Agriculture in July Package: Nepal

1. Agriculture in July Package: Nepal Presentation by South Asia Watch on Trade Economics and Environment (SAWTEE), Kathmandu

2. Content of the Presentation • Agriculture in Nepalese economy • International trade in agriculture products • Nepal’s commitment in WTO • Brief introduction of July package • Nepal’s stake and negotiating strategies

3. Salient Features of Agriculture in Nepal • Significant contribution in GDP: though declining contribution of agriculture in GDP but still has significant share (50.5 per cent in 1990 and 38.3 per cent in 2004). major agriculture produce include paddy, maize, wheat, barley millet, sugarcane, oil seeds, tobacco, potato, jute, milk, fruits and vegetables, meat, eggs and fish • Major source of employment : agriculture provides employment to 78 per cent of active labour force, out of which about 65 per cent are self employed and most of the agriculture household produce multiple crops • Key contributor in household income : national average of the share of agriculture in total household income is 48 per cent and for rural household it is 55 percent. • Chief ingredient in consumption pattern : food items constitute about 59 per cent share in the consumption basket and it is rural 62.9 per cent households. Rice, wheat and maize constitute 24 per cent in consumption basket

4. Salient Features of Agriculture in Nepal (contd…) • Significant share in international trade: though most of the agriculture production are at subsistence level and commercial farming is sporadic, Nepal has been historically engaged in international trade of agriculture products. The share of agriculture products was 25.8 per cent and 19 per cent in total exports and imports respectively in 2003. • Low growth and productivity : landholdings are very small (average 0.8 hectare) and un-irrigated (45.7 per cent). Agriculture practices are traditional labour intensive (less than one per cent of agriculture household uses tractor) with low intensity of farm inputs (less than 10 per cent farmer uses improved seeds). Thus, agriculture productivity is low, about half of non-agriculture. Agriculture output has grown at an average of 2.2 per cent during the last five years, lower than 2.3 per cent of population growth, implying negative per capita growth. Needs ‘proactive state’ for agriculture development

5. International Trade in Agriculture Products • Agriculture export/import ratio : 48 per cent, net food importing country • Major import includes industrial raw materials ( oil, oil seeds, tobacco, raw jute) and food items (rice, wheat) • Sources of imports: raw material - developed and high income developing countries such as New Zealand, Australia, Singapore, Argentina, France and Malaysia; and for food items - developing countries • Export is highly concentrated in few items; ten products constitute about three fourth of total agriculture exports and major export constitutes vegetable fats, food grains, tea and sugar • Major export markets are developing countries, except for sugar, which constitute more than 90 per cent.

6. Nepal’s commitment in WTO Commitment through accession negotiations as a LDC • Final bound tariff- 41.4 per cent, minimum 5 per cent, maximum 200 per cent with 70 per cent of tariff line at below 40 per cent • No Tariff Rate Quota (TRQ) and Special Safeguard Measures (SSG) • Elimination of Other Duties and Charges (ODCs) • No State Trading Enterprises (STEs) • Aggregate Measure of Support (AMS)- nil • Export subsidies: nil

7. July Package and Agriculture Article 20 of AoA: ‘Recognizing that the long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process, Members agree that negotiations for continuing the process will be initiated one year before the end of the implementation period ….’ Doha Declaration :’… Building on the work carried out to date and without prejudging the outcome of the negotiations we commit ourselves to comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support. We agree that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development…..’

8. July Package and Agriculture (contd…) July Package • Parallelism: as a part of ‘single undertaking’ negotiation in agriculture should go in parallel with other issues of Doha Declaration.It also foresees parallelism in negotiation within the agriculture sector, i.e., market access, domestic support and export subsidies. • Recognition of development and social issues : the agreed modalities are to incorporate operationally effective and meaningful provisions for special and differential treatment which would enable developing countries to pursue agricultural policy supportive of development goals, poverty reduction strategies, food security and livelihood concern • Domestic support: ‘substantial reduction in trade distorting domestic support’ • Tiered formula • Review of de minimis • Blue Box : redefined and capped • Green Box : reviewed and clarified

9. July Package and Agriculture (contd…) • Export subsidies: ‘reduction, with a view to phasing out, all forms of export subsidies’ • Elimination • Export credit • State trading Enterprises • Food aid • Continuation of Article 9.4 • Market access: ‘substantial improvement in market access’ • Single approach • Tariff reduction from bound rate • Sensitive products • Special products • Least Developed countries: LDCs which will have full access to all special and differential treatment provisions above are not required to undertake reduction commitments.

10. Issues in July Package: Implications for Nepal Market Access : ‘ Developed Members and developing country Members in a position to do so, should provide duty free and quota free market access for products originating from least developed countries’ • Formula for tariff reductions : no reduction commitments • Sensitive products : not applicable • Special products: not applicable • Special Safeguard Measures : agreed rules provide policy flexibility in the event of import surge • Special safeguard : not applicable • Preference erosion: concern with the depth of tariff cuts which affect current level of preference margin

11. Issues in July Package: Implications for Nepal Domestic support: No reduction commitments • Formula for reduction of overall trade distorting support: not applicable but concern with the effect of reducing domestic support on food import bill • Structure of tiered formula: not applicable • Reduction in de minimis : established rules affect policy flexibility for agriculture development • Blue Box: not applicable • Green Box: established rules affect policy flexibility for agriculture development Export Competition : no reduction commitments • Time frame for the elimination of export subsidies: not applicable, but concern with the effect of eliminating export subsidies on food import capacity • Disciplines on export credits : not applicable • Discipline on food aid: not applicable but concern on ensuring food availability

12. Suggested Position for Nepal Guiding Principles: • Policy flexibility for agriculture development • Enlarged export markets along with maintenance of preference • Food import bills Position on specific issues • Market Access : offensive – bound duty and quota free free market access in developed countries along with significant market opening in developing countries • Domestic support : cautious – reduction in domestic support is double edge sword, on the one hand it provides level playing to compete with subsidized products and on the other it may increase international price thereby increasing import bill thus strike a balance between export competitiveness and import bill • Export subsidies cautious – strike a balance between export competitiveness and import bill • Green box : offensive - policy space

13. Suggested Position for Nepal • Food aid : effective implementation of Marakesh Decision • establish a mechanism to secure adequate level of food aid to meet the needs of LDCs, • access to financial mechanism to smooth short term difficulties in financing normal levels of commercial imports • financial and technical assistance to LDCs and NFIDCs and to improve productivity and infrastructure of their agricultural sectors. food aid should not be tied up only with export competition rather be pursued in the holistic approach. • Preference erosion: maintain (sugar export to EU), technical assistance for adjustment and improved supply capacity • Special safeguard measures: offensive-low bound tariffs, experience of import surge (incidence: rice -1 yr, wheat - 4 yrs, pulse -3 yrs,maize- 2 yrs during 1995-2003) • Automatically activated • Both value and price based trigger mechanism • Applicable for all agriculture products • Option of duty and QRs as remedy • Restrains on the use of SSM on the export of LDCs

14. Way forward: Negotiating strategy • Prioritize the issues: market access, special safeguard measures, preference erosion, food aid • Alliance with LDCs • Support other groups on case by case basis

15. Thank you for your kind attention