Agreement On Agriculture

Agreement on Agriculture(AOA)

Formation of WTO in Jan 1,1995 as a successor to

GATT

Many trade related agreements were signed by the member countries

First time Agreement on Agriculture

To reform and dismantle trade barriers

Why agricultural sector?

• In Developing Countries

▫ Agriculture

▫ Rural Development

• These sectors

▫ Contribute a large share of GDP

▫ primary Source of Employment

Play a crucial role in reducing poverty

Developed vs. Developing in

Agricultural sector

Uruguay Round

• Following the Uruguay round negotiations, all the agricultural products were brought under AOA

• The Agreement is made up on Three pillars▫ Market Access

▫ Export Competition

▫ Domestic Support

• Except LDC, all the WTO members were required to make commitments in all these areas in order to liberalise agricultural trade.

• Developing countries were given a limited element of special

• and differential treatment (S&DT).

First Pillar-Market Access

• Developed and developing countries to convert all non-tariff barriers into simple tariffs (a process known as tariffication).

• All tariffs to be bound (i.e. cannot be increased above a certain limit).

• Developed countries to reduce import tariffs by 36% (across the board) over a six year period with a minimum 15% tariff reduction for any one product.

• Developing countries to reduce import tariffs by 24% (across the board) over a ten year period with a minimum 10% tariff reduction for any one product.

Second Pillar-Export Competition

• For developed countries, the value and volume of export subsidies to be reduced by 36% and 24% respectively from the base period 1986- 1990 over a six year period.

• For developing countries, the value and volume of export subsidies to be reduced by 24% and 10% respectively from the base period 1986- 1990 over a ten year period.

Third Pillar-Domestic Support

• All forms of domestic support are subject to rules. The WTO classifies domestic subsidies into three categories known as the Amber, Blue and Green Boxes . Only the Amber Box is subject to reduction commitments as follows:▫ For developed countries, a 20% reduction in Total AMS (Amber

Box) over six years commencing 1995 from a base period 1986-1988.

▫ For developing countries, a 13% reduction in Total AMS (Amber Box) over ten years commencing 1995 from a base period 1986-1988.

Domestic Support Boxes

• In WTO terminology Boxes->Subsidies

• Green means permitted

• Amber means slow(be reduced)

• Red means forbidden

• NO RED BOX FOR AOA

• But things exceeding reduction commitment levels in Amber box are prohibited

• One more box Blue means subsidies that are tied to programs that limit production

Amber box

• All domestic subsidies that are considered to distort production and trade. E.g. Market price support

• Subsidies expressed in terms of “Total Aggregate Measurement of Support”(TAMS) – all supports in one single figure

• Subsidies are subject to WTO reduction commitments

Blue Box

• This is the Amber box with conditions

• Conditions designed to distort production

• Deemed by WTO rules to be ‘partially decoupled’ from production and are not subject to WTO reduction commitments

Green Box

• Subsidies that are deemed not to distort trade, or atleastcause minimum distortion and are not subject to WTO reduction commitments

• They tend to be programmes that are not targeted at particular products, and include direct income supports for farmers that are not related to current production levels or prices.

• Mostly they are government funded

Special Safeguard Mechanism

• Safeguards are contingency restrictions on imports taken temporarily to deal with special circumstances such as a sudden surge in imports

• higher safeguards duties can be triggered automatically when import volumes rise above a certain level, or if prices fall below a certain level; and

• it is not necessary to demonstrate that serious injury is being caused to the domestic industry.

Implications of AOA on India

Market access • Developing countries like India who had not converted their

quantitative restrictions into tariffs, were allowed to have ceiling bindings, which were not subjected to reduction commitments

• India had bound it’s tariff as 100% for primary products, 150% for processed products and 300% for edible oils

• India has not taken any commitment to provide minimum market access opportunities which other countries who had tariffed their QRs had to undertake 5% of domestic consumption at the end of implementation period

• Though India is not entitled to use the Special Safeguard Mechanism of the agreement, it can safeguard action under WTO Agreement of safeguards, if there is a surge in imports causing serious injuries ( or threats) to the domestic producers

Contd….

Domestic Support

• For agricultural sector, domestic support upto 10% of total value of agricultural produce is allowed in developing countries, and 5% in developed countries

• In India, the product specific support is negative, while non product specific support( Subsidies on power, irrigation, fertilisers, etc.) are well below the permissible level of 10% of value of agricultural output

• So, India under no obligation to reduce domestic support currently extended to the agricultural sector

Contd…

Export subsidies

• Export subsidies of the kind listed in the AOA, which attract reduction commitments are not extended in India

• Developing countries free to provide certain subsidies –subsidising of export marketing costs, internal and international transports and freight charges, etc.

• India making use of these subsidies in certain schemes of APEDA (Agricultural and Processed food products Export Development Authority)

How India will be impacted by WTO

trade facilitation agreement• Due to India’s outdated farming techniques, there are

worries that Indian farmers will struggle to compete once trade barriers are removed

• As a developing country, needs to invest in modernized equipment.

• It is not mature enough to compete in global market, with practices from US and EU it will take a huge hit

• A classic case is Indian farmers having to buy high-cost genetically engineered seeds and chemicals from multinational corporations like Monsanto, which has been eyeing India’s vast farming sector for its products.

CRITISICM

• Civil society – for reducing tariff protection for small farmers, a key source of income for developing countries

• NGOs – for categorising subsidies. . As efficient agricultural exporters press WTO members to reduce their trade-distorting ‘amber box’ and ‘blue box’ support, developed countries’ green box spending has increased – a trend widely expected to continue.

• A book from the International Centre for Trade and Sustainable Development shows how green box subsidies do in fact distort trade, affect developing country farmers and can also harm the environment.

• Third World Network states that; "This has allowed the rich countries to maintain or raise their very high subsidies by switching from one kind of subsidy to another

The Bali decision

• Based on Stockholding :- developing countries fear they

could breach the limits they have agreed on trade-distorting

domestic support

• Used “Green Box” supports, which was allowed without any

limit because they do not distort trade

• They started altering the trade-distorting support using a

different method of taking inflation into account, or a “peace

clause” shielding any breaches of the agreed limits from legal

challenge

• The “peace clause” is an interim solution. Members agreed in

Bali to find a permanent solution by 2017 (the 11th Ministerial

Conference)

After the bali

• The first proposal for a permanent solution came from the G–33

on 16 July 2014, -- to move these programmes into the Green

Box

• In the General Council on 25 July 2014, India, a G–33 member,

complained of slow progress on the permanent solution

• They spelt out that the permanent solution should be found

through meetings of the agriculture negotiations, but in

“dedicated sessions” that would be accelerated and separate

from the rest of the Doha Round agriculture talks. And, they

said, negotiations would also “continue to progress” on all three

pillars of the agriculture negotiations

• After US deal, India to push for Doha agenda at WTO in 2015

• India and the US -- key to get the multilateral trading system back on track

• India also wants to bring back the long-stalled Doha round on the table

Issues for Negotiations

• India argued for additional flexibility by appropriate adjustments

to the provisions of the AoA, in order to enable us to pursue our

legitimate non-trade concerns

• India believes that a focused discussion on the subject will

contribute to increased awareness to the non-trade concerns such

as food security and rural employment

Impact on increasing agri exports from

India’s a result of WTO AoA

• More to gain from the trade reforms

• Reduction in export subsidy and domestic support to the

agricultural sector by the developed countries may lead to

a decrease in production in those countries.

• Scope for expansion of exports from developing countries

Doha Development Agenda (DDA).

• Early 2000 Negotiations on agriculture began under Article 20 of the WTO Agriculture Agreement

• November 2001 - Fourth Ministerial Conference in Doha, Qatar WTO Member governments agreed to launch new negotiations and other issues, in particular the implementation of the present agreements.

• 121 governments submitted a large number of negotiating proposals with respect to agriculture

• The declaration confirmed and elaborated the objectives, and set a timetable. Agriculture became part of the single undertaking in which virtually all the linked negotiations were to end by 1 January 2005

• long-term objective in the WTO Agreement: to establish a fair and market-oriented trading system through a programme of fundamental reform.

• Continued..• The programme included strengthened rules, and specific

commitments on government support and protection for agriculture.

• Purpose: to correct and prevent restrictions and distortions in world agricultural markets.

• The Implementation decision included:• Rural development and food security for developing

countries• Least-developed and net food-importing developing

countries• Export credits, export credit guarantees or insurance

programmes• Tariff rate quotas

• The member Government aimed at:1. Market access: substantial reductions2. Exports subsidies: reductions in all forms of export

subsidies .(1 August 2004 “framework” members agreed to eliminate export subsidies by a date to be negotiated)

3. Domestic support: substantial reductions for supports that

distort trade (1 August 2004 “framework” -developed countries pledged

to slash trade-distorting domestic subsidies by 20% from

the first day any Doha Agenda agreement is implemented)

• September 2003 - Fifth Ministerial Conference in Cancún, Mexico, was intended as a stock-taking meeting but the meeting was soured by discord on agricultural issues, including cotton.

• 1 August 2004 – Some real progress was evident when members agreed on a framework with a set of decisions in the General Council (sometimes called the July 2004 package).

• January 2005 Original deadline was missed.

• end of 2006 - Members unofficially aimed to finish the negotiations, but again unsuccessfully.

• December 2005- Further progress in narrowing members’ differences was made at the Hong Kong Ministerial Conference

• July 2008- ministers came to negotiate “modalities” in Geneva where Director-General Pascal Lamy said they had agreed tentatively on a number of issues but were stuck on the “special safeguard mechanism” for developing countries.

• new agriculture negotiations chairperson, Ambassador David Walker of New Zealand, has been holding talks on unsettled issues arising from the December 2008 draft

Current status

• 28 November 2014 Members seek more information on policies affecting latest cotton market trends

• 17 December 2014 During an informal meeting WTO members discuss how to advance services negotiations for post-Bali work programme which will be determined based on the progress in agriculture and non agricultural market access negotiation.