GATT and Agriculture 1

8/6/2019 GATT and Agriculture 1

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Agriculture under GATT: What It Holds for IndiaAuthor(s): Ashok Gulati and Anil SharmaSource: Economic and Political Weekly, Vol. 29, No. 29 (Jul. 16, 1994), pp. 1857-1863Published by: Economic and Political WeeklyStable URL: http://www.jstor.org/stable/4401487 .

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SPECIALARTICLESAgriculture u n d e r G A T T : W h a t I t H o l d s f o r I n d i a

Ashok GulatiAnil SharmaThis paper attempts to analyse the likely impact of India 's comlmnitments n agriculture and Inte'lectual Property

Rights, especially commitnmentspertaining to miairket ccess, domestic support and export competition in the area ofagriculture.THE ong drawn alksonGeneralAgreementon Tariffs and Trade (hereafter GAIT),which draggedon for more than seven yearshave come to anend. The world trade reatyaimed at opening international'markets asfinally signed in April 1994. In fact eightroundsof negotiations to free internationaltradehave beenorganised ince the inceptionof GAIT in 1947. The first roundof GAITto setthe rulesof international radewasheldin Havana n 1947,which produceda charterfor the InternationalTrade Organisation(ITO).'Since then seven more rounds havetaken place,2 he eighth in this seiies whichis commonly known as 'Uruguay Round'was initiated n September1986atPuntadeleste, Uruguay.This roundhas been the mostdifficult and complex one as it covers newareas like agriculture,3services, banking.insurance,telecommunications, etc.The mainobjective of GAIT treaty is toreformworldtradewhich is highly distortedbecauseof direct andindirect subsidies thatflow to various sectors of the economy invarious countries of the world. In case ofagriculture,pecificattemptshavebeen madetomeasure hedegreeandextent of distortionin the worldtradeby some studies like thatof Johnson (1971 and 1991), Anderson andHayami (1986), Islam and Valdes (1990)and Tyers and Anderson (1992). Thesestudies reveal that direct and indirectsubsidies, which flow to the agriculturalsector, manifest themselves into distortedworld prices of agricultural commodities.These distortedworld prices, in turn, resultinto a situation of deceptive comparativeadvantage that leads to inefficient use ofworld resources, which ultimately leads toefficiency and welfare losses around theworld.Therefore, he underlyingphilosophyof GAIT treaty s tocorrect hese distortionsin worldtradeof agriculturalcommoditie'swith a view to promoteefficient allocationand use of world resources.Indiais one of the approversof this tradetreaty.Inthis context, it becomes importantto study the likely impact of GAIT onvarious ectorsof Indian conomy.Theprimefocus of thispaper,however, is to gauge thelikely impact of this agreement on Indianagriculture by analysing the variouscommitmentsunder GAIT in the area ofagriculture.

The GATT commitmentsin the area ofagriculture all under hreemaincategories,namely, market access, domestic supportandexportcompetition,4whicharediscussedseparately n the following Section.s to III.An attempt s also made o presenta scenariorelating otrade n agricultural ommoditiesin the post-Uruguay round of GATT inSectionIV. Thissection also tries to identifythe commodities in which India can gainfrom international rade.Section V containsconcluding remarks of the paper.I

Market AccessUnder market access commitments, allmembercountriesof GAIT are required o(i) replace all types of non-tariff barrierswith tariff barriers,' and (ii) reduce thelevels of tariffs under a time boundprogramme.These levels are to be reducedby24percent ncaseot'developing ountriesandby 36 percentincase of developed.Theperiod duringwhich thlese eductionsaretobe takenup variesfromiiix years in case of

developed countries to 10 years in case ofdeveloping countries. The least developedcountriesarenotrequired oundcrtake hesereductions. n additiono thesecommitments,thismeasure lso calls formaintaining urrentaccess opportunitiesand the establishmentof minimum access tariff quota. Thisminimum access tariff quota is to beestablislhed t reducedtariffrates for thosebasic products where the current marketaccess is less than 3 per cent of domesticconsumption. During the implementationperiod-thisminimumaccess tariffquotahasto rise graduallyto 5 per cent of domesticconsumption. However, if there is a surgeof importsdue to unfair radepracticeswhenthesestepsarebeing mplemented.hespecialprovisions of the agreement allow anycountry to impose additional duties. Theextent of theseadditionaldutieswill dependuponthe differencebetween heiimport riceand the trigger price'.6The implemnentationf these measureswill not have any adverse effect on Indianagriculture during the implementationperiod.7This is because importsof variousagricultural commodities in India aresubjected o mainly quantitative estrictions

forbalance of paymentreasons.Thespecialprovisions of agreementallow any countryto maintain mport estrictions upto theendof the implementationperiod.8 n anycase,even if India does not have BOPcover, thatdoes not mean that India will have tocompulsorily mport3percentof its domesticconsumption.9Whatall itmeans s thatIndiawill allow the importsof thesecommoditiesat low levels of tariff. Providing access tothe domestic market does not mean thatthere will be a flood of imports because,(i) if the pricesof agricultural roducts n thedomesticmarket rebelow their ntemationallevels, importswill not be able to competewith the domestically produced products.This is precisely what is true with most ofthe agricultural ommodities in India(witha notable exception of edible oils), and(ii) if the country from where the productis being imported s indulging in dumping,special provisions of the agreementallowus to impose additional tariff barriersasindicated earlier.This can be explained with the help ofimportdata or the triennium nding1988-89(base period), which reveals that exceptfor edible oils, where imports constituted28.66 per cent of domestic consumption,'"importsof other agriculturalcommoditieswere ess than3percentof theirtotal omesticconsumption. For instance, importsof rice,wheatandcotton-three major ommoditieswere 0.38 per cent, 1.47 per cent and 0.92percentof their total domesticconsumptionduring the base period (triennium ending1988-89). This clearly shows that there isno adverse impact of the commitment ofmarketaccess on Indian agriculture.Evenin case of edible oils, special provisionsallow India to maintainpresentrestrictionstill the end of the implementationperiod,which is 10 years for the reasonsexplainedabove and also for balance of paymentreasons."

IIAggregate Measure of SupportAggregate measure of support AMS) isthe annualaggregatevalue of marketpricesupport, non-exempt direct paymentsandany other subsidy not exempted from thereduction commitment expressed in

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FIGURE: RELATIVESHARES OF DIFFERENTCOMMODITIIESN TOTAL PRODUCTSIciFnc NEGATIVESUPIO()RrRice 32 per cent Rice 57 per cent

WheatOthers 7 per cent

thers 12 per cent Cotton,6 per centaize I per centGroundnut8 per cent Wheat 25 per cent Jowar 3 per centJowar5 per cent Maize 7 per cent

TE 1992-93TE 1988-89monetary erms.Thus,to estimate AMS forIndian agriculture, first one works out thelevel of support or each basic product likerice, wheat, cotton and so on) that t obtainsthrough (a) market price support; (b) non-exempt direct payments, and (c) othersubsidies not exempted from reductioncommitments. Support which falls underthe purview of non-product specific (likeEubsidieson various inputs) is totalled intoone non-product specific AMS expressedin monetary terms. Policies which havebeen excluded from reduction ommitmentsare government spending on research,disease control, infrastructure and foodsecurity. .These also include structural,adjustment assistance, direct paymentsunder environmental programmes andregional assistance programmes.'2

Inproduct pecific AMS, the marketpricesupport is to be calculated using the gapbetweena fixed externalreferenceprice (fobunit value in a netexporting country and cifunit value in a net importing country) andadministeredprice (domestic supportprice)multipliedby quantity ligible to receive theadministered rice.Theresnotenoughclarityin the FinalActwhether he quantityeligibleto receive administeredprice is the totalquantityof production, r only themarketedsurplus. The referenceprice shall be basedon theyears1986-87 o 1988-89.The externalreferenceprice eeds o be adjusted orqualitydifferencesas necessary n order to make itcomparablewith thedomestically producedproduct.Non-exempt direct payments are to becomputedby using the gap betweenexterpa1referencepriceand administeredpricf.crbyusing budgetaryoutlays. Input ubgidiesandotherpolicies like marketingcost reductionmeasures are to be determined by usingbudgetary outlays. However, if budgetaryoutlaysdo not reflect he fullextentofsubsidy,the subsidy has to be worked out by usingthegapbetwedn hesubsidisedpriceof inputinquestionandarepresentativemarketpricemultipliedbythequantityusedof that nput.

If the productspecific and non-productspecific AMS does not exceed 10 percentof the total value of agriculturarproductin case of a developing country (5 per centin case of adeveloped country), thecountryis not required o reduce he product pecificandnon-product pecific support.However,if the AMS exceeds 10 per cent of the totalvalue of agricultural production, it isrequired to be reduced by 13.3 percent incase of a developing country (20 per centin case of adeveloped country) of the valuethat does not qualify for exemption duringthe implementation period. The leastdeveloped countries have been exemptedfrom these reductions.

India has basically two types of supportoperations for farmers.First, marketpricesupport,which is in the form of minimumsupportpricesannouncedbythegovernmentfor different commodities, based on therecommendations of the Commission forAgricultural Costs and Prices (CACP).Second, the support in the form of inputsubsidieswhichare on-inputs ikefertilisers,irrigation'electricity, credit and seeds.The third ype of supportwhich falls underthe head of non-exemptdirect payments snot given to farmers in India.Tle estimates based on support pricesreveal that productspecific AMS for India(for 17productsout of 22 total products or

TABLE 1: PRODUCT PECIFIC NDNON-PRODUCTPECIFIC GGREGATE EASUREOF SUPPORT(TE 1988-89 ANDTE 1992-93)(Rs billion)

SupportType TE 1988-89 TE 1992-93ProductSpecific AMS(a) Based on support -242.25 -.427.89prices (-27.74) (-26.33)(b) Based on farin -151.03 -295.21harvestprices (-17.29) (-18.17)Non-productSpecific AMS 45.77 86.45(5.24) (5.32)(i) Fertilisersubsidy 10.21 24.98(ii) Irrigation ubsidy 17.93 17.15(iii) Electricity subsidy 15.81 41.54(iv) Creditsubsidy 1.00 1.96(v) Subsidy on seeds 0.82 0.82Total productspecific andnon-product pecific AMS(a) Based on supportprices -196.48 -341.44(-22.50) (-21.01)(b) Based on farin -105.26 -208. 76harvestprices (-12.05) (-22.85)

Notes: Figures in parenthesesarepercentagestothe total value of agriculturalproduction excludingforestryand fishery).The 17crops included n product pecific AMS arerice,wheat, owar, bajra,barley, gram, tur,urad.Inoong, groundnut,rapeseedand mustard.soyabean (yellow-and black), cotton, jute,tobacco and sugarcaie.In non-product specific AMS, the programmesincluded are fertiliser subsidy, electricitysubsidy, irrigation ubsidy, creditsubsidy and seed subsidy.According to the Ministry of Coinmerce product specific AMS during TE 1988-89 isRs (-)244.42 billion. Theproblemswith theirestimatehavebeen discussedinendnotes 10, 11,13, 14,and 15 at relevantplaces.

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which India maintains market supportprogrammes)works out to be negative tothe tune of (-)Rs 242 billion. This forms(-)27.74percent of totalvalue of agriculturalproduction (excluding forestry andfishery).'14' Non-product pecific AMSworksout to be Rs 46 billion, 5.24 percentof total value of agricultural production(Table 1).16 By adding these two one getstotalAMS which standsat(-)Rs 196billion,which forms (-)22.50 per cent of the valueof agricultural utputduring he baseperiod1986.87 to 1988-89. This indicates themassiveamountof 'taxation' hat s inflictedon Indianagriculture,which is contrarytothe general impression of huge subsidieswhich flow to this sector.This negative support(or net taxation)isdue to the fact thatprices of different. ropsare fixed by the government below theirinternational levels (barring rapeseed-mustard ndsugarcane).This is evidentfro,nthedatapresented n Table 2, which showsthatin termsof perunit output,the highestaveragenegative support s forbarley,whichwas found to be (-)200.30 per cent duringthe base period.17The next highest perunitsupport in negative)is found incase ofjute,whichamounted o (-)134.92 percent duringtrienniumending 1988-89. Other productgroups with more than 100 per cent ofnegative sqpport,per unit of outputduringthe same period are maize (-127.26 percent), sorghum (-119.78 per cent), tobacco(-1 15.57 per cent) and wheat (-I 11.98 percent) respectively. The only productgroupreceiving positive supportwas sigarcane inwhich case the subsidy was found to be14.82 per cent of output.'39Because of these negative support iguresper unit of output, the product specificaggregate measure of supportturns out tobe negative, i e, price difference multipliedby totalquantityof production.The highestnegative product specific AMS was foundforwheatwhichtotalledRs (-)85.74 billion.Wheatwas closely followed by rice inwhichcase the productspecific AMS turnedoutto be Rs (-)77.23 billion. These two cropswerefollowed by groundnut -20:49billion),maize (-16.53 billion) and jowar (-12.52billion)respectively n thatorder.Thelowestnegativeproduct pecificaggregatemeasureof supportamountingto Rs (-)16.5 billionwas obtained for soyabean. However, incase of sugarcaneas explained earlier, theproduct specific AMS turned out to beRs 2.41 billion during the base period.These numbersclearly indicate thatIndiais not required o reduce its support levelsas the product specific and non-productspecific AMS works out to be (-)22.5 percentof thetotalvalueof agricultural utput.20Infactovertheyears,theAMS has increasedinnegative nd toodatRs (-)341 44billionduringTE 1992-93.This massive ncreaseof 73.77percent n absolute alueof AMS

seems to be the effect of depreciationofrupee against majorcurrenciesof the worldduring he lastthree yearsas also in relativeprices of differentcommodities. Duringthistriennium, he highestproduct pecificAMSin negative was found in case of rice whichamounted o Rs (-)245.98 billion. Afterricefollowed wheat and cotton with productspecific AMS totallingRs (-)107.59 billionand Rs (-)27.66 billion respectively. Duringthis period anothercommodityin additionto sugarcane which has positive productspecific AMS is rapeseedandmustard,wherethe product specific AMS is found to beRs 6.09billion.2'Therelativesharesofmajorcrops in total product specific negativesupport during triennium ending 1988-89and trienniumending 1992-93 aredepictedin the Figure.Thecalculationsof product pecific AMSfor different commodities at farm harvestprices"arealso somewhat n line with thoseobtained on the basis of support prices(Table 3), but thedegree surelydiffers. Thefarm harvest prices have been used as analternative set of prices because supportprices have no meaning in the case of thosecommodities where no support operationsarecarriedon by the government. Besides,farmharvestpricesaresupposedto be closeto the prices which farmers get for theirproduce.*Thoughhe productspecific AMS for 17commodities was found to be Rs (-)151.03billion, the extent of taxation (both productspecific and non-productspecific was stillquite high, i e, (-)12.05 percent of the totalvalue of agricultural utputduring 1986-87to 1988-89 base period.23There were onlythree commodities, namely, gram, tur and

sugarcane which showed positive productspecific AMS. Similar rendswere observedin triennium nding 1992-93, when the totalproduct specific and non-product specificAMS turnedout to be Rs (-)208.77 billion,which was found to be (-)12.85 per cent ofthe total value of agriculturaloutputduringthis period.The productrangewith negativeAMS narrowed o 8 commodities andwithpositive support expanded to ninecommodities.2' But three major crops, i e,rice, wheat and cotton which accounted for55.52 per cent of total value of agriculturaloutput in 1980s [Bhalla and Tyagi 1989]hadnegativeAMS amounting o Rs (-)187.33billion, Rs (-)l 17.53 billion and Rs (-)26.25billion respectively. Crops with highestpositive product specific AMS weregroundnut ndrapeseedandmustardwhereinthe AMS was Rs 15.44 billion and Rs 13.09billion respectively.The above mentioned trends of domesticsupportnIndiaarecontrary o those foundindeveloped countriesof theworld. Almostall developed countries provide positivesupport o theircultivators ranging from ashigh as 72 per cent in case of Japan, 37percentincase of EuropeanCommunityand26 per cent in case of USA [Gulati andSharma 1992].25 This is in sharp contrastto India which imposes net tax on itscultivators.

I'Export Competition

In the area of export competition,GATTagreementcalls for reducing direct exportsubsidies to a level of 36 per cent below1986-88 level in case of developed countries

TABLE2:ExTENTOFSUPPORTERUNrr OFOUrPUTBASEDONSUPPORTRICESTE 1988-89 TE 1992-93Crop Administered Reference Product Administered Reference ProductPrice Price Specific Price Price Specific(Rs/MT) (Rs/MT) Support (Rs/MT) (Rs/MT) Support(Per Cent) (PerCent)

Rice 2280.00 3520.00 -54.39 3507.46 6834.70 -94.86Wheat 1670.00 3540.00 -111.98 2383.33 4380.30 -83.79Maize 1373.33 3121.00 -127.26 2116.67 2525.00 -19.29Sorghum. 1373.33 2945.00 -114.44 2083.33 3427.20 -64.51Barley 1340.00 4024.00 -200.30 1966.67 2008.05 -2.10Tur 3350.00 5243.00 -56.51 5550.00 8184.97 -47.48Gram 2766.67 4128.00 -49.20 4570.00 5563.87 -21.75Urad 3350.00 4385.00 -30.90 5550.00 6769.83 -21.98Moong 3350.00 4782.00 -42.75 5550.00 7821.17 -40.92Groundnut 3966.67 6900.00 -73.95 6583.33 7786.30 -18.27Soyabean 3033.33 3081.00 -1.57 4566.70 6322.50 -38.45RapeseedandMustard 4350.00 6884.00 -58.25 6766.70 5509.90 18.57Cotton 16562.00 17333.00 -4.66 24892.00 40734.73 -63.65Jute 2383.33 5599.00 -134.92 3650.00 6665.60 -82.62Tobacco 1233.00 2658.00 -115.57 1592.00 3679.00 -131.09Sugarcane 183.33 156.16 14.82 253.33 156.16 38.36Notes: Administeredpricesare minimumsupportprices.Referencepricesare c if values (except for tobacco in which case referencepricesare fobvalues). Have been derived from MonthlySatiistics of Foreign Trade, DGCIS, CalcuttaSource: GOI, Ministryof Agricultureand DGCIS, Calcutta.



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over a periodof six years. The quantity ofsubsidised exports by the developedcountries is to be reduced by 21 per centduring the same period. In case ofdevelopingcountriesdirectexportsubsidiesare to be reduced by 24 per cent and thequantity of subsidised exports is to bereduced by 14 per cent. These reductionsin case of developing countries are to becarriedout over a period of 10 years asagainst six years in case of developedcountries.The eastdevelopedcountrieshavebeen exempted from these reductioncommitments.Exportsubsidies includedinreduction ommitmentsare directsubsidiespaidbythegovernmentoranyotheragency,includingpayments in kind; payments thataremadefrom theproceedsof levy imposedon agriculturalproducts;subsidies given toreduce the costs of marketing includinginternalhandling,processing, internationaltransport and freight subsidy on exportshipments.In order to see the impact of thesecommitmentson agriculturalexports fromIndia, we have to look at the nature andextent of these subsidies. Indianexportersof agricultural ommodities do notget directexportsubsidy.Theonly subsidies availableto exportersof agricultural ommodities arein the form of: (i) exemption of profits fromexport sales from the income tax, and (ii)subsidies on costs of freight on exportshipments of certain products like fruits,vegetables and floriculturalproducts.Since these payments by developingcountries are exempt from the reductioncommitments during the implementationperiod,the commitments mentionedabovewill nothave adverse mpact on agriculturalexports from India. In order to encouragethe exports of agricultural products thesesubsidiescan becontinued or the timebeing.Once the export supplies become selfsustaining uring headjustment eriod, hesecan be withdrawn.It is well documented in literature thatmost of the developed countries operateexport ubsidyprogrammes oenhancetheirexports.Accordingto one estimate [GAiTSecretariat19931developed countryexportsubsidies amounted o $ 16.4 billion duringthe base period. These countries would berequired to gradually reduce their exportassistance programmes.This will open upnew markets or countries ike India,whichare efficient producers of agriculturalproducts.26Therefore,reductions n exportsubsidies and subsidised exports ofdeveloped countries will have greaterimplications ordevelopingcountryexports.Countries ike Indiawould benefitnot onlyfromimproved marketaccess opportunitiesin the developed anddeveloping countfies,but also from the reduction of subsidisedexports and trade distorting productionincentives in developed countries.

IVPost-GATT ScenarioHaving lookedat thecommitmentsunderGATE nthreemajorareasof marketaccess,domestic support and export competition,the questions that emerge are: (i) what islikelytobe the impactof these commitmentson world prices and trade of agriculturalcommodities, and(ii) whetherIndia will be

better off once these commitments arefulfilled by the developed countries.Although. projecting future is a trickyexercise asno one is yet sure of the wayhowdeveloped countriesaregoing tobringdowntheir AMS, as it is no more commodityspecific. Thus,whichcommoditieswill beartheburden fadjustmentemains peculative.It would be strongly influenced bycommodity specific lobbies in developedcountries. Nevertheless, one can venturespeculating the expected outcome of post-GATE scenario through the judgment ofexperts in the field. On theoreticalgroundsone wouldexpectthatreduced upportevelsand rationalisation of trade barriers willincrease production and export of variouscommodities in those countries which havecomparativeadvantage n theproductionofagricultural commodities. Similarly thereduction in import barriers will reduceconsumerprices n thosecountrieswherethetariff barriers are very high, which willgenerate strong demand and will push upimports.Someempiricalmodellingexercisesshow that internationalprices will rise and

so will the tradevolumes.27Buttheestimatesof change in prices and trade vary fromstudy to study. Even if the world pricesremainconstant, it is clear from the aboveanalysis that prices of various agriculturalTABLE : PRICES F VARIOUS GRICULTURAL

COMMODITIESN RELATIONO WHEAT(TE 1992-93)Crop India World

(Wheat= 100) (Wheat= 100)Wheat 100.00 100.00Rice 147.17 199.43Maize 88.81 74.68Sorghum 87.41 74.41Cotton $ 355.25 372.07Groundnut 248.55 189.64Soyabean 191.61 177.04Rapeseed andMustard 283.92 150.38Notes: $ = KapasIn case of groundnut, he ratios arefortheyear 1989. as the internationalprices forlater years are not available.Prices in India are supportprices.

World prices have been taken from FAOQuarterly.The details of these prices aregiven below. The worldpricesare forthefollowing varieties:Wheat= US HRW No 2 variety, fob USGulf; Rice = Thai rice 5 per cent brokenvariety, fob Ba-ngkok;Maize = US No 2(yellow) variety, ob US Gulf;Sorghuin=US No 2 (yellow) variety, fob US Gulf;Cotton =SM 1-1/16 US Memphisvariety,cif, Liverpool; Soyabean = Soyabean ofUS origin, cif, Rotterdam; Rapeseed =Canadian40 per cent, cif, NW Europe;Groundnut= Any origin, cif, Europe.TABLE: EXTENT FSUPPORTERUNITOFOUTPUTASED NFARM ARVESTRICES

TE 1988-89 TE.1992-93Crop FarmHarvest Reference Product Farm Harvest Reference ProductPrice Price Specific Price Price Specific(Rs/MT) (Rs/MT) Support (Rs/MT) (Rs/MT) Support(PerCent) (Per Cent)Rice 2828.14 3520.00 -24.46 4302.70 6834.70 -58.85Wheat 2024.80 3540.00 -74.83 2947.50 4380.30 -48.61Maize 1870.40 3121.00 -66.86 2818.10 2525.00 10.40Sorghum 1736.81 2945.00 -69.56 3103.30 3427.20 -10.44Barley 1812.80 4024.00 -121.98 2987.50 2008.05 32.78Thr 5550.47 5243.00 5.54 8625.50 8184.97 5.11Gram 4510.55 4128.00 8.48 6251.70 5563.87 11.00Urad 3350.00 4385.00 -30.90 5246.70 6769.83 -29.03Moong 3350.00 4782.00 -42.75 5550.00 7821.17 -40.92Groundnut 5615.10 6900.00 -22.88 9809.83 7786.30 20.63Soyabean 3033.33 3081.00 -1.57 7031.67 6322.50 10.09RapeseedandMustard 6194.18 6884.00 -11.14 8274.38 5509.90 -33.41Cotton 18711.18 17333.00 7.37 25979.90 40734.73 -56.79Jute 2773.80 5599.00 -101.85 4371.70 6665.60 -52.47Tobacco 1670.00 2658.00 -59.16 3314.00 3679.00 -11.01Sugarcane 183.33 156.16 14.82 183.33 156.16 14.82Notes: Farmharvestpricesof urad,moongandsugarcaneare notavailable, therefore, heir evels ofsupportare same as undersupportprices.Farmharvestprices are weighted average prices, weights being sharesin totalproductionofthose states for which harvestprices are available.Referenceprices are c;if values (except for tobacco in which case referenceprices arefobvalues) and have been derived from Monthly Statistics of Foreign Trade, DGCIS, Calcutta.Source: GOI, Ministryof Agricultureand DGCIS, Calcutta.

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commodities in India are well below theirinternational evels. India has comparativeadvantage in agriculture because of itsdiverseagro-climaticconditions (which areconducive for a variety of crops almostround heyear).There s no reason obelievethatexportsof thissectorwill notgrow withmoreopen worldtradepolicy environment:thereare argedifferences betweenpotentialandactualyields, theimport ntensityof thissector is low comparedto other sectors oftheeconomyand abourcostsarereasonablylow compared to other countries. Ourdnderstanding,f the situation is that Indiais likely to gain more from its own policyof liberalising agricultural rade than whatmay be expected from GATT provisions.The recent trends n exportsreinforcethesearguments. nfactagriculturehasturnedoutto be a starperformer n terms of exports.Agriculturalexports increased by 38 percent in dollar terms duringthe first half ofthe year. With the tremendousincrease inexports, the export basket of agriculturalproductshas also diversified in the recentyears. From tea and mate, which formednearly 40 per cent of agriculturalexportsfromIndia n 1960s, exportshave diversifiedtocashewkernelsandspices to fish and fishpreparations, oil cakes, rice, fruits andvegetables and processed foods.In thepast, agricultural xports from Indiadidnotoutshine because of: (i) over valuedexchange rate of rupee against majorcurrencies of the world; (ii) the externaltrade n mostof the agricultural ommoditieswas and in many cases still is subjected tovarious controls mainly non-tariffbarrierslikeexportquotas, analisation ndminimumexport prices (MEPs); and (iii) ad hocismin the export policy, which means exportmarketsare 'residual'markets, e, they areapproached only in case of country hassurplus.28These pervasive controls along withtreating xportmarketsas residuals oweredthe returnsavailable to the producers. Itresulted ndiverting heresourcesawayfromexport competitive crops. All these factorstakentogether have acted as deterrentsandresulted n the lost tradeadvantage hatIndiahas in theareaof agriculture.These irritantshave outlived their purpose and must bedone away with fairly quickly, if India hasto take advantage of new post-GATTscenario.2Y The new exim policy of thegovernmentof India does reflect some oftheconcerns;however,muchmore remainsto be done. First, ministry of commerceshould setupanexpert group to identify thecommodities n whichIndia s likely to gainin post-GAIT scenario. This is importantbecause the total cultivable area is almostlimited and changes in price ratios willchange croppingpatterns n favour of thosecrops which have relative comparativeadvantage.Second, dentify he ikelychange

that the export basket of agriculturalcommodities is likely to witness, andaccordingly prepare hecountryto improveits competitive edge by working on thefundamentalsof various links fromproduc-tion in the farms to exporting in the ships.In order to find out the precise natureofsuchshifts incroppingpatternsandchangesin exports, one may build a large model(linear programming rgeneralequilibriummodel) but a very rough and crude idea ofthis canbe had from the relative price ratiosprevailing n the domestic marketand n theinternationalmarket.Price ratios of variousagricultural ommodities n relation owheat(assumingwheatprice equalto 100)inIndiaandthe world aregiveninTable4. A perusalof data presented n table reveals that areaunderoilseeds is likely to contract,as theirrelative prices are much lower in theinternational market than those in thedomestic market.This is particularly rue orrapeseed-mustard and groundnut.3"Theextent of these variationsdiffers and variesfrom 31.06 per cent in case of groundnutto 88.80 per cent in case of rapeseed andmustard.Similar changes will occur in caseof coarse cereals also, but the impact islikely to be marginalcompared'tooilseeds.On the otherhand,areaunder fine cereals,rice, wheatandfibrecrop, cotton, is likelytoexpandandthey mayemergeasimportantexport items along with fish and fishpreparations.Thus, the share of oilcakes(particularlynon-soya) in agro exports maygradually come down with importliberalisationof edibleoils. Our researchonthe futureagro-exportbasket of the countryalso revealsthat t is likely to be dominatedby fish and fish preparations,rice, wheat,tea, tobacco, fruits andvegetables andtheirprocessed items. Our analysis of majorcereals, ruits,vegetablesand heirprocesseditems reveals thatIndiahashighto moderatecompetitive advantage in most of thesecommodities [NCAER1991]. This calls formakingadditional fforts n termsofdevisingappropriatepolicies for these futureexportitems in which thecountryhascompetitiveadvantage.Therefore, if the exports of agriculturalcommodities have to increase, the time isripe to abolish all export controls andregulationslike canalisation, export quotasand minimumexportprices.Next onagendashould be infrastructuraldevelopments intermsof bulkstorageandhandling acilitiesat rail 'headsand sea portsfor cereals, fasttrackfacilities, preferablydedicated cargoterminals for perishable commodities(fruits, vegetables and their processeditems) at major'air-sea ports. Last but nottheleast, long-term nvestments inresearchand extension in yield and quality, eco-friendlyproductionof fruitsandvegetablesand their packaging material are cruciallyimportant for taking advantage from the

post-GATT scenario, and sustain highergrowth in agro-exports.,'SUMMARYNDCONCLUSIONS

The impact of GATr commitments inagriculture which fall under three maincategories, i e, market access, domesticsupportand export competition is exploredin this paper.The analysis reveals that Indiastands to gain rather than lose from tradeliberalisationby the GATE members.Thedomestic support evels in Indiaarenegativein- most of the agricultural commoditiesstudiedhere, which is in sharp contrast tothe support levels prevailing in developedcountriesof the world. Almost all developedcountries provide positive supportto theircultivatorsand theirsupport evels arequitehigh (generally more than 10 per cent of thetotal value of agriculturaloutput).In India'the product specific and non-productspecific AMS (for 17 products out of 22total products for which India maintainsmarket support programmes)works out tobe negative, i e, (-)Rs 196 billion, whichforms (-)22.50 per cent of the value ofagriculturaloutput during the base period1986-87 to 1988-89. This indicates themassive amountof 'taxation' hat he Indiaagriculture,nreality, ssubjected o,contraryto the general impression of huge inputsubsidies which flow to this sector. In fa6tover the years, this negative support h/sincreased nabsoluteamount o Rs (-)341 45billionduringTE 1992-93, but npercentageterms,hasslightly omedownto(-)21 percent.A few studies that have been carriedoutin the recentpast indicate, that nternationalprices of agricultural ommodities will riseand so will their production and tradevolumes. Also the variability n worldpriceswill reduce. Though the increase may be amodestone,but t canbesaid withreasonabledegree of certainity that reduced supportlevels and rationalisationof trade barrierswillincreaseproduction ndexportof variouscommodities in countries like India,whichhavecomparative dvantagentheproductionof agricultural ommodities. Diverse agro-climatic conditions in Indiaand theexistingdifferentials in actual and potential yields,all augur well for exports of agriculturalcommodities. To cash on the tradeopportunitieswhich will emerge from thepostGATTscenario, ndiawill have ochangeitsexport strategyof treatingexportmarketsas residuals. In addition to this variousstringentmeasureswhich act as irritantsikeexport quotas, canalisation and minimumexport prices must be done away withcompletely. The -analysisalso reveals thatfuture export items will be fish and fishpreparations, ereals like riceand wheat, eaand tobacco, fruits, vegetables and theirprocessed items. This calls for makingadditional efforts in terms of devising



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appropriate olicies for these future exportitems in which the countryhas comparativeadvantage.Notes

I In he firstround, he23 countries hat oundedGATT exchanged tariff cuts for 45,000productsworth$ 10billion of tradeon annualbasis.2 Th secondroundwasheldatAnnecy (France)in 1949 in which another 10 countries oinedand customs duties were reduced for another5,000 items. Thirdroundwas held in Torquay(Britain)n 1950-51and nvolved 38 countries.Fourthandfifth roundswere held in GeneVa(Switzerland) in 1955-56 and 1960-62respectively. The si:cth oundwhich is knownas the "Kennedyround"was also initiatedinGeneva in 1964 and was completed in 1967.Inthis roundmort than 50 countries account-ing for75 percent of world tradeparticipated.Seventh round of GATT negotiations wasstartedin 1973 in Tokyo (Japan) but endedin Geneva in 1979. In this round99 countriesparticipated n tade negotiations.3 AgriculturedidappearonGATragendathricebefore his ound,but hefocus wasvervnarrow.

4 Anotherarea of concernin agriculturewhichhas created fears in the minds of people isthe mpactof trade elated ntellectualpropertyrightsof tarmers andplantbreeders. This wefeel is basically the areaof plantbreeders,andthey should be the right persons to commenton this issue. However, ourunderstanding fthis issue is that n suigeneris system of plantprotection, the proposed legislation offersfarmers to save, use, exchange and shareseeds.Theonly thingwhich suigeneris systemof intellectualpropertyrights prohibits s thelarge-scale multiplicationand selling of theseed purchiaeid rom companies.5 Thelevel of tariff which will result from thisprocess is not clearly defined in the DraftFinal Agreement.Logically, one would thinkthat the level of tariff would be equal to thedifference in the domestic and world pricesduring hebaseperiod, 1986-88. Butactually,it is not so. GATT secretariate has asked itsmembercountries to propose their respectivetariff rates on various commodity groups.India, e g, has proposed 100 per cent tariffon agricultural ommodities, 150 per cent onprocessedagro-commoditiesand 300 percenton edible oils, despite the fact that, on thewhole Indianagriculture's AMS is negative.6 The additional duties will be set accordingto the differencebetween cif importprice andthe trigger price. The trigger price shall beequal to 125 per cent, 110 per cent, 105 percent of the average cif import value of thepreceding hreeyears,when themarketaccessopportunitiesare less thanor equal to 10 percent,between 10percent and30 percent andabove 30 per cent respectively. [For detailsonhowadditionaldutieswould bedetermined,see World Trade Centre, 1994].7 Countries like Japan, South Korea andEuropeanCommunity,which have very hightariff barriersand use bordermeasures likevariable levies will be required to providegreater market access to other countries.8 The conditions under which the restrictionscan be maintained are (i) importsconstituteless than 3 per cent of the domesticconsumptionof the particularproductduring1986-88, (ii) no export subsidies have beenprovided ortheparticularproductsince 986,(iii) effective productionrestrictingmeasures

are applied to this particularproduct,and (iv)minimum access opportunitiesare provided.9 This apprehension has been expressed inThomas et al (1994).10 Domestic consumptionhas beenequatedwithnet availability. Net availability includesnetproduction gross productionminus quantitykept for seed, feed and wastage), importsandchanges in stocks.11 Government of India has put imports ofpalmolqin oil under OGL (Open GeneralLicence) at 65 per cent import duty (TheEcononmic imes,April 19, 1994). NDDB andSTC, however, have been allowed to importat 20 per cent import duty.12 Even inputsubsidies available to low incomeorresourcepoorproducers havingoperationalholdings below 10 hectare) in developingcountries are exempt from domestic supportcommitments WTC, 1993, page29 and GOI,Ministry of Commerce). If that is true thenaltnost80 per cent of the input subsidies willqualify for exemption, because in Indiaoperationalholdings of 10 hectaresor belowaccount for 79.5 per cent of agricultural and.13 It s worthnoting that n 1991, the governmentestimatedAMS for Indianagricultureon the

basis of marketed surplus of relevantcommodities, while in 1994 the reply givenby Indian government to GATT secretariateincluded productionas the rnvant quantity.14 This isabit different rom he 'Ate workedout by the Ministryof Commerce.Accordingto their calcplations the product specificaggregatemedsureofsupportisRs (-)244.42billion. Thisis because of themethodologicalandcomputstionalproblemswhichremain nthe estimates of the Ministry of Commerce.These have been explained in the latter partof the text or in endnotes.15 Ministry's estimate reveals that productspecific support orms (-) 17.40percent of thetotalvalueof agricultural roduction,whereasour estimates show that t is (-)27.74 percentof total value of agricultural production.Itseems they have included animal husbandryand forestry in total value of agriculturalproduction, while support on thesecomponents of agriculture has not beenincluded. We have corrected for this andtaken crop value only as representingagriculture.16 Input ubsidies for triennium nding 1992-93have been worked out as follows:

Economic LiberalizationandIndian Agricultureedited by G.S. Bhalla

Contributors:YoginderK. AlahG.S. BhallaS.I GoyalS.S. JohlDeepak NayyarNarinder S. RandhawaC.H.HanumanthaRaoAbhyltSenand

V.S. Vyas1994. pp xxiii + 398 Rs. 300.00 (including Postal(RoyalSize) Chargeswithin ndia)Orders may be placed with:

Director,Institutefor Studies in IndustrialDevelopmentSmtp NarendraNiketan, 1.P'.Estate, P'.O.Box 7151New Delhi - 110 0021862 Economic and Political Weekly July 16, 1994


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(i) Fertiliser subsidy has been taken as 50per cent of the amount shown ingovernment documents, the rest isdeemedto begoing either to the fertiliserindustry or to the feedstock agencies[Gulati, 1990].(ii) Irigation subsidy represents the lossesmade on working expenses of majorandmedium and minor imrgationschemes.It does not include the subsidy on capitalinvestmentmade n these schemes Gulati,1994 and Gulati and Shanna 1994J.(iii) Electricity subsidy has been taken fromGulati and Sharma (1994).(iv) Subsidy on farm credit represents onlythe interest rate,subsidy and does notinclude the,loans written-off.(v) Subsidyon seeds has been taken from thepublications of government of India.17 Accordingto the ministry, t is (-)190.96 percent. This is again because of the wronginformation used for the selected yeprs onprics andproduction.Intheirestimates theyhave used price information for 1987-88,1988-89 and 1989-90.. Actually the priceshould be for 1986-87, 1987-88 and 1988-89 and corresponding production figuresshould be for thecrop years 1985-86 becomeavailable forsale in 1986-87 andso on. Sameis true for wheat, gram and rapeseed andmustard,which are all rabi crops.18 According to the calculations done by theMinistryof Commerce,tobacco also receivedpositive support. But, there appearsto be aslipin theirestimates.Itseems theyhaveusedimport party price while comparing supportpricewith external referenceprice..However,Indiabeing net'exporterof tobacco, it is theexportparitypricewhich shouldbecomparedwith the support price 'and not the importparty price.19 Anotherdisageement between our numbersand the numbers worked out by the ministryappearsto be in the case of cotton. In thiscase, ministry's estimates seem to havecomparedkapas (seed cotton) prices and theprices of lint. Actually, it is the price of lintwhich should be comparedwith importparityprice of lint. The like should be comparedwith like only.20 India is not required to reduce its supportlevels under he GATTagreement. However,input subsidies my become unsustainableover time due to budget constraints. Therising burden of subsidies is affecting.invesntent inagriculture.Reduced nvestmentin the agricultural ector has been an area ofconcernduringthe 80s. It is believed thatthisis largely due to the higher budgetaryallocations for meeting the expenditure onsubsidies.21 Ourfeeling s thatone morecommoditywhichreceived positive support during this periodcould be groundnut. Since, the prices ofgroun,dnutn the internationalmarket or thisperiodare notavailable, we have been forcedto use 1989 prices due to paucity ofinformation. Due to this reason the AMSturnsout to be negative.22 Farn harvest prices are the weighted farmharvestprices. The weights being shares intotal productionof a crop in those states forwhich farm harvest prices are available.23 The year 1987-88 was a drought year, there-fore, farmharvestpricesof variouscropshadabnormally gone up. Probably due to thisraon theres sucha largedifferencen theseesti-mates t support ricesand armharvestprices.

24 1991-92 was again a bad year for coarsecereals. The productionof coarse cereals wasquite low and because of this reason theirprices were very high compared to normalyears.25 TheseestimatesarebasedonProducerSubsidyEquivalents as estimated by USDA for theperiod 1981-82 to 1987-88: We do not haveaccess to theirAMS for the period 1986-87to 1988-89, but it is expected the levels ofAMS are also quite high.26 Preliminaryestimates by USDA reveal thatreductions in export subsidies by developedcountries will open up world wheat marketfor developing countriesby 15 to 20 milliontonnes.27 Some studies based on partial and generalequilibriummodelling exercises indicatethatinternational prices of agriculturalcommodities will rise andso will theirtradevolumes. Also the variability n world pricesw;ill educe.A sampleof these models include(i) TyersandAndersonModel, (ii) SWOPSIM(Static WorldPolicy SimulationModel), USDepartment of Agriculture, (iii) IIASA(InternationalInstitute of Applied SystemsAnalysis) Modeland iv) OECD(Organisationof Economic Co-operationandDevelopment)Model. In a more recent work Brandao andMartin (1993) estimated that internationalprices increase, but by not very much, frombaseline levels (1985-87), e g, wheat +1 percent to + b6 per cent; rice -5 per cent to +2per cent; coarse grains +2 pertent to +4 percent; sugar +6 per cent to + 12 per cent,oilseeds and pulses +I to +5 per cent andcotton + I to +4 percent. These models varyin theircommodity coverage andincorporatedifferent sets of policies and becauseof thesereasonstheresultsof these modelsalso differ,depending upon the assumptions andinformation they use. But, the results are inline with theoretical expectations of tradeliberalisation measures.28 Cotton is a good example of this type ofexport policy [see GulatiandSharma,1994].29 Some apprehensions have been expressedabout the likely impact of such measuresonfood securityof thecountry[NayyarandSen1994]. These apprehensionsdo not appear obe valid in the presentday context, becausecountry has attained self sufficiency infoodgrains production. An inter-ministerialworking group set up by the Ministry ofAgriculturehas found that the current evelof foodgrains production exceeds thenormativerequirementsof the populationbyabout 10 per cent [GOI 1994]. The group isof the opinion that 180 million tonnes offoodgrainsareadequate o feed theestimatedpopulation of one billion in 2000 AD. Thereport urtheraddshatundemutritionssimplya matterof poors' inadequateaccess to food.30 Among oilseeds soyabean perhapscan stillsurvive the impact of changed scenario,because it is more a proteinor anoilcake cropthananoil crop.Since the demand oroilcakesis expected to increase, both on theinternationalas weUas the domestic market,it is quite likely thatarea devoted to this cropwill not decrease.31 For cormmodity pecific strategiesthat Indiashould undertake,see NCAER, 1994.

ReferencesAnderson, K and Y Hayami 1986): The PoliticalEconomy osfAg,riculturalProtection: EastA.sia n Internaitionailer.spective,Allenand

Unwin in association with Australia-JapanResearch Centre, Australian NationalUniversity, Sydney.Bhalla, G S and D S Tyagi (1989): 'Pattensin Indiain Agricultural Development-A District Level Study', Institute forStudies in Industrial Development, NewDelhi.Brandao, Antonio Salzar P and Will Martin(1993): Implications of AgriculturalTrade Liberalisation for the DevelopingCountries, World Bank Working Paper,WPS 1116.GATT Secretariat (1993): 'An Analysis ofthe Proposed Uruguay Round Agreement,with Particular Emphasis on Aspects ofInterest to Developing Countries', Geneva,November 29.Government of India, Ministry of Agriculture(1994): Report of the Working Group onFoodgrains Requirementsby the Year2000AD, Department of Agriculture and Co-operation, April.Government of India, Ministry of Commerc;Revised List of Conmmitmentsn Agriculture,New Delhi.Government of India, Ministry of Finance:Economic Survey, various issues.Goldin, I and 0 Knudsen (eds) (1990): Agri-cultural Trade Liberalisation-Implicationsfor Developing Countries,OECD andWorldBank.Gulati,Ashok (1990): 'FertiliserSubsidy: Is theCultivatorNet Subsidised', IndianJournal ofAgricultural Economics, XLV (1), January-March.Gulati, Ashok and A N Sharma (1992):'Subsidising Agriculture: A Cross-CountryView', Economic and Political Weekly,Review of Agriculture, XXXVII (39),September 26.Gulati, Ashok and Anil Shanna (1994): 'Timeto Let the Bales Bail Out the Business', 77TeEconomic Times, March 7.-(1994): Irrigation Cost and Cost Recovery-

Case of MinorIrrigation in India, NCAIER-IFPRICollaborative Study, mimeo.Islam, N and A Valdes (eds) (1990): TheGA7T,Agriculture and Developing Countries,InternationalFood Policy ResearchInstitute,Wathington, D C.Johnson, D G (1971): World Agriculture inDisarray, St MartinsPress, New York.-(1991): WorldAgricultureinDisarray,secondedition, St MartinsPress, New York.Nayyar, Deepak and Abhijit ,Sen (1994):'Intemational Trade and the AgriculturalSector in India', Economic and PoliticalWeekly, pp 1187-1203, May 14.Pursell, Garry and Ashok Gulati (1993):LiberalisingIndianAgriculture-An Agendkifor Reform, World Bank Working Paper,WPS 1172.Thomas, P, Sukhpal Singh, Ajit Kanitkar,SaraAhmed and Michael E Johnson (1994):'Dunkel Text: Implications orRuralSector',Economic and Political Weekly, pp A42-52,March 26.Tyers, R and K Anderson (1992): Disarray inWorld Food Markets: A QuantitativeAssessment, Cambridge University Press,Cambridge,New York.United States Departmentof Agriculture 1986):World Commodity Markets-GovernmentInterventionandMultilateralPolicy Reform,USDA.World TradeCentre,Bombay 1994):GA77TAgreements-FinalText f Uruguay ondAcademy f BusinessStudies,NewDelhi.


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GATT and Agriculture 1