LAPORAN AKHIR

PENELITIAN TA 2006

ANALISIS NOTIFIKASI DAN KERANGKA MODALITAS PERJANJIAN

PERTANIAN WTO

Oleh :
Budiman Hutabarat
Saktyanu K. Dermoredjo
Frans B.M. Dabukke
Erna M. Lokollo
Wahida

PUSAT ANALISIS SOSIAL EKONOMI DAN KEBIJAKAN PERTANIAN

BADAN PENELITIAN DAN PENGEMBANGAN PERTANIAN
DEPARTEMEN PERTANIAN
2006
 ANALYSIS OF NOTIFICATIONS AND MODALITY FRAMEWORKS
OF THE AGRICULTURE AGREEMENT IN THE WTO

EXECUTIVE SUMMARY

I. INTRODUCTION

(1) WTO was formed and started with the aim toward a strong, connected and a
sustainable multilateral trading system among member countries. The WTO
has formulated and produced either trade agreements or disagreements, on
each round of it’s’ negotiations. Related to agriculture, the agreement was
called an Agreement of Agriculture (AoA). AoA was viewed among member
countries as the “key” issue, and considered to be on the front track of all
negotiations or talks. AoA covers three (3) main pillars of issues, namely: (1)
domestic support, (2) export subsidy, and (3) market access. Those three
issues were intensively being negotiated and insisted upon by the developing
countries to reach a new trade deal, through the mechanism of special and
differential treatment. Since the last round of negotiations (called the Uruguay
Round) and ten years has passed by, neither significant change nor balanced
agreement on agriculture was adopted. Nevertheless, the year 2013, was the
time-limit been agreed by member countries for modality in the export subsidy’
issue.
(2) Presently, negotiations and talks in AoA are progressing slowly (in the state of
suspension after July 2006). Meanwhile some member countries have initiated
to resume talks and have agreed to re-balanced trade rules so that developing
countries can benefit more. Indonesia and other developing countries had
learned from the past experiences that they too can play an active role to re-
balance the power that used to be placed upon the developed countries.
Developed countries now have to share their power with developing countries
as an emerging group of 42 countries known as the G-33, in which Indonesia is
the coordinator. Many developing countries have felt that the previous
negotiations/talks created rules that benefited more the developed countries.
Unless the next round of talks/negotiations consider the core need of the
developing countries, it is likely that a new agreement will be achieved.
(3) For Indonesia, it is extremely important to gather and examine all information to
justify each round of talks. It is also important to anticipate and analyze each of
proposals by other countries. Indonesia, being the coordinator of G-33, is also
need to prepare its position on the negotiations and anticipate the impact of
various international and multilateral policies and agreements into its own
domestic agricultural commodities and resources. It also felt the need to look
into impact of each round of talks/negotiations to other developing countries.
(4) Proposal for modalities on each of the three pillars will always be emerged for
round of talks/negotiate. For example, there is G-20 proposal on the cutting of
the domestic support for 3 bound levels. Another example is the proposal of
the tariff cut. It is important, for Indonesia to analyze and to anticipate the
impact of those proposals to agricultural development. Its’ impact on overall G-
33 countries is also important to be analyzed.

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II. RESEARCH OBJECTIVE

(5) a. To re-assess and examine proposals on the domestic support’ cut and
to analyze each impact on agricultural performance, farmers’ livelihoods
in Indonesia and G-33,
b. To re-assess and examine proposals on the modality on export
subsidies and to analyze each impact on agricultural performance,
farmers’ livelihoods in Indonesia and G-33,
c. To analyze proposals of each scheme of tariff cuts that are on the table
recently dan identify its impact on agricultural performance, farmers’
livelihoods in Indonesia and G-33,
d. To formulate proposals and policy recommendation related to
modalities on dometic supports, export subsidies, and tariff cuts without
an adverse/negative impacts to the agricultural development and
livelihoods of the farmers and society as a whole.

III. CONCLUSION, IMPLICATION, AND POLICY RECOMMENDATION

(6) The level of domestic support of the Developed Countries (DDC) such as the
US, the EU and Japan is in fact higher than those of the Developing Countries
(DGC) such as Indonesia and the G-33. Soybean and other oilseeds are
among the commodities enjoying a high domestic support in the DDC. The US
and Japan pertain their domestic supports to their paddy/rice-processed-rice
and other cereal grains, while the EU give domestic support to its plant-based
fibers and cotton commodity. Meanwhile, unlike the DDC countries, Indonesia
and G-33 countries do not give high subsidies/domestic support to their
agricultural commodities. Among commodities that are getting the domestic
supports are paddy/rice, wheat, oilseeds, and plant-based fibers.
(7) The local government in Indonesia has not been systematically noted,
calculated and recorded their own and local programs to support their
agricultural sector, such as replanting, marketing-support, extension, irigation-
maintaining-suppport, into their calculation of total domestic support.
Nevertheless, those total domestic support calculations are needed to get the
exact number of domestic support of the country. Among three categories in
the AoA-WTO round of talks (AMS, Green Box, Blue Box), only the Green Box
measurement that had been implemented by the government to increase the
development of the agricultural sector. The support is mainly come in the form
of funds transfer from the central government as “dekonsentrasi funds”. This
system of dependency are happening due to the limited funds faced by the
local government. Therefore, for Indonesia, the position as the DGC countries
and member of the WTO with regard to the notification of its domestic support
in AoA, is to :(1) support and maintain the de minimis level for the DGC
countries, and (2) increase its domestic support as categorized in the Green
Box, through the increasing of the “dekonsentrasi” transfer funds from the
central government to the local government.
(8) Related to the G-20, the US, the EU, and the Hongkong Proposals, on the
scenario of domestic support cuts, Indonesia will be facing the increasing
prices of all commodities. The highest increased will be on the price of land (1
percent) and the price of oilseeds/soybean (2 percent). Indonesia’s volume of
import of all commodities analysed will be decreased. The highest decreased is
on the oilseeds/soybean of -6 to -9 percent. All other commodities’ prices
analysed are decreasing less than 1 percent, with the exception of Hongkong
Round’ Proposal, for commodities paddy/rice and processed-rice, other cereal

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 grains, vegetable oils and fats, and oilseeds. Total domestic demand on all
commodities will also be decreased, with the highest decreased is on the
demand of oilseeds/soybean at -0,4 to -0,5 percent. The positive impact on
Indonesia is on the increasing demand of the local/domestic
products/commodities to substitute the imported ones. It is shown on the
increasing demand of cereals, plant-based fibers, and raw milk-dairy products.
Meanwhile the positive impact is shown on the imported-demand of horticulture
products, animal products, and other crops. The overall impact of the domestic
cut’ scenarios on the Indonesia’ output of rice production, other cereals
production (maize, soybean) and plant-based fibers production, will increase at
positive 0.02 to 5 percent; whereas on wheat, horticulture, sugar and meat-
animal products, will experienced a decreasing rate. Therefore, the potential
rate of use of the Indonesia’s resources (either land, labor/employment or other
natural resources) allocation on those commodities are increasing, with the
highest rate on oilseeds/soybean of more than 3 to 5 percents. The negative
rate is on the commodity wheat due to incompatibility of the tropical climate of
Indonesia. Other impact observed is on the land-based resource allocation for
paddy/rice, sugar and cattle. In the near future, land use for those commodities
will face consequences on the land availability.
(9) The domestic support cut scenarios will have an effect on the GDP of each
country, whether classifies as the Developed Countries (the US, the EU,
Japan, Korea, Australia-New Zealand, etc.) or the Developing Countries-DGC
(Indonesia and G33). The impact to the national GDP is high and positive for
the Developed Countries (DDC) such as the US, the EU and others. For
Indonesia, an insignificant and low negative rate (- 0.003) will affect its GDP.
Indonesia’ welfare will also decreased around 18 to 22 million $US.
(10) Export subsidies of the DDC are higher than the DGC, and the EU dominates
the high. Among those commodities that are having high subsidies of the EU
countries are paddy/rice-processed rice, wheat, other cereals/grains (maize),
sugar, livestock products-cattle. Indonesia and G-33 do not have a high export
subsidies on those commodities, and G-33 countries are only subsidizing their
sugar, vegetable oils and fats, and processed food products with low rate.
(11) Related to the G-20, the US, the EU, and the Hongkong Proposals, on the
scenario of domestic support cuts, shows that Indonesia will experienced the
increasing prices of all commodities. The highest increase of price will be on
land (3 percent ), wheat (5 percent), rice/paddy (1 percent), maize (2 percent),
soybean (1 percent), plant-based fibers (1 percent) dan cattle (1 percent).
Meanwhile the impact of export subsidy’ cut will decrease the Indonesia’ import
volumes of all commodities, with the exception on wheat, maize, and other
crops. The highest decreased rate will be faced by sugar, cattle, and raw milk-
dairy products at the rate from 7 to 23 percent (100% scenario). With
decreasing rate of import volumes, Indonesian domestic demand will also be
decreased. Among commodities analyzed, milk-dairy products domestic
demand decreased the highest at 3 to 5 percent rate (all scenarios).
Alternately, the demand for locally produced (non-import) commodities will fill
in. The positive impact of the export subsidy’ cut will affect the domestic
demand increase on soybean, sugar, plant-based fibers, and milk. Milk will
experienced the highest rate of increase of 34 to 68 percent (all scenarios).
The overall impact of the cut is that Indonesian’ total output of agriculture will
increase at a rate of 0.2 to 35 percent (on the 100% cut’ scenario) Therefore it
can have positive impact on the Indonesian resource allocation and use. On
commodity milk, it will have an increase 0.03 to 38 percent. On wheat, it will
have an increase 0,02 to 8 percent. On maize, 0.004 to 2 percent. Other

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 commodities such as horticulture, soybean, sugar, ruminant livestock, and
poultry, will also experience a positive impact. Meanwhile, commodities
categorized as other crops will have a negative impact. Other impact detected
in the cut scenario is the decreasing rate of land availability for commodities
such as paddy/rice and plant-based fibers. It should be interpreted and seen
as there will be land conversion for those two commodities.
(12) The positive and high impact on the GDP will be high and be significant only to
the DDC countries, such as the EU. Nevertheless, for Indonesia, the decrease
on its GDP is relatively small (- 0,005 to -0,009 percent). Meanwhile, the
Indonesian welfare will decrease at the amount of US$ 68-135 millions.
(13) On the assessment of the G-20, the US, the EU, and the Hongkong Proposals
and carefully looking on the each scheme of the tariff cuts, for the G-33
countries: (1) G-20 Proposal or the EU Proposals gives relatively even tariff
cuts on each band with the exception of the 4th band; (2) ACP’ Proposal made
all tariff cuts emerged in a conical form, with majority cut at the first
band/bottom band and small cut at the 4th/upper band, (3) Australia , the US,
and the New Zealand tier/band Proposals come in the form of the majority
have to be emerge in the 2nd and 4th band/tier, whilst the minority or small
cuts are in the 3th and 1st bands/tiers. For Indonesia: (1) the G-20 , the EU,
and Australia Proposals will clustered/grouped the major of tariff cut in the 2nd
band/tier, smaller cuts in the 4th band/tier, and smallest or minor cut in the the
1st and 3rd band/tier; (2) the ACP Proposal gives almost 90% configurated
tariff at the 1st band/tier, with decreasing number of cuts on subsequently
tier/band; (3) the New Zealand Proposal grouped or clustered the majority of
tariffs on the 2nd band/tier (almost 87%), and subsequently conically to the
upper bands/tiers. The G-20 or the EU Proposals spread the tariffs all over
the bands evenly, while the Australia-the US- the New Zealand-Proposals
distribute the tariffs only at the 2nd and 4th band/tier. Meanwhile ACP
Countries Proposal group the tariff cut pyramidally. For Indonesia and G-33,
the Australia and the US Proposals will caused drastically cutting the tariffs
compare to the EU, the G-20 and the ACP Proposals. The New Zealand
Proposal show a lower rate in tariff cut. However the ACP Proposal is showing
the lowest and very moderate cut among all Proposals.
(14) For Indonesia and the G-33 countries, among all Proposals analyzed in this
study, he ACP Proposal can give a better chance to be adopted. It contains
and poses a lesser risks to be taken by the DGC countries. The tariff cut
requires lesser cut on the already low tariffs existing in the DGC countries.
Even if it is not going to be adopted, the G-33 need to consider the
characteristics of their agricultural sectors and the food security situation on
each member of the countries. Therefore, tariff cut schemes and commodities
to be applied on should be re-examined and carefully be analyzed, before
considering and adopting the schemes on each Proposals that are tabled on
each round of talks. This is to avoid the negative impact to the agribusiness of
the specific-commodity traded and to the livelihoods of the farmers and the
society as a whole. The ACP Proposals gives a decent tariff cut compare to the
G-20 Proposal. The average tariff cut are 70 to 80 percents compared to the
G-20 Proposal, which are 34,6, 51,5, 112,5 dan 133 in the 1st, 2nd, 3rd and
4th tiers/bands respectively.
(15) For Indonesia, the import tariff cuts’ schemes will have effect on the
decreasing amount of total production of agricultural commodities (paddy/rice-
processed rice, cereal grains/maize, soybean, horticulture, sugarcane, and
cattle-sheep), with the exception of commodities such as commodities such as:
other animal products-poultry, other-crops, vegetables oils-fats, food-products.

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 Meanwhile for the G-33 countries, the production of paddy/rice-processed rice,
horticulture, sugarcane, other-crops, and food-products will increased, but the
production of cereal grains/maize, soybean, livestocks-dairy products, and
vegetables oils-fats, will decreased.
(16) For commodities experiencing a decrease in production, the demand for each
input of production will also decreased (land, unskilled-labors, capital).
Meanwhile for commodities experiencing an increase in production, the
demand for each input of production will increase. The magnitude of change is
in-line with the change of production.
(17) The decreasing in production will lead to trade deficit in, except for
commodities such as animal-poultry products, other-crops, vegetable oils-fats,
and food-products. Meanwhile for G-33 countries, trade surplus is faced by
commodities such as paddy/rice-processed rice, horticulture, sugarcane, other-
crops, and food-products; and trade deficit is faced by commodities such as
maize, soybean, animal products and vegetable oils seeds-fats.
(18) Experiencing the same trade deficit’ level, the value of Indonesia’ deficit is less
than of the G-33 countries. Likewise, for the same level of trade surplus, the
value of Indonesia’s surpluses is less than that of the G-33 countries.
(19) The implication of using GTAP Modelling exercised in this study is that the
interpretation of the results need to be taken cautiously and with carefully
considerations. Moreover, regrettably most of the GTAP data-base and
numbers are old and out-of-date which do not explain the recent situation on
each WTO’ member countries. The WTO’ discipline then is needed to be put in
place on the green and blue boxes to avoid the advantage-taking practices of
the DDC to the DGD countries.
(20) The impact of the domestic support’ and export subsidy’ cuts are varied and
specific to each country, so as the implications out of each. The variation and
differences shows that the DDC countries will easily impose their vested
interests to “hurt” the livelihoods of smallfarmers in the DGC countries.
Therefore, the Indonesian authority or Government need to be carefully
analysing the current and new proposals from both the G-20 or the DDC
countries. All new scenarios will be emptied into the increasing of domestic
demand which could not be supported by the domestic resources of land
availability/use. One good example is the increasing demand of wheat and its
products- in Indonesia- which could not be produced domestically. This would
mean that the Indonesian Government should have policies to achieve it’s
owned-food security level and not heavily rely on the DDC countries’ provision.
The responsibilities would then lies not only on the Ministry/Department of
Agriculture’ shoulders only, but on other related-Ministries/Departments as well
and should be coordinated by and under the Coordinating Ministry’ office.
(21) Main focus and attention should be given to the conversion of the agricultural
land-use. Land competition with other than agricultural-uses will get to be
tighter in the near future. Coordination and cooperation with other
Ministries/Departments to regulate the agricultural land-use is needed. The set-
aside land policy for agricultural use need to be pursued coupled with the other
Government policies and programs implemented.
(22) Based on all scenarios of the tariff cuts, it is shown that the households’
income in Indonesia and other DDC countries will increase. However, income
level of the G-33 countries will decrease due to the tariff’ cut The increasing
rate of growth of the Indonesian household income is less than that of the DDC
countries. The growth of income in Indonesia and other DDC countries are
successively followed by the increasing numbers of their GDPs, with similar

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 rate. However, the analysis of the model explains that the tariff cuts will caused
the increasing welfares/livelihoods of all countries included in the model, with
the exception on the US. This result should be used to convince the member
countries of the WTO-including Indonesia to adopt the import tariff cut schemes
of the Proposals. Nevertheless, some considerations need to be taken into
account, such as impacts on the production level, trade balance, agricultural
input of production (mainly unskilled labors surpluses of the agricultural sector).
Therefore, the assessment and analysis on the labor-absorbtion and income
distribution are needed to be done in advance.
(23) GTAP simulation results on the domestic support and export subsidy cuts will
not significantly decrease the GDP of the countries involved. The direct impact
of the cuts would trigger and affect the prices’ increasing of the agricultural
commodities. Meanwhile the income of DDC countries farmers is also
increasing. Therefore, Indonesia should negotiate and work together with
other DGC countries to insist the DDC countries to cut their huge domestic
supports. Indonesia is also need to decide on its’ own level of domestic
support for its’ agricultural commodities, taking into account the de-minimis
level (less than 10 percent of the total value of output).
(24) The Indonesian’ domestic support is calculated through the rough estimation
results based on the data availability. The main constraint faced by the
research team is that there is no institution specifically designed to compile and
collect the info/data on domestic supports, which are scattered and are spread
all over in many offices/institutions. Moreover, the data/info on the micro levels
are difficult to gather and basically are inavailable. The impact of the
decentralization of the Government made it more difficult to record and to
report subsequently to the upper level starting from the villages, districts, and
provinces. To be able to monitor and to follow up the agreements on each of
the WTO’ rounds and talks, the info and data availability on the Government’
support and subsidy related to the domestic support scheme is needed on
timely and spacely manner. An effort to estimate and calculate the domestic
support should be given priority for the next topic of research on the ICASEPS’
trade-research team’ agenda.
(25) Based on the field interviews and observations during study/research, the
Province’ and District’ human resources are not fully comprehend and fully
understood the policies taken-related to the international trade issues. It turned
out, actually the case is that the Province’ and District’ human resources are
the implementers or the executors of the trade policies taken and adopted by
the Indonesian Government. Therefore sosialisation and dissemination of the
trade policies taken nationally or internationally by the Government need to be
pursued systematically and continually across the country. Only with the full
comprehension and through an active participation and open public dialogue,
the trade policies can be successfully implemented and be benefitted the whole
agricultural stakeholders of the country.
(26) On this study/research, we are focusing on the DDC countries’ domestic
support cuts. However, in the next study/research, it is recommended that the
focus should be given to the DGC countries’ domestic support cuts (start with
Indonesia’s domestic support cuts, for example). This recommendation can be
pursued for the next follow-up trade’ research agenda.