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.