by Aijaz Ahmad Turrey 16 October 2018
World Trade Organization (WTO):
World Trade Organization (WTO) is an organization for opening trade relations among countries. WTO is a medium as well as a place for member governments to settle trade disputes and negotiate trade agreements. WTO came into existence as a result of negotiations operating under a system of trade rules. Presently WTO under the ‘Doha Development Agenda’ launched in 2001, is the host to new negotiations.
Introduction to the Agreement on Agriculture (AOA):
The Agreement on Agriculture, also called the “Agreement”, came into action on January 1, 1995. It is recognized under the preamble to the Agreement that the agreed long-term objective of the reform process, started by the Uruguay Round reform program, is to develop a fair and market-oriented agricultural trading system. The program comprises some specific commitments with regard to reducing protection and support in the areas of export subsidies, domestic support, and market access. It also aims at establishing effective GATT rules and disciplines. The Agreement on Agriculture also covers some non-trade concerns, including food security, protection of the environment, and also provides special and differential treatment for developing countries to have opportunities to access for agricultural products of particular export interest.
Product Coverage:
The Agreement on Agriculture covers a wide range of agricultural products in its Annex 1 covering not only the basic products but also processed items of such products. The basic agricultural products covered under the agreement are wheat, milk and live animals. It also includes the products derived from them such as bread, butter and meat, as well as all processed agricultural products such as chocolate and sausages. Besides these it also includes spirits, wines and tobacco products, fibers such as cotton, wool and silk, and some raw animal skins used for leather production.
Salient Features:
The Agreement on Agriculture covers both areas of agriculture and trade policy. The agreement under WTO contains provisions in 3 broad areas. These are:
Market access;
Domestic support and;
Export subsidies.
Market Access:
The provision of market access under the WTO includes tariff reduction, tarriffication and access opportunities. The main aim of tarriffication is the abolition of all non-tariff barriers such as quotas, minimum import prices, discretionary licensing, variable levies, and state trading measures, voluntary restraint agreements etc. and also the conversion of them into an equivalent tariff. The tariffs which are imposed by member countries under the provision need to be reduced by an average of 36% with minimum rate of reduction of 15% for each tariff item over a 6 year period. High tariffs restrict trade and thus need to be reduced as soon as possible. On the other hand developing countries are required to reduce tariffs by 24% in 10 years. It has also been predetermined that minimum access opportunities to domestic consumption should be available.
Domestic Support:
As domestic support policies of the Agreement are concerned which are subject to reduction commitments, the total support given in 1986-88, measured by the total Aggregate Measurement of Support (AMS) need to be reduced by 20% in developed countries and 13.3% in developing countries? These reduction commitments in support are measured at the total levels and not at the individual commodities. Some product specific and non-product specific categories of products having less than 5% of the value of production (for developed countries) and less than 10% (for developing countries) are also excluded from any reduction commitments. Polices which do not have or having a most minimal trade distorting effects on production are also excluded.
Export Subsidies:
The Agreement on Agriculture (AOA) contains provisions which aim at reducing Export Subsidies of its member countries. Limits were set for both developed and developing countries. For developed countries, they have to reduce export subsidy expenditure by 36% and volume by 21% in 6 years. As per developing countries are concerned the percentage cuts are 24% and 14% respectively. For products not covered under the Agreements export subsidy reduction commitments, no such subsidies will be granted in the future.
Likely Issues for Negotiations and Possible Indian Stand:
Market Access:
- Agriculture is the base of India as majority of population depends on agriculture. There are some WTO members who have set high agricultural tariffs and are becoming significant barriers to market access opportunities. But as per India is concerned there need to be a reasonable level of tariff protection so that India can take care of its food security and rural employment concerns.
- Another factor which discourages developing countries from expanding is tariff escalation. They are not able to diversify primary commodity production to processed value added agricultural products for export purposes and expansion of market.
- High tariff rate quotas restrict trade opportunities of new suppliers, particularly from developing countries. Thus there is a need of proper allocation and administration of tariff rate quotas (TRQ’s). Such TRQ’s should be eliminated for providing new opportunities to developing countries.
- Certain aspects of sanitary and phytosanitary measures are limiting market access particularly for exports of developing countries and would also figure prominently in the forthcoming negotiations of WTO.
- Only a few Member countries have special safeguard provisions availing all benefits. They should be available to all members particularly to developing countries like India so that they can also avail benefits.
Domestic Support:
- At the time when certain obligations and commitments are implemented a number of member countries particularly from the developing world have experienced difficulty in calculating and notifying their aggregate measurement of support (AMS) on account of the following factors:-
- Most developing countries are not able to provide support to their agricultural sector even up to the de minims level because of having financial and resource constraints.
- Many developing countries do not clearly understand the agreement with respect to the treatment of negative AMS and “excessive inflation”. It results in the reduction of flexibility given to developing countries during the Uruguay Round to address their domestic policy concerns. Therefore they should be clearly defined.
- Developing countries are not getting much support from the ‘Green Box’. Therefore it should be revisited in order to cover their support and development programmes. The policy should be further tightened as it also covers some non-trade distorting measures.
- Measures to direct payments to farmers called the ‘Blue Box’ which are currently exempt from AMS reduction commitments, should either be totally dispensed with or alternatively should be subject to reduction commitments.
- Developing countries should cover new means and ways as to get more flexibility in the level and use of de minims support.
Export Subsidies:
- It is universally acknowledged that export subsidies are the single most trade distortive impact in agriculture because of having a potential of displacing developing country’s exports. The export subsidies provided by any member country is not limitless but is fixed at a de minims limit provided under the WTO’s Subsidies and Countervailing Measures agreement. India as a developing country should also be provided with an appropriate level of export subsidies.
- In the world agricultural market some disciplines like export credits, guarantees and deferred payments are assumed to have a negative impact on global competition and prices. Therefore such disciplines should also be included in the export subsidies of India.
- In the field of export subsidies certain countries are resorting to ‘rolling over of export subsidies’ creating problems and causing ambiguities in the existing language of the Agreement on Agriculture. Such rolling over of export subsidies need to be suitably addressed as it leads to negation of reduction commitments.
Food Security-An Important Non-Trade Concern:
- The main objective of the Agreement on Agriculture (AOA) was to bring about discipline in some distorted sectors of trade by interfering in trade. Its focus was on reducing import barriers unrestricted use of production and export subsidies. It also included some non-trade concerns (NTCs) like food security and environment protection.
- Another thrust area of AOA was to find balance between trade and non-trade concerns. The agreement focused on liberalization and considered it the panacea of all ills in the agricultural sector. The objective was not properly sought out as it does not covered problems such as food security faced by the developing countries like India. The problem of food security is an important concern in India and thus market oriented approach may not be appropriate. The AOA therefore should take into consideration such concerns of these countries.
- In developing countries the main aim of government’s developmental policies is to ensure food security, that is, the access of the people to sufficient food to meet its nutritional requirements. Hence, food security is a sensitive issue for developing countries particularly of those where a large percentage of population is dependent on agriculture like India. Therefore there should be some degree of autonomy and flexibility in determining such policies. Such policies would gear up income levels and productivity and will reduce market fluctuations. Food security has been recognized a legitimate national concern by FAO (Food & Agriculture Organization).
- Countries no doubt argue and support rapid liberalization of the agricultural sector so that they can have access to food globally. But such access is not possible for all countries because all countries are not equal. If we contend that there is global food sufficiency and countries are finding food at reasonable prices still they may not able to buy it because of having lack of foreign exchange reserves. Therefore all countries would at all times have sufficient foreign exchange reserves to procure their food requirements internationally. Sometimes a country may have sufficient foreign exchange reserves but still faces problems because of unforeseen variations in the international prices.
- There are not only the global concerns of a developing country but also certain internal constraints which if not appropriately addressed, would severely limit the capacity of developing countries to increase domestic production, to at least a certain minimum percentage of their requirement. The major internal problems of a developing country include lack of technical know-how, unavailability of high yielding varieties of seeds, underdeveloped market, absence of electricity etc. the size of holdings in these countries is also small which restrict the use of new technologies in the land holdings. Mechanization of agriculture is thus rarely adopted. As a result productivity remains low but the population goes on increasing its pressure. Thus in order to sustain the objective of food security increased governmental support in such matters is highly needed.
- Therefore, it is clear that there are both internal and external complex consequences of attaining the objectives of food security. In developing countries the heavy burden of producing food falls on small farmers. Agriculture is the main occupation of these farmers but they are facing a number of problems such as high input prices, lack of adequate skill, minimum prices of output, etc. Therefore it cannot be properly said that developing countries are producing at least a certain minimum percentage of their annual food requirement. For such a reason it is highly recommended that there should be interference of the governmental activities through subsidies etc. The small farmers should get adequate support from government. Public intervention is therefore necessary in order to achieve these national goals.
- Finally, it needs to be said that self reliance and Self-sufficiency of food plays a pivotal role in the growth of the GDP of agrarian developing economies which in turn helps them to pursue their legitimate non- trade concerns and also helps them in forming a specific developmental perspective as opposed to a purely commercial perspective. Therefore developing countries like India should be provided with additional and more flexible provisions within the AOA so that they can pursue their goals of development in a smooth way. Such countries need also be provided with domestic support in the agricultural activities. India believes that a focused discussion on such matters will help her to contribute increased awareness to the non-trade concerns of countries like India, such as food security and rural employment.