non-actionable.
• The expansion of the scope of S&DT in the area of domestic support should allow developing countries to employ policy measures which target the viability of small-scale and subsistence farmers, rural poverty alleviation, food security, as well as product diversification.

70. To date Malawi’s commitments under the AoA have not acted as a constraint to agricultural support measures. Applied tariffs on agricultural products are a small fraction of the bound rates and Malawi has no domestic support commitments.

71. Government supports the view that an imbalance exists in some of the WTO Agreements, including inadequate transitional periods, and that least developed countries need to implement fully their access to ‘special and differential’ provisions. In relation to market access however, it is unlikely that flexibility to apply higher tariffs on sensitive food imports are likely to provide real benefits for the majority of the population. Malawi, a landlocked country with weak transport infrastructure and a relatively small market, has limited potential to participate in international trade and is unlikely to face significant surges of cheap food imports.

72. Domestic policy reforms have had a mixed impact on the farming community. Many farmers have benefited from a greater variety and choice of crops to grow and markets to sell them in. However, resource poor and vulnerable households have limited capacity to take full advantage of the liberalised market, and may now be worse off than under the subsidised and inefficient state marketing system. The real challenge for Malawi is to devise an approach that delivers effective services to smallholder farmers at an acceptable subsidy cost, while controlling the undesirable features associated with a public sector monopoly.

IFPRI (2000). Collaborative Research and Capacity Strengthening Project for Multi-Sector Policy Analysis in Malawi and Southern Africa, Project Papers prepared for final project workshop, November 16, 2000, Lilongwe, Malawi. http://www.ifpri.cgiar.org/training/bunda/output.htm

Kydd, J., Dorwood, A., Poulton, C., New Institutional Economics, Agricultural Parastatals and Marketing Policy, in ‘Renewing Development in Sub-Saharan Africa, (D. Belshaw & I. Livingstone eds), Routledge 2002.

WTO (2001). Joint Proposal on the Negotiations on Agriculture, Submission by the WTO Africa Group, 23 March. G/AG/NG/W/142.

WTO (2002) Trade Policy Review, Malawi. http://www.wto.org/english/tratop_e/tpr_e/tp188_e.htm

73. India’s agriculture sector accounts for more than 25% of GDP and employs around 60% of the population⁶ and poverty reduction in India will therefore be closely related to the performance of agriculture and the wider rural economy. While the agriculture sector grew and diversified rapidly between the 1970s and the mid-1990s, growth rates decelerated at the end of the 1990s and significant issues about subsidy, public procurement and infrastructure policy for agriculture remain unresolved, with evidence of environmental stress in some major producing areas. However, India’s large size and agro-ecological diversity, and the significant differences in social structures, state level policies and landholding patterns make it hard to draw general conclusions, and different sub-sectors have exhibited very different growth patterns.

74. Since 1991, India has been undertaking a far-reaching programme of liberalisation and economic reform that has begun to affect the agricultural sector which has traditionally been strongly oriented towards self-sufficiency objectives. However only limited changes have so far been made to the fundamentals of domestic agricultural policy. While economic growth has averaged almost 6% per annum since 1980 (over 4% per capita), agricultural growth has lagged (at around 3.3% per annum in both the 1980s and 1990s, falling back at the end of the 1990s after a brief period of acceleration).⁷ Inequitable land-holding and tenure arrangements, reinforced by the political and economic domination of local elites, and constraints on occupational mobility (as a result of low educational levels, weak rural infrastructure, and the caste system) have limited the possibility of many of the poor to benefit from the wider opportunities created from economic reform. There are therefore significant risks that to the extent that trade reform impacts adversely on particular sub-sectors of the agricultural economy it will have severe consequences for the livelihoods of the poor.

75. Since 1994, this reform process has significantly modified the agricultural trade regime, and the remaining quantitative restrictions on imports (including agricultural products) were removed in 2001. The role of agricultural import liberalisation (and of the WTO in bringing about this liberalisation) in explaining recent adverse trends in agricultural producer prices and a wider crisis in agricultural productivity is a live and controversial political issue. However the extent to which these problems can be attributed directly to the fulfilment of international trade agreement obligations is questionable.

76. India is an active player in international trade negotiations and has submitted proposals for strengthening the Special and Differential provisions available to developing countries and for the establishment of a "Food Security Box".⁸

77. Agricultural growth has averaged about 3.3% over both the 1980s and the 1990s, significantly ahead of population growth of 1.6%, but with a high level of year-to-year fluctuation. The World Bank (2000) notes that this overall picture conceals marked regional variations, with performance weakest in the North and East (where poverty reduction achievements have been least), and that there is evidence for a slowdown in the pace of technological change, following the significant impact of the Green, White, and Yellow Revolutions over the previous decades. The World Bank argues that this is related to "the inefficiencies in, and unsustainability of, the current pattern of public spending in agriculture, and to the limited reform in agriculture" (World Bank, 2000, p. 79).

78. Since the early 1980s, the terms of trade for agriculture have generally declined relative to the rest of the economy. Effective price support has been provided for wheat and rice (support prices increasing by almost 200% and 150% respectively over the 1990s) enabling production to be maintained at the expense of coarse grains, pulses and oilseeds. This has contributed to increasing stockpiles of wheat and rice (despite problems of access to food by the poor), large exports of surplus stocks, and increased subsidies for distribution through the Public Distribution System⁹ (PDS). Support prices have increased the cost of food in the open market, while the PDS has compromised the ability of the private sector to undertake efficient food distribution. This has been compounded by import controls and restrictions that have recently been replaced by high tariffs.

Table C.1 shows production trends for major crops over the 1990s.

79. Indian agricultural policy has traditionally been marked by government intervention in marketing, pricing and input supply, with a strong orientation towards autarchy reflected in extensive quantitative controls on both exports and imports. The net impact on agricultural production incentives has depended on the combination of producer pricing policy (direct procurement, price controls, and the effect of trade restrictions), input subsidy policy, and the protection of non-agricultural sectors.

Table C.2 India’s Regulation of Agricultural Markets and Agro-Industry

Source: World Bank (2000)

80. The general policy stance has involved the suppression of consumer prices below international parity prices for both major food commodities and commodities used for industrial processing. This has been achieved by using consumer price subsidies, including through the PDS, and by heavy subsidies to agricultural inputs, including water and fertilizer, which have disproportionately benefited richer farmers. The result has been to generally maintain producer prices below world prices (particularly for grains and cotton). In some cases (notably oilseeds and sugar) producer prices have been directly protected through import controls on self-sufficiency grounds. Pursell and Gulhati (1995) calculated total input subsidies to agriculture in 1993/4 for fertiliser, irrigation, electricity and agricultural credit as equivalent to 2.7% of GDP, or 11% of agricultural GDP. On the other hand, levels of protection for manufacturing industry have generally been higher than for agriculture. The net result of policy interventions has been an implicit tax on agriculture -- the size of which was sharply reduced in the early 1990s as a result of the first moves towards import liberalisation that reduced protection of industrial products.¹⁰ Table C.2 summarises the major features of regulation in agricultural markets and agro-industry where tentative reforms aimed at liberalisation and subsidy reduction have begun. However in general "Economic reforms of the last decade have virtually bypassed agriculture" (Panagariya, 2001).

81. Between 1985-7 and 1996-8, India’s agricultural exports increased from US$2.3 billion to US$5.7 billion (around 20% of total exports). Between 1985 and 1994 there was a relatively modest cumulative growth of 43%. Thereafter, there was a sharp increase with agricultural exports in 1995-8 on average 83% higher than in 1990-4. This increase was dominated by increases in the volume of cereal exports (mainly rice and wheat) which increased from an annual average of under 1 million tonnes in 1990-4 to an average of almost 4.5 million tonnes in 1995-8. Over the same period there was also a sharp increase in agricultural imports (whose trend growth had been flat over the previous decade). Imports increased by 132% in value between 1990-4 and 1995-8. This increase was dominated by vegetable oils whose total import value increased from US$141 million to US$1.28 billion over the two periods (FAO, 2000) and continued to rise to US$1.84 billion in 1999/2000, comprising over 70% of agricultural imports.¹¹

82. Subsequently, the value of agricultural exports has stagnated. Including marine products, the total value was US$6.8 billion in 1996/7, US$6.6 billion in 1997/8, US$6.0 billion in 1998/9, and US$5.5 billion in 1999/2000. The bulk of the fall in value reflected sharp declines in oil meal and cereal exports.

83. In general therefore, India’s participation in world agricultural trade remains very limited and with the exception of the boom in rice and wheat exports during the 1990s (partly the results of domestic support policies), and some small sub-sectors like floriculture, the period of economic reform since 1991 appears to have involved a significant initial boost in agricultural exports, which has not been consolidated. Import liberalisation has stimulated sharp increases in vegetable oil imports, for which India does not have a comparative advantage.

Market access ¹²

84. Under the Uruguay Round, India bound 81% of agricultural tariffs at either 150% (34%) or 100% (47%). A small number of tariffs were bound at 350% and the remainder at less than 100%. Some products (notably rice, maize, millet, dried skimmed milk and some fruit) had been bound at zero in earlier rounds of the GATT. India made no other market access commitments and so cannot avail itself of the special safeguard provisions of the Agreement on Agriculture. In general, the tariff bindings provide little constraint on domestic policy with the vast majority of tariffs at least 50% below the bound level -- the major exceptions having been for those items previously bound at zero. However, in 1999, India negotiated increases in its tariff bindings for fifteen agricultural products including rice, maize, powdered milk, millet, spelt, rapeseed oil and grapes, in return for reducing bound rates on 23 items including dairy products, citrus fruits, fresh and dried fruit, sunflower and olive oil, dried peas, orange juice, potato preparations and wool (USDA, 2000).

85. Commitments to remove Quantitative Restrictions (QRs) maintained on balance of payment grounds have exercised a more significant influence on policy. India’s initial timetable to remove QRs was challenged. By 1997 about 80% of agricultural products remained restricted.¹³ A WTO Dispute Settlement Body ruled against India in a dispute with the United States in 1999, as a result of which an agreement was reached by which remaining QRs were to be eliminated. This process was completed in April 2001.

86. At the same time as the removal of QRs, several significant increases in tariffs were implemented, based on a peak tariff rate of 35% (plus a 3.5% surcharge and a 4% special duty on items from which quotas had been removed). Additional countervailing duties of 16-32% have been imposed for some products, while basic tariffs have been raised on poultry (100%), vegetable oils (25-45%), dairy (15%) and tea and coffee (35%). Maximum tariffs of 80% on rice have been imposed, and tariffs have also been significantly raised for maize and powdered milk. India is reviewing the scope for antidumping measures and temporary QR safeguards for "injured industries" (USDA, 2000).

87. Under the Uruguay Round, India made a detailed submission on support measures for 1995/6 (Table C.3). Green Box support is dominated by public stockholding for food security purposes (71%), followed by research and extension (18%). The negative product specific AMS in principle would allow an increase of almost 50% in support (39% negative plus 10% de minimis). Non-product specific AMS was dominated by electricity (42%), fertiliser (32%) and irrigation (23%). India has reserved the option of transferring almost 80% of the input subsidies under non-specific AMS to the SDT category, on the grounds that 80% of farms can be categorised as small. This would significantly increase the scope for non-product specific support. In the absence of either this reclassification, or capacity to offset positive non-product specific AMS with negative product specific AMS, then the room for manoeuvre without exceeding the 10% de minimis may be restrictive. However, it is likely that the general thrust of reform which is tentatively moving towards economic pricing is more likely to reduce the input subsidies classified as non-product specific AMS than to increase them.

Source: FAO (2000)

88. Domestic support commitments therefore cannot be regarded as imposing significant constraints on policy. However this might change depending on future interpretations of some issues that are still subject to debate within the WTO Committee on Agriculture, particularly the treatment of exchange rates (and inflation) when there was a controlled exchange rate regime during the base period, the definition of low income or resource poor farmers, the treatment of negative AMS, and the validity of public stockholding for food security purposes under the Green Box.

89. India did not notify any direct export subsidies for agricultural products for the base period. Such subsidies therefore cannot be granted in the future. However, developing countries are permitted under the Agreement on Agriculture to subsidise marketing, internal transport and freight charges. Interest subsidies and tax exemptions for exports are currently provided but it is intended to phase these out by 2005. Export controls have generally been lifted though some remain especially for wheat products.

90. In general India’s trade policy commitments do not impose major constraints on agricultural policy choices.¹⁴ This is mainly because of the high level of bound tariffs, while the negative product-specific AMS means that significant increases in support could be implemented before the 10% de minimis provision is breached. India has in general chosen to reduce protection faster than trade policy commitments have required, and has successfully negotiated more policy flexibility in cases (such as maize and rice tariffs) where significant policy constraints existed. While India was forced to remove QRs faster than it originally intended, increases in tariffs have offset much of the reduction in protection that would otherwise have occurred. While the adverse effect of reduced protection on some sectors such as oilseeds and coconut has been widely attributed to the WTO and to external pressure within India, in fact most of this impact could have been offset by higher tariffs if the government of India had so chosen.

91. The fact that the agricultural sector provides livelihoods for most poor people means that the impact of trade policy choices remains an issue of critical importance for successful poverty reduction in India. The fundamental issues for a more effective response of agriculture to economic opportunities relate to the restructuring of public support to agriculture to make it more efficient and more effective in empowering the poor. However, trade policy choices will have an important impact and at least on a transitional basis may have a severe adverse impact on the livelihoods of some population groups. To the extent to which, for example, reduced protection to vegetable oil reduces prices for consumers including poor consumers, the impact on poverty of a more liberal policy regime will be positive. However, the complexity of the intervention regime means that sequencing issues will be especially important in the design of reform (for instance if input subsidies are significantly reduced before producer prices are allowed to rise, or if consumer prices are permitted to rise while at the same time access to the PDS for the poor is curtailed).

92. FAO (2000) identifies several specific issues where there may potentially be conflicts between food security objectives and trade policy commitments. The first is the management of food price stabilisation, for which the use of QRs on exports and imports have been the major policy instruments in the past. While in principle variations in tariffs within the bound levels may be used to achieve the same objectives, there is some question as to whether these might be interpreted as variable levies, whose use is not permitted under the Agreement on Agriculture. While the optimal policy mix for achieving food price stabilisation clearly involves more use of external trade and less use of stockholding than has been the case in the past, there may be practical challenges in implementing such a policy mix.

93. Second, safety net policies such as employment programmes and the PDS are to a limited degree restricted by the Green Box under which such measures are permitted. However, there appears to be no conflict at the moment between the way in which these programmes are operated and Green Box rules. There are major issues about the effectiveness and efficiency of these programmes as currently used, but trade policy commitments do not significantly constrain choices.

94. Third, the management of occasional production surpluses for staple food may be made more difficult by restrictions on the use of export subsidies, leaving the choice of allowing domestic prices to fall more sharply than may be desirable (given the vulnerability of producers to price fluctuations and the absence of alternative price insurance mechanisms) or to increase stockpiles at a high budget cost. There is an issue about whether the occasional use of export subsidies in these circumstances should be regarded as falling within general S&DT provisions for developing countries. According to the US, India has been selling wheat to processors at low prices provided they use it for export. Given India’s zero commitment on export subsidies, this could provide a constraint in the future.

95. India has been an active participant in WTO forums including the Committee on Agriculture. In addition to joint proposals on market access with other developing countries (WTO, 2000), India has submitted proposals on food security, market access, domestic support, and export competition (WTO, 2001), and on Special and Differential Treatment (Government of India, 2002). In general the proposals aim to increase the policy flexibility available to developing countries while strengthening market access to developed countries, accelerating reductions in AMS, restricting the use by developed countries of safeguard measures for protectionist purposes, and strengthening of the provision for elimination of export subsidies by developed countries while permitting export subsides by developing countries for surplus disposal and on infant industry grounds.

96. The main features of the proposals put forward by India are summarised in the proposal for a "Food Security Box" that would:

• Exempt any measures taken by developing countries for poverty alleviation, rural development, rural employment and diversification of agriculture from reduction commitments.
• Provide flexibility to developing countries in the provision of input subsidies, while excluding investment and input subsidies and product specific support to low income and resource poor farmers from AMS calculations.
• Permit negative product specific support to be adjusted against positive non-product specific support.
• Permit higher tariff bindings by developing countries as a Special and Differential Measure, including upward adjustment of low bindings agreed in earlier negotiations to the level of bindings for similar categories of products committed under the Uruguay Round.
• Provide a separate safeguard mechanism to permit the imposition of QRs under specified circumstances for all developing countries irrespective of tariffication in the event of an import surge or decline in prices.
• Exempt developing country members from any obligation to provide minimum market access.
• Rationalise the product coverage of the Agreement on Agriculture.

97. The process of trade reform in India has served as a lever for initiating more far-reaching reforms of the agricultural sector, though these have only marginally affected the key features of the policy regime for agriculture to date. India has chosen in general to reduce protection through trade policy more sharply than was required to meet its obligations. Transitional difficulties for particular sub-sectors and regions (for instance the coconut industry in Kerala) should therefore be attributed to domestic policy choices rather than external impositions.

98. The extent to which India succeeds in accelerating the reduction of poverty depends critically on the successful implementation of a reform agenda for the role of government in agriculture that improves the efficiency and effectiveness of government interventions and empowers the poor. India is a land scarce country with few natural resources relative to its immense labour force. It therefore does not have a comparative advantage in agriculture (Wood 2000), and over the long term, continued poverty reduction is likely to require a gradual transition towards a more manufacturing based economy. Trade policy reforms that involve the first steps towards providing an environment for this have occurred (including significant reductions in protection to industry) but trade policy will have less influence than in most countries because of India’s enormous size and internal diversity.

99. India has sought through its negotiating strategy to increase its policy flexibility in areas where this is perceived as a threat. India successfully negotiated increases in bound tariffs for rice and maize where these had earlier been set at zero, in return for other concessions. In the event that the concessions for developing countries that India has proposed were granted, it is unlikely that this would have a major influence on India’s agricultural policy or have significant international spill over effects. India already possesses a high degree of space for policy manoeuvre within the current agreements and has generally demonstrated commitment to a policy stance with much lower levels of protection than are permitted. The one possible exception relates to India’s proposals for increasing the scope for the use of export subsidies for disposal of surplus wheat and rice. Given the enormous size of the Indian market and the scope for production fluctuations this could exercise a severely disruptive effect on the regional and possibly the world market. This issue would merit some further empirical analysis. In general though, it appears likely that if increased flexibility is granted, India would probably seek to use this as a bargaining counter to achieve other objectives both relating to agriculture but also more broadly, most notably increased access to developed country markets, and in other areas of major concern to India such as Intellectual Property Rights.

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WTO (2000). Market Access: Submission by Cuba, Dominican Republic, El Salvador, Honduras, Kenya, India, Nigeria, Pakistan, Sri Lanka, Uganda, Zimbabwe. Committee on Agriculture Special Session, 28^th September.

WTO (2001). Negotiations on WTO Agreement on Agriculture: Proposals by India in the areas of (i) Food Security (ii) Market Access (iii) Domestic Support, and (iv) Export Competition. Committee on Agriculture Special Session, 15^th January.

100. The characteristics of the agriculture sector in Thailand are illustrated by the fact that, before an increase during the 1997/8 economic crisis, agriculture’s share of GDP had declined to under 10%, yet it was still a significant source of livelihoods and employment for at least 45% and possibly as many as 60% of the population. While Thai agricultural performance, and in particular export performance, has been strong by international standards, Thailand’s pattern of development has been highly inegalitarian in both income distribution and geographical terms (with growth heavily concentrated in the Bangkok Metropolitan Region, and with the North in particular lagging). Thailand has one of the most unequal income distributions in the world (with a Gini coefficient of around 0.6). The income share of the top 20% has been over 59% while the share of the bottom 40% was under 13%. There is a very direct link in Thailand between the performance of the agricultural sector and poverty, and managing the process of labour transfer out of agriculture into higher productivity sectors, while addressing problems of poverty in rural areas and extreme inequality, is a central problem for Thailand’s economic development and future social stability.

101. As an efficient producer and exporter of agricultural products that are heavily protected by other producers (especially rice, sugar and poultry), and as a limited importer of agricultural products, Thailand has a strong interest in removing barriers to market access internationally and is an active member of the Cairns Group. In line with this position, it has with some exceptions pursued relatively liberal agricultural import policies, while having established a fairly wide margin between its tariff and AMS reduction commitments and its implemented policies. However, agricultural trade policy issues and the plight of the rural population are an important focus of political attention, reflecting Thailand’s democratisation and the development of regional and international networks of farmers’ organisations.

102. The pattern of development of successful economies in the region (Taiwan, Korea, Japan) has historically been marked by moves towards protection of the lagging agricultural sector as comparative advantage has shifted towards manufacturing and service sectors and away from primary production. This has reflected concerns about the protection of rural livelihoods as well as the desire to maintain domestic food production in the face of the risk of increasing dependence on imports.

103. The critical issues in relation to agricultural trade policy for Thailand will be first whether sufficient policy flexibility and instruments exist to be able to address the continuing problems of unequal sectoral and geographical growth and rural poverty, and the extent to which Thailand is effectively able to use its own markets as a bargaining counter to achieve its objective of improving market access for its agricultural exports.

104. Thai agriculture is dominated by the crop sector which has consistently accounted for about 75% of agricultural GDP, with livestock accounting for around 15%, and the remainder from fishing and forestry. Around 30% of agricultural GDP has been accounted for by paddy (50% of cropped area in 1993), with cassava, sugar, maize, rubber, fruits, and vegetables each accounting for between 5 and 10%. Thailand’s strong record in agricultural growth was based initially on area expansion up until the mid-1970s, and subsequently as available land to be brought under cultivation and irrigation has become scarcer (and environmental degradation become a more severe problem), through intensification of production and diversification into higher value products (chicken, fruit, vegetables, flowers). Table D.4 shows the diversification of crop production since the mid-1980s.

105. Thai agriculture is dominated by smallholder farming, with a significant degree of absentee landownership particularly in the highly productive Central Plain. There have been limited moves since the 1970s towards land tenure reform but these have had little impact. The relatively inegalitarian pattern of economic growth in Thailand compared to South Korea and Taiwan has been attributed to the lack of fundamental land reform in the past.

106. Except in some areas of the Central Plain where there is large-scale rice production, there is a close correlation between low-income households and dependence on agriculture as a sole source of income. However in aggregate in 1991, agricultural households were estimated to derive almost 60% of their income from non-agricultural sources.

107. Dixon (1999, p.186) concluded that "there is sufficient information to suggest that land shortage, environmental degradation, limited prospects for the further development of irrigation, and little real effort or success in the development of rain-fed cultivation seriously limit the prospects for continued increase in agricultural production. A combination of land shortage and economic change is making an increasing number of farmers marginal, and pushing households into increased dependence on other activities."

108. During the Thai Economic Crisis of 1997/8, the performance of agriculture to some extent buffered the shock to the rest of the economy, and performed some role in absorbing labour displaced from other sectors. However although the adverse shock to agriculture was relatively small, growth has yet to recover to the relatively modest levels of the mid-1990s, despite favourable developments in the exchange rate for export agriculture.

Source: Bank of Thailand

109. The pattern of agricultural policy has been for most of the post-war period that "successive Thai governments have explicitly promoted industry while implicitly discouraging agriculture through heavy taxation -- particularly of the rice sector -- and general neglect" (Dixon, 1999, p. 140) though this policy was never explicitly stated and a complex of mixture of policy interventions often with contradictory impacts was involved (for instance the provision of free or subsidised inputs and credits combined with a high level of export tax for rubber). The combined effect of export taxation and overvaluation was estimated to imply an implicit tax of 43% on rice production in 1975-9, a policy stance that was broadly maintained until the mid-1980s when the Rice Premium (a variable levy on exports that became a major source of government revenue) was set at zero. The reduction in taxation was associated with a rapid increase in rice exports from around 1980, with average annual exports approximately doubling by 1990. Agricultural growth rates are shown in Table D.2.

Source: Kittampon and Nabangchang (2001)

110. The National Agricultural Development Plan (1997-2001) stressed the importance of sustainable development, while balancing social and economic development. However the main emphasis of the Plan was on improving international competitiveness through productivity improvements, and the development of agro-processing and expansion of marketing facilities to improve diversification.

111. Exports of agricultural products account for about 15 % of Thailand’s total exports. These are dominated by rice, rubber and sugar. As a net exporter of commodities that are heavily protected in most developed countries markets, Thailand would be a substantial gainer from improved market access and reduced protection in developed country markets, and from reduced export subsidies (which impact particularly severely on rice, sugar and poultry markets). Agricultural imports account for only about 5% of total imports.

112. Agricultural exports grew rapidly from the mid-1980s, from around US$3.2 billion in 1985 to a peak of over US$ 9 billion in 1996. Reduced demand in Asian export markets as a result of the Crisis of 1997-8 led to exports falling back to just over US$7.2 billion in 1998.

113. Thailand has faced significant difficulties relating to the implications of the SPS Agreement for its access to developed country markets, as a result of claims of high insecticide residues and disease risk associated with some Thai exports (poultry, vegetables and fresh fruit). Thailand has actively negotiated on trading disputes relating to SPS and has supported measures to upgrade export quality to meet higher standards.

Market access ¹⁵

114. Since the measures to reduce export taxation on rice in mid-1980s (and reduced currency overvaluation following structural adjustment in the 1980s) Thailand’s policy stance has tended to protect the agricultural sector from import competition. In the past, the main instruments to restrict imports were high ad valorem tariffs, complex tariff structures, surcharges, non-automatic import licensing and local content requirements, with import prohibitions for rice and coffee beans.

115. Under the Uruguay Round, Thailand bound tariffs on 994 agricultural products and made a commitment to reduce average tariffs by 24% from 1995-2004, with a minimum reduction on 10%. Reductions were implied from a simple average of 49% to the final bound rate of 36%. Tariff rate quotas (TRQs) were opened for 23 products with in-quota tariff rates mostly in the range of 20 to 30%.¹⁶ Thailand reserved the right to resort to special safeguard provisions for 111 products, though these have not been invoked to date.

116. In general, applied rates since 1995 have been well below bound rates, with applied rates ranging from 0 to 15% for most products while bound rates have been 20-30%. Trading partners have expressed concerns about those products protected by TRQs for which import opening has been extremely limited or non-existent because of high in-quota tariffs, and continuing local content requirements. It also appears that the system is in practice biased towards established importers.

117. High tariffs have still in general protected the domestic meat, dairy, fruit and vegetable, sugar, beverage, and tobacco manufacturing industries. Market access was however improved from 2000 for ASEAN Free Trade Area (AFTA) members by granting unlimited market access at tariff rates not exceeding 20%.

118. Before the Uruguay Round, some commodities such as soya and dairy products were highly protected, through border protection rather than direct assistance, on the grounds of providing assistance to the rural poor and small farmers.

119. Thailand declared a base Total AMS of 22,126 million baht mainly in the form of market price support, covering four main measures: paddy pledging schemes, soft loan measures, market price intervention and market price support. In 1997, the level of AMS provided was 16,757 million baht. Support has been overwhelmingly concentrated on rice in most years. In addition, Green Box measures were calculated as 47,596 million baht, in the form of agricultural research and development, pest and disease control, national extension and advisory services, agricultural training, infrastructure services, environmental protection programmes, inspection services, marketing and promotion of Farmers’ Organisations, and public school nutritional supplements. Under Special and Differential Treatment, support of 6,902 million baht was provided, in the form of soft loans for agricultural investment and farming input assistance.

120. Thailand’s AMS outlays in 1995-7 were between 60 and 80% of the committed maximum levels, so did not provide a constraint on the provision of trade-distorting support to agriculture. However, it is less clear that this will continue to be case in the future, as there is intense lobbying and political pressure for support to farmers. FAO (2000) notes persistent conflicts in trade negotiations between the positions of the Ministry of Commerce and the Ministry of Agriculture and Cooperatives, with the former regarded by agricultural interests as prone to making excessive concessions on support and market access.

121. Thailand is strongly opposed to the use of export subsidies as a member of the Cairns Group (beyond tax concessions and support in export financing that are not considered to be significant), and has removed most controls over exports.

122. As a country with a strong comparative advantage in many agricultural products, and given the dependence of the livelihoods of the poor on the agricultural sector and the disproportionate importance of agriculture in employment, agricultural growth and export performance are central for poverty reduction. While in the past, interventions in the rice market were partly motivated by the desire to reduce consumer prices as well as to provide government revenue, the growth and development of the economy has reduced the perceived need for such interventions.

123. Thailand received significant benefits from the Uruguay Round in particular through improved access to the Japanese and Korean markets. The limitations on market access, high levels of domestic support, and the use of export subsidies on Thailand’s major export commodities (rice, sugar, poultry meat) mean that Thailand has a strong interest in using the international negotiation process to improve its agricultural export prospects. This interest considerably exceeds, in general, concerns about limitations imposed by international agreements on domestic policy choices.

124. The WTO is a major political issue with strong pressure from farmer’s organisations to resist further opening of the Thai import market for agricultural products and concerns about the implications of TRIPS and Genetically Modified Organisms (GMOs).¹⁷ However, given that in general Thailand has chosen to permit market access at levels that go well beyond its WTO commitments, these decisions reflect differences in the influence of domestic interest groups (including within the agriculture sector -- for example to reduce tariffs on livestock feed) more than external pressures.

125. Thailand is part of the Cairns Group whose negotiating positions have focused on seeking to improve disciplines on export restrictions and eliminating tariff escalation, while retaining special and differential treatment provisions to address the legitimate needs of developing countries. The Cairns Group’s market access proposals (WTO, 2000) include proposals for "(a) concrete and operational special and differential treatment provisions for developing countries; and (b) a greater improvement of opportunities and terms of access for agricultural and agrifood goods produced in, and exported from, developing countries, including the fullest liberalisation of trade in tropical products and for products of importance to the diversification of production from the growing of illicit narcotic crops." Thailand is also part of ASEAN whose submission (ASEAN, 2000) identified the following elements of Special and Differential Treatment "that would continue to be relevant to the needs of developing countries": (1) Investment and input subsidies that are an integral part of development programmes of developing countries should remain exempt from reduction commitments; (2) Measures to promote agricultural diversification must be exempt from reduction commitments; (3) The existing de minimis threshold must be continued but applying only to developing countries; (4) "Developing countries must be given an effective and meaningful degree of autonomy on policy instruments to address food security concerns"; (5) Agreement must be able to differentiate between domestic measures resulting in overproduction and those designed to address food security problems in developing countries.

126. Thailand has also tabled proposals¹⁸ to permit developing countries to use transitional instruments to countervail subsidised imports (SDCM) from developed countries.

127. Thailand’s overriding interest in the WTO agriculture negotiations remains in reducing subsidies provided by competing producers (including those in other developing countries) and in improving market access for the commodities for which it retains a significant comparative advantage. The proposals it has supported are restricted largely to allowing developing countries to take offsetting action against export subsidies provided by developed countries.

128. Thailand does not seem at the moment to suffer particular constraints over its agricultural policy as a result of its commitments under the Agreement on Agriculture. However, Thailand has moved away from its historically heavy taxation of its agricultural sector towards a position that probably involves a modest level of net protection, though involving a complicated set of sometimes offsetting policy interventions. This pattern is a familiar one in countries that have enjoyed rapid growth in which the agricultural sector and the rural population have progressively fallen behind the more dynamic sectors of the economy -- a process temporarily reversed by the Crisis of 1997/8 but that can be expected to restart. Thailand’s notably inequitable income distribution and the concentration of poverty in rural areas means that pressures for increased protection for agriculture are likely to grow, especially as the Thai political system has become more open and democratic. The continued comparative advantage in some major export commodities will anyway act as a break on such policies, but the key issue is whether the social and political pressure for assistance to the rural population can continue to be addressed within the constraints imposed by the international trading regime, rather than requiring the use of trade instruments as historically have been used in most countries facing this problem.

Dixon, C. (1999). The Thai Economy: Uneven Development and Internationalisation. Routledge: London and New York.

Kittampon, A., and O.S. Nabangchang (2001). The Grounds for Public Intervention in the Agricultural Sector in Thailand.

FAO (2000). Thailand. Chapter 14 in Agriculture, Trade and Food Security Issues and Options in the WTO Negotiations from the Perspective of Developing Countries, Volume 2 Country Case Studies, Commodities and Trade Division, UN Food and Agriculture Organization, Rome.

WTO (1999). Trade Policy Review: Thailand. World Trade Organisation, December.

WTO (2000a). WTO Negotiations on Agriculture: Cairns Group Negotiating Proposal -- Market Access. Committee on Agriculture Special Session, 10^th November.

WTO (2000b). Special and Differential Treatment for Developing Countries in World Agricultural Trade: Submission by ASEAN. Committee on Agriculture Special Session, 10 November. G/AG/NG/W/55.

WTO (2001). Special and Differential Treatment for Developing Countries: Transitional Instruments to Expeditiously Countervail Subsidized Imports (SDCM). Non-Paper from Argentina, Bolivia, Paraguay, Philippines and Thailand to Special Session of the Committee on Agriculture Informal Meeting, 24-26^th September.

1 | WTO (2002). The Development Box, Non-paper presented by Dominican Republic, Kenya, Pakistan and Sri Lanka at the Special Session of the Committee on Agriculture, 4-8 February.

2 | Studies indicate that Kenya’s agricultural sector has a growth multiplier of 1.64, compared to 1.23 in non-agriculture (Agriculture and Economic Growth, Conceptual Issues and Kenyan Experience, CAER Discussion Paper No. 27 HIID, 1994).

3 | Based on various studies by Tegemeo Institute of Agricultural Policy and Development and Michigan State University (see references).

4 | This section is drawn from "Agriculture, Trade and Food Security, Vol 2 Country Case Studies", FAO 1999.

5 | This section is drawn from the WTO "Trade Policy Review, Malawi" 2002.

6 | Prakash (1998).

7 | There is significant uncertainty about trends in poverty in India over the 1990s. Survey evidence suggests that poverty reduction performance has been especially limited in the large low-income states of the North and East (World Bank, 2000).

8 | Government of India (2002), WTO (2001).

9 | The PDS purchases and supplies staple commodities (rice, wheat, sugar, edible oils). From 1997, those classified as Below Poverty Line (330 million people) were entitled to 20kg of foodgrains per family per month at 50% of "economic cost", while the whole population is entitled to buy through the Fair Price Shops at "economic cost" (which still provides some level of subsidy). Approximately 16 million tonnes of wheat were procured for the PDS at the Minimum Support Price in the main marketing season of 2000/1. The system has been criticised as being subject to leakages in subsidies to the non-poor, as ineffective in its coverage of the poor and as a costly and inefficient form of intervention, while selling prices have increased in real terms to cover price support to cereal production. However the PDS remains the cornerstone of Indian food security policy (http://pib.nic.in/archieve/factsheet/fs2000/caffairs.html).

10 | Pursell (1996) estimated total taxation of the agricultural sector at 29% of agricultural GDP in 1971-85, 18% in 1986-91, and 9% in 1992-5.

11 | A key development was the moving of palmolein to Open General Licence in 1994 with a tariff of 65%, and the move of almost all edible oils except coconut to OGL in 1995 at an import duty of 30%, which was reduced further in 1998.

12 | This and the following subsections draw on FAO (2000) unless otherwise stated.

13 | USDA (2000).

14 | In 2001 the Commerce and Industry Minister, Thiru Murasoli Maran, stated that "we have adequate leverage for increasing our applied rates to … bound levels and we have fully utilized this possibility whenever the need has arisen and will continue to do so in future also ... The Agreement on Agriculture does not in anyway require us to reduce our existing subsidies for research, pest and disease control, marketing and promotion services and various infrastructural support services. It does not also in any way affect our existing PDS. India has also not taken any obligation for providing minimum market access opportunities to other trading partners." (http://www.dgftcom.nic.in/exim/2000/speech.htm)

15 | This and the following subsections draw on FAO (2000) unless otherwise stated.

16 | The exceptions are for sugar (65% within quota) and Instant Coffee (40%). The other products subject to TRQs include milk, potatoes, onions, garlic, coconut products, coffee, tea, pepper, maize, rice, soybeans and other oilseeds.

17 | See for example "Chiang Mai: Anti-WTO Protest Planned", The Nation, March 28^th 2001; "WTO Pushing New Laws Against Asian Farmers" (http://www.twnside.org.sg/title/upovb-cn.htm).

18 | Along with Argentina, Bolivia, Paraguay and the Philippines (WTO, 2001).