Implications of the Uruguay Round Agreements for Agriculture and Agribusiness Development in Bangladesh

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I. Introduction The Uruguay Round (UR) was the eighth round of the General Agreement on Tariffs and Trade (GATT) initiated in 1947. It was one of the longest and yet unique rounds. The negotiations under this round were initiated in 1986 and concluded in 1993, and agriculture was included for the first time under the GATT rules. The commitments for reducing tariffs, export subsidies, and domestic support to agriculture for various country groups under the Uruguay Round Agreement on Agriculture (URAA) are briefly summarized in Matrix A. It is important to note from this matrix that while developing and developed countries are required to reduce: (1) tariffs (24% to 36%), (2) export subsidies (24% to 36%), and (3) domestic support to agriculture (13% to 20%), the least developed countries, such as Bangladesh, have been exempted from these reduction commitments. II. Nature and Scope of the Study The main objectives of this study are: (1) to assess Bangladesh’s URAA commitments with the prevailing situation during 1986-88 and 1995-97 and (2) to analyze the implications of the URAA and other related agreements for agriculture and agribusiness development in Bangladesh. The study focused on seven commodity groups, namely, processed cereals, edible oils, poultry products, processed dairy products, fruits and vegetables, fertilizers, and agricultural machinery. In addition, provisions dealing with primary products and trends in agricultural trade are also analyzed to provide the necessary background for the selected commodity groups. The analysis of trends in agricultural trade is confined to the commodities included in the URAA, which excludes jute products, fish, and fish products. III. Bangladesh’s URAA Commitments Bangladesh’s URAA commitments and the actual situation prevailing in 1986-88 and 1995-97 are summarized in Matrix B. According to Bangladesh’s URAA commitments, no quantitative restrictions are imposed on the import of the seven commodity groups nor is any export subsidy or domestic support to agriculture provided. Except for fertilizers and agricultural machinery, bound tariffs declared are 200%. For agricultural machinery and fertilizers (except superphosphates), bound tariffs are 0%. In contrast to bound tariffs, actual tariffs on five of the seven commodity groups were significantly lower during both time periods—1986-88 and 1995-97. The commitments on quantitative restrictions, export subsidy, and domestic support are also consistent with the actual situation for all commodity groups except table eggs. The import of table eggs during the 1995-97 period was fully banned. Bangladesh provides minimal domestic support to agriculture and agribusiness. No direct price-distorting subsidies are provided to exports of primary and processed commodities. Indirect support to commodity exports is also minimal and consistent with URAA provisions. In fact, Bangladesh can and should use the Green Box measures and other exemptions of the URAA to promote sound agriculture and agribusiness development in the country. Although existing direct and indirect subsidies on fertilizers are consistent with the URAA, Bangladesh needs to reassess the natural gas pricing subsidy for the fertilizer industry if it wants to capture the potential market for urea in the Asian region. IV. Bangladesh’s Trading Patterns and Partners Bangladesh has a tiny share (0.1%) in the global trade and agriculture contributes a small share (12%). Most of its agricultural trade is dominated by imports (over 90%). Agricultural exports contribute roughly 2% to the total exports and are overshadowed by primary products—tea and vegetables (98%) exported mainly to Poland, Pakistan, United States, United Kingdom, Saudi Arabia, the former Soviet Union, and Singapore. Bangladesh exported virtually nothing in recent years in the form of processed agricultural products and, worse still, whatever little was exported had been declining over time. On the import side, edible oils, dairy products, and fruits and vegetables account for approximately 95% of the import of processed agricultural products. The main trading partners are Argentina, Brazil, and Malaysia for edible oils; India, Bhutan, and Iran for fruits and vegetables; and Australia, New Zealand, Denmark, the Netherlands, and Poland for dairy products. In recent years, preferential duties on imports from Bhutan have encouraged import of processed fruits and fruit juices from Bhutan and from other countries via Bhutan. V. Implications of the URAA Being a least developed country (LDC), Bangladesh is exempted from reduction commitments on tariffs, export subsidies, and domestic support to agriculture under the URAA. Nevertheless, from the URAA perspective, Bangladesh’s trading environment is generally distortion free for the seven commodity groups included in this study. Because Bangladesh has liberalized its foreign trade at a faster pace than what is implied by the URAA, the country’s URAA commitments on tariffs are unlikely to have any significant impact on its trade because actual (operating) tariffs for most commodities are much lower than bound tariffs. Reductions in tariffs, export subsidies, and domestic support to agriculture in the developed and developing countries, especially Bangladesh’s trading partners, may open opportunities for both import substitution and export promotion in Bangladesh. However, it is unlikely that Bangladesh can benefit significantly in the short run from such opportunities because Bangladesh’s existing export trade is insignificant in processed products for which domestic and global markets are growing rapidly (4%-9%/year). The URAA may open opportunities for import substitution of edible oils and dairy products if global prices of these commodities increase significantly in the future. Likewise, Bangladesh may benefit from exports of agroprocessed products, especially fruits and vegetables, provided it takes a “proactive” policy approach to develop the agroprocessing sector by instituting suitable measures for technology transfer, market research, infrastructure development, and enabling policy environment. In this context, concessional imports coming from Bhutan need reassessment. VI. Policy and Technical Recommendations Policy and technical recommendations resulting from the study are divided into two groups. The first group includes policy and technical recommendations related to the Uruguay Round Agreements, and the second group deals with the policy and technical measures necessary for developing agriculture and agroprocessing in the country. 1. Policy and Technical Recommendations Related to the URAAs a. Tariff bounds declared in the UR schedules are unnecessarily high and should be reduced to more realistic levels, e.g., 50%, for all commodities except poultry products for which the tariffied rate in place of quantitative restrictions may be higher. Moreover, to encourage the production of agricultural inputs in the country, tariff bounds on fertilizers and agricultural machinery could be raised from zero percent to 50%. b. The remaining quantitative restrictions on agricultural trade should be tariffied. c. Institutional capacity for dealing with World Trade Organization (WTO)-related measures should be strengthened with the Ministry of Agriculture and the Ministry of Commerce d. Because many LDCs and developing countries were not well prepared to submit their URAA commitments, these countries should be allowed to revise their commitments during the next round of multilateral trade negotiations. e. The URAA has exempted input subsidies targeted to low-income or resource-poor farmers. Because most small farmers are low-income or resource-poor farmers in the LDCs, the WTO should allow the exemption of subsidies on agricultural inputs from domestic support reduction commitments in such countries. f. Investment in irrigation infrastructure is essential for the adoption of new technologies and the promotion of agricultural growth in developing countries. Since irrigation infrastructure is a public good, investment for developing irrigation facilities should be excluded from the aggregate measure of support (AMS) calculations. 2. Policy and Technical Recommendations Related to Agriculture and Agribusiness Development Agroprocessing in Bangladesh is at its infancy and requires support for development so that the country can benefit from the opening of markets for processed goods, especially fruits and vegetables, in the developed and developing countries. To support the development of agribusiness, the following measures should be taken. a. The Ministries of Agriculture and Commerce should develop market intelligence and market information systems to identify ‘niche’ markets for primary and processed fruits, vegetables, and other products exportable from Bangladesh. A special cell may be created in the Ministry of Agriculture and in the Export Promotion Bureau of the Ministry of Commerce for this purpose. The information about potential markets should be freely and regularly disseminated to interested entrepreneurs. b. The Government of Bangladesh (GOB) should make URAA-consistent investments in developing marketing infrastructures—facilities for grading, packaging, storage, and transportation—for reducing transaction costs of exports and in providing additional cargo space for exporting fruits and vegetables. c. GOB should reassess the need for subsidizing fertilizers for two reasons. First, fertilizer subsidies were introduced when global fertilizer prices were high—over $200/ton of urea. Currently urea is selling at less than $80/ton in the global market. Second, Bangladesh has a potential to capture the captive urea market in the region. To realize that potential in a manner that is consistent with WTO rules, Bangladesh may not be able to subsidize natural gas price to the fertilizer industry. d. Concessional imports of processed fruits and vegetables coming from Bhutan should be reexamined for two reasons. First, it distorts the tariff structure and incentives for domestic production. Second, it creates incentives for other countries to channel their exports through Bhutan. In such indirect trade, Bangladesh does not benefit from the reciprocity of bilateral trade agreements. e. The existing differential tariff rates, though consistent with the URAA, creates anomalies for the agroprocessing sector. Under the existing tariff structure, GOB charges lower tariffs on intermediate products and higher tariffs on finished products. Since many of the finished products, such as paper, plastics, etc., are used as inputs, such a tariff adds to the cost of production and makes domestically produced products less competitive. GOB should over time minimize the dispersion in tariffs and eventually move to a uniform tariff rate structure. f. The availability of finance seems to be a critical constraint to promoting agroprocessing investments. The access to institutional finance should be improved by creating special funds for long-term investment in agribusiness and by providing support to agribusiness dealers in project preparation and loan applications. g. Many small and medium business enterprises need training and technical assistance to develop the agroprocessing sector. GOB, in cooperation with donors, should arrange for such training and technical assistance and facilitate the transfer of technologies from developed and developing countries to Bangladesh
Agriculture, Agribusiness
Implications of the Uruguay Round Agreements for Agriculture and Agribusiness Development in Bangladesh (2001