UNIT 3 GLOBALISATION AND WTO

IMPLICATIONS ON
PLANTATIONS
Strucure
Objectives
Introduction
Globalisation: Definition and Premises
Globalisation Under the World Trade Organisation (WTO)
3.3.1 Globalisation under the GATT System
3.3.2 BasicprinciplesofWTO
3.3.3 WTO agreements of direct relevance to the plantation sector
3.3.4 WTO agreements of indirect relevance to the plantation sector
Softening the Impact of Globalisation- The UNCTAD
3.4.1 UNCTAD: Its role in the international plantation products market
3.4.2 A case study of commodity agreement: Rubber
Impact of Globalisation on the Plantation Sector
3.5.1 Positive impacts
3.5.2 Negative impacts
Let Us Sum Up
Glossary
Check Your Progress: Possible Answers
Suggested Readings

3.0 OBJECTIVES
After going through this unit you should be able to:
explain globalisation with reference to the WTO,
describe the WTO agreements of direct and indirect relevance to the
plantation sector,
recognize the role of the United Nations Conference on Trade and
Development (UNCTAD) in softening the impact of WTO, and
explain the positive and negative impacts of WTO on the plantation sector.

3.1 INTRODUCTION
In recent times, we heard a lot about the phenomenon - Globalisation. But
have you ever thought deeply about its implications? Starting with the early
1700s globalisation became a part and parcel of international trade. The very
fact that there emerged specialization in international trade made it inevitable
that the exchange of goods, services and resources had to be globalised. With
time, globalisation also became a deeply entrenched phenomenon, with the
result that over a time, a product produced in the remotest part of the world
could easily find its way into the market at the other corner of the globe. As the
phenomenon became more and more entrenched, intellectuals provided
theoretical baclung just as the analysts provided analytical support.
QnOverview of the In what is given below, we shall attempt to trace the evolution of the concept
Plantation Sector
of globalisation and try to understand as to how and why it has emerged as a
significant reality today.

GLOBALISATION: DEFINITION AND

PREMISES
Globalisation is a phenomenon by which any activity becomes worldwide or
the barrier to it becoming so gets dismantled. Globalisation is very often used
to refer to economic globalisation i.e. integration of national economies into
the international economy through trade, foreign direct investment and capital
flows. Though covers all fields including arts and cultures in the popular
parlance, it mostly refers to an economic phenomenon' .

The major agents of globalisation in the economic field in the past 200 years
have been products of the principle of "Laissez- Faire" and that of the "Invisible
Hand". According to these principles, the individual when left free maximizes
not only his benefit but also that of the society.

The harbinger of economic globalisation right from time immemorial, has

been international trade. But have you ever wondered why international trade
takes place? Well economists like Adam Smith, David Ricardo and Hecksher-
Ohlin definitely did. For instance, according to Adam Smith, Absolute
Advantage formed the basis of International Trade. He stated that if a country
could produce a commodity more economically than another in terms of
resources used and the second country held a similar advantage in another
commodity, it could form the basis of international trade. For instance, consider
this hypothetical situation:

India produces one unit of cloth using one unit of labour, whereas Pakistan
produces the same unit of cloth using two units of labour, and

Pakistan produces a car at the cost of 4 labour units and India produces
the same car at the cost of 10 labour units.

In this scenario, it is very evident that India possesses Absolute Advantage in

the production of cloth and Pakistan in the production of cars. Both the countries
could benefit from International Trade if India exports cloth to Pakistan and
Pakistan exports cars to India.

This concept of International Trade gave way to a more complex but at the
same time a scientific concept, namely, that of Comparative Advantage,
propounded by David Ricardo. He was of the opinion that International trade
could take place even when a country had Comparative Disadvantage in the
production of both the commodities envisaged. Without going into its
complexities, we can say that what Ricardo stated was that a country can
specialize in the production and export of the commodity in which its absolute
disadvantage is lesser and import the commodity in which the absolute
disadvantage is greater. Let us consider the following Table 3.2.
 Table 3.1 :Theory of Comparative Advantage in International Trade Globalisation and WTO
I
Implications on Plantations
Product Country A (Labour units Country B (Labour units
consumed/output) consumed/output)
Candy 7 1
Steel 5 2

It can be seen that in this case Country A is 2.5 times less productive than
country B in the production of Steel and 7 times less productive in the production
of Candy. Country B has Absolute Advantage in the production of both the
commodities, but its Absolute Advantage is greater in the case of Candy than
in the case of Steel. On the other hand, the Absolute Disadvantage of Country
A is lesser in the production of steel. Both countries could benefit from
International trade if Country B specializes in Candy and exports it to country
A and Country A specializes in Steel and exports it to country B. In fact, the
Law of Comparative Advantage forms the very basis of the WTO system.

Recent trade theories like that of Hecksher - Ohlin, state that a country will
import products made of those factors of production of which it has scarce
supply and vice-versa. For instance, India may produce and export labour
intensive products because it is a labour abundant country, while a country
like the USA may export capital-intensive products and import labour intensive
products for the same reason.

So, what does all this imply? International Trade even in its theoretical
framework exhibits a great propensity towards Globalisation. The International
Trade figures of the last few decades attest this fact. From 1950 to 1999, world
trade grew by an average of 6 per cent per annum. In fact, the world economic
output has grown much slower in this period. Trade openness also improved
from 35 per cent in 1950s to over 50 per cent by 1990s. It is therefore, no
wonder that the pack of "Pringles" chips that was found in the American and
European supermarkets is now easily available in your neighbourhood
provisions store. It is globalisation at work in short.

Another major component in the globalisation process is the global movement

of capital. Do you know that capital is the most mobile of all factors of
production? Capital moves to those regions of the world where returns are the
highest. By the late 1970s, the returns on investment in most parts of the
Developed world started declining whereas the virgin investments in the
developing countries started yielding high returns. As a result capital started
moving increasingly into Asia. As of now Asia accounts for more than 60 per
cent of capital inflows worldwide. Along with capital, new technologies also
started moving into the developing world. Therefore, the globalisation of capital
also led to the globalisation of technology. The plantation sector was not
excluded from this process either.

International Organisations like the WTO, the World Bank, IMF and UNCTAD
played a salutary role in aiding globalisation. International Financial Agencies,
especially the WTO emphasise on Current Account Convertibility1
Liberalisation. Do you know the reason behind this? Current Account side of
Balance of Payments has Trade in goods as one of its major components. By
emphasizing on Current Account Convertibility, the IMF and other
An Overiiew of the organizations aid the liberalization of trade in goods and thus the process of
Plantation Sector
globalisation itself. The WTO as we will see in the subsequent sections is a
major force of globalisation. Further, at times of Balance of Payments crisis,
the M F serves its StructuralAdjustment Programme (SAP) to its client nations.
The concept of SAP which is closely aligned to the "Washington Consensus ",
aids globalisation in a big way. Apart from liberalization of foreign trade the
"Washington Consensus " prescribes the elimination of internal rigidities that
affect capital flows as well as production. Such policies affect all sectors and
plantation sector is no exception.
Check Your Progress 1
Note: a) Use the space below for writing your answers.
b) Compare your answers with those given at the end of the unit.
1) Describe the major agents of globalisation in recent times.

2) Present in 1-2 sentences the concepts of International Trade propounded

by Adam Smith, David Ricardo and Hecksher-Ohlin.

3.3 GLOBALISATION UNDER THE WORLD

TRADE ORGANISATION (WTO)
Presently, WTO is regarded as the moving force behind globalisation. However,
WTO in its present form is a result of decades of evolution through various
phases. Let us discuss this evolution process in some detail.

3.3.1 Globalisation under the GATT system

The predecessor of WTO was the General Agreement on Trade and Tariffs
(GAR) system. But do you know that G A R was never in the agenda of the
economic structure envisaged in the post World War I1 era? Instead, what was
on the agenda was an International Trade Organisation (ITO). However, all
plans for an I T 0 fell through since the principal economic power of the time,
the United States of America, refused to be a party to it. The USA did not want
to make any binding commitment on employment and development.Therefore,
instead of the ITO, the GAIT came into existence. The GATT was envisaged
 not as an organisation but as a series of conferences aimed at liberalizing world
trade. The framework of the WTO was evolved through the GATT scheme.

The Uruguay Round of trade negotiations was seminal to the cause of the
formation of the WTO and therefore, to the process of globalisation itself. The
Globalisation and WTO
Implications on Plantations
I
results of the negotiations of this round had a very major impact on the
agricultural sector and particularly on plantation based agri-business. The most
important agreements resulting from the Uruguay Round were:
The Agreement on Agriculture (AOA), I
I The Sanitary and Phyto Sanitary Agreement (SPS), II
L Agreement concerning the minimisation of Technical Barriers to Trade
(TBT), and
Agreement on Trade Related Intellectual Property Rights (TRIPS).

3.3.2 Basic principles of WTO

In the previous section, we had briefly gone through the GATT system. The
WTO was expected to iron out the deficiencies in the GATT and provide for
an equitable multilateral trading system. Right from its inception, the WTO
has been driven by the following guiding principles:

I The Most Favoured Nations Principle (MFN)

Originally formulated as Article 1of GATT, this principle states "any advantage,
favour, privilege or immunity granted by any contracting party to any product
originating in or destined for any other country shall be extended immediately
and unconditionally to the like product originating or destined for the territories
of all other contracting parties" (Oatlay). This implies that the goods and services
from all WTO countries should be treated in a like manner. No trading partner
should be preferred and none should be discriminated against. For instance, if
country A imposes higher tariffs on a range of plantation products say X
originating from country B without imposing the same on products from other
countries, then it is a clear case of violation of the MFN clause. However, the
WTO has allowed certain exceptions to the MFN clause such as the provision
of preferential treatment to products from the developing countries in developed
country markets. For instance, bananas from the plantations of ACP countries
are given preferential treatment in the European Countries under this scheme.

A Transparent, Eflective and VerifiableDispute Settlement Mechanism

The Dispute Settlement Mechanism froms the very essence of the WTO system.
Any dispute arising out of violation of trade rules or misunderstandings arising
about the interpretation of rules can be referred to the WTO. On the receipt of a
complaint, and taking into consideration the seriousness of the issue at hand, a
panel is constituted to go into the case. Once a decision is arrived at it is final
and binding. Perhaps for the first time in the history of world trade, we have a
mechanism by which rules and norms could be imposed even on the strongest
trading partner.

The RTQtional Treatment Principle (NTP)

The National Treatment Principle works hand in hand with the MFN principle.
The NTP stipulates that once products from a WTO member has succeeded in
55
An Overview of the crossing the tariff bamer of the host nation, these products have to have to be
Plantation Sector
accorded the same treatment as is given to domestic products of the same range.
For instance, is Chiqiquita bananas have crossed the tariff barriers imposed by
the Indian government, they cannot be discriminated against local bananas in
terms of marketing opportunities, product visibility or any other aspect.

Predictability and Transparency in Decision Making

The WTO insists that decision making in the trade sphere by the members
should be transparent and verifiable. Any change in trade or related rules should
be immediatelynotified to all the trading partners and if there are any objections
against such changes, they should be responded to. If there are rules that affect
trading partners economically, suitable compensation should be provided.

Progressive Liberalization
The rational behind the concept of discussion rounds and ministerial
conferences is that the system could progressively move towards greater
liberalization. Many trade issues of a contentious nature like labour standards,
non-agricultural market access, etc. on which there was widespread
disagreement among trading partners were left unresolved during the Uruguay
Round. Such areas were to be liberalized during successive rounds of discussion.

Market Access
WTO, as you are aware hopes to expand world trade by enhancing market
access. But how does the WTO plan to do it? Well the WTO stipulates that all
Non- Tariff barriers should be converted in Tariffs and Customs Duties, which
are subject to country specific limits. Further, in major multilateral agreements
like the Agreement on Agriculture (AOA), specific targets have been specified
for ensuring market access.

In the next segment, we shall see how some of the major WTO agreements
affect the plantation sector.
Q) check Your Progress 2
Note: a) Use the space below for writing your answers.
b) compare your answers with those given at the end of the unit.
1) Describe briefly the concept of Most Favoured Nations (MFN) in
intzrnational trade parlance.
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2 ) What is meant by progressive liberalisation in WTO parlance?
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56
 Globalisation and WTO
3.3.3 WTO agreements of direct relevance to the plantation Implications on Plantations
sector
In the previous sections, we have tried to understand the basics of the GATT-
WTO Complex. Now it is our task to introduce you to some of the WTO
agreements those have direct relevance to the plantation sector.
Agreement on Agriculture (AOA): The explicit aim of the AOA was to
establish a fair and market oriented agricultural trading system by
progressively reducing agricultural support and protection. Though the
agreement is basically aimed at the food and diary sector, it can have
potential implications on the plantation sector as well. Let us have a look
at the basic tenets of AOA.
- Market Access :One of the salient features of the market access principle
is that all measures other than customs duties directly or indirectly
affecting the imports of agricultural products are to be converted into
price- based measures. Apart from this the AOA stipulates that2
a) Tariffs on agdcultural products are to be reduced by:
36 per cent in six years from 1995 for developed countries,
24 per cent in 10 years from 1995 for developing countries, and
No reduction is envisaged in the case of Least Developed Countries
(LDC).
b) Safeguards could be imposed under certain conditions to maintain import
restrictions till the end of the implementation period, i.e. the six or ten
t year period.
c) In the case of those products with no history of imports, a minimum
market access equivalent to 3 per cent of the domestic consumption should
be provided, which should rise to not less than 5 per cent by the end of
the implementation period.
- Domestic Support: According to the agreement National Governments
would cut domestic farm support in the following manner3.
I - Developed countries by 20 per cent over a six year period.
,
- Developing countries by 20 per cent over a ten year period.
- LDCs need not make any reduction.
But on the other hand Direct Support under Green Box measures would
be exempted from its purview. The major Green Box payments include
expenditure on Research and Development, expenditure on academic
! activities and so on.
! - Export Subsidies: Dear learner, for all practical purposes, a subsidy is a
payment made by the government for which there is no quid-proquo
from its recipient. Export subsidies are perhaps the most common of all
subsidies provided in the agricultural sector in the developing world.
The AOA clearly states that since these subsidies are trade distorting,
they need to be brought down in the following manner:
- Developed countries to a level of 36 per cent below 1986-90 levels
over a six year period.
IGNOU (2002) IBO-1, Block 3
IGNOU (2002) IBO-1, Block 3
An Overview of the - Developing countries to a level of 36 per cent below 1986-90 levels
Plantation Sector
over a 10 year period.
- LDCs need not make any change.

Sanitary and Phyto-sanitary Agreement (SPA): Friends, as already

mentioned, the WTO widened the.range of subjects dealt with in a
considerable way and the SPA was' one agreement which was a major
addition to the GATT framework. However, it needs to be mentioned
here that GATT did take into consideration the factors affecting human,
plant and animal life by virtue of its Article XX (b). The WTO emphasizes
J
that phyto - sanitary measures aimed at protecting plant and animal life
must be based on clear scientific principles and should be maintained
only on the basis of proper scientific evidence. The SPS agreement urges
nations to arrive at globally acceptable principles based on Codex
Alimentarius, the OIE and the International Plant Protection Convention.
The major elements'of the SPS agreement are:
- As already mentioned higher standards can be maintained only on sound
scientific principles and based on sound risk assessment techniques.
- All members are required to publish the SPS measures adopted.
- If any member nation feels that certain measures of another member are
I
not justified, the Dispute Settlement can be activated and suitableremedies
can be obtained.
The Technical Barriers to Trade Agreement : The TBT Agreement
has to be read in conjunction with the SPS Agreement because in many
areas their subject matters overlap. These are those measures that are
aimed at ensuring health, safety and protection of the environment. The
major provisions of the agreement are:
- Any member preparing, adopting or applying a technical regulation
that may potentially or actually affect the trade prospects of other
countries have to justify these regulations upon request from another
member of the WTO.
- It encourages member nations to co-operate in the standardization1
homogenization of standards for various products.
- Members can adopt equivalent technical regulations of other members
in case those regulations meet the objectives laid down in their own
laws.
- Technical specifications should be mentioned in terms of performance
rather than in terms of design.
i
- The Agreement provides for a Code of Good Practices for the
preparation, adoption and application of standards. Members have 1
to ensure that their national government publishes a work programme 1
4
every six months.
A Note on Special and Differential Treatment to Developing Countries
Though not an agreement by itself, the Special and Differential Treatment
clause is found practically in each WTO Agreement. The clause implies that
since the developmental realities of the developed, developing and Least
Developed countries are different, the WTO needs to treat them differentially.
So, while norms for developing countries could be stringent, some exception
could be allowed for the two other categories of countries.
 Globalisation and Fv I u
@ Check Your Progress 3 Implications on Plantations

I Note: a) Use the space below for writing your answer.

I
I1) b) Compare your answer with those given at the end of the unit.
I
I Enumerate the basic principles of the Market Access Clause of the
AOA.

I
I

WTO agreements of indirect relevance to the

plantation sector
Friends, the agreements mentioned above have direct and visible impact on
the plantation sector. However, there are certain other agreements that are of
indirect relevance to the plantation sector.

The TRIPS Agreement: According to the World Intellectual Property

Organization (WIPO), Intellectual property refers to the creations of the
mind - inventions, literary and artistic works, symbols, indications, names,
and designs etc., that are used in commerce or trade. As you would
appreciate, Intellectual Property Rights (IPRs) are an integral part of the
international trade mechanics of some of the major plantation crops. One
of the areas of direct influence on plantation sector is through the norms
of IPR on Geographical Indications (GI). Some of the plantation crops
derive their attributes (qualities) directly from a peculiar geographic
feature of the place of its cultivation. For instance, Darjeeling Tea owes
much of its aroma and spite to the specific soil texture and climate of the
region. Often it is noticed that fake products that do not originate from
the particular place try to free ride by using the specific Geographic
Indication. This is a clear violation of TRIPs. The WTO by bringing IPRs
under the ambit of the Dispute Settlement Mechanism (DSM) has ensured
that such violations can be brought to book and necessary remedies can
be taken.

Trade Related Investment Measures :Having gone through the basics

of TRIPs, we can now proceed to a new segment, namely Trade Related
Investment Measures or popularly called TRIMs. TRIMs as can be easily
assumed was initiated as a mechanism to curb the tendencies of many
countries to overly regulate and stifle Foreign Direct Investments (FDI)
in a variety of areas. This can be true of investments even in the plantation
sector. In this sector, FDI is quite common in crops like tea, coffee etc. In
order to avoid any confusion regarding what restrictions could be
An Overview of the acceptable and what are not, the TRIMSwas introduced. The unacceptable
Plantation Sector
TRIMs are generally known by the term, prohibited TRIMs. According
to the WTO agreement on TRIMs, prohibited measures are to be removed
within two years of implementation of the agreement by developed
countries, in five years by developing countries and in seven years by
LDCs.

Now friends, what are the major prohibited TRIMs? One of the major
prohibited TRIM is Local Content Requirement. Such requirements force
the foreign investor to procure a major portion of this input requirement
from local sources. For instance, if a particular government insists that
all fertilizer requirements of local tea estates under foreign investment
procure their requirement locally and not through imports, it is a violation
of TRIMs Agreement.

Another restricted TRIM is that of linking imports to the volume exported

or even simply restricting importation. These are considered as violations
because such imports may be vital to ensure efficiency of production due
to the higher quality of imports.

Finally, we may have a situation in which some governments may insist

that a certain proportion of employees should be local people. This is
often the case with the higher level managerial cadre. Since success in
plantation business may directly depend on the quality of the managerial
staff employed, such restrictions may prevent the hiring of the most
efficient managerial staff available and therefore, the same is a restricted
TRIM.
Subsidies and Countervailing Measures: Have you heard about the
Common Agriculture Policy (CAP)? It is said that the European Union
using the CAP based subsidies regime built up Comparative Advantage
in a segment, in which going by its natural endowments or rather lack of
it, there could only have been Comparative Disadvantage. Thus subsidies

through its impact on prices.

First and foremost, it should clearly be understood that by the term
subsidies, we mean only "specific subsidies", that is subsidies available
to groups of enterprises/industries functioning with in the economic
jurisdiction of the particular government.

In the WTO parlance, subsidies are grouped into three categories -

Prohibited, Actionable and Non-Actionable.

Prohibited Subsidies are closely similar to the conditionalities laid down

in TRIMs for foreign firms. For instance, if there are subsidies provided
in terms of export performance or in terms of local contents, these are
clearly prohibited subsidies. The WTO envisages retaliatory measures
on countries imposing such subsidies.

Actionable Subsidies are not as harmful as Prohibited Subsidies, but they

can also have trade distorting effects on the plantation industry. The major
actionable s~bsidiesare those which subsidise products and lower their
 Globalisation and WTO
prices. It is commonly accepted that where ad-valorem support through Implications on Plantations
subsidies exceeds 5 per cent, it can have trade distorting effects and hence
should be actionable. Like prohibited subsidies, here too the aggrieved
member can call for retaliatory measures.

Thirdly, Non-Actionable subsidies are basically developmental subsidies

in the sense that they are extended for Research and Developmental
activities, development of backward areas, technological upgradation etc.

@ Check Your Progress 4

Note: a) Use the space below for writing your answers.
b) Compare your answers with those given at the end of the unit.
1) Among the agreements discussed in this section, which one do you
think is the most important and why do you think so?
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2) What do you understood by the term actionable subsidy?
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3.4 SOFTENING THE IMPACT OF

GLOBALISATION- THE UNCTAD
Till now you have been exposed to the most potent force of globalisation in
today's world - the WTO. However, we shall be ndive if we consider that the
WTO as the only major international force as far as plantation sector is
concerned. For the past few decades, the United Nations Conference on Trade
and Development (UNCTAD) attempted at playing yeoman role in the
agricultural sector, although with limited success.

3.4.1 UNCTAD: its role in the International plantation

products market
In March 1964, UNCTAD was formed as an UN body solely dedicated to
promoting the interests of the Third World countries in the international
economic system. Among the major demands of G-77 and the major developing
countries was to create a mechanism whereby there could be stability in
international commodity prices. This mechanism was to ensure that
An Overview of the international prices for primary products did not fall below a base level
Plantation Sector
supported by a mechanism funded by the West in which commodities would
be bought and stored if there was a glut or over supply. This operation commonly
called the buffer stock operations was to be operated through a Common Fund.
The Common Fund had two windows. The Common Fund had a capital
structure of $400 million and could supplement its resources from the market.
The second window with a resource base of $350 million was to be funded by
the governments concerned. This window was used basically to promote
research in the area of primary commodities.
Thus, as you would see, the UNCTAD's attempt was to create a strong
foundation for primary commodities including a strong research and
development component. However, the bitter economic environment existing
between developed and developing countries, paid put to its prospects. Further,
unlike the Organization of the Petroleum Exporting Countries (OPEC) where
there is a commonality of interests and certainty of pay offs, in the countries
with major plantation industry, such a commonality of interest did not exist.
Therefore, the star crossed destiny of these attempts prevailed.

3.4.2 A case study of commodity agreement: Rubber

In the subsequent section, we shall see how one of the plantation sector based
commodity agreements actually fared.

The International Rubber Agreement

All International Commodity Funds for primary products are based on the
"secularly deteriorating terms of trade principle" originally attributed to Raul
Prebisch and Hans. J.Singer. The thesis in a nutshell states that the terms of
trade of primary products deteriorate substantially over a period of time. As a
result of this countries producing such products are required to guard against
uncertainties amounting to falling commodity values in the global market.
The International Rubber Agreement effectively came into existence when it
started its buffer stock management activities in 1981. The principle behind its
working is depicted in the Fig. 3.1.
Price of
Rubber Q2-Q3 Excess supply

C,! Q: Qo Q.3 Q4 Quantity of Rubber

F-ig.3.1: Pri~lciplebehlndworking of the International rubber agrcenletit
 If we follow the normal working pattern of primary markets, we find that in Globalisation and WTO
Implications on Plantations
one year, if international prices of the product are reasonably good, there would
be an over supply in the market. Over supply and lack ofmatching demand
forces prices down, often below the equilibrium level. The equilibrium price,
here depicted by Po,is the ideal price at which the market clears (given here by
the corresponding quantity OQ, and the point of confluence E, ). The role of
the buffer stock management agency is to siphon off excess supply, here
depicted by Q,-Q, and put them in reserve, so that the suppliers get atleast the
equilibrium leiel prices. Buffer stock activities can also help the consumers.
If in a particular year, there is under production, due to climatic or other factors,
normally the prices would shoot up. But due to buffer stock activities in the
previous year (here depicted by Q,-Q, can be met from the stocks.
P
The global supply demand position of rubber at the time of the inception of
the agreement is given in Table 3.2.
r
Table 3.2: Global Supply and Demond Position of Rubber

Source: Duta rearranged,from IBO-I, Block 3, PP.63.

Rubber was a plantation crop in which international cooperation was likely to

be more successful. This is because; rubber is such a crop in which there is
continuous and stable demand. Due to the very nature of the product, its
consumers would have been badly affected by any shortage in its supply. Thus,
the West and especially its tyre manufacturers had an interest in having a steady
supply of this product at reasonable prices. One of the key successes of this
agreement is that it has managed to hold the prices line despite continuous
gluts in the international market for this product for a number of years through
continuous stock accumulation. It can therefore be stated that this agreement
constituted one of the success stories in the field of plantation economics.

3.5 IMPACT OF GLOBALISATION ON THE

PLANTATION SECTOR
As can well be imagined by you, the WTO induced globalisation has tremendous
impacts on the plantation sector - both positive and negative. Let us now
examines a few of these impacts.
3.5.1 Positive impacts
A major positive impact of the process cjf globalisatior: induced b? the WTO is
that countries have now started rnoring from Market Price 5i~ipp1~t to less
distorting Direct Inconle Payments known as "Green Rux 1Cleasnl-es". ~l'hoilgh
not completely tradc neutral, the), I~;lvca m:l~~!i Ic.i;.;ct ..ji.?!:~!-ti:!c inil:lact i)n
\vorld tradc. Sincc P)e-,Vinirn~~s
levels 0 1 track dlit..;i.ti~~g\ i ~ i . l i < i jc,~p
; v f IOC4.
 An Overview of the has been given to developing countries, which had no trade distorting subsidies
Plantation Sector
in place prior to the agreement, Indian plantation producers can hope to have a
level playing field.

Another area of positive impact has been that of export subsidies. Export
subsidies have been considerably capped both in terms of volume and value.
Those countries that were earlier not giving subsidies were barred from giving
i
subsidies of a trade distorting nature. This aspect has been significant in the
i case of plantation crops such as rubber, tea etc.
I
i
The move to replace Non-Tariff barriers such as quotas with price based tariff

t
t
1
barriers is another welcome measure. The advantage with price based
mechanisms is that they are more easily predictable and can be overcome by
making price based adjustments where as in the case of Non-Tariff Barriers,
price based adjustments cannot overcome them. Quite a few plantation crops
have benefited from this change.

Yet another advantage resulting from the WTO is that a new verifiable Dispute
Settlement Mechanism has been put in place. A number of plantation products
have benefited from this. The best advertised example in this regard is that of
the "Banana Dispute". An amicable settlement to this vexed issue would not
have been possible but for the active intervention of the WTO's Dispute
Settlement Mechanism. Let us go into this case a bit deeper to illustrate this
point. The European Union introduced a new regulatory regime for imported
Bananas in the year 1993. Under this regime, banana imports were subject to
a two- tier tariff rate quota based on their country of origin. The bananas from
African - Caribean - Pacific (ACP) countries received Duty Free entry upto a
ceiling of 85,77,000 metric tonnes allocated to each banana producing country
on the basis of their historic exports to the EU. The ACP imports above this
limit paid 700 ECU per metric tonne4. On the other hand, bananas from Non-
ACP countries were subject to a tariff of ECU 100 per metric tonne on imports
upto 2 million metric tonnes and ECU 850 on import above this limit5. In fact
as a matter of fact 33.5 per cent of the 2 million tonnes of non - ACP bananas
were reserved for european marketing firms which marketed only ACP
bananas6. Protesting against this kind of discrimination, Columbia, Costa
Rica, Guatemala and Venezuela initiated the GATT dispute settlement
proceedings in June 1993 against the EU. The GATT panel ruled in 1994 that
the EU's banana regime was GATT inconsistent7.But a final decision took
several more years to be arrived at. After years of conflict in March 2008, the
WTO panel concluded that the preference granted by the EU to the ACP
countries constituted an unfair advantage, which is not accorded to like bananas
from Non-ACP countries and falls foul of Article 1.1 of GATT 1994 (read the
WT0)8.The WTO dispute Settlement Board therefore recommended that these
GATT inconsistenciesmay be ironed out and the EU's provisions may be made
consistent to WT09.

http://www.asil.org/insights/insigh63.htm
ibid
ibid
http://agritrade.cta.int/en/commodities/banana~sector/news/wto~dispute~settlement~
banana-ruling
ibid
"bid
64
An important step towards the harmonization of laws was achieved by the Globalisation and WTO
Implications on Plantations
adoption of the International Treaty on Plant Genetic Resources for Food and
Agriculture in November 2001. This treaty which aims at acting in
complementarity with TRIPs and the Convention on Bio-diversity is a
significant step in the direction of sharing benefits from the use of plant genetic
material and conserving the same in the plantation sector.

3.5.2 Negative impacts

What has been mentioned above are some of the advantages, the WTO system
has bestowed upon the plantation sector. However, we must realize that no
system is without its negative side and let us now examine some of these in
depth in relation to the plantation sector.

Lowering of import duties and its eflect on local industries/pluntations

Some of the most protected plantation crops in India were exposed to ruthless
foreign competition as a result of the implementation of the WTO rules and
regulations. The case of the tea industry is poignant in itself. The Peerimade
tea plantations of Kerala give us a clear picture regarding the saga of pain
induced by the process of adjustment. Out of the 32 tea factories in the area 18
have been closed down and 13 more have been abandoned leaving more than
30000 people jobless and also resulting in Rs.100 crores as pending wagesI0.
This kind of scenario resulted from the lowering of import duties in India
against tea imports to just 4 per cent to 7 per cent range. Consequently tea
imports from 13 countries flooded the Indian market. The tea imports from Sri
Lanka to the tune of 15 million kg. wrecked havoc in South India.

This is just one of the examples that highlight the perils of globalization. Such
economic destruction invariably leads to social evils such as rampant suicides,
uncontrollable levels of prostitution and human trafficking, blighting poverty,
massive debt trap and so on.

Perils of pursuing the TRIPSMandate

If the WTO were to be considered a beauty contest and if every agreement

competed against each other on the basis of the beauty of their provisions,
then the TRIPs agreement would have won the contest hands down. However,
once probed deeper inside, one finds that there may not be a more complex
agreement framed till date. For instance, let us have a look at Art 27.3 of the
agreement which calls for protection of plant varieties by patents or an effective
suigeneric system.

Now as you yould be aware, there are two contending frameworks for the
consideration of being suigeneric equivalents - a) the UPOV scheme and
b) the FA0 scheme. All countries including India had the option of accepting
either framework.

As far as the UPOV scheme is concerned, it does not recognize the aspect of
prior knowledge of the farming community. It tries to restrict the rights of the
farmers to replant seeds, which could have disastrous effects on the prospects
of a plantation crop like cardamom. The Food and Agricultural Organization
has two institutionalcomponents concerning plant genetics i) The Commission
lo BasheexM, and M.Suchitra (May. 2003), India Together
An Overview of the on Plant Genetics Resources (CPGR) and ii) The International Undertaking
Plantation Sector
on Plant Genetic Resources (IUPGR). The IUPGR deals with exploration,
conservation, evaluation and use of genetic resources. The International Fund
for Plant Genetic Resources (IFFGR) recognizes and tries to implement farmers
rights. More importantly, it tries to work in conjunction with the Convhtion
of Bio-Diversity (CBD). The CBD emphasizes that on the one hand traditional
knowiedge has to be respected and on the other hand benefits arising from the
use of traditional knowledge and practices which are relevant for sustainable
development be equitably shared with traditional communities.

So far as the Indian position is concerned, the government has initiated the
Plant Varieties Protection and Farmers Rights Act (2002) broadly on the lines
of IFPGR and the CBD. This Act expressly provides for the rights of farmers
to use, save, sow, share and sell farm products. For instance, a cardamom
grower under the Act is entitled to save his seeds for the next season, sow them
and use them in any fashion that he deems fit.

More recently, however, in pursuance of the TRIPs provisions that indicate

the need for a sui-generis system, the government has made its intension of
joining the UPOV very clear. Needless to state without the many safeguard
mechanisms of the CBD, the 2002 Act and the IFPGR, joining UPOV may be
fraught with immense risks.

As far as the TRIPs per say is concerned, its major shortfall lies in the fact that
the agreement does not take into account several key facets pertaining to
traditional knowledge, local rights over genetic resources, bio-safety concerns
and so on. All these aspects are of vital importance as far as the plantation
sector is concerned. Coupled with this scenario is the fact that many countries
lack the scientific acumen to make necessary innovations in the concerned
field.
Perpetuation of the Quota System
As you would have noticed in the previous sections, one of the declared and
binding principles of the WTO system is the MFN clause. Inspite of the MFN
clause, some exceptions were given to favour developing countries and the
least developed countries. One such exception was the Generalized System of
Preferences (GSP) that was aimed at providing preferential treatment to the
products of such countries in the developed country markets. Though laudable
in its objectives, problems arose when discrimination emerged with in the
GSP. Quotas started being fixed based on political considerations. The latest
twist to the events is provided by the concept of the Super GSP mooted by
some developed countries through which more favorable treatment was
provided to some countries within the developing block in comparison to others
in the block. Such discrimination within groups is a source of concern and can
definitely affect the prospects of some very important plantation exports from
India like tea, coffee etc.
Concerns regarding the application of SPS and TBTprovisions
Complex as they are SPS and TBT agreements form major hurdles in the path
of Indian plantation crops achieving global reach. On the one hand developing
countries and LDCs have often found the adjustment time for meeting new
standards extremely strict and on the other hand they often lack the technical
know how to make such a transition based on standards set by Codex
Alimentarius Commission (CAC) and the International Plant Protection Globalisation and WTO
Implications on Plantations
Convention (IPPC). Adding further to their woes is the fact that the processes
of transferring technical know how from the North to the South has been
extremely slow. Eco-Labeling requirements, packaging constraints, process
and production methods - all have been areas of immense concern.
Q) Check Your Progress 5
Note: a) Use the space below for writing your answer.
b) Compare your answer with those given at the end of the unit.
1) What are the major impacts of the lowering of import duties on the
Indian Plantation sector? Mention any three.
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3.6 LET US SUM UP

This unit emphasized on three major aspects with regard to globalisation:
Concept of globalisation, WTO mechanism and last but not the least the impact
of WTO driven globalisation on the plantation industry. The unit described the
salient features of globalisation including its theoretical underpinnings, and the
major globalizing provisions of WTO with direct and indirect impact on the
plantation sector. Some important globalising features that were emphasized in
this unit were the Most Favoured Nations Concept, the National Treatment
Concept, the concept of progressive liberalisation and the concept of Market
Access. As far as the impact of globalisation on plantation sector is concerned,
the unit has discussed some of the important positive and negative impacts
brought about by globalisation. The role of the UNCTAD in softening the impact
of globalisation through commodity board agreements was also discussed.

3.7 GLOSSARY '

Ad - Valorem tax : It is a tax that is imposed on a product in
accordance with its monetary value. Consequently,
a product with a higher monetary value will attract
a higher tax.
Green Box Measqres : In order to qualify, green box subsidies must not
distort trade, or at most cause minimal distortion
to international trade. They include direct income
supports that are not related to current production
levels, environmental protection and regional
development l1 .

" www.wto.org 67
An Overview of the Quid Pro Quo : This word has its origin in the Latin language.
Plantation Sector
Literally, it means something for something that
is providing something of value in return for
getting something of equivalent value.
Sui- Generis System : Literally means "of its own kind' or unique in its
characteristics.
Sanitary and : It allows countries to set their own standards. But
Phyto-Sanitary it also says regulations must be based on science.
Agreement They should be applied only to the extent necessary
to protect human, animal or plant life or health.
And they. should not arbitrarily or unjustifiably
discriminate between countries where identical or
similar conditions prevail12.
: The short form for the International Union for the
Protection of New Plant Varieties. UPOV was
established by the International Convention for the
Protection of New Varieties of Plants. The
Convention was adopted in Paris in 1961 and it
was revised in 1972,1978 and 1991.The objective
of the Convention is the protection of new varieties
of plants by an intellectual property rightI3.
World Trade : The WTO is an organization where member
Organization governments go to try to sort out the trade problems
they face with each other. The first step is to talk.
The WTO was born out of negotiations, and
everything the WTO does is the result of
negotiations. The bulk of the WTO's current work
comes from the 1986-94 negotiations called the
Uruguay Round and earlier negotiations under the
General Agreement on Tariffs and Trade (GAn)l4.

CHECK YOUR PROGRESS :POSSIBLE ANSWERS

Check Your Progress 1

1) The major agents are - the principle of Laissez Faire, the operation of
international trade, the global movement of capital and the functioning
of international trade.

2) The concept given by Adam Smith relies on Absolute Advantage as the

basis of international trade, the concept of Ricardo relies on Comparative
Advantage and that of Hecksher Ohlin relies on advantages related to
factor endowment.

Check Your Progress 2

11 This concept of Most Favoured Nations (MFN) implies that the goods
and services from all WTO countries should be treated in a like manner.

I2 ibid

I3www.upov.org/index-en. html
I4 www.wto. org
 No trading partner should be preferred and none should be discriminated Globallsation and WTO
against. For instance, if country A imposes higher tariffs on a range of Implications on Plantations
plantation products say X originating from country B without imposing
1 the same on products from other countries, then it is a clear case of

i 2)
violation of the MFN clause.

The concept of progressive liberalization states that since many important

trade issues were left undecided in the Uruguay Round, many sectors
still remain relatively less liberalized. Such sectors are sought to be
progressively liberalized during successive WTO rounds.

Check Your Progress 3

r

1) One of the salient features of the Market Access principle is that all
measures other than customs duties directly or indirectly affecting the
imports of agricultural products are to be converted into price-based
measures. Further, tariffs on agricultural products are to be reduced by

36 per cent in six years from 1995 for developed countries,

24 per cent in 10 years from 1995 for developing countries, and

No reduction is envisaged in the case of J ~ a sDeveloped

t Countries
(LDC).

Safeguards could be imposed under certain conditions to maintain import

restrictions till the end of the implementation period that is the six or ten
year period.

In the case of those products with no history of imports, a minimum

market access equivalent to 3 per cent of the domestic consumption should
be provided, which should rise to not less than 5 per cent by the end of
the implementation period.

Check Your Progress 4

1) This question needs an entirely subjectiveresponse. Go through sections

3.3.3 and 3.3.4.

2) Actionable Subsidies are not as harmful as Prohibited Subsidies, but they

can also have trade distorting effects on the plantation industry. The major
actionable subsidies are those which subsidize products and lower their
prices. It is commonly accepted that where ad-valorem support through
subsidies exceeds 5 per cent, it can have trade distorting effects and hence
should be actionable.

Check Your Progress 5

1) Though many impacts could be mentioned, for the purpose of this course,
they could be: Enhanced Competition leading to shutting down of
high cost concerns, Loss of employment due to such closure, better
quality and prices to the consumer, fall in real wage levels for the workers
etc.
An Overview of the
Plantation Sector SUGGESTED READINGS
KiPrdleberger,
- Charles.P(l962). Foreign Trade and National Economy, The
Carl Purington Rollings Printing, Yale University.
Salvatore Dominick (2004). International Economics, Wiley India and sons,
New Delhi.
www.wto.org (especialiy the section on basic provisions)

http://agritrade. cta. int/en/commodities/hanana~sector/news/wto~dispute~

settlement-banana-ruling
http://www.asiL.org/insights/insigh63.htm