Editorial»
Trade remedy on agriculture
NOV 14 - Nepal’s accession to the WTO is being seen by some observers as an opportunity for the exporters from foreign country to dump their products in Nepalese market, which could potentially destroy the livelihood of millions of farmers. However, looking at the present accession deal which the trade negotiators of Nepal have been able to strike with 146 member countries of the WTO, I would be tempted to believe that such possibilities are rare.
First, Nepal has bound agricultural average tariff at 51 percent, which will be gradually reduced to 42 percent within 10 years. These rates cannot be compared with those of the founding members of the WTO, but they are definitely the highest level among the acceding countries. This effectively means that when there is a surge of agricultural imports with the possibility of causing injury to the domestic farmers, the government can increase the tariff level upto the bound level in order to protect the farmers.
To illustrate this with the help of an example let us suppose that Nepal’s current applied rate of tariff on wheat is 10 percent and the tariff bound during accession is 50 percent. Should there be an import surge threatening to cause injury to the domestic farmers, the government can increase the tariff upto 50 percent to remedy the problem caused by import surge. When the situation becomes normal, the government can again reduce the tariff level to 10 percent.
Second, Nepal being a developing country (even a least developed country), it is also allowed to take shelter under the Balance of Payment (BoP) provision of the WTO to protect its domestic farmers. Should there be import surge and should that trigger depletion of foreign exchange resources leading to deterioration in the BoP of the country, the government will be in a position to raise tariff or even impose quantitative restriction on imports. Such import restriction, if targeted to the agricultural products which have caused injury, if at all, to the domestic farmers will also be considered WTO compatible, hence non-actionable under the WTO.
Third, there are a host of other trade remedy measures which could potentially be used by Nepal in order to protect the domestic farmers if the government has a political will to do so. However, taking these measures is not as easy in the case of agriculture as in the case of industrial products. Let us now analyse the factors which hinder the possibility for Nepal to take such measures with absolute impunity.
Readers would recall that agriculture has always been considered as special sector in the international trading system. Therefore, special rules have been designed to institutionalise the special status of this sector. While trade remedy measures such as anti-dumping, countervailing and safeguards duties could be imposed with some hassles in the case of industrial products, it is almost impossible to apply these measures in agricultural products.
The WTO Agreement on Agriculture (AoA) has clipped the wings of the member countries in terms of applying trade remedy measures on agricultural products through its most notorious provision called “due restraint” as contained in Article 13 of the Agreement. As per this provision, member countries are not allowed to take any trade remedy measures on agricultural products which have received export subsidy from their governments until 31 December 2004 (this is incidentally the date for the full implementation of AoA).
Similarly, members are not allowed to impose countervailing duties against the subsidised agricultural imports provided the country of origin is within a allowable minimum percentage (which is called de minimis in WTO jargon and are set at 10 and five percent in the case of developing and developed countries respectively) while granting otherwise actionable subsidies. Moreover, the Agreement on Subsidies and Countervailing Measures (ASCM) has also stated in an unambiguous term that the provision allowing action against subsidies does not apply to subsidies maintained on agricultural products as provided for on Article 13 of the AoA (mentioned above). With such a double protection against subsidies, it would be impossible for the member countries of the WTO to impose countervailing measures against subsidised agricultural imports.
Likewise, the AoA is also silent on whether or not member countries can impose anti-dumping duty even if it is proven than the agricultural products have been dumped into their market by an exporter. As if this was not enough, the AoA remains conspicuously silent on whether or not any normal safeguard measure could be taken against import surge.
The AoA does allow the member countries which have gone through the process of tariffication (i.e., converting non-tariff barriers into tariff) to impose what is known as special safeguards (SSG) to remedy the injury caused by import surge. However, this too is unhelpful in the case of Nepal because it did not go through the tariffication process. Since Nepal had unilaterally dismantled all the non-tariff barriers before acceding to the WTO, it could not avail such a facility. This facility can be availed only by 38 member countries of the WTO, which had gone through this process and have inscribed the same in their schedule of concessions (i.e., tariff offer).
Even if Nepal were allowed to take trade remedy measures on agricultural products it is very difficult to do so because the country taking such measures has to put a legislation in place to take such measures. Moreover, the country taking recourse to trade remedy measures should have an institution in place for conducting a thorough investigation to establish that injury has been caused to domestic producers.
Nepal would do well to enact a law as well as designate an institution (such as Department of Commerce) to conduct investigation in order to be able to take trade remedy measures against unfair competition on industrial products. However, these measures cannot be relied upon in the case of agricultural products.
There is a ray of hope at the end of the tunnel. Once the implementation period of the AoA is over and once the member countries decide that trade remedy measures could be applied in the case of agricultural products too, there will be an opportunity even for a country like Nepal to discipline unfair competition in the case of agricultural products as well. However, we have to wait at least till 31 December 2004 for this to happen. This is only a hope but not a certainty because the AoA is under going its built-in review process and a thorough revision of the Agreement is also being envisaged under the Doha Development Agenda. Until such decisions are made Nepal will have to rely on bound tariff and BoP cover to discipline import surge or unfair competition.Posted on: 2003-11-13 08:58
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