The impact of GATS on agriculture

Excerpted from Sailing Close to the Wind: Navigating the WTO Ministerial

a publication of the institute for agriculture and trade policy iatp.org The impact of GATS on agriculture

Introduction Distribution services, which are of Conventional wisdom on the World increasing importance for farmers to Trade Organization negotiations market their products. Both at the By has it that there will be a trade-off wholesale and the retail level, market Tobias Reichert between concessions made by in- power in the distribution sector is with dustrialized countries in agriculture increasingly concentrated. This pro- additional research by and concessions made by developing cess is already very advanced in most Tom Lines countries in services. What is often industrialized countries, therefore overlooked are the linkages between affecting the export opportunities of the two sectors, especially the im- farmers in developing countries. pacts on agriculture of the liberaliza- Financial services, which are vital for tion of crucial services sectors. the provision of agricultural credit, At fi rst glance it might seem that the especially for smaller farmers who GATS has little to do with agricul- often face major problems in access- ture. Its list of 160 service sub-sec- ing loans from commercial banks on tors makes little direct reference to affordable terms—if they get credit agriculture and food: they include at all. just “Services incidental to agricul- Infrastructural services, especially ture, hunting and forestry,” “Services water and energy, which are often incidental to fi shing” and “Veterinary more diffi cult to supply in rural ar- services,” all within the broad catego- eas. In a liberalized and profi t-driven ry of “Business Services.” system for the provision of these es- Yet the agriculture and food economy sential public services rural popula- tions may be neglected. In the longer around the world has been massively term, GATS commitments could transformed by services. Farmers are also extend to the distribution of increasingly integrated into global irrigation water, which is essential food supply chains that strongly in- especially for farmers in developing fl uence their production and mar- countries. keting decisions. Small land-holding farmers are especially dependent on Transportation, tourism, telecom- the effi cient and equitable provision munications and professional servic- of services that enable them to par- es, especially with regards to agricul- ticipate in these supply chains on tural extension, bear on agriculture affordable terms. Consequently, the as well.26 Requests to liberalize these liberalization of those services can sectors have been tabled and are not have a major impact on agriculture surveyed in this paper due to space especially in developing countries. restrictions.

This paper will focus on the services Of the different ways of “trading” sectors that have the closest link to services—referred to as “Modes of agriculture: supply” in GATS—“Commercial iatp.org 1 sailing close to the wind

Presence” (Mode 3) is most relevant for the agricultural requirements pertaining to government authority sector. In Mode 3 services are provided “by a service over environmental protection. supplier of one Member, through commercial presence  Emergency safeguards: Introducing the option in the territory of any other Member.” In other words, for countries to temporarily remove some of their they’re provided by means of foreign direct investment either by establishing a subsidiary in the “importing” GATS commitments if these turn out to have un- country or by buying a domestic company there. expected adverse effects in unforeseen situations (e.g., major fi nancial crises). Unlike other WTO agreements, GATS is structured as a series of negotiations between countries, in which one With the exception of emergency safeguards, all these “requests” the other to open up a sector of its economy to new rules aim at reducing the policy options of gov- its fi rms. The second makes related “offers” in response. ernments in “importing” countries and the multilater- This is designed as a fl exible, “bottom-up” process, en- al GATS negotiations are about how far this process abling every member to liberalize its service sector at should go. the pace it prefers. Unilateral liberalization of services, often a policy condition for developing countries to get The requests and offers made to each other by GATS loans from the Group, is much less fl exible members as part of the negotiations are not generally and is not accounted for when measuring the extent of made known to the public. In most cases it is not even liberalization (“ambition” in WTO parlance) in devel- made known which sectors are under discussion be- oping countries GATS offers. Since market access ne- tween one member and another, let alone what changes gotiations take place in bilateral and private meetings, in them have been suggested. little information is available about what requests have been made of different countries before a fi nal deal is However the initial requests made by the European settled and then published. Union in July 2002 were made public when the Polaris Institute in Canada released them.27 Therefore, and Parallel to this bilateral request-offer process for market because of EU importance in GATS negotiations, this access, there are multilateral negotiations to clarify and expand certain provisions of the GATS agreement that paper takes the EU’s requests as an example of what is apply to all service sub-sectors. These so-called “hori- asked of developing countries. zontal” rules negotiations can have substantial impacts The EU (which comprised 15 countries at the time) on agriculture as well since they are dealing with: made GATS requests to 109 countries, of which 94  Subsidies: Establishing which type of subsidies to are classifi ed as developing countries or economies in services companies are considered trade distorting transition and 29 as least developed countries (LDCs). and therefore have to be disciplined, which are not, Even to LDCs, requests were generally made in three and under what conditions. to fi ve of the 12 sectors, while three LDCs (Bangla-  Domestic regulation: Establishing categories of desh, Madagascar and Mozambique) found six sectors regulatory or legislative authority exercised by gov- targeted and both Angola and Tanzania, seven.28 As you ernment or their delegated representatives that go up the income scale, the number of sectors targeted can have a trade distorting effect. Such categories, rapidly increases, so that nine are covered in the EU’s still under negotiation and applicable to bilateral requests for Kenya and 12 for . commitments already made, include licensing re- quirements, commercial zoning requirements and

2 institute for agriculture and trade policy the impact of gats on agriculture

Distribution services number of suppliers. The contracts are often designed in “Supermarkets are now the main gatekeeper to a way that allows retailers to place orders on very short markets for agricultural pro- notice, refuse products for quality reasons and pay only duce. ... To sell in world markets, especially mar- kets for higher value-added crops, is increasingly several months after delivery, thereby capturing value 34 to sell to a handful of large supermarket chains.” while passing business risks to suppliers and farmers. —UNDP: Human Development Report 2005 (p. 142) These factors taken together put producers and especially smaller farms at a disadvantage in supplying these global The emergence of retail driven supply chains players. In Kenya, the share of small farmers in horticul- Globally operating super- and hypermarket (carrying tural exports decreased from 70 percent to only 18 per- food, clothes, electronics, etc in one store) companies cent in the late 1990s, while large commercial farms and such as Wal-Mart, Carrefour, Ahold, Metro and Tesco export companies with their own production make up play an increasing role in shaping the global food econ- more than 80 percent.35 omy. In 2002, the 30 largest food retailers accounted for So far, mainly farmers in developed countries and those one third of global retail sales to consumers.29 In Eu- farmers in developing countries that export to devel- rope, the food purchased by its 430 million consumers oped countries markets have been affected by this pow- is channeled through 110 buying desks of the retailing er concentration in the supply chain. The distribution companies.30 The major retailers exercise an increasing- ly tight control on their global supplies, often replac- and retail sector in most developing countries is still to a ing traditional wholesalers and establishing a de facto large extent shaped by small, family owned shops, infor- monopsony31 on their suppliers. At the same time, they mal markets and street vendors, providing small farmers are able to source similar products from a large pool of a market with less powerful and demanding counter- suppliers in a wide range of countries. parts. But this has already started to change. The size of the food market in industrialized countries as a whole is This market power puts retailers not only in a dominant limited by the nature of the product. Population in most position in price negotiations with suppliers, but also in of these countries is stagnating and people cannot eat defi ning the quality standards the products have to meet and drink more than a certain amount. and the conditions and timing of delivery. This exercise of market power is especially prevalent for products like Since further expansion of the supermarket companies’ fresh fruit and vegetables, for which supply chains need home markets is limited, they have started to expand to be short and effi cient to ensure that the products arrive rapidly into other countries around the world. It is re- to their outlets before quality deteriorates. In addition, ported that, “Now that Tesco sells almost 30 percent of supermarkets and their customers tend to judge the qual- all the groceries sold in large supermarkets in the UK, ity of fruit and vegetables on criteria like their appear- growth opportunities in its traditional markets are be- 32 ance rather than less visible properties like taste. coming limited. Consequently, international expansion At the same time, food safety standards require a strict and diversifi cation out of groceries have become central 36 control of potentially harmful substances such as pes- to the group’s strategy.” While Tesco’s sales outside its ticide residues and nitrites. Food safety regulations UK home market were less than 20 percent in 2002, and internal company standards also require the abil- Dutch group Ahold made 85 percent of its total sales ity to trace products back to the farm where they were in foreign markets that year, and Carrefour of France grown.33 To ensure the timely delivery to numerous and German Metro were both just below 50 percent.37 retail outlets, companies prefer to buy large amounts While most foreign markets are in other developed of products meeting uniform standards from a limited countries, these transnational fi rms are looking increas- iatp.org 3 sailing close to the wind ingly to developing countries, especially those with a retail companies were totally or mainly owned by for- growing group of better-off urban consumers. eign companies in 2000.41 The consequent supply chain requirements of these food retailers for red meat pushed Examples of food retail market penetration by trans- dozens of small slaughterhouses, traders and truckers national corporations can be found in Asia and Latin out of business.42 Similarly, price competition and con- America. Without specifi cally committing itself under solidation of dairy companies cut off markets for smaller the GATS, Thailand has placed few restrictions on for- Brazilian dairy farmers. The number of farmers deliver- eign investment in this sector. The Thai government ing milk to the top 12 dairy companies decreased by 35 recently found that “modern” large retailing outlets rap- percent between 1997 and 2000.43 idly expanded, as European companies took advantage of the East Asian fi nancial crisis in the late 1990s. In The emergence of super- and hypermarkets in develop- four of the fi ve years from 1997 to 2001, trade (particu- ing countries means that farmers there face conditions larly retail) was the sector with the largest fl ows of in- that increasingly take on the characteristics of export vestment in Thailand. Large European companies such markets.44 Small and poor farmers may be locked into as Carrefour, Ahold and Tesco rapidly expanded their subsistence production and able to sell only through in- hypermarkets, supermarkets and cash-and-carry stores. formal distribution channels supplying poor consumers, Thailand became Tesco’s third largest foreign market, thereby reinforcing the “dual” economies that already ex- accounting for 14 percent of the company’s internation- ist in many developing countries. al sales in 2004. Regulations and restrictions in the A similar picture emerged in upon its accession distribution sector and the impact of GATS to the WTO, after which foreign chain stores accounted Until now, few developing countries have introduced for 23 percent of all big new supermarkets. In Malaysia regulations to ensure a more equitable relationship hypermarkets and large supermarkets account for more between producers and distribution companies. How- than half of retail sales and are mainly owned by foreign ever, a number of countries have limited the expansion 38 companies including Carrefour, Tesco, Jusco and Giant. of super- and hypermarkets to protect the traditional In China, Malaysia and Thailand traditional small and small-scale shops and give them more time for adjust- family owned shops are put under strong pressure from ment. Malaysia has banned the establishment of new this new competition. According to a report submitted hypermarkets in certain areas until 2009.45 This can by Thailand to the WTO: “acute political outcry against have indirect benefi ts for farmers and other suppliers, retail service liberalisation” became “a very hot potato for since alternative marketing channels to the supermar- the current administration” and had “given rise to seri- kets buying desks are maintained. ous thoughts on having appropriate and sound regulatory framework set before liberalisation is unleashed in a fast A minority of WTO members have made commit- and uncontrolled manner.”39 India, on the other hand, ments for the distribution and retail sectors in the does not allow foreign direct investment in the retail sec- GATS. Only 29 members made specifi c commitments 46 tor and consequently, less than 2 percent of the sales are for the retailing sector, and only 13 of these are de- channeled through supermarkets.40 veloping countries—including the advanced developing countries South Korea and Hong Kong—and four Af- In Latin America, supermarkets control 50-60 percent rican LDCs (Burundi, Gambia, Lesotho and Senegal). of the food retail sector, up from 10-20 percent only 10 Amongst the larger developing countries, only Argen- years ago. In Brazil, which has fully opened its distri- tina, Brazil, China and South Africa have made com- bution sector to foreign direct investment and bound mitments in retailing, the Chinese commitments being this commitment in the GATS, four of the fi ve biggest a result of its accession negotiations.

4 institute for agriculture and trade policy the impact of gats on agriculture

The EU has requested47 a large number of developing The full commitment to market access and national countries to make commitments in the distribution sec- treatment in the GATS would therefore stop develop- tor. It requested full market access and national treat- ing countries from moderating the emergence of retail ment for its wholesale and retail companies from a total driven supply chains in their domestic markets and at of 36 developing countries: , Bahrain, Bolivia, the same time seriously restrict regulations aimed at Brazil, China, Colombia, Ecuador, Egypt, El Salvador, enhancing the capacity and power of small farmers to Honduras, Hong Kong, India, Indonesia, Korea, Kuwait, supply them on favorable terms. Malaysia, Mauritius, Mexico (clarifi cation of scheduled exemptions), Morocco, Oman, Pakistan, Panama, Para- Financial services guay, Peru, , Qatar, Singapore, South Afri- “In meeting the demands of international mar- kets, farmers will need to produce commodi- ca, Sri Lanka, Taiwan, Thailand, Tunisia, United Arab ties according to international standards and Emirates, , Venezuela and Zimbabwe. qualities. ... Signifi cant changes in the produc- tion structure may be required in terms of en- For another 16 countries, the EU requested to “consider terprise choice and the degree of specializa- making commitments” without specifying what these tion, adjustments in farm size and integration should entail: Antigua, Barbados, Belize, Brunei, Costa of farm production with farm input supply, Rica, Côte d’Ivoire, Cuba, Dominican Republic, Gua- agro-processing and marketing in the same commodity chain. ... Agricultural credit can temala, Jamaica, Kenya, Macao, Nigeria, St. Kitts and play an important and sometimes crucial role Nevis, St. Lucia, Trinidad and Tobago. in facilitating these required structural trans- formations in production and marketing.” The EU has made no requests to LDCs in the distribu- —FAO, GTZ, 1998: Agricultural credit revisited (p. tion sector. 23) If all countries requested were to commit their distri- bution as asked for by the EU, the rapid expansion of The importance of rural credit for small farmers The quote above highlights the important role of agri- super- and hypermarket driven supply chains would be cultural credit in enabling farmers to meet the quality very likely, including in countries with a large popula- and marketing requirements of modern supply chains. tion of small farmers who rely on domestic markets for As shown above, transnational fi rms increasingly im- the sale of their products. Regulations that would re- port their requirements into the domestic markets of quire, for example, retail companies to purchase at least many developing countries, a process that may be ac- part of their supplies from small producers and farmers celerated by the liberalization of distribution and retail- and/or assist them to meet higher product standards, ing services in the GATS. Smaller farms need access could be challenged through the WTO dispute settle- to suffi cient fi nancial resources to adapt their produc- ment process as a trade distorting domestic regulation. tion to these fundamental changes. Even if they want This challenge could occur even, if the respective re- to improve productivity and production only in their quirements were to apply to all large retail companies, traditional activities, they are usually not able to fi nance since the GATS bans de facto discrimination between the necessary investments from their own resources. At domestic and foreign companies. If all or most large re- the same time, small farmers are often “unattractive” tailers were owned by foreign companies, which is not as clients to commercial banks due to low volumes of an unlikely scenario, the companies could lobby their loans and high transaction costs. In the 1970s and ’80s, Members to launch a WTO dispute by arguing the many developing countries tried to address the diffi cul- foreign headquartered companies have to meet require- ties faced by the agricultural sector through the estab- ments of which domestic retailers are exempt. lishment of state owned or controlled agricultural banks iatp.org 5 sailing close to the wind that provided credit at subsidized interest rates. The reformed rural credit institutions, including those fo- impact of most of these banks was considered disap- cusing on the poorest like the Grameen World Bank in pointing, however, due to a number of factors, including Bangladesh. The link of grassroots organizations of this the de facto preference to lend to larger farms, low regu- type with the formal banking sector continues to pose a lated prices for farm products, high default rates and challenge that may require public interventions.52 While consequently a continued reliance on government funds there is broad agreement among the majority of rural to cover losses.48 As a result, many of these banks and development experts that some form of government as- programs were closed or signifi cantly scaled down—re- sistance to rural fi nance institutions in developing coun- sulting in a much lower availability of agricultural credit tries is necessary, there is also agreement that there is no overall. uniform approach among or even within countries and their different farm communities. Consequently, devel- In Mozambique, liberalization of the rural banking net- oping countries need a suffi cient amount of fl exibility to work led to a reduction in the number of rural branch- develop, test and implement support measures tailored es. Farmers heavily dependent on seasonal income, in to the specifi c needs of their rural poor. a country where transport is diffi cult, were left with no access to credit.49 In Malawi, the World Bank pre- GATS commitments in fi nancial services limit policy scribed privatization of the Smallholder Agricultural instruments to support rural fi nance institutions Credit Administration, which had indeed been focused The main pressure for the global liberalization of ser- on small farmers. It operated successfully with a good vices has come from the fi nancial sector—particularly loan recovery before it ran into diffi culties during a very that of the and the United Kingdom. bad drought in 1992. The renamed and privatized Ma- The idea of creating a counterpart to GATT for ser- lawi Rural Finance Company tended to disqualify the vices came from U.S. banking executives, who formed poorest farmers by only lending to farmers who also the U.S. Coalition of Service Industries. It remains the produced a cash crop in addition to maize, the main most powerful business lobby behind the GATS. A staple crop.50 counterpart, the European Services Forum, was set up These examples underline the view, held by many ana- on the specifi c initiative of Sir Leon Brittan, the EU’s lysts, that public support to rural fi nance institutions in Trade Commissioner in the 1990s.53 developing countries is necessary due to inherent prob- It is unlikely that commercial banks from industrialized lems that make investments risky and costly:51 countries making foreign investments will start provid-  Clients are scattered geographically, making service ing services in rural areas, particularly for the rural poor delivery expensive and information on potential in developing countries. In fact, they are even less likely borrowers diffi cult to obtain and evaluate. to do so than domestic banks. What they are more likely to focus on are “high end consumers,” i.e., rich clients,  Most farmers tend to borrow at the same time, e.g., 54 in the pre-harvest season and save immediately af- leaving domestic banks with less profi table clients. ter harvest. This makes it diffi cult for rural fi nancial This client focus could contribute to a further segmen- institutions to diversify their portfolios. tation of fi nancial markets, making it more diffi cult for rural fi nance institutions to diversify from rural clients  Poor farmers own few assets, making it infeasible to with their seasonally uniform credit and savings needs. secure loans with collateral. It is an open question whether foreign owned banks are Because of the diffi culties faced by commercial banks more likely to channel the savings deposited with them in servicing smaller farms, many governments and/or to investments in other countries, thereby increasing development agencies continue to provide support to “capital fl ight” from developing countries.

6 institute for agriculture and trade policy the impact of gats on agriculture

Certain targeted support measures for rural fi nance The requests to LDCs seem to have been made in a institutions may also be considered as trade-distorting “copy and paste” mode because all LDC requests56 for and therefore illegal, subsidies under the GATS. Since banking and other fi nancial services ask to: the negotiations on specifi c subsidies under the GATS  Commit acceptance of deposits, lending of all types, have been inconclusive so far, it is not possible to spell fi nancial leasing, all payment and money transmis- out the possible impacts in detail. But for example, the sion services, and guarantees and commitments in long term support for operation costs for institutions Mode 3. serving small farmers will likely be seen as a subsidy, which might be challenged in the WTO, if it is not  Commit provision and transfer of fi nancial infor- generally allowed as legitimate in the GATS disciplines mation and advisory and other auxiliary fi nancial on subsidies or treated as a special and differential treat- services in Mode 1. ment measure for developing countries. To “commit acceptance” of deposits and lending of all types doesn’t necessarily mean that no conditions can Experience in the , which has a much be applied to these commitments. However, as becomes more liberal domestic fi nancial market than is so far en- clear from looking at the requests to other developed visaged in the GATS, shows that even much more indi- countries, any restriction, regulation or conditionality rect public involvement in fi nancial institutions can be scheduled, is highly likely to be targeted in the next ruled as market distorting. In , local authorities, round of negotiations. In the current negotiations, the such as cities and counties, guarantee the deposits in lo- EC has basically done this with all non-LDC develop- cal savings banks. Initially this guarantee was to provide ing countries, including for measures that are relevant clients with a safer opportunity to deposit their savings, for agriculture through : allowing many working class households to access these services for the fi rst time. Although none of these savings  A request to Korea to remove mandatory lending to banks ever defaulted55 and therefore no actual transfer of small- and medium-sized Enterprises. resources from state authorities to the savings banks took  A request to Mexico to permit foreign investment place, the EC ruled that the public guarantees amounted in credit unions, savings and loans companies and to an unfair advantage, since they allowed the savings development banks, a request to the Philippines to banks to get a higher credit rating than, for example, “clarify” why specifi c requirements on lending to the German government. A higher credit rating results small and medium enterprises and agro-business in lower borrowing rates on capital markets. Developing have not been scheduled in its commitments. countries may want to establish some form of guaran- The requests of the EU to liberate fi nancial services in tees for local and rural fi nancial institutions. Strict GATS developing countries and LDCs poses risks for poor disciplines on government support for fi nancial institu- farmers. As the example of Malawi described above has tions may make this impossible. shown, the consequent loss of access to credit can be disastrous for and rural employment. The EC has made initial requests to liberalize fi nancial services to a total of 75 developing countries. These re- quests include 24 LDCs: Angola, Bangladesh, Burkina Infrastructural services Faso, Burundi, Cameroon, Central African Repub- Environmental services lic, Chad, Democratic Republic of Congo, Republic Friends of the Earth International calls this GATS sec- of Congo, Djibouti, Gabon, Guinea, Guinea-Bissau, tor a “misnomer” since it mainly concerns water supplies Madagascar, Mali, Mauritania, Niger, Rwanda, Sen- and waste disposal, not the fi ght against pollution.57 egal, Tanzania, Togo, Uganda and Zambia. Although water distribution is not contained in the iatp.org 7 sailing close to the wind original GATS classifi cation of environmental services, tion, where public water services are unlikely to recover the EU has requested the liberalization of water dis- their costs in the short or even medium term. Regula- tribution for human consumption under this category. tions that require private companies to supply water in So far, there have been no attempts to include the dis- both urban and rural areas might come under attack in tribution of water for irrigation in agriculture into the subsequent GATS negotiations, as are requirements to environmental services category. In fact, irrigation is not lend to the rural sector and small and medium sized explicitly covered by any of the services categories used enterprises. for GATS negotiations. It is therefore unlikely that re- quests for the liberalization of irrigation water are or If the EU is successful in including the distribution of will be made during the current round of negotiations. water for human consumption under the category of environmental services, it may use this as a “foot in the Farmers, farm workers and the rural population in door” to also include irrigation water at a later stage. By general will be affected, if the supply of potable water far the largest part of freshwater use is for irrigation: 70 is liberalized under GATS. There is a long history of percent on a global average and well beyond 80 percent privatizing water supplies in developing countries and in many developing countries.58 The supply of irrigation it is not a happy one. Water charges to the public have water is likely to become more attractive commercially, increased, water quality has often worsened and it has if the trends towards larger and more market orient- become harder for poorer people to have access to clean ed farms in developing countries continues. As shown water. In countries as diverse as Bolivia, Ghana, Pana- above, liberalization in other services sectors, most no- ma, Tanzania and Trinidad, privatization was either re- tably distribution, is likely to accelerate this process. versed because it failed in its own terms, public protest made sure water distribution was brought back into the Energy public sector, or civil society prevented privatization al- As with freshwater distribution, the offi cial list of service together. If these sectors had been “committed” under sectors used in the GATS negotiations does not include GATS, most such reverses would have been impossible energy as such. The only reference to it is to “Services because of the “compensation” that has to be granted incidental to energy distribution” under the heading of and accepted by other WTO members if GATS com- “Business Services.” Only six countries have committed mitments are revoked. themselves to GATS rules in that area. Yet both the EU In GATS negotiations, the EU’s initial requests targeted and the U.S.—and several other countries—have made environmental services—including water—in 63 devel- detailed proposals to extend GATS into many areas of oping countries, including seven LDCs and 14 low-in- energy production and distribution and made numerous come countries. The EU describes its main category for requests in this fi eld to others. The EC has made ini- water as referring only to urban main supplies “for hu- tial requests to 38 developing countries, including two man use.” The focus on urban supplies implies another LDC (Angola and Cameroon) countries. type of “cherry-picking”: Areas with higher population The European Commission states that, “As far as the density and higher income are potentially more profi t- more vulnerable countries are concerned, the revised re- able since they can be supplied with less investment in quests have only been addressed to a limited number of infrastructure, for example pipes to individual house- countries with important energy resources.”59 holds, than the infrastructure required for more sparsely populated rural areas. If water multinationals take away A particularly large and detailed request on energy ser- the wealthier urban clients of publicly owned water ser- vices is made to India. Much of the EC request refers to vices, those services will be unable to use profi ts from the electricity sector—despite the possible implications the wealthier clients to invest in rural water distribu- in higher charges for electricity to run irrigation pumps,

8 institute for agriculture and trade policy the impact of gats on agriculture and despite the hard lessons learned from the failed U.S. (a question that is completely open at the current stage company Enron’s investment in a large, debt-fi nanced of negotiations) and unfair competition from low power plant in Maharashtra state in the 1990s—which, priced imports controlled, small farmers can still face among other things, provoked widespread local pro- serious problems in accessing their domestic markets. tests.60 That experience alone should be a warning signal The combination of supermarket power, the cost of in- against entering into GATS commitments since they frastructure investment to comply with standards and make most liberalization efforts effectively irrevers- the unavailability of affordable rural credits may leave ible. Overall, liberalization of the energy sector entails small-scale farmers with just two choices: limit them- similar risks for the rural population as does the liber- selves to subsistence production or give up agriculture alization of freshwater distribution. Private companies altogether. are likely to focus on more profi table urban clients and neglect poorer rural clients which are more diffi cult to In many developing countries, the loss of small-scale supply. In fact, one of the more successful examples of farmers access to domestic markets has already started rural electrifi cation has occurred in South Africa where to take place, especially with the liberalization of the a publicly owned company extended its services into ru- retailing sector. A commitment to full liberalization of ral areas.61 this sector under the GATS agreement would make it incredibly diffi cult to limit and control the dominant Conclusions position of retailers and introduce regulations in favor The analysis shows the tremendous potential impact of small farmers and businesses. Therefore it is essen- of services liberalization on agriculture in general and tial to take a comprehensive look at the impacts of all on small farmers in developing countries in particular. aspects of the WTO-negotiations on farmers and farm Against this background, it becomes obvious that safe- workers, especially the poorest amongst them and to guards to protect and support small farmers are insuffi - ensure that no commitments are made in sectors linked cient if they are based in the Agreement on Agriculture to agriculture that would seriously limit the policy space alone. Even if special products and a special safeguard necessary to protect and support family farmers in a mechanism could be introduced on a meaningful scale rapidly changing economic environment.

iatp.org 9 sailing close to the wind

References 47. See EU initial requests, above. 26. For a discussion of the potential effects of GATS on agricultural 48. FAO and GTZ, 1998: Agricultural Credit revisited: Why?, p. extension services, see: IATP, 2003: The WTO services 2f agreement: Possible Impacts on agriculture. 49. Jessica Woodroffe, GATS: A Disservice to the Poor, World 27. The EU’s initial GATS requests of 2002 can be found at www. Development Movement ((London,London, 22002),002), pp.. 448.8. gatswatch.org/requests-offers.html#outgoing. 50. Mosley, 1999: The impact of fi nancial liberalisation on access to 28. World Development Movement, Media Briefi ng: A preliminary rural credit in four African Countries, p.13 analysis of the EU’s leaked GATS requests to 109 WTO member 51. Zeller and Sharma, 1998: Rural Finance and Poverty Alleviation; states (London, 2003). International Food Policy Research Institute, p. 15 29. Vorley, Bill, 2002: Food Inc.; UK food group, IIED; London, p. 52. FAO and GTZ, 1998: Agricultural Credit revisited: Why?, p. 28 50 30. Arkell Julian and Johnson, Michael, 2005: Final Report for the 53. See www.esf.be for details. Distribution Services Study; Sustainability Impact Assessment 54. SOMO, chapter 6. of Proposed WTO negotiations, p. 27 55. Those in fi nancial diffi culties are supported by a safety mechanism 31. That is, being the sole or dominant buyer of the products in a established and fi nanced by the savings banks themselves. given market 56. With the exception of Senegal, of which the EC doesn’t only 32. Kjell, Petra: The Retail Giants Global Expansion and Local request a kind of commitment but full market access and national Concerns; Corporate Breakdown Edition 5—February 2003 treatment in Mode 3. 33. Vorley, 2002: p. 69f 57. David Waskow and Vicente Paolo B. Yu III, “A Disservice to 34. Arkell and Johnston, 2005: p. 26 the Earth: the environmental impact of the WTO General 35. Vorley, 2002: p. 69 Agreement on Trade in Services (GATS)” (Friends of the Earth 36. “Financial Times, 2005: Tesco faces an international expansion United States, undated), p. 15. challenge,” London, June 3. 58. UN: Water Development Report 2003, quoted in: IUF: The 37. Vorley, 2002, p.29 GATS threat to food and agriculture. 38. Arkell and Johnson, 2005, p. 34 59. “Summary of the EC’s Revised Requests to Third Countries 39. “Communication from Thailand: Assessment of Trade in in the Services Negotiations under the DDA,” European Services,” WTO document TN/S/W/4, Geneva 2002, p. 12. Commission (Brussels, 2005), p. 8. 40. Mukherjee, Arpita, 2002: Distribution Services, India and the 60. For further information see Sylvie Choukroun, “Enron in GATS 2000 Negotiations; Indian Council for Research on Maharashtra: power sector development and national identity International Economic Relations, Delhi in modern India” (MA thesis at the University of Pennsylvania, 2002, available in July 2005 at www.lauder.wharton.upenn.edu/ 41. Stens, Rejane and Lima, Maria 2005: Country Study Brazil; pdf/SylvieChoukroun_Thesis.pdf) and Amnesty International, Sustainability Impact Assessment of WTO Negotiations “The ‘Enron project’ in Maharashtra—protests suppressed in Liberalisation of Distribution Services, Annex D, p.42 the name of development” (1997; available in July 2005 at web. 42. Vorley, 2002, p.31 amnesty.org/library/Index/engASA200311997). 43. Ibid., p. 58 61. Public Services International Research Unit, 2002: Resistance 44. Ibid., p. 30 and Alternatives to Energy Privatisation 45. Arkell and Johnson, 2005: p.35 46. Not including new EU members which made individual commitments before joining the EU.

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