WTO threatens RI's rural poor

WTO threatens RI's rural poor

Aileen Kwa, Geneva

The draft framework which the World Trade Organization (WTO)
issued on July 16 is a threat to the poor in Indonesia,
especially those already struggling to scrape a livelihood
together. The draft was released in preparation for a meeting of
WTO members this week (beginning 27th).

Indonesia rejected the draft and should be congratulated. It
is not being deliberately intransigent or inflexible. The draft
which protects the interests of the European Union and U.S. puts
in place the legal framework for these two superpowers to
continue the dumping of their cheap agricultural produce on the
developing world -- with detrimental consequences to the lives of
ordinary people. And Indonesians have already had first hand
experience of this.

The sweeping liberalization policies Indonesia put in place in
1998 -- lowering tariffs as well as the deregulation of BULOG
(National Logistics Agency) -- provided what the major powers,
especially the U.S. wanted -- a big market for its agricultural
surpluses.

Indonesia's applied tariff rates were brought down to 5
percent or less even on staple products. The tariff on soy and
rice were set at zero and on corn, it was 5 percent. Only after
social and political chaos and rioting was the rice tariff
adjusted to 30 percent.

The results of liberalization on both these fronts have led to
pandemonium. Imports have not stopped flooding into the country.
Overnight, rice imports tripled and has now stabilized at about
3.5 million tons per year (or close to 6 percent of domestic
consumption). Sugar imports soared -- from 20 percent of domestic
consumption to 50 percent. Soybean imports now also make up at
least 50 percent of domestic consumption.

The impact on rural employment is most apparent in soy. Where
there were five million soy producers in 1996, by 2001, there
were only 2.5 million. Taking one producer to be supporting a
family of four, 10 million people's lives have been affected.

If the urban sector had jobs to offer, no one would be
complaining. If people had the stomach and reserves to undergo
this "structural adjustment", again, complaints would be muted.
Unemployment or underemployment is a permanent reality. Half of
the 220 million people still live hovering on the poverty line.

The U.S. and EU each provide about US$80-90 billion of
subsidies (domestic and export supports) to their producers a
year. This is depressing world prices. Countries that have opened
up their markets, like Indonesia, find that their domestic
producers are priced out even of their own local markets.

Rice and soy are staple foods in Indonesia. In the U.S.,
government subsidies for these crops have soared in recent years.
In 2002, rice was produced in the U.S. at $18.26 / bushel and
exported at $11.8. The production price for soy was $7.34 /
bushel. It was exported at $5.48 per bushel.

U.S. supports on corn increased from $32 million in 1995 to
$2.8 billion in 2000. In soy, the corresponding figures were $16
million to $3.6 billion. In rice, where the U.S. is now emerging
as a leading exporter, supports increased from $11.6 million to
$763 million by 2001.

The WTO's Draft Framework -- Implications for Indonesia

Instead of rectifying the situation, the WTO's draft agreement
is reinforcing the distortions.

1) U.S. and EU subsidies will be maintained and in contrast to
the rhetoric of protecting the weak through fair rules, the WTO
is providing legal coverage for this injustice.

2) Despite this dumping, developing countries are asked to
undertake a comprehensive round of tariff cuts to further open up
their markets.

3) Embedded deep in the trade jargon of the draft text to be
debated on this week is a sentence on State Trading Enterprises
and that "the future use of monopoly powers will be subject to
further negotiation". This could severely curtail even the
current limited powers of BULOG.

This would be a big blow for Indonesia since BULOG's role in
ensuring food security and fair prices for producers before 1998
had been critical. Tariffs are an important defense mechanism
against dumping.

However, BULOG's control over import quantities were
extremely critical and are a more practical tool for the future.
This is because tariffs can keep out imports but have the effect
of inflating domestic prices -- something the government tries to
avoid given the history of rioting and political chaos when food
prices run amok.

The Indonesian government has been at the forefront
championing the concept of "special products" (SP) -- that
products important for food security and rural livelihoods must
be exempted from further tariff cuts. However, Indonesian
government officials would be foolish to base their nation's
sovereignty and the lives of millions on the hope of having SP
endorsed for two main reasons:

Firstly, the July draft is a good indication that the
developed countries are not prepared to concede any ground. U.S.
and EU have not said yes, only that they would look into the
matter.

Secondly, all indications point to a very narrow SP that might
materialize -- eg. three to five products. SP products may also
have to face tariff cuts, just by a smaller percentage. Real food
security cannot be whittled down to a small number of items.

Until Indonesian government negotiators can confidently claim
that an agreement will bring equity to agricultural trade, it is
in the people's best interest that the negotiators reframe from
agreement this week. A bad agreement will consign many more
million people to misery and unemployment -- something the
country cannot afford.

The writer is a researcher at Focus on the Global South.