The centralised planning in India has accorded primacy to agriculture right from the beginning in view of the importance of the sector for meeting the evergrowing food needs and the employment generation potential. The focus of planning can be broadly divided into four phases 

During the first phase (1950-1965) the thrust was on heavy industry (Temples of Modern India) and relatively lesser importance to agriculture. The major source of agricultural growth during this period was area increases without notable productivity gains. During the second phase (1965-1980) major food shortages in the 60s and the consequent problems with PL-480 imports necessitated a shift in focus to self-sufficiency in production. With the advent of new technology and HYV seeds (popularly called 'Green Revolution'), the focus shifted to high potential regions with irrigation. In order to keep inflation under control, a policy of input subsidisation (fertiliser subsidy, power, irrigation) for producers and for consumers (food subsidy) has been adopted. 
The trade in agricultural commodities was virtually prohibited except for a few commodities such as tea, coffee and tobacco. These policies resulted in stupendous growth in food production and India became self-sufficient in food production by the late seventies. The major source of growth during this period was increase in productivity. But the focus on well-endowed regions has resulted in inter-regional disparities in growth. 

The third phase (1980-1992) saw the diffusion of green revolution technology to pockets other than north-west India, particularly to eastern India. This period can be called the best phase of Indian agriculture because growth was achieved along with equitable distribution of benefits. But large subsidies flowing into agriculture have resulted in mounting fiscal deficit. In the fourth phase (1992-2002), with the launching of economic reforms in 1991, the focus shifted to containing and curtailing the huge subsidies to agriculture. Also, in view of the supposed comparative advantage of Indian agriculture, a more liberal trade policy has been adopted. With the signing of Agreement on Agriculture (AoA) of WTO in the Uruguay Round, the gradual dismantling of protection to agriculture and outward-looking (export oriented) agriculture is being promoted. The removal of domestic restrictions on movement of agricultural products and other restrictive measures in the recent budget is expected to have a positive impact on agricultural growth. 

The sectors where India has comparative advantage in production should be identified and a proactive export strategy should be formulated for these sectors. A brief sketch of the commodity-wise comparative advantage of India is given below. 

Rice, tea, coffee, cotton, oilseeds and cakes, tobacco and sugar are some of the commodities with export potential. With respect to rice, we need to formulate a different strategy. The present exports of basmati rice to west Asia and to parts of US and Europe may be continued. Meanwhile, efforts should be made to tap rice markets in East Asian countries like Japan and South Korea and also in South East Asian countries like Indonesia, Malaysia and Philippines. The rice markets in Japan and South Korea, which have been closed for a long time, offer good opportunities. But the pre-requisite for nurturing these markets is to produce those varieties of rice, which are preferred by consumers in these countries. 

Among the traditional exports like tea, coffee, cotton, oilseeds, tobacco and sugar only tobacco and coffee have dynamic demand. Tea exports are stagnating because of sluggish world demand, increasing domestic demand and inability to impart efficiency in domestic production. India should try to regain its pre-eminent position in world tea market. Exports of cotton and sugar are problem-ridden because of instability in production. In order to exploit our comparative advantage in these commodities, the wide year-to-year fluctuations in production need to be minimised. The important plank of our export strategy should be to lay thrust on dynamic commodities (showing high growth rate in the recent past) like unmanufactured tobacco, milk and milk products, rice, fruits & vegetables, coffee, soyabean and soyabean oil, oilseeds, cakes and meals. Among these, milk and milk products is by far the most important commodity for export. India is the second largest producer of milk and its cost of production is lowest after New Zealand. 

Fruits & vegetables is another sector where India, because of its diverse climatic and soil conditions, holds a distinct advantage. But, promotion of this sector requires good facilities for processing, storage, grading and marketing. The cold storage facilities, rural roads, vertical integration of farmers and processors need to be provided for ensuring growth of this sector. The exemption of excise duty on cold chain equipment provided in the recent budget is a welcome step in this direction. Also the agri-export zones in 20 places all over country out of which work has already begun in 15 (Exim policy 2002-07), should provide a fillip to fruits and vegetables sector, which has a lot of untapped export potential. Similarly reduction in customs duty on agricultural machinery and equipment from 25 to 15 percent is a welcome step.

Protection of agriculture in Europe, particularly Western Europe, has been in existence as early as the nineteenth century but the emphasis on government intervention increased considerably after the Second World War. During the war and immediately after, food shortages were rampant and food security was of paramount importance. Self-sufficiency in essential food commodities was, therefore, perceived as the most essential element of public policy. Another contributory factor is the balance-of-payments problem faced by most of the European countries during the period of reconstruction. By the mid-1950s, both these problems reduced in severity due to the plentiful supplies in Europe. But the widening gulf between urban industrial and rural agricultural wages induced a massive shift of labour from agriculture and improvement in farm incomes became an issue of paramount importance. Combined with this, the objective of stabilisation of prices to protect farmers from year-to-year fluctuations ensured the continuation of a policy of massive state support to agriculture. Whether the motivation was food security concern or stabilisation of prices and farm incomes, price support through public intervention became the key policy instrument to aid agriculture. 

In EEC the most important factor that contributed to the distortion of agricultural production and trade was the high initial support price, relative to the prevailing world price, agreed to as part of the Common Agricultural Policy (CAP) in 1967-68. During the next 20 years, EEC adjusted prices annually. According to the estimates made by EC commission, the prices were kept below the average rate of inflation. However, the already large support prices combined with secular decline in world prices resulted in an ever-increasing gap between the two prices, although the EEC prices did not increase in real terms. Also, since the support was not linked to any limits on production, the output of most temperate products rose massively. Higher prices, improved technology and import barriers ensured that EEC became not only self-sufficient but also had huge surpluses in most of the agricultural commodities. For instance, in 1967 the EEC (9) was a net importer of wheat (-13,030,385MT), beef and veal (-344,004MT) and of butter (-276,660). In 1987 it had turned into a net exporter of wheat (10,204,198MT), beef and veal (320,588MT) and butter (572,663MT). In sugar it turned from being a marginal exporter (311,080MT) in 1967 to a major exporter (5,113,291MT) in 1987. As domestic prices were above international prices the surpluses could not be exported except with the aid of export subsidies. 

GATT 1947 adopted trade policies that accorded differential treatment to agricultural products in relation to industrial products. GATT 1947 permitted protective or more trade-distorting measures for agricultural products. Exemptions provided in relation to prohibition of quantitative restrictions (Article XI 2(c)), export subsidies (XVI: 3) production subsidies (XVI: 1) etc, ensured that the trade in agriculture remained generally restrictive and protected. Seven rounds have been held, in pursuance of Article XXVIII of GATT 1947, to ensure tariff commitments and periodic reduction of the same. While almost all the tariff lines pertaining to industrial products were subject to tariff commitments by the industrialised countries during these rounds, a very large proportion of tariff lines pertaining to agriculture were not subject to such commitments by most countries. Although the weighted average of incidence of tariffs on agricultural products was not very high, absence of tariff commitments allowed the usage of measures such as variable levies, TRQs etc and combined with high levels of domestic support, these border measures ensured a virtual sealing off the domestic markets from international price movements. The inadequacies of the then existing rules in tackling the trade distorting policies adopted by some countries, causing serious damage to efficient producers of agricultural commodities, is brought out well by GATT disputes which ensued later. 

The AoA rests on three pillars - market access, domestic support and export competition. A better understanding of these provisions is crucial to understand the nuances of AoA, 

• Market Access - The biggest advance made on WTO in respect of market access is the prohibition of import restrictions, variable import levies, minimum import prices, discretionary import licensing, voluntary export restraints and non-tariff measures maintained through state trading enterprises. The AoA required all these measures to be converted to tariffs and then subjected to a binding and/or reduction. The measures related to BoP (balance of payments) provisions, general non-agriculture-specific provisions of GATT 1994 (Article XX and XXI) and agreement on safeguards are not brought within the ambit of tariffication. The modalities required the ordinary customs duties, including those resulting from tariffication, to be reduced on a simple average basis by 36 percent, with a minimum rate of reduction of 15 percent for each tariff line. The reductions were to be carried out in equal instalments over a period of six years. Where the tariff was not bound earlier the base rate was the applied rate as on 1 September 1986. Developing countries were given the flexibility of offering ceiling bindings in respect of products subject to unbound ordinary customs duties. For other products they would have to reduce the tariffs by 24 percent on a simple average basis subject to a minimum of 10 percent on each tariff line, to be implemented over 10 years. Thus, a significant development during the Uruguay Round was that all WTO Members bound their tariffs on all agricultural products. And there was no vagueness on what constitutes agricultural products as the specific chapters of the Harmonized System, headings and sub-headings have been enumerated in the Agreement. 
  
  To ensure that the tariff levels are not prohibitive, minimum access provisions have been incorporated. If there are no significant imports, a tariff quota at a low or minimal rate, starting with three percent corresponding domestic consumption in the first year of implementation period and rising to five percent in the last year. In addition the WTO members have a right to impose additional duty on a product in any year when either the volume of imports exceeds or the price of imports falls below the designated trigger levels. 
  

• Domestic Support - The domestic support provisions are categorised into Green Box, Blue Box and the Amber Box measures. The Green Box and Blue Box measures are considered less trade-distorting and are exempted from reduction commitments. 
  
  The listed Green Box measures are general services (e.g. research, extension, capital works for infrastructural services), buffer stocks for food security purposes, domestic food aid, direct payments to producers, decoupled income support, government participation in income insurance and income safety net programmes, payment for relief from natural disasters, structural adjustment assistance (provided through producer retirement or resource retirement programmes or through investment aids), and payments under environmental and regional assistance programmes. Blue Box measures include the direct payments and the set-aside payments under production limiting programmes. 
  
  The Amber Box measures require computation of Aggregate Measurement of Support (AMS), which was the annual level of support, expressed in monetary terms, provided for an agricultural product in favour of producers of the basic agricultural products. These calculations had to be made separately for product-specific and non-product-specific support. Product-specific support had to be calculated for each product benefiting from market price support, non-exempt direct payments and any other non-exempt policies. Support that was non-product specific was required to be aggregated into one non-product-specific AMS. There was no requirement to undertake reduction commitments if the product-specific AMS, expressed as a percentage of the value of the production of the relevant product and non-product-specific AMS expressed as a percentage of the value of the entire agricultural production came to less than the de minimis level of five percent (10 percent for developing countries). The modalities required WTO Members to reduce the Base Total AMS by 20 percent in equal instalments over a period of six years. For developing countries the reduction commitment was lower (13.33) and the implementation period longer (10 years).
  

• Export Subsidies - The AoA mandates the Members to undertake reduction commitments in respect of six main types of export subsidy practices that were prevalent at that time and incorporate them in their schedules. It prohibits Members from providing the listed subsidies in respect of the products and group of products specified in the schedules in excess of the commitments indicated therein and from providing any such subsidies at all in respect of any product not specified in the schedules. Thus in respect of products where no reduction commitment has been undertaken the presumption is that the Member concerned has bound the export subsidy at zero. The WTO Agreement required that the reduction commitments be undertaken both on budgetary outlay and export quantity. It provided that during the six-year implementation period the budgetary outlays and the quantities benefiting from export subsidies must be reduced by 36 percent and 21 percent of the 1986-1990 base period levels, respectively. The reduction commitments for developing countries are lower i.e. 24 percent for budgetary outlays and 14 percent for exported quantities, and are to be implemented over a longer period of 10 years. More importantly these countries were exempted from the requirement to undertake reduction commitments in respect of two of the six listed export subsidy practices for the duration of the implementation period.
  

An analysis of the implementation of AoA by the EEC brings forth the following points. 

• Prohibitively high tariffs, which afford higher protection, have replaced the erstwhile non-tariff barriers. 
  

• Less transparent non-ad valorem tariffs dominate the EEC schedule on agricultural products.
  

• Prohibited measures such as variable levies and minimum import price are still existent in covert form in the market access regime of the EEC.
  

• The present system of current and minimum access TRQs offers very little trade opportunities for countries not having preferential trade agreements with EEC. 
  

• The price triggers used by EEC have been considerably higher than the corresponding external reference prices.
  

• Selection of 1986-88 as the base period allowed EEC to have a large Total AMS in the base year and at the end of the implementation period there remained a large gap between the bound level and the Current Total AMS. 
  

• The requirement to make reduction on the basis of the Total AMS, rather than on product-specific and non-product-specific support separately, enabled EEC to retain the pre-existing levels of subsidies or make minimal reductions on such highly protected products as white sugar and dairy products.
  

• The non-adherence to the stipulations of Blue-Box measures resulted in trade distortion. 
  

• The current levels of AMS with Blue-Box payments included, as is the case with base-year AMS, turn out to be significantly higher than shown by EEC countries. 
  

• There are hidden trade distortions in some of the Green Box measures such as investment subsidies. 
  

• The system of exempt direct payments has merely substituted the use of export subsidies by EEC. Coupled with Blue Box payments in the current form, these direct payments are highly trade distorting in nature. 
  
  

Agricultural products constitute only 10.2 percent of EU's total imports from India. This may be due to the high tariffs in case of white sugar and dairy products and protection accorded through other indirect measures like specific duties in case of horticultural products. These are the products in which India has a reasonable degree of comparative advantage. Therefore, India and EEC should address this problem of high tariffs and other indirect measures of protection. This may go a long way in improving the trade in agriculture between the two countries. The Generalised System of Preferences (GSP) of EEC may be another instrument through which promotion of agricultural exports from India may be achieved.

The important thing to note is that the composition of India's trade with the EU is almost the same today as it was 10 years ago. The economic reforms launched in India in 1991 have made little difference to the composition of the trade basket. India has failed to move up the value chain and continues to export the same goods as in the past. This may be due to lack of dynamism in export thrust of Indian trade policy. This calls for new approaches by Indian policy makers like vertical integration of supply chain - from farm to processor to export house - and export of more value-added agricultural items. 

There are various other factors for stagnant export growth from India to EU. The number of non-tariff barriers being faced by Indian products in the EU markets including in the marine and agro sectors is one reason. Another major factor is the various anti-subsidy and anti-dumping actions initiated by the EC against India. India, whose bilateral trade with the EU accounts for less than two percent of the EU global trade, has achieved the dubious distinction as the country with the second highest number of anti-dumping actions by the EC during the past two years. India has also faced a number of commercial policy constraints (not just in agriculture) from the EU in the form of quantitative restrictions, sanitary phytosanitary (SPS) / technical barriers, anti-dumping/anti-subsidy investigations which have a great bearing on our exports. There is also increasing evidence that the multilateral system was being loaded with more and more non-trade issues. Distorting trade barriers and protectionist measures are being introduced to negate the achievements of the multilateral trading system. Similarly, special and differential treatment available to developing countries under various WTO agreements were not being fully implemented (for example Article 15 of the Anti-Dumping Agreement) was rarely being taken into consideration by the developed countries. All these issues need close scrutiny and corrective action for a step up in trade relations between these two important entities in the global system.    



About the Author: C.S.C. Shekhar is a fellow at Indian Council for Research on International Economic Relations.
Email: sekhar@icrier.res.in, sekhar@icrier.org

The views expressed are strictly those of the author.and have no relation with the institutional affiliation of the author.
All figures are from the FAO Trade Year Book (various years).