Introduction
Only countries having tariff barriers come under the provisions of GATT 1947, then came the GATT 1994 in which tariff barrier states also came under the purview of it.
In 1994, when countries came together to become members and the making of the WTO was discussed, all the countries wanting to become members provided their tariff schedules. A tariff schedule is the maximum tariff a member country imposes on its products. Before the existence of the WTO, 78% of the products of developed countries came under GATT 1994, and after the WTO, 99% of products came under GATT 1994. Meanwhile, for the developing countries, only 22% were under it, and after the WTO, it rose to 72%.
To help assuage the pressure mounted by restricted trade and distorted markets brought about by the government’s policies, the members of the WTO signed the Agreement on Agriculture in 1995. The levels of trade barriers and subsidies have lessened resulting in more egalitarian and competitive markets. More significantly, this agreement allows its members to continue negotiating further reforms but would consider issues related to the environment and food security.
An agreement on agriculture is an agreement to regulate agriculture. The three pillars to regulate agriculture as provided by the Agreement on Agriculture are as under:
- Market Access
- Domestic support mechanism
- Export subsidies
Three pillars of the Agreement on Agriculture
Market access
Market access constitutes the reduction of tariff (or non-tariff) barriers to trade by WTO members. The Agreement of Agriculture comprises tariff reductions of:
- 36% Average cut for Developed nations with at least 15% per-tariff line cut over the next six years.
- Average cut of 24% for developing countries, with a minimum 10% per-tariff line cut in the next ten years.
- Least developed countries (LDCs) were not included in any cuts of tariffs. LDCs had the alternative option either to “bind” their tariffs – where a level was created that could not be exceeded after use – or convert most non-tariff barriers to tariffs.
Domestic support
The Agreement on Agriculture divides domestic support into two types:
- Trade-distorting(Amber box subsidies)
- Non-trade-distorting or minimally trade-distorting (Green Box subsidies)
Under the current structure, it is possible for the US and Europe to spend $380 billion every year on agricultural subsidies.
Because of the “dumping” practice, these subsidies flood international markets with commodities at prices lower than cost, thereby lowering and undercutting the prices of producers in developing countries.
Green Box: Criteria for measures that are placed in the Green Box are outlined under the Agreement on Agriculture and are exempt from reduction commitments and can be increased without financial limitation within the WTO. Benefit is given to both developed and developing country Members under the Green Box. Special treatment is also given to governmental stockholding programs for food security and subsidized food prices for urban and rural poor. The measures should have minimal trade-distorting effects and be delivered through a publicly-funded government program. The Green Box encompasses different government service programs, including research, pest and disease control, agricultural training, inspection, marketing, infrastructural services, and domestic food aid. The Green Box also includes direct payments to producers, but the amount paid to the producers is not related to any production decisions and does not affect the type or volume of agricultural production. Other criteria depend upon the measure.
The Agreement on Agriculture (Article 6) identifies two classes of domestic support measures that are exempted from reduction commitments-those of developing countries which are developmental measures and direct payments under production-limiting programs. These support measures aim to promote agricultural and rural development. It has a place within development programs in developing countries. Among such measures are investment subsidies, agricultural input subsidies, as well as domestic support to the producers in developing country Members for encouraging diversification away from growing illicit narcotic crops.
Blue Box measures, or direct payments under production-limiting programmes, are not considered commitments where they are paid on fixed areas and yield, or a fixed number of livestock. Payments meeting this category involve those paid on 85 percent or less of production in an assigned base period. Decoupled payments are within the Green Box but the actual payments do not directly relate to the current quantity of production.
All other domestic support measures benefiting agricultural producers that do not fall under one of the above categories also exempt de minimis levels of support from reduction commitments. This category includes, for example, market price support measures, direct production subsidies, or input subsidies. However, there is no obligation to reduce such trade-distorting domestic support under the de minimis provisions of the Agreement if, in any year, the aggregate value of product-specific support does not exceed 5 percent of the total value of production of the agricultural product involved.
Twenty-eight Members (including the EC as one) had non-exempt domestic support during the base period and therefore reduction commitments listed in their schedules. Reduction commitments are quantified as a “Total Aggregate Measurement of Support” (Total AMS), meaning the aggregate of product-specific and non-product-specific support is put into one single figure. Price support measures have been the most significant type of policy measure within the non-exempt category.
Export subsidies
Agricultural negotiations did, indeed, look at the concern about proliferation of export subsidies during the years leading to the Uruguay Round. While, under GATT 1947, export subsidies on manufactured products were prohibited altogether, for agricultural primary products, only limited disciplines applied. The right to use export subsidies is very limited, namely, subject to product-specific reduction commitments within the schedule of the WTO Member, excess budgetary outlays for export subsidies or subsidized export volume over the schedule covered by the “downstream flexibility” provision, export subsidies consistent with special and differential treatment provision for developing country Members, and export subsidies other than those subject to reduction commitments conforming to the anti-circumvention disciplines of Article 10. In other situations, however, the use of export subsidies for agricultural products is prohibited.
The WTO members are bound by “schedules” or lists of commitments, which limit the extent to which tariffs are authorized to be placed on any given good as well as the magnitude of export subsidies and domestic support allowed to be provided.
Agriculture negotiations
The Agriculture Agreement did not mark the end of agricultural trade reform. Members of the WTO are in negotiations as far as trade reform for agriculture is concerned.
Headlining the agenda of the 2015 WTO Ministerial Conference taking place in Nairobi, Kenya was key decisions on issues of agriculture. Key decisions taken by the members of the WTO include a promise to eliminate agriculture export subsidies, decisions related to public stockholding for food security for developing nations, a special safeguard mechanism for developing nations, and regulations related to the trading of cotton.
A set of problems related to agriculture was agreed upon by the Ministers in the 2013 WTO Ministerial Conference held in Bali, Indonesia.
Committee on Agriculture
The Committee on Agriculture oversees the Agreement on Agriculture and provides a channel through which members can voice relevant issues and discuss them. Its major job is to supervise the compliance of obligations by members of the WTO. Normally meetings take place three to four times per year.
Cotton
The committee on agriculture in special session has the trading elements in cotton, especially through discussions on cotton trade led by the CoASS Chairperson.
Discusses development assistance issues on cotton under the “Director-General’s Consultative Framework Mechanism on Cotton” (DGCFMC). The talks are currently being chaired on behalf of the Director-General by Deputy Director-General Jean-Marie Paugam.
These are the Cotton Four or C4; they emerged gradually in response to a number of initiatives aimed at doing something about the sector put out by four African nations: Benin, Burkina Faso, Chad and Mali, later followed by Cote d’Ivoire.
Food Security
The WTO Agreement on Agriculture explicitly recognizes, both in its present debate and in the commitments to date by WTO members under its auspices, the Committee on Agriculture, that food security has to be taken into consideration.
In case of scarcity, trade would increase food access. Economic accessibility would also be increased further by trade for food through the stimulation of employment and incomes. Another very important aspect-food security-would be enhanced through increased predictability in the system.
Articles 1 to 21 of the Agreement on Agriculture
It lists various export regulations provisions such as product coverage, concessions and commitments, market access, special safeguard provisions, domestic support commitments, export competition and subsidy commitments, due restraint, sanitary and phytosanitary measures, special and differential treatment, and the Committee on Agriculture. It also incorporates the implementation of commitments, consultation and dispute settlement, continuation of the reform process, and final provisions. Last but not least, it addresses least-developed and net food-importing developing countries.
Article 1 (Definition)
This Agreement shall define the terms “Aggregate Measurement of Support” and “AMS” as the annual level of support provided for an agricultural product in favor of producers of the basic agricultural product or non-product-specific support provided in favor of agricultural producers in general, excepting support provided under programs which qualify as exempt from reduction under Annex 2 to this Agreement. Basic agricultural product shall mean that product as close as practicable to the point of first sale as specified in a Member’s Schedule and related supporting material.
Budgetary expenditure shall include the loss of revenue. Equivalent Measurement of Support means the annual level of support bestowed upon a basic agricultural product’s producers through the use of one or more forms of it, calculated in accordance with Annex 4 to this Agreement and taking into account data and methodology used in tables of supporting documentation annexed to Part IV of a Member’s Schedule.
Export subsidies mean subsidies contingent on export performance and include those specified in Article 9 of this Agreement. The period of implementation means the six-year period of which the first year is 1995, unless otherwise provided in Article 13. Market-access concessions comprise all market-access commitments made under this Agreement.
Article 3: Incorporation of Concessions and Commitments
The domestic support and export subsidy commitments set out in Part IV of each Member’s Schedule form an integral part of GATT 1994, thus constraining subsidization. Article 6 provides that under a Member shall not provide any form of assistance to its domestic producers greater than is committed to in Section I of Part IV of that Member’s Schedule. Besides, Article 9 provides that under Article 3 of Part IV of its Schedule, a Member shall not make any export subsidy for agricultural products or groups covered in Section II of Part IV of its Schedule in excess of the budgetary outlay and quantity commitment levels respectively and shall not make any subsidy on any agricultural product not included in that Section.
Article 4: Market Access
Market access concessions contained in Schedules refer to bindings and reductions of tariffs, and other market access commitments according to those provisions.
Except as herein expressly provided in Article 5 and Annex 5, members shall not resort to or retain any of the measures of the kind referred to in paragraph 1 of this Article that may be nullified or impaired by the adoption of such revised or additional customs duties or charges or of import or export measures referred to in paragraph 1 of Article 5.
Article 6: Domestic Support Commitments
All reduction commitments of a Member under Part IV apply to all domestic support measures for agricultural producers, except those not subject to reduction according to the criteria laid down in this Article and Annex 2 to this Agreement, expressed in terms of Total Aggregate Measurement of Support.
The Mid-Term Review Agreement provides that domestic support, including investment subsidies as well as agricultural input subsidies, is an integral part of a developing country’s development plans. These latter are excluded from reduction commitments on domestic support since they tend generally to be available to low-income or resource-poor producers. Domestic support to foster diversification away from the cultivation of illicit narcotic crops is also specifically exempted from being included in a Member’s computation of its Current Total AMS.
A Member shall meet its bound commitment obligations under Part IV of its Schedule if its total annual or final bound commitment level for agricultural support to domestic producers does not exceed the limit therein.
Requirements for Members on Current Total Agricultural Support (AMS)
A Member is not obligated to include product-specific domestic support or non-product-specific domestic support in calculating AMS.
Support shall not exceed 5% of Member’s total basic agricultural product production value.
Domestic support not linked to a particular product should not exceed 5 percent of the total agricultural production value of the Member.
The de minimis percentage for developing country Members is 10%.
Exemption of Direct Payments that are Production-Limiting: The following payments have choices:
Fixed area and yields.
Payments made on 85% or less of base level of production.
Payments for livestock based on a set quantity of heads.
Relief from reduction obligation reflected in Member’s computation of Current Total AMS.
Article 8: Export Competition Commitments
Each Member shall not provide export subsidies other than in accordance with this Agreement and with the commitments as listed in that Member’s Schedule.
Article 9: Export Subsidy Commitments
Export Subsidies may be reduced according to export performance, and
Non-commercial stocks of agricultural products may be sold or disposed of for export at a lower price than the comparable price to domestic buyers.
The government can finance the payment on export of agricultural products.
Subsidies can be offered so that marketing cost for the agricultural products is lessened.
Governments can offer internal transport and freight charges on export shipments at terms more favorable to them than for their domestic shipment.
Subsidies on agricultural products can depend on whether they are included in the exports.
During the second to the fifth years of the implementation period, a Member may provide export subsidies above the respective annual commitment levels.
Commitments regarding restrictions on the expansion of the coverage of export subsidization shall be as specified in Schedules
Developing country Members may not be obliged during the implementation period to make commitments regarding export subsidies provided that these are not applied so as to circumvent reduction commitments.
Article 13: Due Restraint
Notwithstanding GATT 1994 and the Agreement on Subsidies and Countervailing Measures (hereinafter referred to as the “Subsidies Agreement”), for a period of ten years after the date of entry into force of the WTO Agreement not applicable during the implementation period:
- Domestic support measures which meet requirements of Annex 2 are not actionable subsidies for the purposes of countervailing duties.
- Such measures shall not form the basis of actions under Article XVI of GATT 1994 and Part III of the Subsidies Agreement.
- They also are exempted from actions based on non-violation nullification or impairment of the benefits of tariff concessions accruing to another Member under Article II of GATT 1994.
- Domestic support measures that conform to Article 6 of the Agreement are exempt from the imposition of countervailing duties unless a determination of injury or threat is made.
- These measures shall be exempted from any actions under paragraph 1 of Article XVI of GATT 1994 or Articles 5 and 6 of the Subsidies Agreement, provided they do not provide support to a particular product over and above that established for the marketing year 1992.
- All-export subsidies that are compliant with Part V of the Agreement shall only be liable for countervailing duties upon determination of injury or threat based on volume, effect on prices, or consequent impact.
Article 14: Sanitary and Phytosanitary Measures
The Agreement on the Application of Sanitary and Phytosanitary Measures will be applied accordingly to bring about agreement with the members.
Article 16: Least-Developed and Net Food-Importing Developing Countries
The Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries states measures to be adopted by developed nation members.
Insofar as is possible, the Committee on Agriculture shall oversee any follow-up regarding this resolution.
Article 17: Committee on Agriculture
Through this act, a Committee on Agriculture is established.
Article 19: Consultation and Dispute Settlement
Consultations and settlement of disputes arising in the context of this Agreement are taken place according to rules stipulated in Articles XXII and XXIII of GATT 1994, interpreted and applied by the Dispute Settlement Understanding.
Article 21: Final Provisions
This Agreement shall be subject also to the provisions of GATT 1994 and the other multilateral trade agreements in Annex 1A to the WTO Agreement.
In doing this, the Annexes to this Agreement become an integral part of this Agreement.
Impact of the WTO Agreement on Indian Agriculture
Local agricultural substitution removed trade barriers and conferred strong export revenues on India, which resulted in raising agricultural overall prices internationally.
The adverse impact of the WTO agreement on TRIPs is seen in plant variety patenting. As such, through patents on plant variations, MNCs come to have control over all grains that they can use in developing research for new varieties to potentially greatly influence the productive agriculture of India.
The aim of the treaty to promote liberal and free trade was also abused.
Conclusion
The Agreement on Agriculture aimed at reforming global farm trade by reducing import restrictions, export competition, and subsidies. It faces a myriad of objections and challenges and has thus been submitted to many criticisms in its implementation. Though the intention was good, most countries failed to deliver. In fact, various loopholes enable developed nations to continue providing subsidies that are discouragingly distorting trade. In addition, the exporters of developed countries have been better placed than farmers in developing countries. On balance, the agreement has only partially achieved its objectives of reducing trade distortions and transforming world agriculture into a market-oriented sector. Developing and rich countries still remain on an uneven playing field given that the latter can, even under current rules, continue to give hefty support to their own farmers.Top of Form
