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Combat at Cancun

September 16, 2003

When this is printed, the outcome of the Cancun ministerial meeting would have been known. From the reports so far, not much can be expected.

Yet at the meeting in Doha, a last minute deal was struck, reportedly after the US had exercised pressure on some reluctant countries.

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A similar outcome cannot be ruled out this time too. While the basic issues are simple, they get buried under a whole lot of details and the story of combat.

The negotiators feel like gladiators, love to strike poses, take stances and enjoy the fun of verbal and intellectual combat. The end result however can be the nature of international trading regime, which is not a laughing matter for most people and for some is of vital importance.

The first thing we should note is that a fair trading system is in the interest of all countries. It is good for all consumers. Also a multilateral system such as the WTO is the best bet and most likely to get us a fair trading arrangement.

While all countries seem to agree to the desirability of fair trade, they all wish it to be a little bit unfair in their favour. And that is what all the hoopla and negotiations are about. The negotiators often are driven by their short-term political concerns and try to protect a handful of producers at the cost of a vast number of consumers.

They get tempted to rig the rules and blatantly follow double standards. Let me illustrate this with the example of negotiations on agricultural trade.

The problems in agricultural trade liberalisation are the following. Some of the developed countries, notably the USA, the EU and Japan protect their own agriculture for the sake of a handful of farmers, about 3 per cent of their workers.

They spend vast sums of money to support their farmers, more than $250 billion a year.

As a consequence they have large surpluses in some commodities which they export and depress world prices. The farmers in other exporting countries who produce the same commodities get a lower price and many of these are in developing countries.

Of course, people in importing countries gain as they get these goods at lower prices. The rich countries can afford to support their farmers as they are rich and the farmers are few.

On the other hand, in developing countries the bulk of the population (more than two-thirds in India) is engaged in agriculture. So any disruption can have a large impact on the welfare of these people, many of whom are engaged in 'smallholder' agriculture and are poor.

Development of agriculture is critical to alleviate poverty for many of these countries. The developing countries are naturally cautious to liberalise their agricultural trade without appropriate safeguards.

If they liberalise while developed countries continue with subsidies to their farmers, the developing countries would be flooded with cheap foods, say wheat and milk, from the US and the EU.

While their consumers might be happy, the farmers would be ruined. No government can survive. Does that mean developing countries should never liberalise their agricultural trade?

They should liberalise their agricultural trade, but do so in step with the developed countries and over time so that their farmers have time to adapt and adjust.

The difficult part here is how to do it in step. If one country liberalises before another, it may get hurt in the short-run.

And poor country farmers may not have the means to survive the short-run. The responsibility to take lead here should rest with the rich countries.

Much of the complexity of negotiations is about the speed of transition and who would do what first. The rich countries don't seem to want to take the lead.

The history of negotiations shows this. WTO negotiations in agriculture resumed in March 2000, four months after the Seattle meeting which had ended in a disaster. Over the next year, 106 countries tabled 45 proposals on how we should proceed.

This led to the Doha ministerial declaration in November 2001, which has provided a basis for negotiations.

However, six months after Doha, the USA adopted a new farm bill in 2002, which is generally seen to be a step backward. The EU also has not been able to reform its common agricultural policy (CAP) under which it provides support to its agricultural producers.

There is strong opposition to reforming CAP from the French who are a power in the EU.

Before the Cancun meeting, the EU and the US had made proposals for tariff reduction, which were very different, both of which were not acceptable to developing countries.

At the last minute, the EU and the US reconciled their differences and made a joint proposal. This posed a challenge to the developing countries.

These proposals set tariff reduction schedules with some restrictions at commodity levels.

The devil lies in the details and as developing countries have discovered in the past, the outcomes are often unexpected, as the developed countries have provided for loopholes not seen through at the time by the developing countries.

Yet, the rich are searching for other arguments to delay removing their subsidies which it has been estimated, costs developing countries billions of dollars a year.

Of course, the rich countries have agreed that the poor countries need special differential safeguards to protect the large number of people who depend on agriculture for their

livelihood. This will be one reason to legitimise protection by all.

I was in Japan in 1985, travelling from Tokyo to Kyoto in their super fast Bullet train. One could see many small farms, less than an acre, each with a small harvester combine in the corner. I was puzzled why they need so many harvester combines.

My Japanese colleague, a professor of agricultural economics at Kyoto University, explained to me that these machines are used perhaps one weekend in a year as these are all gentleman farmers who work in the city but cultivate their land over the weekend.

"Why can't they rent the machine from their neighbour?" I asked.

"Because," he said, "all of them want to use the machine at the same weekend." "How can they afford it?," I asked. "Well, the government gives subsidy to preserve the environment and the natural landscape of Japan."

This idea, that agriculture is needed to preserve environment is now given a fancy name. The idea of 'multi-functionality of agriculture,' to produce food, to preserve environment, to provide livelihood, to improve the scenic beauty, etc. is now promoted by the rich countries.

In fact they have funded Food and Agricultural Organisation of the UN to carry out studies of multi-functionality in a number of developing countries.

This will be one more argument to delay reducing subsidies. I did ask my Japanese colleague, "Why do you have to grow rice? You could get all the benefits by gardening."

He had no answer.

It seems to me, there is a simpler way to go about liberalisation. Let the US, Japan and the EU agree among them the rate at which they want to reduce protection of agriculture. At any time, any developing country should be free to have as much protection as the most protecting rich country, but no more.

It should also be free to decide which commodity it wants to protect how much within the constraints of the aggregate sectoral protection level.

This would be simple, would not involve hairy negotiation and the fight would be among equals. It will however miss out on all the fun of combat.

The writer is professor emeritus and former director of the Indira Gandhi Institute of Development Research.

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