Impact of WTO and Globalization on Nepalese Agriculture
November 20, 2001

A One day Seminar organised by Nepal Foundation for Advanced Studies / FES

Nepal Foundation for Advanced Studies organised its third seminar on issues relating to Nepal's accession to the World Trading Organisation in cooperation with Friedrich Ebert Stiftung of Germany in Kathmandu on November 20, 2001. The one day seminar had only one paper on the prepared theme "Impact of WTO and Globalization on Nepalese Agriculture.

Welcoming the participants, Ananda Srestha, Executive Director of NEFAS, said that two seminars had already been organised on the implication of WTO membership to the various facets of Nepalese economy- one with the cooperation of FES and the other with the American Center. Since the agriculture sector was the largest in the Nepalese economy he asked the participants to contribute by providing meaningful suggestions that would provide the necessary feedback to Nepalese policymakers.

The single presentation was done by Posh Raj Panday and the session was chaired by Prof. Gunanidhi Sharma of the Tribhuvan University. Before initiating the presentation, the professor remarked that we have discussed about the preparation of Nepal's membership of the WTO time and again. The work NEFAS has done in this regard so far is exemplary. He said, "The world is changing in such a manner that we have all been affected. If some have been provocated, others have been enthused to do something. We need to be able to utilize this energy to include the WTO membership in our national agenda- as it is related with poverty alleviation, development, the environment etc. To do so we need to make our economy competitive.

"Ours is a high cost economy, whether because of inefficiency, or corruption or because of IMF- World Bank pressures to raise the prices of our services," he said.
After that Posh Raj Panday made his presentation. Two commentators were designated to provide different perspectives to the issue at hand. One was Biswa Nath Tiwari and the other was Deependra Chettri. After their comments the floor opened for lively discussions. The details of the comments and the floor discussions are provided below.

COMMENTS

Biswa Nath Tiwari : The GDP share in agriculture has been reduced to 41 per cent, but not the population dependent on it. This has not been noticed by the paper. Why have the terms of trade between agriculture and industry not been favourable for agriculture? The government has been having a longstanding policy of providing subsidies in food to officials in various districts. This has put the agriculture terms of trade in a disadvantageous position. The government's price support policy, the minimum support price, has always been less than the market price. So this never helped to support agriculture. This is because the government lacked the resources to support agriculture prices at a sustainable level for the farmers.

When Nepal was a food surplus country, there was malnutrition and food insecurity, and this is not only a current problem when we have a deficit situation. Hence, a deficit situation is not the only reason for food insecurity. The paper perpetuates the existing belief among many that agriculture is not going to be affected by WTO membership. I want to clear up this misconception.

The first benefit of WTO membership is freedom of transit. Second, there are LDC concessions, although we have to negotiate for that. Third, dumping- developed markets have dumped their surplus products like milk powder which has discouraged our own dairy farmers. Fourth, grain prices will rise.
The opportunities that will be open to us does not mean that we will benefit from it. Will we be able to claim our transit rights when we face problems? Farm productivity has not been rising, which the author sees well. The sector is stagnant, except for wheat. In the nineties, Nepal turned into a net importer of food. So, even if tariffs in other countries are reduced, how will we benefit unless we raise the production for export? So, productivity needs to be the priority in agriculture, not only in cereals, but also othercrops.

Although Mr. Panday appears pessimistic about Nepal benefitting from WTO, I want to differ by saying that neighbouring markets can be exploited for our agricultural products. In other Asian countries too, horticulture and floriculture products can be exported. In still other distant countries, where transportation will be a costly affair, herbs and spices can be exported. In other words, bulky products for neighbouring countries and high value crops for distant countries because of transport costs.

Grains

We say that we import foodgrains. We can export foodgrains only if we have a surplus. Is there a possibility to do so? Since India and China are in the takeoff stage of development, which will mean that agriculture products will go down in those countries including their rising labour costs. Studies have shown that these markets will be running into food deficit. If we have a surplus, we can surely export in these two countries. If we import the green revolution technology, we can increase food production and productivity. This is because other countries have already saturated their productivity by adopting the technology and have no prospects for doing so further. But we have room for gaining that productivity by importing the technology.

Vegetables and Floriculture

As for vegetables and floriculture, phytosanitary conditions of the WTO could be a barrier to our exporting them to other countries. Standardization plants and equipment to meet those conditions are very costly. We need to seek aid in investing in such plants.

Herbs and Spices

Saffron is increasing in demand in developed countries. We can produce saffron here. There are other herbs and spices that we export to India in unprocessed forms. The value added in those products is negligible. If we can process them, in addition to rural employment, transport costs can be reduced. Projects initiated in the past have not been very successful.

Poverty Alleviation

We have said that there are effects for poverty alleviation efforts with the accession to the WTO by Nepal. We cannot be assured by any data that show reduction in poverty alleviation. However, what we are certain about is that the absolute number of people living in acute poverty is increasing. The Agriculture Perspective Plan came with a view to reduce poverty through agricultural programmes. They need to be implemented well.

Giant firms in the west have started integrating their farming, processing and marketing activities displacing the farmers in those countries, e.g. in the US. If it is so, what about the impact of globalization on Nepalese farmers?

One of the important aspects of poverty alleviation programmes is the Food for Work programme. When agriculture is completely commercialized, what will happen to such programmes? In other words, they may die down and poverty will increase.

The WTO is primarily geared towards giving capital a free access to all the markets, but not labour. This will increase the gap between the rich and the poor. All these compel us to believe that globalization may not help us much in poverty alleviation.

Deependra Chhetri: When in 1995, the WTO accession became a loud agenda , we were only talking about why we should not miss out on the chance for the membership. But now we find that we have to work very hard to benefit from that membership.

The introductory section of the paper has deliberated on the theoretical aspect well. Our policymakers have at times talked about nothing but agriculture, but at others they have tended to forget it and talked only about trade. The theories have dealt with this uncertain policy situation well in the paper and data provided to make things clearer.
The treaties with India talk about reciprocity, but we know that Nepalese agricultural exports have been denied access by India time and again because of fickle reasons. We may take the issue to the dispute resolution body, but that too will only establish what the global trends and rules and norms suggest. In a case where we already have a treaty regarding transit, how will we deal with the situation?

Another point is the food deficit situation. Seventy five percent households in the hilly and mountain regions are in a food insecure situation and 60 to 65 percent in the Tarai.
Now, what are the WTO provisions on agriculture?

We talk of market access. But several rounds could not include agriculture in the GATT agenda. Only in 1995, did agriculture get the attention it deserved in the WTO. Even then the market access debate is only limited among developed countries and how their products can benefit from market access. The subsidies sector, too, is being used to benefit the developed countries, not the developing countries. Sanitary and phytosanitary measures are other restrictions imposed to benefit the developed countries.

It is not that developing countries do not have a forum to promote their own interests. The Lome convention did envisage the needs of the developing countries and worked to meet them. The Cairns group also shows that there can be developing countries fighting for their agriculture sector. APEC too has both developing and developed countries where their respective issues are being fought. Although India has talked about playing a leadership role in WTO talks, it has been alleged to be fighting for its own national agenda. The main struggle is for the control of the available global resources, whether through liberalization or through international finance.

The UN has put us under the LDC category. The WTO has talked about special provisions for the LDCs . We need to keep those provisions in mind and work hard to benefit from it. The main principles of the WTO relate to national treatment (MFN) of foreign goods. Ultimately the objective is to have borderless trade. But if we can convince the international groups that the provisions have been debilitating the national economy, we may be able to get concessions. But this is not easy. India tried to show that its BOP was working against its economy to adopt free trade measures, others did not accept that argument to obtain concessions. China tried to enter the WTO as a developing country, but the developed countries did not accept that either. So access to concessions is not easy.

We have a situation where land reforms have stalled for a long time. And we are not unanimous about new land reform measures. Unless we can rectify this basic aspect of agriculture production, there is little likelihood that we will be able to use the sector to benefit the economy. Agriculture is the largest sector and yet it is still a subsistence sector. We see that we have come down to the level of being net food importers. We need to rectify the unpredictable supply system to increase production and productivity.
Similarly, in biodiversity, we say that we are immensely rich. Among the 600 flowering plants, three hundred of them are indigenous only to Nepal. We need to make this clear to others for us to benefit from TRIPS. But the situation is such that our mustard oil mills will not survive if we do not import mustard from Australia and N. Zealand. If we plant those imported mustard seeds they do not grow as they have been genetically modified. There will come a time when our own mustard breeds will have to be bought from other countries and pay for the copyright too.

We need to realize this situation and work to avoid the weaknesses and build on the strengths for us to be able to benefit.
I hope the factual inadvertence and the wrongly cited reference material will be rectified before the paper is published. For example, the Agriculture Input Corporation has not yet been privatized. Similar is the case with the number of WTO members.

FLOOR DISCUSSIONS

Mohan Man Sainju: The in-depth deliberation of a sector such as agriculture is an exemplary effort by NEFAS. The paper is well written. I want to lay down some points. The most positive aspect of the WTO is the flagging in of agriculture by the Uruguay round. This has to be taken advantage by developing countries. The Doha declaration has shown that the WTO was limited only to developed country aspirations thus far and everybody has realized that. The FOURTH ministerial meeting of the Doha summit has explicitly mentioned that. Areas like textile may also to be put in the negotiation agenda in future discussions. Since inclusion of new agenda is the main challenge in WTO discussions, such developments should be taken as positive.
The plans, like the APP, are well written. The production potential of the Nepalese geo climatic conditions is unlimited. But these potentials and opportunities need to be exploited. I do not find much positive aspects being included in today's discussion. People from the business sector would have provided that. I find only the negative aspects being highlighted by the speakers, especially the chairman of the session. If it had been so, we would also find out our constraints inhibiting us from exploiting the available opportunities.

Banwari Lal Lakol: Our vision should be both telescopic and microscopic at the same time. For example, WTO and globalization are two different things. This should have been made clear. Similarly, the experts related to the various sectors differentiated by the WTO should have been here to discuss their topics. For example, who among us here is a TRIPS expert? We need to raise our discussions to the expert level rather than among innocent and naïve participants.
Had Sept. 11 not occurred, the Doha outcome would have been greater.
We should never forget that the initiators of the GATT are going to have the most say in WTO affairs. India is also a mature player and we need to follow what India does in terms of WTO. Let us not be too naïve about this. The discussions should also include non-economic aspects.
We should rise above blaming others for taking profit; we need to make profit ourselves.
There is a fallacy regarding LDCs. Although concessions are listed for LDCs, it requires a condition that calls for best efforts of the concerned LDC to remain within WTO parameters when it applies for those concessions.

Keshav Acharya: The paper has analyzed the issues well. We can do a lot in improving agriculture, but I do not agree to the notion that nothing has been done. The WTO calls for removing barriers and the IMF calls for reduction in spending. Unless there is popular pressure on the government for increasing agriculture finance the situation is not likely to reverse.

The TOT of agriculture has constantly deteriorated over the years. And, there is a tariff of our own that has been hampering agriculture. For example, Indian eggs are applied one per cent tariff when imported along with the crates. But if we import crates only for Nepalese eggs, we slap 15 per cent on them.

India dumped rice last year. The price of Indian rice was five rupees even while the cost of production of Nepalese farmers was nine rupees. We could have lobbied to escape such situations but we did not. Membership will give us much leeway regarding this.
The TU should provide PhD scholarships on WTO issues to develop more experts.

Dhrubesh Regmi: We have been affected by our own policies rather than policies imposed from outside like those from the WTO. We still have 30 year old patent laws that are redundant. How will we benefit from WTO membership with such an approach? The shallow tubewell subsidies have been removed. How will productivity increase without shallow tube wells? How will WTO policies affect adversely when our own policies are even worse?
How did Article 27(b), that got the most criticism in Seattle, come up in Doha?
There is a report that says that GMO crops have not entered Nepal so far. How come you mention that mustard coming from Australia is genetically modified?

Krishna Prasad Pant (agriculture ministry): We say that agriculture labour needs to be shifted to the industrial and service sectors, but the remaining labourers have not had their productivity improved. And the industry too has not been linked to the agriculture sector- e.g. the pepper in noodles come from other countries, the barley in beer is also imported. On the supply side, good quality seeds are not well supplied, fertilizer subsidies have been wiped out, irrigation investment is lacklustre. APP is a very good theoretical document, but still needs to be based on reality for it to yield anything.

Price support has been non-existent for five-six years. The objective of the support price was to allow the farmer to decide on what to plant, not as a means to compensate for the loss in costs of production.

One of the reasons for being a food import country is the changing food habits of the people, who have all shifted to rice today. Still, food security is a serious issue and the government needs to be awakened to the fact.

If we can find a niche product, we can be competitive. Our legal provisions regarding GMO and biopiracy are very weak and we expect the private sector to come up with suggestions in this regard.

Parichhit Sharma: We need to have a framework and time frame for reforming our production structures.

Bharat Pokhrel: The 1999 HDR shows that the income distribution ratio between the richest and poorest 20 per cent was 3:1 in 1920, in 1970 30:1, in 1990, 86:1. This should show us how the income is being distributed by the existing system. There are other gaps between the developing and the developed which are being exploited through the system by the developed countries.
Terminologies like 'big push theory' have been redundant and should not have been raised now in the paper.

…..: Americans get tax exemption if they can dump goods in other countries. What would be Nepal's share in World Trade? How can we become player rather than spectator?

Khagendra Prasain: We can get a lot of benefits from India under international law but our socialization is not geared towards seeking them. We are heading towards maximum profit even from the limits of the earth system. This is not capitalism. Are we heading towards self-destruction?

Dr. Puspa Shrestha: If we can confine ourselves within the relevant topics rather than in theories we would be able to come to some practical suggestions. Women are the backbone of the agriculture labour force, but I do not see the paper talking about the impact on women by the WTO membership.

Padam Nath Tiwari: Our neighbours have taken membership because they need the market. What is our need for WTO accession? We lack decisive research on the need for WTO membership. If we can lure Japan into buying our products, why ask for WTO membership? The surplus labour is supposed to be used for industrialization, but our labourers are going to the ME and other countries.

Khilanath Dahal: More than 80 per cent of our labour force is in the agriculture sector, whether seasonally employed or in disguised employment or full time employment. Will the Indian pressure to employ Indians still be there or will there be a government policy after WTO membership? Labourers go for foreign employment but the costs involved after they come back will be borne by us. Is there going to be a government policy regarding this?

Reply

Posh Raj Panday: The existing members number 142, and the new members are only in the process of accession as of yet, so we should not be counting China or Taiwan at the moment. The transit question is deliberately missed by the paper because the condition of internal security could be applied by the Indians, undercutting the benefit that could accrue through the WTO. Also there are more transit points available today than WTO provides for in Nepal's case.
The labour migration case is being raised by India, which is beneficial for them, but Nepal has to think hard about it.

Foreign investors cannot be given conditions like local content or foreign exchange conditions.

Regarding 27 (b), the issues have been agreed to be reviewed and further studies are to be carried out on its implications.

Experts are certainly needed. In America's case, there were 70 expert participants on anti-dumping alone.

Chairperson Gunanidhi Sharma's concluding remarks: We are not trying to undermine the

positive aspects of WTO accession, only trying to show the alternatives that are there. The government is already there for the positive aspects. So it makes sense to talk also about the negative aspects. We are not against WTO accession. But we are for protecting the nation's interests. Pulling the barriers down for foreign products without doing away with the obstacles of domestic production is not going to serve anybody's interest. All the multiplier effects go to the country from whom we import, not us. Again, we are for interdependence, but not to the extent where it becomes dependence and we lose our sovereignty.

We need to distinguish between comparative and competitive advantages. Products that Nepal has inherited through its culture, geography, biodiversity etc, do not need anybody's help in export. The problem is with their preservation and overexploitation. But competitive advantage is a separate issue that calls for homework. What are the benefits and concessions we need? We should not be focussing on the complementarity of products as we cannot compete with other labourers as our labour productivity is low.

Our focus should be on areas that increase market elasticity.

The seminar came to a close after Deepak Shakya thanked all the discussants for their active participation.