In this article, we will discuss everything about the Agriculture Agreements including all kinds of subsidies, Impact on India and latest developments:
The original GATT did apply to agricultural trade, but it contained loopholes. For example, it allowed countries to use some non-tariff measures such as import quotas, and to subsidize. Agricultural trade became highly distorted, especially with the use of export subsidies which would not normally have been allowed for industrial products.
The products which are included within the purview of this agreement are what are normally considered as part of agriculture except that it excludes fishery and forestry products as well as rubber, jute, sisal, abaca and coir.
Meaning of Distortion: This a key issue. Trade is distorted if prices are higher or lower than normal, and if quantities produced, bought, and sold are also higher or lower than normal— i.e. than the levels that would usually exist in a competitive market.
The Uruguay Round (1995) produced the first multilateral agreement dedicated to the sector. The Uruguay Round agreement included a commitment to continue the reform through new negotiations. These were launched in 2000, as required by the Agriculture Agreement.
Main Component of Agriculture Agreement/ The new rules and commitments apply to:
Market Access — various trade restrictions confronting imports
Domestic support — subsidies and other programmes, including those that raise or guarantee farmgate prices and farmers’ incomes. It will also includes detailed analysis of Aggregate Measure of Support (AMS) and Public Stock Holding for Food Security / Peace Clause
Export subsidies and other methods used to make exports artificially competitive.
The agreement does allow governments to support their rural economies, but preferably through policies that cause less distortion to trade. It also allows some flexibility in the way commitments are implemented. Developing countries do not have to cut their subsidies or lower their tariffs as much as developed countries, and they are given extra time to complete their obligations. Least-developed countries don’t have to do this at all.
Now we will discuss each Component in detail:
Market access: ‘tariffs only’, please
The new rule for market access in agricultural products is “tariffs only”. Before the Uruguay Round, some agricultural imports were restricted by quotas and other nontariff measures.
Ordinary tariffs including those resulting from their tariffication were to be reduced by an average of 36% with minimum rate of reduction of 15% for each tariff item over a 6 year period. Developing countries were required to reduce tariffs by 24% in 10 years. Developing countries as were maintaining Quantitative Restrictions due to balance of payment problems were allowed to offer ceiling bindings instead of tariffication. (India used this argument)
For products whose non-tariff restrictions have been converted to tariffs, governments are allowed to take special emergency actions (“special safeguards”) in order to prevent swiftly falling prices or surges in imports from hurting their farmers.
It has also been stipulated that minimum access equal to 3% of domestic consumption in 1986-88 will have to be established for the year 1995 rising to 5% at the end of the implementation period (6 years for Developed countries, 10 years for Developing countries).
Domestic support: some you can, some you can’t
The main complaint about policies which support domestic prices, or subsidize production in some other way, is that they encourage over-production. This squeezes out imports or leads to export subsidies and low-priced dumping on world markets. The Agriculture Agreement distinguishes between support programmes that stimulate production directly, and those that are considered to have no direct effect.
Accordingly, it has been divided into three boxes:
Amber Box (Slow Down): Domestic policies that do have a direct effect on production and trade have to be cut back. These includes
Product specific subsidies, that is, the difference between the administered price (like minimum support prices in India) and external reference prices.
Non product specific subsidies, that is, subsidies on inputs such as fertilizers, electricity, irrigation etc.
WTO members calculated how much support of this kind they were providing per year for the agricultural sector (using calculations known as “total aggregate measurement of support” or “Total AMS”) in the base years of 1986–88. Developed countries agreed to reduce these figures by 20% over six years starting in 1995. Developing countries agreed to make 13% cuts over 10 years (India was having negative AMS on total basis , so no commitment was there). Least-developed countries do not need to make any cuts. Reduction commitments refer to total levels of support and not to individual commodities.
Domestic support given to the agricultural sector within the specified de minimis level, that is, upto 10% of the total value of agricultural produce (both product & non product specific categories) in developing countries and 5% in developed countries is allowed. In other words, AMS within this limit is not subject to any reduction commitment. (Here India got struck as for instance in case of rice (product specific), India subsidy (MSP/Administered Price- Market Price) was higher than 10% of value of production of rice in the year 2018-19). (Detailed Discussion is there in the next section of the Article regarding AMS and Peace Clause).
Green Box (Allowed): Measures with minimal impact on trade can be used freely. They include government services such as research, disease control, infrastructure and food security (that's why PDS is allowed). They also include payments made directly to farmers that do not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance programmes. In India these includes:
i. Government assistance on general services like research, pest and disease control, training, extension, and advisory services.
ii. Public stock holding for food security purposes. (Procurement at MSP is covered in Amber Box but Distribution of it under PDS is under Green Box).
iii. Domestic food aid.
iv. Direct payment to producers, such as, governmental financial participation in income
insurance and safety nets, relief from natural disasters, and payments under
environmental assistance programmes.
v. De-coupled income support.
vi. Government financial participation in income insurance and income safety-net programmes
vii. Payments (made either directly or by way of government financial participation in crop insurance schemes) for relief from natural disasters.
Blue Box (Amber Box with Conditions): Direct payments with production-limiting conditions are included in Article 6.5 or ‘Blue box’. However, these payments must also be based on any of the following sub-conditions: (i) fixed area and yields; or (ii) 85% or less of the base level of production; or (iii) a fixed number of livestock heads. Although linked to the production, the Blue box measures are not subject to any capping. Over the last 25 years, some members of the WTO, for example, the European Union, Norway, Japan and Iceland, have used the Blue box to support their producers. In 2016, China became the first developing country to use Article 6.5 to support its corn producers, and later on its cotton producers.
Development Box: As a special and differential provision (S&DT), the Agreement on Agriculture allows developing countries to support their farmers without any prescribed financial limits under Article 6.2 or the Development box.
This includes measures such as
(i) investment subsidies, generally available to agriculture,
(ii) agricultural input subsidies, generally available to the low-income or resource-poor producers, and
(iii) subsidies given to the producers to encourage diversification from producing illicit narcotics.
As per the Schedule of Commitments submitted by India a farmer whose landholding does not exceed 10 hectares is considered a low-income or resource-poor farmer. Accordingly, 99.43% of Indian farmers are low-income farmers (GoI, 2019). To be more accurate, almost all farmers are low-income or resource-poor farmers, and therefore, India has the flexibility to provide input subsidies to farmers without any financial limit.
Export Subsidy limits on spending and quantities
The Agriculture Agreement prohibits export subsidies on agricultural products unless the subsidies are specified in a member’s lists of commitments. Where they are listed, the agreement requires WTO members to cut both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies. Taking averages for 1986–90 as the base level, developed countries agreed to cut the value of export subsidies by 36% over the six years starting in 1995 (24% over 10 years for developing countries). Developed countries also agreed to reduce the quantities of subsidized exports by 21% over the six years (14% over 10 years for developing countries). Least-developed countries do not need to make any cuts.
Further, as decided as part of Nairobi Package (2015),
Developed Members shall immediately eliminate their remaining scheduled export subsidy entitlements as of the date of adoption of this Decision. Developing country Members shall eliminate their export subsidy entitlements by the end of 2018. Developing country Members shall continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture until the end of 2023, i.e. five years after the end-date for elimination of all forms of export subsidies. Least developed countries and net food‑importing developing countries listed in G/AG/5/Rev.10 shall continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture until the end of 2030.
Now, we will discuss more about
Details about Aggregate Measure of Support (AMS)
The amount of total subsides, subject to reduction commitments given by government to its agriculture sector is measured in terms of Aggregate Measure of Support (AMS). It is calculated on a product-by-product basis using the difference between the average external reference prices for a product and its applied and administered price multiplied by the quantity of production. To compute AMS, non-product specific domestic subsidies are added to the total subsidies calculated on a product-by-product basis. The initial AMS calculations were based on how much support of this kind were provided for the agricultural sector per year in the base year of 1986-88. Developed countries agreed to reduce their AMS by 20 percent in six years starting from 1995. Developing countries agreed to making 13.3 per cent cuts over ten years. Least developed countries were not required to make any reduction.
The de minimis limit for the Product Specific Support (PSS) is based on the value of production (VoP) of a specific product and for the Non Product Specific Support (NPS) on the total value of agricultural production.
The members that had given support above the de minimis limit during the base period have the entitlement to support their farmers beyond the de minimis limit in future too. For example, the US, EU, Canada and Japan have secured additional flexibilities to continue with providing trade-distorting support above the prescribed de minimis limit. The PSS and NPS have been below the de minimis limit for most of the developing countries during the base period. Thus, their maximum policy space under the Amber box is capped by the de minimis limit.
On account of the low level of support during the base period 1986-88 (for India it was negative in fact), the policy space for India and other developing countries for PSS is capped at 10% of the value of production of a specific product.
In India, the policy of minimum support price (MSP) is an example of the MPS. The AoA prescribes that the market price support (MPS) be calculated by multiplying the difference between the External Reference Price (ERP) and the pre-announced price, called the applied administered price (AAP), with the production eligible to receive the AAP.
MPS = (AAP – ERP) * eligible production
India notifies its domestic support in US $. For many years, the minimum support price was lower than the fixed ERP due to currency depreciation. However, in 2018-19 it crossed for Rice.
As per the recent notification, that is for 2019-20, India provided the US $25 billion as input subsidies, consisting of expenditures on fertilizers, irrigation, and power. Subsidy on insurance premium and expenditure on interest subvention together amounted to the US $4.7 billion. These are notified as non-product specific support, although these expenditures could have been covered under the Development box.
Public stockholding for food security purposes (Also Called as Peace clause)
Public stockholding programmes are used by some governments to purchase, stockpile and distribute food to people in need. While food security is a legitimate policy objective, some stockholding programmes are considered to distort trade when they involve purchases from farmers at prices fixed by the governments, known as “administered” prices.
At the 2013 Bali Ministerial Conference, ministers agreed that, on an interim basis, public stockholding programmes in developing countries would not be challenged legally even if a country’s agreed limits for trade-distorting domestic support were breached. It is also called Peace Clause. They also agreed to negotiate a permanent solution to this issue.
A decision on public stockholding taken at the 2015 Nairobi Ministerial Conference reaffirmed this commitment and encouraged WTO members to make all concerted efforts to agree on a permanent solution.
India’s MSP programmes are under scrutiny at the WTO, as it is the first country to invoke the Bali ‘peace clause’ to justify exceeding its 10% ceiling (of the total value of rice production) for rice support in 2018-2019 and 2019-2020.
While the ‘peace clause’ allows developing countries to breach the 10% ceiling without invoking legal action by members, it is subject to onerous notification requirements and numerous conditions such as not distorting global trade and not affecting food security of other members.
Group-33 (Commonly Termed as G-33)
It is a forum of developing countries formed during the Cancun ministerial conference of the WTO, to protect the interest of the developing countries in agricultural trade negotiations. India is a part of the G33, which is a group of 47 developing and least developed countries. It was created in order to help group countries which were all facing similar problems. The G33 has proposed special rules for developing countries at WTO negotiations, like allowing them to continue to restrict access to their agricultural markets.
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Disclaimer: We have used multiple sources available including WTO, various articles available in public domain for purely academic purpose.