AGREEMENT ON

AGRICULTURE(AOA)

Presented by:

Divya Boddu (07), Rohini Mukhopadhyay (19), Dhaval Parmar (25), Sachin Lakade (32), Raj Saxena (35), Teena Deuri (43), Zahid Anwar (48)

A BRIEF JOURNEY TOWARDS AOA

• GATT was a multilateral treaty to liberalize world trade. It took effect on 1st January,1948.

• Under GATT, total 8 rounds took place• The 8th round began in September ,1986 at part del

Este, Uruguay and it was concluded in December ,1994.• The AoA was included in the final act of Uruguay round

15th April,1994.• This round gave birth to WTO in the year1995,Jan 1st

WHY THE AGREEMENT ON AGRICULTURE?

• Comparative advantage• Instability in the world market• Effects of protectionism • Market Access difficult– High Tariffs– Non Tariff Barriers– Grey Area Measures

LONG TERM OBJECTIVES OF THE AOA

•To establish a fair and market-oriented agricultural trading system. A reform process should be initiated through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines.

•To provide for substantial progressive reductions in agricultural support and protection sustained over an agreed period of time, resulting in correcting and preventing restrictions and distortions in world agricultural markets.

• The URAA represents a fundamental change in the way agriculture is treated. Prior to URAA rules applying to agriculture largely ineffective.

• Under the URAA, countries agreed to reduce agricultural support in three areas: – Market access

– Domestic support

– Export subsidies

MARKET ACCESS

• TARIFFICATION• TRQs • TARIFF REDUCTION &

BINDING• SPECIAL SAFEGUARDS

TARIFFICATION

• Eliminate all non-tariff trade barriers like ban, quota or quantitative restrictions on import of agricultural products, and convert them into tariffs (“tariffication”).

• Tariff rates according to the base period 1986-88 in the respective countries.

TARIFF RATE QUOTAS

• A two leveled-tariff:

A lower (in-quota) tariff : charged on imports within the quota volume.

A higher (over-quota) tariff : charged on imports in excess of the quota

volume.

• Minimum Access Opportunity Commitment:

Tariff quota equal to 3 % of domestic consumption (‘86-’88)

Tariff quota equal to 5 % of domestic consumption by 2001 for

developed countries and 2005 for developing countries.

TARIFF REDUCTION AND BINDING

Particular\Countries Developed Countries

Developing Countries

Least developed Countries

Average reduction 36 % 24 % 0 %

Minimum reduction on each tariff line 15 % 10 % 0 %

Time period 6 years 10 years -

SPECIAL SAFEGUARDS (SSG)1. When actual import volumes rise above a specified trigger level.2. When import prices denominated in domestic currency fall

below a certain trigger level.3. It is an additional import duty.4. Only for products in tarrification.5. Can not apply to in quota imports.

SPECIAL SAFEGUARDS (CONTD)

1.Special treatment for primary products:

Volume based SSG:• Import surges – Volume triggers.• Extra duty of about one third of applied rate.• Trigger volume depends on a. Market penetration. b. Change in domestic consumption.

Price based SSG:• Price falls – price trigger.• Extra duty depends on price.

2.Protection to staple food items:• “ A primary agricultural product which is the

predominant staple in the traditional diet of a developing country member.”

• Retention of non-tariff restrictions with minimum access set initially at 1% of domestic consumption, rising to 4% in 10 years.

SPECIAL SAFEGUARDS (CONTD)

Implications of Market Access

• Removal of QR’s would hit the producers and impair the growth prospects of the farm sector.

• Removal of QR’s leads to dumping and transfer of excess productions by exporting countries.

• But this might benefit the consumers and safeguard food security in event of domestic shortage.

DOMESTIC SUPPORT

• Objective: To identify acceptable and unacceptable measures to support the farmers.

• Any domestic subsidy that promoted agricultural sector was subjected to reduction commitments under AoA.

• Aggregate Measures of Support (AMS)

• Developed countries will cut by 20% by 2000

• Developing countries will cut by 13.3% by 2005

• Many policies exempt [policies categorized by degree of perceived distortions --- called green box (permitted), amber box (slow down), and blue box (limited)]

DOMESTIC SUPPORT ( contd)

• Amber Box: Amber box measures are considered as trade distorting elements, and

are subjected to reduction. Measures like price support, export subsidies, cheap loans etc comes under this category .

• Green Box: Green Box measures are not considered as trade distorting and are

acceptable under AoA. Measures like support for research, infrastructure services, domestic food aid etc comes under this category.

• Blue Box: Blue Box measures are intended to limit production. Measures like direct

payment to farmers, cattle limiting programs etc.

DOMESTIC SUPPORT ( contd)

• The amount of total subsidies subject to reduction commitments made by government to its agricultural sector.

• Exemptions in AMS calculations:– Green box subsidies excluded– Amber Box “de minimis” : < 5 % of value of production of a

product , for developed countries and < 10 % for developing countries

DOMESTIC SUPPORT ( contd) - AMS

• An example:

EXPORT SUBSIDIES

• Export subsidies are special incentives provided by governments on products destined for foreign markets to encourage increased foreign sales.

• Article 3.3 of the Agreement on Agriculture (AoA) establishes a basic rule, which places a limit on agricultural export subsidies measured in terms of volume of and expenditures on subsidized exports i.e. value.

• Developed countries agreed to reduce the volume of export subsidies by 21 percent and the expenditure on export subsidies by 36 percent by 2000.

• Developing countries agreed to reduce the volume of export subsidies by 14 percent and the expenditure on export subsidies by 24 percent by 2004.

• The base period used for export subsidies commitments is 1986-1990.

EXPORT SUBSIDIES (CONTD)

Export subsidies play a significant role in depressing and distorting world market prices in agriculture.

Reasons :-• Choice of Base period• Circumvention

EXPORT SUBSIDIES (CONTD)

• Choice of base year (1986-90): Due to the extremely low world prices for agricultural products, export subsidies during 1986-1990 were quite sizeable. The limited reduction commitments taken in the AoA therefore left large margins for continued subsidization

• Frontloading: The Agreement allowed for reductions to be made from the 1991-1992 levels if a country's export subsidies were higher than the 1986-1990 levels. As a result some countries practiced "front loading" whereby they increased their expenditure levels from 1986-1990 levels thereby minimizing the impact of reductions taken.

Politics of Subsidies

• Subsides in food and agriculture sector is given to protect poor.

• GATT agreement says that the subsides support to agriculture inputs should continue for poor farmers but should be stopped for rich farmers which is Impossible.

• Subsides given to the US and European farmers are beyond imagination.

• In US a farmer producing exportable wheat enjoys a massive subsidy of US$ 29000 annually which is 25 times more than the average income of middle class in the less developed country and in India 60 crore farmers are given a subsidy of only 100 crore dollars.

Why US is asking for removal of Subsidies?

“US agriculture is reeling from low commodity price.

Given a abundant domestic supply and a stable US population rate, expanding existing market access and opening new export markets for agriculture is more important than ever. If we do not do this American agriculture’s long standing history of early trade surplus will not continue”

• Dean Kleckner, President of American Farm Bureau Federation

Why US is asking for removal of Subsidies? (CONTD)

• US agricultural sector was founded on the pillars of subsidy and export promotion which take the country to the height of Zenith.

• Agro subsidies has virtually created an army of agricultural bureaucrats and the department of agriculture is more than the total income of all the farmers.

• By 1976 European product started giving tough competition to the US product and gradually US product started taking backseat while European set on their march of domination.

• In this way the rich and powerful quarreled among themselves virtually blocking the way of future liberalization.

• These give an opportunity for the lesser developed countries to strike bargain for their own benefits.

• Agreement is virtually non existing in India as the country is giving far less subsidy than limited by WTO.

• This reduction in subsides and increasing market centralization result in shift from food to cash crop.– Recent Study of Central India(Narmada Valley Belt)

indicates that pulses have been pushed out by Soya bean which results in expansion of land of Soya bean cultivation to 48 lakh hectares.

Effect on India from Export Subsidies

CONTD……..

• Multinational Agro giants have patented the varieties which are centuries were known to Indian Farmers.

• Major countries like Australia, Argentina, Canada and New Zealand are advocating for liberalization of agriculture on the lines of the liberalization that has occurred in other sectors.

• The total liberalization of agriculture would mean exposing the vast majority of small and medium Indian farmers to face competition of price.

• European Union(EU) also is not comfortable with the idea of liberalizing its agriculture and hopes to block the issue with India and the other third world countries.

Consequences of liberalising of agriculture on India

• Cotton Growers are suffering due to price depression.

• India faces difficulty to retain self sufficiency in edible oils and the import increases to 1.5 million tonnes in 1996-97 which is five fold increase in import of edible oil since 1993-94.

• Sugar industries also start feeling the pinch of liberalization (India spent Rs 1500 crores on the import of sugar in spite of having 6.5 million tonnes of stock)

INDIAN EXPERIENCE - PRIOR TO AND POST AOA

• Prior to AoA

- Extreme import restriction clubbed with high levels of tariff for agricultural products.

- Import of mass consumption items like cereals and edible oil were canalized through state trading bodies.

- Existence of cash compensatory support for select exporters.

- All export profits were exempted from income tax.

- Farmers availed inputs at subsidized prices and minimum support price was guaranteed.

• Post AoA

- India is almost out of Quantitative Restrictions and is now fully in the tariff regime.

- But India continues to maintain high tariff on several commodities with a view to checking expected surge of imports

- Post 1991 Economic Reforms, cash incentives for exports were abolished and so were Income Tax exemptions for export profits.

- AoA did not object to India's MSP(Minimum Support Price) Programmes. Therefore MSP coverage was increased to several other agricultural products.

- There was a surge in non-product support because of increased power subsidy, irrigation subsidy and concessional loans

CRITICAL ANALYSIS OF AOA

• Agricultural Tariffs continue to be 6 times as high as industrial tariff• Provisions regarding SSM(Special Safeguard Mechanism) were only

available to developed & Tariffied countries• Developed countries continued with very high domestic support

that artificially increase production and distort trade affecting developing nations like India badly.

• Developed countries deny market access to the developing countries.

The Sanitary

and

Phytosanitary

Agreement

The agreement on the application of sanitary and phytosanitary measures entered into force with the establishment of the World Trade Organization on 1st Jan 1995. It concerns the application of food safety and animal and plant health regulations and is closely linked with the agreement on agriculture.

INTRODUCTION . . .

Protect human or animal life from risks arising from additives contaminants, toxins or disease-causing organisms in food.

Protect human life from plant- or animal carried diseases.

Protect animal or plant life from pests, diseases or disease-causing organisms.

KEY FEATURES OF AGREEMENT ON SPS MEASURES

Prevent the entry, establishment or spread of pests into the country

SPS measures taken to protect health of fish and wild fauna, as well as of forests and wild flora

KEY FEATURES OF AGREEMENT ON SPS MEASURES (CONTD)

Thank You