Ethiopia joining WTO: Its impact on the agricultural sector

The purpose of establishing the GATT, which later became the WTO, was to facilitate international trade between countries. It focused mainly on trade in industrial products.

The agreements in GATT fully liberalized trade in industrial products and the use of subsidies on them was totally prohibited. However, subsidizing agricultural products was allowed and liberalizing agricultural trade was not an issue until the eighth round of negotiations dubbed the Uruguay Round. This resulted in dissatisfaction on the part of developing countries as their economies are mainly dependent on the agricultural sector, which embraces their major export items.

Through time, however, the issue of agriculture became the agenda of GATT/WTO. As a result, the Agreement on Agriculture (AoA) was concluded in April 1994 after the Uruguay Round negotiations, and came into force on 1 January, 1995. The implementation period as agreed under the AoA was 6 years for developed countries and 10 years for developing countries.

The AoA had raised expectations that the world as a whole and different group of countries, including the developing and the least developed, would benefit from agricultural liberalization. However, the speed and scope of its implementation have belied these expectations much to the disadvantage of developing countries. During the implementation of the AoA, it became apparent that it provided differentiated opportunities for developed vis-à-vis developing countries. The liberalization of agricultural trade is being associated with an increasing marginalization of a vast majority of the population from the developing and least developed countries.

Trends show that developed countries’ agricultural markets are protected by high tariffs such as tariff peaks, dirty ratification and tariff escalation, and other non-tariff barriers such as import quotas, SPS and TBT measures. They are also in a position to extensively make use of domestic support measures and export subsidies. Moreover, the exported peace clause within the AoA further shielded the developed countries from remedial action when their subsidized agricultural products gained unfair competitiveness in developing country markets.

Contrary to developed countries, developing countries, due to the intervention of IFIs and the financial constraints they face, are unable to enjoy the full utilization of the Green box and Blue box support measures. Measures such as SSGs, which are meant to safeguard domestic producers from unfair competition, are complex and inaccessible to most developing countries since they lack the legislative, institutional, financial and technical capacity to establish and enforce them so as to shield themselves from such practices.

In addition, as they are unable to protect their local producers from imports of highly subsidized agricultural products, developing countries' sustainable food security has been and continues to be compromised. Subsidized agricultural products have depressed domestic commodity prices, thereby undercutting local producers and forcing them out of production. Eventhough lower commodity prices benefit consumers, especially NFIDCs, in the long run it renders such countries perpetually dependent on volatile world market forces. Furthermore, such countries may in the long term not be able to afford such imports, thereby rendering them food insecure.

Ethiopia is one of least developed countries in the world. Like other developing countries, the agricultural sector is the single largest sector and its performance has a significant impact on the overall performance of the economy. More than 85 percent of the population is engaged in this sector. 96 percent of cropped land and 90 percent of agricultural output is managed by small-scale farmers. Most of these practice non input-intensive, rain-fed farming that does not result high yields that are unable to meet the food demands of the population. Agricultural production is lagging behind population growth. Therefore, in order to address food shortage, the government imports food from abroad.

Ethiopia mainly exports agricultural commodities. Not only do exports concentrate and depend on a single commodity - coffee - but the destination of exports also reveals a similar picture like other developing countries.

Therefore, from the available empirical evidence, it can be concluded that if Ethiopia were to join the WTO, the agricultural sector will be severely affected by the international trade. In the long run, cheap imports will lead to unemployment of the farm labor, a tendency to use lands for cash crops at the expense of food grains, declining food aid because of price increase with reduced or null domestic support, and an increase in the cost of agricultural inputs. At the same time, tariff and non-tariff barriers imposed by developed countries will limit market access for Ethiopian agricultural goods.

However, as Ethiopia is economically dependent on economically and politically powerful states, it does not have full autonomy to glegn its economic policy with its national interest. Changes in economic policy within states are increasingly being driven by external political and economic pressures. Such pressures come from the globalization of markets, the growth of economic interdependence and the increasing effectiveness of multilateral regimes. The increase in economic interdependence and the effectiveness of international trade regimes are influencing the political accountability of national government, forcing them to accommodate the interests of other state actors as well as the collective interests of international groupings. Therefore, for Ethiopia, joining the WTO is inevitable.

But before joining the WTO, Ethiopia has to take different measures in order to be competitive in the international market. First, it should make efforts to develop the core competencies of its trade officials and promote specialization since developing skill is the key to success in seizing opportunities of market opening, which WTO membership is likely to offer. steps should, therefore, be taken to remedy the deficiencies in trade-related expertise, analytical skills, negotiating skills, product development and marketing. It is also necessary to adequately address supplyside constraints to expand productive capacity competitiveness in order to take advantage of market access opportunities.

Secondly, high dependence on limited export items acts as a major block in enhancing trade opportunities. Therefore, it is necessary for Ethiopia to identify, recognize and harness the potential of whatever comparative advantages it may possess. Furthermore, Ethiopia should diversify and explore other export destinations for its products in the international market. This will enable it to contain the dominant influence orbit and bilateral pressures of its traditional export markets.

Thirdly, promoting good governance through administrative reforms, reduction in discretionary authority and a sound economic system based on the principle of fair competition and rule of law is also important.

Fourthly, government should recognize that free trade without any restriction could be an open invitation to disaster. It is, therefore, necessary to create space for policy maneuver, especially in the economically sensitive sectors without contradiction with the multilateral obligations (such as WTO rules). Therefore, creating safeguards should be the priority of the government. Such safeguards may be necessary to protect the vulnerable segments of the society such as farmers.

Aside to the above points, government should design a policy to attract private capital that will gradually help the sector to contribute for the economic advancement of the country. Provision of agricultural credit could be one policy variable of a paramount importance to alleviate the critical financial constraint that is hampering farm investments in irrigation, drainage, purchase of fertilizers and other farm inputs.

Finally, Ethiopia has a very low tariff structure due to autonomous and/or the Bretton Woods Institutions-led liberalization measures. At the time of entering the WTO, if the country bind tariffs at a low level, it would not be possible to raise them to a higher level at a later stage. Therefore, Ethiopia should bind its tariffs at a sufficiently higher level and ensure that tariff reduction does not lead to de-industrialization or cause devastation the agriculture sector.

After joining the WTO, the Ethiopian government should make its voice loud and clear about the provision for increasing the market access of LDCs’ product to the developed countries market and making technical assistance mandatory and enforceable. Ethiopia should also join hands with other developing countries to put an end to the most pernicious and trade distorting subsidy. Furthermore, it must help solidify the position of those member countries which want to see the agricultural protectionism in the developed countries disciplined in the short term and eliminated in the long term.