International Marketing - 1244

8/7/2019 International Marketing - 1244

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ASSIGNMENT OF INTERNATIONAL MARKETING

On

Analysis of Indian Agriculture

Industry: WTO, GATT, EXIM & MIGA

Submitted to: Prepared by:

Prof. Thomas Frince Brijesh Vadalia (1244)

Centre for Management Studies

DHARMSINH DESAI UNIVERSITY

NADIAD


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Pg.No.1. WTO Agreement on Agriculture and its Implications... 3

1.1 Introduction ... 3

1.2 Agreement on Agriculture. 6

1.2.1 Salient Features... 6

1.2.2 Product Coverage... 9

1.2.3 Implementation Period... 9

1.2.4 Implications of the Agreement... 10

2. General Agreement on Tariffs and Trade 13

2.1 Features of the General Agreement on Trade and Tariffs. 13

2.2 Benefits for India .. 18

3. EXIM Policy 19

3.1 EXIM Policy 2004-09... 20

3.2 Scheme for Enhancing the Competitiveness of Indian Agriculture. 21

4. MIGA... 22

4.1 The Agribusiness Investment Challenge... 22

4.2 What MIGA Do. 22

4.3 How MIGA Help... 22

4.4 Types of Coverage. 23

Table of Contents


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1. WTO Agreement on Agriculture and its Implications

1.1 Introduction

India and the WTO

India has 6 percent of the worlds human population, 15 percent of the worlds livestock, 2

percent of the worlds geographical area, 1 percent of rainwater, 1 percent of forest, and 0.5

percent of pastureland. Consequently, the stress on the population-supporting capacity of natural

ecosystems is immense. The country has over 7500 km of coastline and about 2.1 million sq km

of exclusive economic zone in the oceans. Around 60 percent of the geographical area suffers

from soil erosion, water logging, and salinity.

Two-thirds of the total

450million heads of

livestock struggle for survival in crowded rain fed regions.

Nearly 70 percent of the population in India depends on agriculture. It was hoped that the

start of the WTO negotiations would pave the way for an arrangement reflecting the aspirations

of farming communities in India and other developing countries. The failure of the Seattle

Ministerial Conference in 1999 blunted that hope. Indian agriculture was perceived as badly hit

when, in compliance with its obligations under WTO on April 1, 2000, the Government of India

eliminated all import restrictions from more than 700 items, a large portion of which were

agricultural commodities. The remaining 700 or so items were freed from import restrictions in

2001. The result of this liberalization2 is that many agricultural commodities and processedfoods have entered the Indian market from different countries and are seen on supermarket

shelves. The political economy of agriculture as a result is at a crossroads where liberalization,

globalization and world trade3 have caused some concern in the Indian farming community.

Within the agriculture text proper there are border measures and domestic policy disciplines.

On border measures, QRs must be converted to tariffs, and tariffs brought down to 36 percent

(over six years) by developed countries and by 24 percent (over ten years) by developing

countries. Export subsidies must be reduced by stipulated percentages on both volume (21

percent for developed and 16 percent for developing countries) and budgetary terms (36 percent

for developed and 24 percent for developing countries). In addition, there is a minimum market

access commitment of5 percent, increasing to 5 percent over a period of six years.

Eight years after the Uruguay Round agreements entered into force, there is reason for the

wide spread dissatisfaction with the implementation of the agricultural sector liberalization.

There are times when agreements have not been implemented, or agreements have been


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circumvented and their spirits violated. The reasons are not far to seek. First, the Uruguay Round

was the first attempt to impose multilateral disciplines on agriculture. Second, the liberalization

proposed was an imperfect one, unlike the Dunkel Draft that which would have liberalized

agriculture much more.

It is now fairly certain that the rise in international prices due to agricultural trade reforms,

as predicted by many studies, may not pass on fully to the farmers and to developing countries.

In fact, one does not see a consistent increase in the spot export prices of agricultural

commodities. Despite the implementation of the reforms, there have been wide fluctuations in

the spot export prices of agricultural products. This should not, however, come as a surprise as

the international markets are very thin. Exogenous supply shocks arising out of over-production

or shortages in countries like India can cause sharp fluctuations in export prices, as the markets

are inherently thin. India may want to emphasize these points and bargain for concessions

somewhere else. If agricultural prices are not expected to rise, higher reduction commitments by

the developed countries in various forms of price and non-price support could be suggested

.

Indias priorities in the World Trade Organization (WTO) negotiations on agriculture cannot

but include the protection of domestic agricultural production and the welfare of farmers, what

with the political interests that prevail in an economy facing uncertain electoral issues. The

government has no choice but to bring in measures that seek to ensure food security, livelihood,

and rural development. Obtaining market access for products of export interest to India is also

high on the agenda.

Indias proposal, submitted to the World Trade Organization in November2002, states that

the country is in favour of methodologies for minimal tariff reduction and for provisions ofspecial safeguards against import surges. Currently, developed countries have these provisions

while developing and less developed countries do not. On domestic support, Indias proposal

calls for steep reduction in all forms of trade distorting domestic support by developed countries

and flexibility to developing countries to improve their agriculture, food, and livelihood security.

It also calls for immunity from challenges of Article 6.2 measures. Steep reductions in export

subsidies of developed countries and a call for disciplining export credit, guarantees, and

insurance provided by developed countries such as the United States are demanded . India is also

in favour of developing countries retaining marketing and transport subsidies on exports.

Developed countries through dirty tariffication, as agreed under the Uruguay Round, have clearly

and not so cleverly undermined agricultural trade liberalization.

After promising market access to agricultural goods in return for agreeing to widen the

scope of multilateral trade negotiations to cover trade-related intellectual property, trade-related

investment measures and trade-in-services during the Uruguay round, developed countries have

not reduced agricultural subsidies or lowered tariff and non-tariff barriers. They are now seeking


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further market access in new areas such as investment in return for market access in agriculture.

Developed countries should demonstrate their commitment to the multilateral trading system by

delivering what was already promised rather than continue asking for further concessions from

the poorer countries.

The Current Situation

Many blame import liberalization in general and the World Trade Organization in particular

for overflowing godowns and falling agricultural product prices in the country in recent times.

The impending removal of the last of the quantitative restrictions (QRs) on all agricultural

products has added to the fears for the future of Indian agriculture. While contractual obligations

and import liberalization forced on the Government have indeed considerably increased the

exposure to the world market, there has been a tendency to shift the blame for domestic problems

on to external factors.

The immediate challenge is what will follow the removal of QRs. There is no reason to

believe that there will be a flood of imports, only that protection can no longer be provided by a

ban on imports but by customs duties. With the plugging of loopholes that existed in the form of

zero tariffs on cereals and dairy products, agriculture will for now continue to enjoy a measure of

protection. Where the Government could fail - as it did in the case of edible oil imports is by

moving slowly on increasing tariffs whenever global or domestic prices fall. However, the fairly

high levels of tariff protection that India can now invoke could be under threat when the next

phase of multilateral negotiations on agriculture begins at the WTO.

This is the second issue, on which the Government has approved a set of proposals that willconstitute Indias initial negotiating stance. These talks will be completed only years down the

line. In its first set of proposals, the Government appears to have chosen to place greater

importance on protecting agriculture than on liberalizing farm exports. This is apparent from the

demand for constituting a Food Security Box that will facilitate higher levels of protection and

codify provisions that already exist in the WTO agreements.

The third issue is the functioning of the 1994 WTO deal on agriculture, which far from

boosting trade, has been used by the rich countries to increase farm subsidies. Experts in the

country have demanded a review of this agreement, but such a review underlies the preparatory

work now going on at the WTO for future talks. Besides, India has officially already madeproposals to address the implementation problems in the farm pact. Going further may force

India to offer more concessions on imports.

A fourth issue is intellectual property protection. Compelled as India was in 1994 to agree to

provide sui generis protection to plant varieties it had the choice of drafting its own legislation.

This could have contained innovative provisions to protect traditional rights. Yet, six years of


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procrastination and inter-Ministry squabbling have meant that no legislation has been enacted,

opening the door to disputes at the WTO from other countries.

Where imports have caused problems they have followed either leaden-footed decision-

making or the Government placing the interests of the consumers above that of the farmers . Both

were evident in the setting of tariffs for edible oils (mainly palmolein), which were raised only

recently. The larger problems that Indian farmers face are the result of high costs, low

productivity, falling public investment, poor market development and ultimately limited

purchasing power among one billion people. All these are domestic policies.

1.2 Agreement on Agriculture

The Agreement on Agriculture forms a part of the Final Act of the Uruguay Round of

Multilateral Trade Negotiations, which was signed by the member countries in April 1994 at

Marrakesh, Morocco and came into force on 1st January, 1995. The Uruguay Round marked asignificant turning point in world trade in agriculture. For the first time, agriculture featured in a

major way in the GATT round of multilateral trade negotiations. Although the original GATT

the predecessor of the World Trade Organisation (WTO) applied to trade in agriculture,

various exceptions to the disciplines on the use of non-tariff measures and subsidy meant that it

did not do so effectively. The Uruguay Round agreement sought to bring order and fair

competition to this highly distorted sector of world trade by establishment of a fair and market

oriented agricultural trading sector. The root cause of distortion of international trade in

agriculture has been the massive domestic subsidies given by the industrialised countries to their

agricultural sector over many years. This in turn led to excessive production and its dumping in

international markets as well as import restrictions to keep out foreign agricultural products from

their domestic markets. Hence, the starting point for the establishment of a fair agricultural trade

regime has to be the reduction of domestic production subsidies given by industrialised

countries, reduction in the volume of subsidised exports and minimum market access

opportunities for agricultural producers world-wide. The obligations and disciplines incorporated

in the Agreement on Agriculture, therefore, relate to (a) market access;(b) domestic subsidy or

domestic support; and (c) export subsidy.

1.2.1 Salient FeaturesThe Agreement on Agriculture contains provisions in the following three broad areas of

agriculture and trade policy:

(a) Market Access: On market access, the Agreement has two basic elements:

(i) Tariffication of all non-tariff barriers. That is to say, non-tariff barriers such as

quantitative restrictions and export and import licensing etc. are to be replaced by tariffs to

provide the same level of protection. Tariffs, resulting from this tariffication process together

with other tariffs on agricultural products, are to be reduced by a simple average of 36% over 6


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years in the case of developed countries and 24% over 10 years in the case of developing

countries. With India being under balance of payments cover (which is a GATT-consistent

measure), we had not undertaken any commitments with regard to market access and this has

been clearly stated in our schedule filed under GATT. The only commitment India has

undertaken is to bind its tariffs on primary agricultural products at 100%; processed foods at

150%; and edible oils at 300%.

(ii)The second element relates to setting up of a minimum level for imports of agricultural

products by ember countries as a share of domestic consumption. Countries are required to

maintain current levels (1986-88) of access for each individual product. Where the current level

of import is negligible, the minimum access should not be less than 3% of the domestic

consumption, during the base period and tariff quotas are to be established when imports

constitute less than 3% of domestic consumption. This minimum level is to rise to 5% by the

year2000 in the case of developed countries and by 2004 in the case of developing countries.

However, special Safeguards Provisions allow for the application of additional duties whenshipments are made at prices below certain reference levels or when there is a sudden import

surge. The market access provision, however, does not apply when the commodity in question is

a traditional staple of a developing country.

(b)Domestic support: Provisions of the Agreement regarding domestic support have two main

objectives first to identify acceptable measures that support farmers and second, to deny

unacceptable, trade distorting support to the farmers. These provisions are aimed largely at the

developed countries where the levels of domestic agricultural support have risen to extremely

high levels in recent decades.

All domestic support is quantified through the mechanism of total Aggregate Measurementof Support (AMS). AMS is a means of quantifying the aggregate value of domestic support or

subsidy given to each category of agricultural product. Each WTO member country has made

calculations to determine its AMS wherever applicable. Commitment made requires a 20%

reduction in total AMS for developed countries over 6 years. For developing countries, this

percentage is 13% and no reduction is required for the least developed countries. The base period

external reference price on which the reductions were calculated was 1986-88.

AMS consists of two partsproduct-specific subsidies and non-product specific subsidies.

Product-specific subsidy refers to the total level of support provided for each individual

agricultural commodity, essentially signified by procurement price in India. Non-product specific

subsidy, on the other hand, refers to the total level of support for the agricultural sector as a

whole,

i.e., subsidies on inputs such as fertilisers, electricity, irrigation, seeds, credit etc.

There are three categories of support measures that are not subject to reduction under the

Agreement, and support within specified deminimis level is allowed. These three categories of

exempt support measures are:


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1. Measures which have a minimum impact on trade and which meet the basic andpolicy specific criteria set out in the Agreement (the so-called Green Box measures

in the terminology of WTO). These measures include Government assistance on

general services like (i) research, pest and disease control, training, extension, and

advisory services; (ii) public stock holding for food security purposes; (iii) domestic

food aid; and (iv) direct payment to producers like governmental financial

participation in income insurance and safety nets, relief from natural disasters, and

payments under environmental assistance programmes.

2. Developing country measures otherwise subject to reduction which meet the criteriaset out in paragraph 2 of Article 6 of the Agreement (the so-called Special and

Differential Treatment or the S&D Box). Examples of these are (i) investment

subsidies which are generally available to agriculture in developing countries; and

(ii) agricultural input services generally available to low income and resource poor

producers in developing countries.

3. Direct payments under production limiting programme which conform to therequirement set out in paragraph 5 of Article 6 of the Agreement (the so-called Blue

Box measures). These are relevant from the developed countries point of view only.

Under the de-minimis provision of Article 6.4 of the Agreement, there is no requirement to

reduce support in this residual category whose value in any year, in the case of product specific

support does not exceed 10% for developing countries of the total value of production of the

basic agricultural product in question or of the value of total agricultural production in the case

of non-product specific support

.Where the support is below

10per cent, as in the case of India,

product-specific and non-specific de-minimis ceiling may be raised to those levels.

(c) Export subsidies: The Agreement on Agriculture lists several types of subsidies to which

reduction commitments apply. However, such subsidies are virtually non-existent in India as

exporters of agricultural commodities do not get direct subsidy. Even exemption of export profits

from income tax under Section 80-HHC of the Income Tax Act is not among the listed subsidies .

It is also worth noting that developing countries are free to provide three of the listed subsidies,

namely, reduction of export marketing costs, internal and international transport and freight

charges. In general, it may be noted that the virtual explosion of export subsidies in the

industrialised countries in the years leading to the Uruguay Round was one of the key issuesaddressed in the agricultural negotiations. While under GATT 1947, prohibition of export

subsidies for industrial products has been effective since 1956, in the case of agricultural primary

products, such subsidies were only subject to limited disciplines which, moreover, did not prove

to be operational or effective. As a result, in the 1970s and 1980s, success in international

markets for agricultural products was increasingly determined by the financial power and

largesse of national treasuries rather than the efficiency and marketing skills of agricultural


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producers and exporters. Export subsidies also became a major factor in depressing or

destabilising world market prices for many agricultural commodities. The Uruguay Round

marked a radical departure from the earlier GATT disciplines in the areas of agricultural export

subsidies. Members are required to reduce the value of direct export subsidies to a level of 36%

below the 1986-90 base period level over a six year implementation period. The quantity of

subsidised export is to be reduced by 21% over the same period. In the case of developing

countries, the reductions are two-thirds those of the developed countries over a ten-year period

and there are no reductions for least developed countries. Under the Agreement, export subsidies

are defined as subsidies contingent on export performance and the list covers export subsidy

practices such as direct export subsidies contingent on export performance; sales of

noncommercial stocks of agricultural products for export at prices lower than comparable prices

for such goods in the domestic markets; producer-financed subsidies such as government

programmes which require a levy on production which is then used to subsidise the export of the

product; cost-reduction measurse such as subsidies to reduce marketing costs for exports

including handling costs and costs of international freight; internal transport subsidies applyingonly to exports; subsidies on incorporated products i.e., subsidies on agricultural products such

as wheat contingent on their incorporation in export products made of wheat etc. All such export

subsidies are subject to reduction commitments in terms of both the volume of subsidised export

and budgetary outlays for such subsidies. As indicated earlier, such measures are virtually non-

existent in India and, hence, the issue of reduction of export subsidy on agricultural products is

not of particular relevance for India.

1.2.2 Product coverage

The Agreement defines agricultural products by reference to the harmonised system of

product classification. The definition covers not only basic agricultural products such as wheat,

milk and live animals, but the products derived from them such as bread, butter, other dairy

products and meat, as well as all processed agricultural products such as chocolates and

sausages. The coverage includes wines, spirits and tobacco products, fibres such as cotton, wool

and silk, and raw animal skins destined for leather production. Fish and fish products are not

included nor are forestry products.

1.2.3 Implementation period

The implementation period for the country-specific commitments is the six-year period

commencing in 1995. However, developing countries have the flexibility to implement their

reduction and other specific commitments over a period of upto 10 years. Members had the

choice of implementing their concessions and commitments on the basis of calendar, marketing

(crop) or fiscal years. A WTO Members implementation year for tariff reduction may thus differ


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from the one applied to export subsidy reductions. For the purpose of the peace clause the

implementation period is the nine-year period commencing in 1995.

1.2.4 Implications of the Agreement

Implications of the Agreement would differ from country to country and would depend

largely on the overall agricultural scenario in the country. Indian agriculture is characterised by a

preponderant majority of small and marginal farmers holding less than two hectares of land, less

than 35.7% of the land, is under any assured irrigation system and for the large majority of

farmers, the gains from the application of the science & technology in agriculture are yet to be

realised. Farmers, therefore, require support in terms of development of infrastructure as well as

extension of improved technologies and provisions of requisite inputs at reasonable cost. Indias

share of worlds agricultural trade is of the order of1%. There is no doubt that during the last 30

years, Indian agriculture has grown at a reasonable pace, but with stagnant and declining net

cropped area it is indeed going to be a formidable task to maintain the growth in agriculturalproduction. The implications of the Agreement would thus have to be examined in the light of

the food demand and supply situation. The size of the country, the level of overall development,

balance of payments position, realistic future outlook for agricultural development, structure of

land holdings etc. are the other relevant factors that would have a bearing on Indias trade policy

in agriculture.

Implications of the Agreement on Agriculture for India should thus be gauged from the

impact it will have on the following:

i) Whether the Agreement has opened up markets and facilitated exports of our products; and

ii) Whether we would be able to continue with our domestic policy aimed at improving

infrastructure and provision of inputs at subsidised prices for achieving increased agricultural

production.

Implications - Short Term

As far as opening of markets and impact on trade in agriculture is concerned, it may be

noted that the share of developing countries in world exports of food remained at 44% and of

agricultural raw materials increased insignificantly from 32% in 1994 to 34% in 1996, that is the

post-Agreement period. The average growth of developed countries imports of agricultural

products increased by just 1% during 1994-96. Nearer home, agricultural exports of ten Asian

developing countries increased from US $ 49252 million in 1994 to US $ 55902 million in 1996.

Indias share in total agricultural exports from developing Asia is 8%, behind Chinas 19%,

Thailands 17%, Malaysias 14% and Indonesias 10%. Indias exports of agricultural products

have increased from US $ 4151 million in 1993-94 to US $ 7054 million in 1997-98. No tangible

opening up of the markets has thus been noticed in the post-Agreement period so far. However, it


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may be premature on this basis to assess the long-term impact of the Agreement on opening up

of markets.

Regarding freedom to pursue our domestic policies, it is quite evident that in the short

term India will not be affected by the WTO Agreement on Agriculture. The safeguards provided

for developing countries give enough manoeuvre to insulate ourselves from any major impact of

trade liberalisation in agricultural commodities. India has been maintaining quantitative

restrictions (QRs) on import of825 agricultural products as on 1.4.97. QRs are proposed to be

eliminated within the overall time frame of six years in three phases 1.4.97 to 31.3.2003. (All

our trading partners barring the US have agreed to this phase-out plan and dispute with the US is

pending with Dispute Settlement Body of WTO for adjudication). Within the provisions of the

GATT Agreement India has bound tariffs at high levels of100%, 150% and 300% for primary

products, processed products and edible oils respectively. Therefore, the QRs can be replaced

with high import tariff in case we want to restrict imports of these commodities.

In India, for the present, the minimum support price provided to commodities is less than

the fixed external reference price determined under the Agreement . Therefore, the AMS is

negative. Theoretically, therefore, we could increase the product-specific support upto 10%, the

only restraint being the fiscal sustainability in the countrys context.Implications - Long Term

As mentioned earlier, for a large majority of farmers in different parts of the country, the

gains from the application of science and technology in agriculture are yet to be realised which

would require infrastructural support, improved technologies and provision of inputs atreasonable cost. The Agreement on Agriculture thus recognised this and developing countries

have been given the freedom to implement such policies under Article 6 relating to differential

treatment, but any attempt in future to dilute provisions relating to differential treatment for

developing countries could affect us adversely.

Regarding the impact of liberalisation of trade in agriculture in the long term, Indian

agriculture enjoys the advantage of cheap labour. Therefore, despite the lower productivity, a

comparison with world prices of agricultural commodities would reveal that domestic prices in

India are considerably less with the exceptions of a few commodities (notably oilseeds). Hence,

imports to India would not be attractive in the case of rice, tea, sunflower oil and cotton . On the

whole, large scale import of agricultural commodities as a result of trade liberalisation is ruled

out. Even the exports of those foodgrains which are cheaper in the domestic market, but are

sensitive from the point of view of consumption by the economically weaker sections are not

likely to rise to unacceptable levels because of high inland transportation cost and inadequate

export infrastructure in India. Through proper tariffication, however, we will have to strike a


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balance between the competing interest of10% farmers who generate marketable surpluses and

consumers belonging to the economically poor sections of the society.

It is also argued that because of increasing price of domestic agricultural commodities

following improved export prospects, farmers would get benefits which in turn would encourage

investment in the resource scarce agricultural sector. With the decrease in production subsidies

as well as export subsidies, the international prices of agricultural commodities will rise and this

will help in making our exports more competitive in world market . Given our agro diversity, we

have the potential to increase our agro exports in a substantial way. In the words of Shri A.V.

Ganesan, There will be growing pressure from the farmers to realise higher prices for their

produce and to narrow the gap between the domestic and external prices. Our industrialists are

pressing for a level playing field visa- vis foreign enterprises; our farmers will press for a level

playing field for the prices of their products vis--vis international prices. Both the pattern of

production and price expectations will increasingly be influenced by the demands and trends in

world markets.

On the one hand, the price incentive could be the best incentive and could give astrong boost to investment in agriculture as well as adoption of modern technologies and thereby

to the raising of agricultural production and productivity. On the other hand, the rise in domestic

prices would put pressure on the public distribution system and accentuate the problem of food

subsidy. Furthermore, freedom to export agricultural products without restrictions will also need

shedding the long-nurtured inhibition against their imports. The nature and character of State

intervention and State support will have to undergo qualitative changes in order not only to

realise the opportunities for exports, but also to cope with the implications of our agriculture

coming into increasing alignment with the international market place .


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2. General Agreement on Tariffs and Trade

2.1 Features of the General Agreement on Trade and

Tariffs

To get to a complete understanding of agriculture trade issue, it is important to look at the

historical developments culminating in the Agreement on Agriculture. The General Agreement

on Trade and Tariffs would be the first institution one must look at . The basic elements of the

1947 GATT were:

The Most Favoured Nation (MFN) Principle: The Most Favoured Nation (MFN) principle,or the principle of non-discrimination meant that each contracting party was required to

provide all other contracting parties with the same conditions of trade as the most favorable

terms it extends to anyone.

Reciprocity: Benefits of any bilateral agreements regarding tariff reductions or market

access should be extended simultaneously to all other contracting parties, and should be

equally reciprocated.

Transparency: This meant that the use of quotas should be limited, except in specific

conditions (those widely used for agricultural trade).

Tariff reduction: Since tariffs were the main form of trade protection in 1947, mostnegotiations focused on tariff reduction.

While these basic elements have remained, there have been some important exceptions and

waivers to this. Developing countries were given special status, recognising that their

industrialization process required them to impose more and different types of trade protection.

Later, from the 1970s, this was extended to a Generalized System of Preferences (GSP), which

promised differential and more favourable treatment to developing countries. The possibility of

preferential trade agreements was retained, because countries that offer each other more

favourable treatment within a customs union were allowed to waive full adherence to the MFN

clause. Agricultural trade was given special treatment, and was effectively excluded from theGATT Rounds until the Uruguay Round.

The Uruguay Round

The Uruguay Round (1986-94) is considered by both its defenders and its critics as a major

landmark in international trade negotiations. It has changed the terms of the world trade regime


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in many significant ways. In this round, besides negotiation areas of tariff and non-tariff

measures, three new areas were touched:

1. Trade in services,

2. Trade related investment measures (TRIMS),

3. Trade related intellectual property rights (TRIPS)

Because of differences among the 115 member countries, these negotiations could not be

finished within 4 years. The main areas of dispute were agriculture, textiles and TRIPS. To break

this deadlock in talks, Arthur Dunkel, the then Director General of GATT, unilaterally presented

a 433-page document on December20, 1991.11 The Final Act, which was signed in Marrakesh

in 1994 by 135 countries, consisted of an entirely new set of16 agreements that had superseded

the earlier GATT agreement. It created a formal international institution - the World Trade

Organization or WTO, which came into force on 1 January 1995- to oversee implementation of

multilateral trading rules.

It introduced many new areas under the purview of GATT and the WTO: agriculture,

textiles and clothing, services, trade-related intellectual property rights, trade-related investment

measures, subsidies, anti-dumping rules, public procurement, and so on. It allowed for trade

disputes to be brought before a Dispute Settlement Body of the WTO and for retaliation across

trading categories for transgression of rules. It enforced a shift from quantitative restrictions on

imports to tariffs, as well as greater predictability in tariff reductions by forcing every member

country to declare tariff bindings in all traded goods, and by promising tariff reduction over time.

Gains from the Uruguay Round at the time of signing the Marrakesh agreement, the

following kinds of gains were to benefit the signatories:1. Static gains due to a reallocation of resources to areas of comparative advantage

(that is, those that are relatively better at producing particular goods).

2. Efficiency gains that would result from reduced slack in economies that have been

highly protected.

3. Dynamic gains due to improved technical efficiency or lower input use per unit of

output and technological change.

The first was supposed to result from a shift in international production patterns . The

second and third were supposed to emerge from a stronger competition within and between

national economies.13 It was largely the promise of such gains that lured most developing

countries into signing the entire Final Act, even though many specific agreements such as those

relating to intellectual property and investment measures were seen as detrimental to their

interests, and some aspects of the other agreements were also problematic for them. Even the

Indian government presented a case in favour of signing the Marrakesh Agreement in terms of

the benefits that would come from increased exports of agricultural and textile products in

particular as well as more inflows of investment because of greater international trade in general.


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However, most of these expectations have not been realized so far. It turns out that many

of the projections of increased trade flows were far too optimistic. In fact, world trade growth has

been slower in the second half of the 1990s, after the signing of the Uruguay Round Agreement,

than in the first half of the 1990s. And many developing countries feel that they have even

greater problems of market access and protectionist barriers to their exports than they had before.

This is why implementation issues have become so important among developing countries in the

WTO.

The World Trade Organization (WTO) on January 1, 1995, succeeded the General

Agreement on Tariff and Trade (GATT). It was a watershed event in the history of global trade.

At present, the WTO has 146 member countries including India. The WTO deals with the tariffs

and quotas between the member countries and works to remove any anomalies. Agriculture was

also included in the WTO (Agreement on Agriculture)14. India, being one of the signatories of

WTO and after losing its appeal in the WTO, liberalized trade on agro-commodities as per WTO

norms.

Article 20 of the AOA15 ensured that these reforms are an ongoing process. Re-

negotiations in this regard take stock of the experience of the past years and explore the potential

for further commitments to the reform process. The Uruguay Round negotiations involved

discussions on new areas such as agriculture, textiles, garments, trade in services, trade-related

intellectual property rights (TRIPS), and trade-related investment measures (TRIMS), in three

distinct thematic groups. The first was reducing specific trade barriers and improving market

access for partner countries. Areas under this were tariffs, non-tariff measures, tropical products,

natural resource-based products, textiles and clothing, and agriculture. A second theme was one

of strengthening GATT disciplines and improving the rules under which GATT operated. Areasunder this theme were GATT articles, safeguards, MTN agreements and arrangements, subsidies

and countervailing measures, dispute settlement and functioning of the GATT system (FOGS) .

The third and final theme covered new areas including TRIPS, TRIMS, and services.

Agreement on Agriculture

The negotiations have resulted in four main portions of the Agreement; the Agreement on

Agriculture itself; the concessions and commitments Members are to undertake on market

access, domestic support and export subsidies; the Agreement on Sanitary and Phytosanitary

Measures; and the Ministerial Decision concerning Least-Developed and Net Food-Importing

Developing countries.

Overall, the results of the negotiations provide a framework for the long -term reform of

agricultural trade and domestic policies over the years to come. It makes a decisive move

towards the objective of increased market orientation in agricultural trade. The rules governing


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agricultural trade are strengthened which will lead to improved predictability and stability for

importing and exporting countries alike.

The agricultural package also addresses many other issues of vital economic and political

importance to many Members. These include provisions that encourage the use of less trade-

distorting domestic support policies to maintain the rural economy, that allow actions to be taken

to ease any adjustment burden, and also the introduction of tightly prescribed provisions that

allow some flexibility in the implementation of commitments. Specific concerns of developing

countries have been addressed including the concerns of net-food importing countries and least-

developed countries.

The agricultural package provides for commitments in the area of market access,

domestic support and export competition. The text of the Agricultural Agreement is mirrored in

the GATT Schedules of legal commitments relating to individual countries (see above).

In the area of market access, non-tariff border measures are replaced by tariffs that

provide substantially the same level of protection. Tariffs resulting from this tariffication

process, as well as other tariffs on agricultural products, are to be reduced by an average 36 per

cent in the case of developed countries and 24 per cent in the case of developing countries, with

minimum reductions for each tariff line being required. Reductions are to be undertaken over six

years in the case of developed countries and over ten years in the case of developing countries.

Least-developed countries are not required to reduce their tariffs.

The tariffication package also provides for the maintenance of current access

opportunities and the establishment of minimum access tariff quotas (at reduced-

tariff rates)where current access is less than 3 per cent of domestic consumption. These minimum access

tariff quotas are to be expanded to 5 per cent over the implementation period. In the case of

tariffied products special safeguard provisions will allow additional duties to be applied in

case shipments at prices denominated in domestic currencies below a certain reference level or in

case of a surge of imports. The trigger in the safeguard for import surges depends on the import

penetration currently existing in the market, i.e. where imports currently make up a large

proportion of consumption, the import surge required to trigger the special safeguard action is

lower.

Domestic support measures that have, at most, a minimal impact on trade (green boxpolicies) are excluded from reduction commitments. Such policies include general government

services, for example in the areas of research, disease control, infrastructure and food security . It

also includes direct payments to producers, for example certain forms of decoupled (from

production) income support, structural adjustment assistance, direct payments under

environmental programmes and under regional assistance programmes.


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In addition to the green box policies, other policies need not be included in the Total

Aggregate Measurement of Support (Total AMS) reduction commitments. These policies are

direct payments under production-limiting programmes, certain government assistance measures

to encourage agricultural and rural development in developing countries and other support which

makes up only a low proportion (5 per cent in the case of developed countries and 10 per cent in

the case of developing countries) of the value of production of individual products or, in the case

of non-product-specific support, the value of total agricultural production.

The Total AMS covers all support provided on either a product-specific or non-product-

specific basis that does not qualify for exemption and is to be reduced by 20 per cent (13.3 per

cent for developing countries with no reduction for least-developed countries) during the

implementation period.

Members are required to reduce the value of mainly direct export subsidiesto a level 36

per cent below the 1986-90 base period level over the six-year implementation period, and the

quantity of subsidised exports by 21 per cent over the same period. In the case of developing

countries, the reductions are two-thirds those of developed countries over a ten-year period (with

no reductions applying to the least-developed countries) and subject to certain conditions, there

are no commitments on subsidies to reduce the costs of marketing exports of agricultural

products or internal transport and freight charges on export shipments. Where subsidised exports

have increased since the 1986-90 base period, 1991-92 may be used, in certain circumstances, as

the beginning point of reductions although the end-point remains that based on the 1986-90 base

period level. The Agreement on Agriculture provides for some limited flexibility between years

in terms of export subsidy reduction commitments and contains provisions aimed at preventing

the circumvention of the export subsidy commitments and sets out criteria for food aid donationsand the use of export credits.

Peace provisions within the agreement include: an understanding that certain actions

available under the Subsidies Agreement will not be applied with respect to green box policies

and domestic support and export subsidies maintained in conformity with commitments; an

understanding that due restraint will be used in the application of countervailing duty rights

under the General Agreement; and setting out limits in terms of the applicability of nullification

or impairment actions. These peace provisions will apply for a period of 9 years.

The agreement sets up a committee that will monitor the implementation ofcommitments, and also monitor the follow-up to the Decision on Measures Concerning the

Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-

Importing Developing Countries.

The package is conceived as part of a continuing process with the long-term objective of

securing substantial progressive reductions in support and protection. In this light, it calls for


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further negotiations in the fifth year of implementation which, along with an assessment of the

first five years, would take into account non-trade concerns, special and differential treatment for

developing countries, the objective to establish a fair and market-oriented agricultural trading

system and other concerns and objectives noted in the preamble to the agreement.

2.2 Benefits for India

Reduction in export subsidies on farm products in developed countries will make Indianagricultural exports more competitive.

Exports will increase to $ 1.5 billion by 2005. Fruits, oil seeds, cotton, and milk productswill be benefited due to subsidy reductions.

There will be higher price realizations, which will help in improving the standard ofliving of farmers.

Countries will be forced to produce only what they are best at. This will mean increasedefficiency and higher productivity throughout India

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Environmental programmes are exempt from cuts in subsidies so that the environmentprotection programmes continue unabated.

India does not have to cut subsidies or lower tariffs as much as developed countries and ithas been given enough time to complete its obligations.

Distortions in the market place would reduce, which would benefit the end consumer.


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3. EXIM PolicyDespite being an agrarian economy, where the agricultural sector provides employment

to approximately 60 per cent of the population and contributes 25 per cent to the GDP of the

country, India has remained a marginal player in world agricultural trade. Currently, it has a

share of less than 1 per cent of the world trade in agriculture. The share of agricultural products

including coffee, tea and fisheries in the total exports of India was around 10.95 per cent in the

year2005-06.

There has been decline in agricultural imports. The agricultural imports decreased from

Rs 22057.49 crore in 2004-05, to Rs 21025.54 crore in 2005-06. The share of agricultural

imports to the countrys total imports has remained steady around 3.33 per cent. Imports have

registered a relative decline during April-September2006, when it was only 2.88 per cent of the

countrys total import. The import of vegetable oils fixed (edible), pulses, cashewnuts, cotton(raw and waste) and wood products dominate our agricultural imports.

Agricultural exports, on the other hand, have an increasing trend. Indias agricultural

exports have increased from Rs 39863.31 crore in 2004-05, to Rs 49802.92 crore in 2005-06.

During the current year (AprilSeptember2006), the value of agricultural exports was worth Rs

28157.52 crore compared to Rs 21673.25 crore for the corresponding period of last year,

registering a growth of29.91 per cent. The export of marine products, oil meals, rice, wheat, tea,

coffee, cashew and sugar dominate our agricultural exports.

Generally, there has been a surplus in agricultural trade over the years. The trade

surpluses in terms of value have been Rs 17805.82 crore in 2004-05, and Rs 28777.38 crore in

2005-06 respectively. The surplus is continuing during the current year and is worth Rs 17025.74

crore.

In brief, agricultural trade during April-September2006 shows a healthy balance which

can be boosted further if the export of agricultural products like marine products, rice (Basmati),

other cereals, tea, coffee, cashewnut, oil meals, and sugar, which dominate our agricultural

exports can be increased further. It may be seen from the trend that while in certain cases,

exports have increased, in others, a decline has been registered.

The factors, which areacknowledged to have limited our export and infrastructural inadequacies, as well as

unfavourable international prices, are mainly due to domestic support given to agriculture by

developed countries. Meeting the sanitary and phyto-sanitary requirements of most trading

partners also calls for substantial investment in developing quality standards and infrastructure

facilities.


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3.1 EXIM Policy 2004-09:

The Special Focus Initiative for Agriculture in the new Policy includes:

A new scheme called

Vishesh Krishi Upaj Yojana, which has been introduced to boostthe exports of fruits, vegetables, flowers, minor forest produce and their value-added

products.

Duty-free import of capital goods under the Export Promotion Capital Goods (EPCG)scheme.

Capital goods imported under EPCG for agriculture permitted to be installed anywhere inthe agri export zones.

Assistance to States for Infrastructure Development of Exports (ASIDE) funds to be alsoutilized for the development of agri export zones.

Import of seeds, bulbs, tubers and planting material has been liberalized. Export of plant portions, derivatives and extracts has been liberalized with a view to

promote exports of medicinal plants and herbal products.

Repeal of Cess:

The Agriculture Produce Cess Act, 1940, and the Produce Cess Act, 1966, were repealed

through a fresh parliamentary enactment. The Produce Cess Laws (Abolition) Act, 2006, was

notified in the Gazette of India on 26 September2006, in order to remove the cess on export of

agricultural products and to encourage the export of agricultural products.

The Doha Negotiations on the Agreement on

Agriculture in the World Trade Organization (WTO):

The Hong Kong WTO conference in December 2005 culminated in a declaration

endorsed by all the members of the WTO. While endorsing the July Framework, which was

adopted by the General Council of the WTO on 1 August 2004, the Hong Kong Declaration

further built upon its positions. It contained important prodeveloping country provisions in

market access, highlighting the development aspects in the WTO negotiations.


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The Hong Kong Ministerial Declaration mandated the conclusion of the agriculture negotiations

by April 2006. This deadline could not be met as there were major divergences in the positions

of members primarily on reduction of domestic support and reductions in tariffs along with

flexibility in market access like sensitive products, special products and Special Safeguard

Mechanism (SSM). An attempt was made through a mini-ministerial meeting from 29 June to 2

July 2006, to bridge the divergences and arrive at workable compromises. But the positions

remained deadlocked. The member countries later authorized the director general to consult the

major players and try and reduce the differences. But this attempt also did not bring about the

required convergence. However, at a recent informal gathering at Davos, there was a renewed

commitment on all sides to put the Doha negotiations back on track.

3.2 Scheme for Enhancing the Competitiveness of

Indian Agriculture:

Globalization has led to increased competition from international markets and pressure to

dismantle protectionist instruments. Agriculture in India is more a livelihood matter than a

commercial venture. Therefore, it is necessary to build capacities in the system, such that it is

able to withstand the forces of globalization and compete wherever possible. While there are a

large number of issues to be addressed in this context at the micro and macro levels, the scheme

titled Capacity Building to Enhance the Competitiveness of Indian Agriculture and Registration

of Organic Products Abroad aims to address some of the limited micro -level capacity-creation

issues. The scheme was launched on 28 November2006 with an outlay of Rs 1 crore for the year

2006-07. Capacity building under this scheme may be in the form of either academic/relevant

research, or in the form of creation of physical assets critical of agriculture in the internationalcontext. The scheme shall be operated on a cost-sharing basis with State Governments or other

private, semi-government, NGOs. There shall be an Empowered Committee (EC) which will

consider and approve the proposals and also monitor their implementation. The Department of

Agriculture and Cooperation will co-ordinate the work relating to the scheme and liaise with

eligible agencies for release and utilization of the sanctioned funds.


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4.MIGA: Cultivating Agribusiness Growth

In many parts of the developing world, lush soils, temperate climates and strong farming

traditions create an ideal environment to grow agricultural businesses. And as worldwide

demand soars for staples such as flour, sugar, coffee, and rice, savvy investors can earn strong

profits. With the worlds population projected to reach nine billion by 2050, the United Nations

estimates that the world needs to double food output. But obstacles abound, particularly for

companies venturing into countries with a history of instability and upheaval. Project financing

costs can be prohibitive, due to such risks. MIGA political risk insurance policies can reduce the

cost of financing. They often make the difference between a go and a no-go decision for project

sponsors and lenders concerned about the safety of their investments.

4.1 The Agribusiness Investment Challenge

While there will always be strong worldwide demand for foodstuffs, the fact remains thatagricultural investments are risky business, especially in the developing world. Food prices

remain volatile and its a long way from visualizing the opportunity in an all-but-abandoned

sugar plantation to realizing profit on a well-run, state-of- the-art sugar factory. Newly stabilized

governments could still be on shaky political ground. Unclear or incomplete laws on property

ownership complicate the profit picture. Restrictions on revenue repatriation could complicate a

projects finances even more, adding to the imbalance between foreign currency denominated

debt and local currency denominated revenue. And new threats, such as terrorism, add an

additional layer of uncertainty, potentially derailing even the most promising of investments.

Combined, such political risks contribute to high costs of capital. In fact, some lenders might not

be willing to lend at all, in the absence of political risk insurance policies.

4.2 What MIGA DoMIGAthe Multilateral Investment Guarantee Agencyis a member of the World Bank

Group. MIGAs mission is to promote foreign direct investment into developing countries to

support economic growth, reduce poverty, and improve peoples lives. We do this by providing

political risk insurance (or guarantees) against certain noncommercial risks to investments in

developing countries, as well as providing dispute resolution services for guaranteed

investments.

4.3 How MIGA HelpMIGA guarantees are well-suited to mitigate noncommercial agribusiness investment

risks, thereby lowering the cost of capital and helping an investment opportunity to materialize.

They reassure lenders that their investments are protected. They help equity owners over

hesitations that may loom large prior to deal signing, particularly for costly investments in high -

risk countries. And once a deal is in place, MIGA guarantees, backed by the World Bank Group,


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bring companies peace of mind, providing that added measure of security that can stabilize the

risk profile of an entire project and reinforce positive relations with host governments.

Agribusiness companies also face challenges related to the environmental and social aspects of

their investments. Key natural resources need to be managed effectively while yields are

increased to meet market demand. Investments in agriculture can play a significant role in

poverty reduction, but labor standards need to be met. MIGA has the experience to guide its

agribusiness clients in implementing social and environmental best practices in their operations.

MIGA places no limit on the size of the projects it supports. MIGAs Small Investment Program

offers a streamlined underwriting process for investors looking for coverage of less than $10

million.

4.4 Types of Coverage

MIGA expropriation coverage protects policyholders against government takeover of

assets, such as land, farm machinery or food processing plants. This coverage also guarantees

protection from creeping expropriation, a series of acts that eventually result in outright

nationalization or confiscation. MIGA transfer restriction coverage insures policy holders against

the possibility that governments would prevent earnings repatriation. The coverage also protects

against the risk of currency incontrovertibility. With these guarantees in place, lenders may be

willing to reduce borrowing costs, since this mitigates concerns that foreign companies might not

be able to get their cash out of a country, which would increase the potential for loan default.

Even when governments impose a moratorium on moving currency, as shareholders of MIGA,

they may agree to exclude revenues from projects backed by MIGA guarantees and permit the

transfer. This has been the case in a number of moratoriums since 1990.

MIGA coverage against war and civil disturbance protects policy holders in the event that

political upheaval causes direct destruction of assets, such as torched fields or damaged factories.

This coverage can also protect against loss of revenue if crops or food products cannot get to

market due to border closures. Guarantees insure against losses if the farm or plant falls inside a

war zone and farmers are not permitted to return to fields in time to harvest crops.

MIGA breach of contract coverage protects investors when governments are contractual

partners. While agribusiness investments do not typically involve government partners, this is an

additional component of MIGAs political risk insurance offerings.

Non-honoring of sovereign financial obligations coverage protects against losses

resulting from a governments failure to make a payment when due under an unconditional

financial payment obligation or guarantee given in favor of a project that otherwise meets all of

MIGAs normal requirements. It does not require the investor to obtain an arbitral award. This


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coverage is applicable in situations when sovereigns financial payment obligation is

unconditional and not subject to defenses.

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