Hong Kong Ministerial Declaration on Agriculture: Implications for Nepal

December 22, 2005
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– By Shivraj Bhatt

Shivraj Bhatt

Shivraj Bhatt
At the end of Sixth Ministerial Conference of the World Trade Organization (WTO) held in Hong Kong during December 13-18, 2005, the world’s trade ministers came up with Ministerial Declaration on Doha Work Programme. A debate is going on throughout the world regarding its implications for economies. Diverse views are emerging on its implication for Nepal too. Its supporters, highlighting the issues especially related to agriculture, non-agriculture market access, services, trade facilitation, aid for trade and special and deferential treatment for LDCs are claiming that outcomes of the Ministerial are worthwhile. While opponents don’t see any significant achievement in the declaration. Since the Ministerial successfully came up with the declaration, there are hopes as well as fears.

This declaration reaffirms the declaration and decisions adopted at Doha and decisions adopted by the General Council on 1 August 2004 (known as ‘July Package’) and committed to give effect to them. Ministers agreed to conclude the negotiations launched at Doha successfully in 2006.

On agriculture negotiations, the declarations reaffirm the mandate on agriculture as set out in Para 13 of Doha Declaration that states agricultural negotiations aimed at “reduction of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade distorting domestic support”. The declaration has also set deadlines to submit comprehensive draft schedules no later than 31 July 2006.

Many issues related to agriculture negotiations are important for developing and LDC member countries, including Nepal. First among them is the provision of parallel elimination of all form of export subsidies and disciplines on all export measures with equivalent effect to be completed by the end of 2013 (Para 6 of the declaration). The second important issue of our interest is related to food aid. On food aid, the declaration reconfirm the commitment to maintain an adequate level and to take account the interest of food aid recipient countries. The declaration further states that a “safe box” for the bona fide food aid will be provided to ensure that there is no unintended impediment to dealing with emergency situations (Para 6). The third important aspect is related with the provision of flexibility (for developing country members) to self-designate an appropriate number of tariff lines as Special Products guided by indicators based on the criteria of food security, livelihood security and rural development (Para 7).

Elimination of export subsidies by 2013 may have positive implications for some countries. The common argument is that European and some other rich countries annually spend hundreds of billions of dollars on trade distorting subsidies, which ultimately harms the poor countries. It is argued “developed world funnels nearly $1 billion a day in subsidies” which “encourages overproduction” and “drives down world prices of agricultural commodities”. Therefore, having the “comparative advantage in agriculture the poor countries are the potential exporters” and “any reduction in prices harm them” (resulted lower earnings from low priced exports). But the relationship between subsidies, prices and welfare of poor countries is not that much straightforward and simple. The relationship depends on many other things as well.

In this context, while talking about the relationship between subsidies, prices and implications for least developed countries (LDCs), two most important issues should be considered. First, the correct estimates of subsidies that drive down world prices should be confined to the subsidies contingent on exports or output, which is less than US$ 5 billion (Arvind Pangariya in The Economic Times daily). Second, most of the LDCs, including Nepal are net food importing countries. Therefore, such low prices benefit them (lower food bills). Moreover, it is also claimed that protection of agriculture in rich countries also raises their internal prices, which may ultimately benefit poor countries (for example, under it’s “Everything But Arms” initiatives, the EU grants the LDCs duty free access to its market, which means the LDCs can benefit from the high internal EU prices they receive on their exports).

But the fundamental question remains for Nepal. We should have sufficient production (not only for domestic consumption, but surplus to export) to get the benefit of such high prices. In the present context, when famine/food insecurity is common in Nepal, it is hard to imagine benefits of high priced export.

Therefore, first of all attempts to increase production and productivity through adoption of modern techniques, irrigation, seed and other inputs, and research and development are necessary to seize benefits of such developments. When we have some surplus to export we should think further to address other important aspects related to the trade of agricultural goods (for example these days – standards like labeling, packaging, contents etc. and sanitary phyto-sanitary measures related to health are necessary to fulfill to international market of food products). Therefore, proper actions should be taken to address such technological issues side by side.

Nepal may benefit in the long run from high world prices in agricultural commodity, only if, the above mentioned fundamental issues are rightly addressed. Otherwise increased food bills (being a net food importing country) will be the only result of increased world prices in agricultural commodities in both short and long run for Nepal.