The Hindu Business Line : Ploughing ahead at the WTO

THE RECENT PARIS meeting of some 30 Trade Ministers of major economies has raised new hope for the stalled Doha trade talks on agricultural issues; but it is not celebration time yet. Rather than a full blown agreement on tariffs themselves, they have merely agreed on a formula, originally proposed by the European Union, that would help set the tariff on farm produce imports by the member nations. The agreement is at best on a technical issue — a crucial one, though.

For major agricultural exporters and importers, the agreement would mean across-the-board tariff cuts in farm goods via a standard methodology for calculating rates that currently vary across markets and commodities. The decision is to convert fixed duty into ad valorem, that is, as a percentage of the price so that the rate of duty imposed by different countries becomes comparable. Crucially, import tariff cuts are still to be agreed, and that is likely to prove thorny. The EU, in particular, has been wary of tariff reduction, seen as threatening domestic interests, especially of poultry, meat and grain. However, with mounting pressure, there are signs of relenting, and some progress may soon be made. The EU may be forced to cut tariffs more drastically than it has been willing to as also dismantle some of the trade barriers. A broad outline of the proposed tariff reductions and subsidy cuts is expected by July, well ahead of the next WTO Ministerial summit in Hong Kong in December.

There is strong belief that the Doha Round can deliver tangible financial benefits to millions of poor farmers in developing economies and help mount a trade-led attack on global poverty. Reduced farm support, lower tariffs and improved market access in developed economies to the produce of developing nations are sure to raise the existing low level of incomes in the exporting countries. The crucial difference between some of the developed and developing countries is in the level of farm employment. In the latter, the number dependent on farm activities is significantly large; for instance, in India, it is as high as 60 per cent. Higher world prices and expanded market access should fetch more incomes for developing economies and create a virtuous cycle of more demand, more investment and more employment.

Talking of distorted global agricultural markets, it is well recognised that worldwide the policy environment is becoming increasingly complex. Whether developed or developing, all countries face the same dilemma: How best to reconcile domestic priorities with international obligations. By effectively using tariffs, India has done reasonably well in opening its markets even while guarding against subsidised and low-price agricultural imports. But efforts to strengthen the domestic agricultural base by stepping up investment that leads to increased production, higher productivity, improved quality and accessible markets are far from satisfactory. Building supply-side capacities and institutions is the way forward. While it may be politically correct and expedient to slam in international forums the subsidies granted by the rich nations, there simply is no alternative to addressing internal issues that stymie farm growth.

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