THE URUGUAY ROUND OF GATT, THE WORLD TRADE ORGANIZATION AND SMALL FARMERS

by Kamal Malhotra, Co-Director, Focus on the Global South (FOCUS), Bangkok, Thailand. Paper prepared for the Regional Conference on "MonoCultural Cropping in Southeast Asia: Social/Environmental Impacts and Sustainable Alternatives, June 3-6, 1996, Songkhla, Thailand

I. INTRODUCTION

The negotiations during the Uruguay Round of the General Agreement on Trade and Tariffs (GATT) which concluded with its signing in 1994 and led to the creation of the World Trade Organization (WTO) early the following year were significantly focused on the issue of agricultural trade.

This was, indeed, the first time that agriculture had been included in GATT negotiations and the long drawn out, protracted nature of the Uruguay Round was substantially because of difficulties in finding agreement between the ‘farm superpowers’ (i.e. the USA and Europe) on trading rules for agricultural products

The Blair House Accord which became the basis for GATT’s Agreement on Agriculture was a deal negotiated by and between the USA and the European Union (EU) with the objective of regulating their agricultural trade competition in third country/region markets through a bilaterally acceptable compromise solution. Ironically, even though the implications of this agreement for developing countries were far greater than previous GATT accords (because of their status as markets for US and European agriculture surpluses), the countries of the South had little, if any, substantive influence in determining the outcomes embodied in the Agreement on Agriculture of the Uruguay Round of GATT.

II. BACKGROUND

The main reasons for the protracted US-EU negotiations related to their long histories of heavily subsidizing their farmers and the widespread and growing demand for them to reduce these through the instrumentalities of GATT

Such subsidies have, historically, been tied to production levels without any limits, inevitably leading to overproduction and export-dumping at very low prices, primarily in the developing countries of the South

Such export-dumping, while often providing cheaper food for urban residents who are dependent on buying it have led to reduced demand and depressed prices for small, rural farmers in developing countries with the concomitant effects of reduced incomes and employment, less investment in agriculture and rural to urban migration

This has naturally had a devastating impact on many small farmers in Africa, Latin America, the Caribbean and the Asia-Pacific, but has served US and EU agriculture and trade policy handsomely

Indeed, in 1986, the then US Agriculture Secretary, John Block said "the idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on US agricultural products, which are available in most cases at lower cost". It can be said that this statement embodies the thinking behind what many industrialized countries (with the support of agricultural produce export developing countries such as Thailand) have attempted to institutionalize through the Agricultural Agreement of the Uruguay Round of GATT

They have obviously been unperturbed in this pursuit by the sobering lessons of the last decade and the increasing danger signals for world food security over the past few years

South Korea, in our immediate Asia-Pacific region, even without the GATT Agreement and WTO, provides a dramatic story which has important lessons for aspiring second generation Newly Industrializing Countries (NICs) such as Thailand, Malaysia and Indonesia who are attempting to follow in its footsteps. Its story - from virtual food self-sufficiency 40 years ago to chronic food import dependency today (primarily on the US) must be told and the lessons urgently learnt and used by others in the Asia-Pacific as the GATT Agreement, WTO and the Asia Pacific Economic Cooperation (APEC) go into implementation

For instance, between 1973 and 1983 grain imports (particularly wheat and corn), and those of beans shot up by almost 300 per cent. Their lower prices discouraged domestic production and dropped South Korea’s food self-sufficiency ratio from 27% in 1965 to 6% in 1983 for wheat, from 36% to 27% for corn, and from 100% to 25.7% for beans. At the same time, the country’s agricultural imports from the US rose from $1.8 billion in 1986 to $5 billion in 1991, making it the highest per capita consumer of US farm products. Indeed, half of its food imports, 60% of its grain imports, 95-100% of its soybean imports and 70% of its wheat and cotton imports coome from the US.

The same story has subsequently been repeated for tobacco and beef and the Agricultural Agreement of GATT may yet result in the same outcome for rice (although to a lesser extent, given its sacrosanct status as the country’s main staple).

III. GATTs AGRICULTURAL AGREEMENT AND THE WTO

As earlier indicated, the Uruguay Round of GATT has created the WTO to implement and monitor its agreements. What are these in the agricultural area?

One major area of intended agreement was in the reduction of subsidies. Industrialized countries which subsidize their agricultural exports in certain specified ways must now reduce subsidies by 36% in value terms and 21% in quantity terms over a six-year period. Certain types of domestic support must also be reduced by 20% over the six-year period. All non-tariff border restrictions on agricultural products have to be converted into tariffs which must then be reduced by 36% over six years (with some exemptions on grounds of food security or environment protection)

Developing countries (excluding the "least developed" ones who do not have to undertake any reduction commitments) have to reduce subsidies by two-thirds of those specified for industrialized countries (e.g. 24% instead of 36%) and have 10 years to do so instead of six (for industrialized countries). They can also retain (i) domestic agricultural support in the form of government assistance to agricultural and rural development programs, (ii) subsidies for investment and agricultural imports used by poor producers, (iii) support for diversification from growing illicit narcotic crops, (iv) domestic food aid, and (v) public stocks for food security

However, all GATT members have committed themselves to opening their markets to certain minimum levels of agricultural imports at low tariffs for food staples. This "minimum access" is defined as 3% of domestic consumption of the product in the first year, rising to 6% by the tenth year. Quotas are allowed for one major staple (e.g. rice) but "minimum access" is necessary even for that staple. This is defined as entry at low tariff levels of 1% of domestic consumption in the first year, rising to 4% by the tenth year

The Japanese and South Koreans who have traditionally not allowed any imported rice must now allow in such minimum quantities - indeed, it is likely that such "minimum access" for staples such as rice is a transition phase to full "tariffication". It certainly provides a valuable foot in the door for rice exporters such as the US, Australia and Thailand and has resulted in mass protests by small farmers in both Japan and South Korea

Yet, these agreements are now mandated and obligatory. If they are not adhered to, WTO sanctioned trade retaliation on any products (i.e. cross-retaliation) will be possible under the GATT Accord

While the GATT Agreement has clearly been partially successful in mandating the reduction of US and European subsidies in their historical form, critics allege that the GATT Agricultural Agreement has merely resulted in the swap of one form of US and European subsidization for another. This allegation is substantiated by the GATT exempt (even though they are trade related) direct income subsidies (called "income support payments" in Europe and "deficiency payments" in the US) which have been permitted, leading, according according to one estimate, to the equivalent of a 49% and 30% continuing effective subsidy in the US and Europe, respectively. This amounts to maintaining agricultural systems permanently geared to over-production in both the US and Europe, leading one British economist to brand it "taking away direct support of markets and replacing it with direct subsidization of (Northern) farmers".

IV. IMPLICATIONS FOR SMALL FARMERS AND FOOD IMPORTING COUNTRIES

The South Korean small farmer agricultural experience over the last decade (even before the conclusion of the Uruguay Round of GATT) is illustrative of the situation likely to be faced by small farmers in other Asian countries, especially (but not limited to) those who are not agricultural exporters (e.g. Malaysia). Indeed, while the GATT agreement spells nothing new for South Korean farmers, it is a more dangerous manifestation of the onslaught they have faced for over two decades. It certainly provides the US and big agricultural powers with a more potent weapon to open up the South Korean agricultural market, especially its most wanted product, rice

The potentially grim future for small, South Korean rice farmers as a consequence of the GATT Agreement is highlighted by one report from inside the country i.e. "with 4% of domestic consumption supposed to be brought in from foreign countries by 2004, it is predicted that the price competitiveness of domestically produced rice will fall dramatically, dealing a serious blow to farmers dependent on rice cultivation".

Since 92% of the South Korean workforce still derives more than half of their income from producing rice, which costs five to seven times more than foreign rice, (which is often subsidized) South Korea faces a potentially very serious social explosion and the "disintegration of the rice farming household".

The Philippines presents another sad case study because its historical status as a major source producer is now a history. Indeed, the continued location of the International Rice Research Institute (IRRI) in the Philippines is an increasingly cruel irony.!

The crisis of agriculture in the Philippines is serious, although less so than in South Korea. However, the coalition of external agricultural interests (e.g. transnational food conglomerates) intent on penetrating the country’s markets and domestic technocrats intent on "modernizing" agriculture who are significantly contributing to this situation are broadly representative of other countries in S.E. Asia, such as Thailand, Malaysia and Indonesia

In early 1995, the Philippine Secretary of Agriculture sought to take two million of a total of 3.5 million hectares of land from rice production for cattle raising. High-value added and export-oriented products such as cutflowers and asparagus were to be the substitute agricultural crops. Half a million jobs were to be created annually as a result but when pressed for details pro-GATT technocrats admitted that the estimate included a net figure of 350,000 lost jobs annually, mainly in labor-intensive, traditional crops such as corn, rice and sugar. In rice, the GATT mandated "minimum access" requirement of 59,000 metric tons is expected to translate into the displacement of 15,000 farming families annually.

While the figure for job losses appears credible, those for job gains do not - among other obvious reasons being the need for long gestation periods involving years of investment and research and the relatively low labor-absorption potential of the high-value crops proposed (compared to labor-absorption in traditional staple crops)

Even if we leave South Korea and the Philippines aside, an OECD/World Bank report estimates that food-importing countries (many of which are in Africa) will be paying 4-7% more for their food as a consequence of the Uruguay Round Agreements at the same time as they lose concessional advantages in key export markets

However, since the notorious US government PL-480 food aid is GATT exempt and since highly subsidized food will still be available from the US and European Union, there is a danger of food-importing countries becoming even more dependent both on richer and more powerful countries and on transnational corporate monopolies for their most important and basic needs (e.g. food staples)

The expected flood of food imports in these countries is likely to have serious consequences for their short and long-term food security. Indeed, the further accelerated integration of their agricultural systems into the global market, where prosperity or bankruptcy are determined by impersonal market forces and narrow definitions of "efficiency" and "profit" clearly make a mockery of and undermine the alternative, more self-reliant approaches to sustainable agriculture being practiced or supported by community organizations and NGOs in Thailand and other parts of Asia

While Thailand, as a major net agricultural exporter should theoretically benefit from both the tariff reductions mandated under the Agricultural Agreement of GATT and the increases in world agricultural prices which are expected to follow (resulting in increases in its export revenues and GDP), experience indicates that these benefits will be concentrated among a few kulak export farmers and will not be broadly shared by small rural producers, especially those who do not cultivate crops for the export market. Such farmers even in Thailand are likely to go into near or actual extinction like their US, European, South Korean and Filipino counterparts