Kiki Verico, Jakarta – On July 31, 2004 in Geneva, Director General Supachai Panitchpakdi successfully led the meeting of 147 WTO member governments to approve "the package of frameworks and other agreements" considered as vital in supporting the Doha round. The approval of the package, particularly regarding agricultural modalities, will benefit agricultural exporters from developing countries, including Indonesia.
The statement: "Agriculture negotiations have been built on the long-term objective to establish a fair and market-oriented trading system" shows the greater awareness of developed countries that agricultural reform in developing countries, including Indonesia, has to be conducted gradually and equally across the board. In addition, the agreement also implies Indonesia will still have access to S&D (Special and Differential) treatment that allows gradual liberalization for the reasons of "domestic consumer price stability and food security".
As developed countries commit to eliminating their export subsidies in agricultural products, they will increase market access to Indonesia's agricultural exports. Before this commitment, Indonesia's agricultural exporters could not compete fairly with those in developed countries due to these discriminatory barriers to entry.
Taking the European Union's (EU) policy as an example, from 1995 to 2000, about 50 percent of the EU state budget, or around US$40 billion per year, was allocated to a Common Agriculture Policy (CAP) to protect their domestic agriculture market. According to Laffan (1997), due to the scheme of "export subsidies policy", 80 percent of that agriculture budget has been enjoyed by only 20 percent of European farmers. Since EU has 10.4 million farmers, it means that $32 billion is allocated for only two million of them every year. On average, each of these privileged farmers received $16,000 (Rp 144 million) per annum – more than enough to invest in new technology, produce more efficiently and thus sell their products at a lower price than developing countries can offer. Therefore, if WTO agreements on the elimination of agriculture export subsidies are implemented, Indonesia's export competitiveness will be improved in terms of price vis-...-vis the developed countries.
This agreement shows developing countries are continuing their commitment to reducing import tariff barriers. This is beneficial for Indonesia as it gives the country an opportunity to increase export volumes to other developing countries. Developing countries generally impose higher tariff barriers on the products of their competitors than developed countries, with "key developing countries" such as Brazil, India and China applying an average import tariff on Indonesia's agriculture exports as high as 25.93 percent, while US, EU, Japan and Canada only demand 7.12 percent.
In short, the latest WTO agriculture agreements for the elimination of developed countries' export subsidies and the reduction of developing countries' import tariffs are good for Indonesia's export market. Nevertheless, the looming Achilles heel in the equation is the feasibility of implementing these agreements. Anxiety about this is understandable since the agreement was motivated by the previous "horrible result" of last year's Cancun meeting, which ended in a deadlock.
It is normally accepted that the Geneva meetings produce better agreements than Cancun but these too contain big uncertainties regarding their implementation. Why? It is because the liberalization has to be executed simultaneously between developed and developing countries.
Success does not often follow the "classic equilibrium" model, that is, "I am doing the best I can, no matter what you are doing and you are doing the best you can, no matter what I am doing". Liberal economists argue that this independent liberalism will be beneficial even if the other parties' policy is not accounted for, as seen in Singapore, Hong Kong and Taiwan's success with their 0 percent tariff barriers.
Yet, for sure this "classic equilibrium" is highly unlikely to work in WTO agreements since at this multilateral level, the benefits of liberalization are not determined by particular countries but all the members.
The logic for world trade negotiations is closer to what John Nash argued in the "Nash Equilibrium", "I am doing the best I can, given what you are doing and you are doing the best you can, given what I am doing" (J.Nash in J.W. Friedman, 1990). An agreement will be established as long as all the parties that are involved are willing to work together. It means the decrease in import tariffs by developing countries is connected to the simultaneous elimination of export subsidies by developed countries. This will not be executed without the equal awareness and political will from both developed and developing countries.
The success of the WTO meeting in Geneva at best can be defined as "unfinished businesses" since the feasibility of implementation is the key. From the developed countries' perspective, export subsidies and agricultural management are politically sensitive issues.
In the context of the EU's Common Agriculture Policy, a SIEPS (Swedish Institute for European Policy Studies) study shows the main directives issued by the Council are mainly for CAP (37 percent) while for social policy they only make up 27 percent. At the commission level, more than 60 percent of the agreements are produced in relation to CAP. Moreover, in terms of the number of regulations, CAP is supported by 402 out of 798 regulations or more than 50 percent of the total EU regulations.
This concentration on CAP helps to explain why the elimination of export subsidies will not be easy. There needs to be more effort made by the EU Commission to convince its members and their farmers to accept the elimination of agriculture export subsidies.
Furthermore, developed countries have been extensively using "non ad valorem duties" in agriculture trading that are less transparent and discriminatory (the World Bank, 2004). These duties are also imposed in other regional organizations such as ASEAN. ASEAN countries, meanwhile, prefer AFAS (the ASEAN Framework Agreement on Services) rather than WTO agreements (Singh, 2003).
The so-called "new promise of the world trade agreement" is still far from a reality. Whether Indonesia as a developing agricultural exporter will commit to the WTO agreements depends on country-specific government policy rather than WTO mandates. Additionally, in any normal situation, as has been recognized by the WTO, lower-level negotiations, such as at the regional level; ASEAN, EU; or in small groupings; the Cairns Group; are often more feasible.
Therefore, it is still too early for our farmers to celebrate the progress of the WTO meeting in Geneva. There are some opportunities, yet there are still huge uncertainties.
[The writer is a researcher at Institute for Economic and Social Research, Faculty of Economics, University of Indonesia (LPEM FEUI) and lecturer at the Department of Economics of the University of Indonesia.]