Agreement on Agriculture
Encyclopedia
The Agreement on Agriculture is an international treaty
of the World Trade Organization
. It was negotiated during the Uruguay Round
of the General Agreement on Tariffs and Trade
, and entered into force with the establishment of the WTO on January 1, 1995.
In leading up to the 1986 GATT Ministerial Conference, developed country farm groups that had benefited from protectionist policies strongly resisted any specific compromise on agriculture. In this context, the idea of exempting production and ‘trade-neutral’ subsidies from WTO commitments was first proposed by the US in 1987, and echoed soon after by the EU. By guaranteeing farmers a continuation of their historical level of support, it also contributed to neutralising opposition to the round. In exchange for bringing agriculture within the disciplines of the WTO and committing to future reduction of trade-distorting subsidies, developed countries would be allowed to retain subsidies that cause ‘not more than minimal trade distortion’ in order to deliver various public policy objectives.
(1986-1994) includes the classifi cation of subsidies into ‘boxes’ depending on their effects on production and trade: amber (most directly linked to production levels), blue (production-limiting programmes that still distort trade), and green (causing not more than minimal distortion of trade or production). While payments in the amber box had to be reduced, those in the green box were exempt from reduction commitments. Detailed rules for green box payments are set out in Annex 2 of the Agreement on Agriculture. However, all must comply with the ‘fundamental requirement’ in paragraph 1, to cause not more than minimal distortion of trade or production, and must be provided through a government-funded programme that does not involve transfers from consumers or price support to producers.
The AoA's domestic support system currently allows Europe
and the USA to spend $380 billion every year on agricultural subsidies alone. "It is often still argued that subsidies are needed to protect small farmers but, according to the World Bank
, more than half of EU support goes to 1% of producers while in the US 70% of subsidies go to 10% of producers, mainly agri-businesses." http://www.guardian.co.uk/wto/article/0,2763,1642768,00.html. The effect of these subsidies is to flood global markets with below-cost commodities, depressing prices and undercutting producers in poor countries – a practice known as dumping
.
(or non-tariff) barriers to trade by WTO member-states. The 1995 AoA required tariff reductions of:
Least Developed Countries
(LDCs) were exempted from tariff reductions, but either had to convert non–tariff barriers to tariffs—a process called tariffication
—or "bind" their tariffs, creating a "ceiling" which could not be increased in future.http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm3_e.htm
groups for reducing tariff
protections for small farmers – a key source of income for developing countries. At the same time, the AoA has allowed rich countries to continue paying their farmers massive subsidies which developing countries cannot afford.
The Agriculture Agreement has been criticised by NGO's for categorizing subsidies into trade-distorting domestic subsidies (the amber box) which have to be reduced, and non- trade distorting ubsidies (blue and green boxes) which escape disciplines and thus can be increased.
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 http://ictsd.org/programmes/agriculture/greenbox/ 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. While some types of green box payments probably have only a minor effect on production and trade, others have a significant impact.
According to countries’ latest official reports to the WTO, the US provided $76 billion in green box payments in 2007 – over nine-tenths of its total spending – while the EU notified €48 billion ($91 billion) in 2005 , or around half of all support provided by the bloc. In the case of the EU, a large and growing share of green box spending was on decoupled income support, which the book shows can have a particularly significant impact on production and trade.
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... like a magician’s trick. This is why after the Uruguay Round the total amount of subsidies in OECD countries have gone up instead of going down, despite the apparent promise that Northern subsidies will be reduced." Moreover, Martin Khor argues that the green and blue box subsidies can be just as trade-distorting - as "the protection is better disguised, but the effect is the same".
At the WTO meeting in Hong Kong in 2005, countries agreed to eliminate export subsidy
and equivalent payments by 2013. However, Oxfam has stated that EU export subsidies account for only 3.5% of its overall agricultural support. In the US, export subsidies for cotton were announced to be removed but these represent 10% of overall spending which "does not address the core issue of domestic payments that have been proven to distort trade and facilitate dumping".
Several mechanisms have been suggested in order to preserve those countries: the Special Safeguard Mechanism (SSM) and treatment of Special Products (SPs).
Debates have arise around this question, some negotiating parties claiming that SSM could be repeatedly and excessively invoked, distorting the normal flow of trade in the process. In turn, the G-33 negotiating bloc of developing countries, which has been the major proponent of the SSM, has argued that breaches of bound tariffs should not be ruled out if the SSM is to be an effective remedy. A study by ICTSD simulated the consequences of SSM on global trade for both developed and developing countries.
, Members agreed that “Developing country Members will have the flexibility to self-designate an appropriate number of tariff lines as Special Products guided by indicators based on the criteria of food security, livelihood security and rural development.”
Treaty
A treaty is an express agreement under international law entered into by actors in international law, namely sovereign states and international organizations. A treaty may also be known as an agreement, protocol, covenant, convention or exchange of letters, among other terms...
of the World Trade Organization
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
. It was negotiated during the Uruguay Round
Uruguay Round
The Uruguay Round was the 8th round of Multilateral trade negotiations conducted within the framework of the General Agreement on Tariffs and Trade , spanning from 1986-1994 and embracing 123 countries as “contracting parties”. The Round transformed the GATT into the World Trade Organization...
of the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
, and entered into force with the establishment of the WTO on January 1, 1995.
Original idea
The idea of replacing agricultural price support with direct payments to farmers decoupled from production dates back to the late 1950s, when a Panel of Experts, chaired by Professor Gottfried Haberler, was established at the twelfth session of the GATT Contracting Parties to examine the effect of agricultural protectionism, fluctuating commodity prices and the failure of export earnings to keep pace with import demand in developing countries. The 1958 Haberler Report stressed the importance of minimising the effect of agriculture subsidies on competitiveness, and recommended replacing price support by direct supplementary payments not linked with production, anticipating discussion on green box subsidies. Only more recently, though, has this shift from price support to producer support become the core of the reform of the global agricultural system.Historical context
By the 1980s, government payments to agricultural producers in industrialised countries had caused large crop surpluses,which were unloaded on the world market by means of export subsidies, pushing food prices down. The fiscal burden of protective measures increased, due both to lower receipts from import duties and higher domestic expenditure. In the meantime, the global economy had entered a cycle of recession, and the perception that opening up markets could improve economic conditions led to calls for a new round of multilateral trade negotiations. The round would open up markets in services and high technology goods, and ultimately generate much needed efficiency gains. With a view to engaging developing countries in the negotiations, many of which were “demandeurs” of new international disciplines, agriculture, textiles and clothing were added to the grand bargain.In leading up to the 1986 GATT Ministerial Conference, developed country farm groups that had benefited from protectionist policies strongly resisted any specific compromise on agriculture. In this context, the idea of exempting production and ‘trade-neutral’ subsidies from WTO commitments was first proposed by the US in 1987, and echoed soon after by the EU. By guaranteeing farmers a continuation of their historical level of support, it also contributed to neutralising opposition to the round. In exchange for bringing agriculture within the disciplines of the WTO and committing to future reduction of trade-distorting subsidies, developed countries would be allowed to retain subsidies that cause ‘not more than minimal trade distortion’ in order to deliver various public policy objectives.
Three Pillars
The AoA has three central concepts, or "pillars": domestic support, market access and export subsidiesDomestic support: the boxes
The first pillar of the AoA is "domestic support". The WTO Agreement on Agriculture negotiated in the Uruguay RoundUruguay Round
The Uruguay Round was the 8th round of Multilateral trade negotiations conducted within the framework of the General Agreement on Tariffs and Trade , spanning from 1986-1994 and embracing 123 countries as “contracting parties”. The Round transformed the GATT into the World Trade Organization...
(1986-1994) includes the classifi cation of subsidies into ‘boxes’ depending on their effects on production and trade: amber (most directly linked to production levels), blue (production-limiting programmes that still distort trade), and green (causing not more than minimal distortion of trade or production). While payments in the amber box had to be reduced, those in the green box were exempt from reduction commitments. Detailed rules for green box payments are set out in Annex 2 of the Agreement on Agriculture. However, all must comply with the ‘fundamental requirement’ in paragraph 1, to cause not more than minimal distortion of trade or production, and must be provided through a government-funded programme that does not involve transfers from consumers or price support to producers.
The AoA's domestic support system currently allows Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
and the USA to spend $380 billion every year on agricultural subsidies alone. "It is often still argued that subsidies are needed to protect small farmers but, according to the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, more than half of EU support goes to 1% of producers while in the US 70% of subsidies go to 10% of producers, mainly agri-businesses." http://www.guardian.co.uk/wto/article/0,2763,1642768,00.html. The effect of these subsidies is to flood global markets with below-cost commodities, depressing prices and undercutting producers in poor countries – a practice known as dumping
Dumping
Dumping may refer to a subject......in computing:*Recording the contents of memory after application or operating system failure, or by operator request, in a core dump for use in subsequent problem analysis.*Recording a file or medium as a backup....
.
Market Access
"Market access" is the second pillar of the AoA, and refers to the reduction of tariffTariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
(or non-tariff) barriers to trade by WTO member-states. The 1995 AoA required tariff reductions of:
- 36% average reduction by developed countries, with a minimum per tariff line reduction of 15% over six years.
- 24% average reduction by developing countries with a minimum per tariff line reduction of 10% over ten years.
Least Developed Countries
Least Developed Countries
Least developed country is the name given to a country which, according to the United Nations, exhibits the lowest indicators of socioeconomic development, with the lowest Human Development Index ratings of all countries in the world...
(LDCs) were exempted from tariff reductions, but either had to convert non–tariff barriers to tariffs—a process called tariffication
Tariffication
Tariffication is an effort to convert all existing agricultural Non-tariff barriers to trade into bound tariffs and to reduce these tariffs over time. A bound tariff is one which has a "ceiling" beyond which it cannot be increased....
—or "bind" their tariffs, creating a "ceiling" which could not be increased in future.http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm3_e.htm
Export subsidies
"Export subsidies" is the third pillar of the AoA. The 1995 AoA required developed countries to reduce export subsidies by at least 36% (by value) or by at least 21% (by volume) over the six years. In the case of developing country Members, the required cuts are 14% (by volume) and 24 % (by value) over 10 years.Criticism
The AoA has been criticised by civil societyCivil society
Civil society is composed of the totality of many voluntary social relationships, civic and social organizations, and institutions that form the basis of a functioning society, as distinct from the force-backed structures of a state , the commercial institutions of the market, and private criminal...
groups for reducing tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
protections for small farmers – a key source of income for developing countries. At the same time, the AoA has allowed rich countries to continue paying their farmers massive subsidies which developing countries cannot afford.
The Agriculture Agreement has been criticised by NGO's for categorizing subsidies into trade-distorting domestic subsidies (the amber box) which have to be reduced, and non- trade distorting ubsidies (blue and green boxes) which escape disciplines and thus can be increased.
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 http://ictsd.org/programmes/agriculture/greenbox/ 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. While some types of green box payments probably have only a minor effect on production and trade, others have a significant impact.
According to countries’ latest official reports to the WTO, the US provided $76 billion in green box payments in 2007 – over nine-tenths of its total spending – while the EU notified €48 billion ($91 billion) in 2005 , or around half of all support provided by the bloc. In the case of the EU, a large and growing share of green box spending was on decoupled income support, which the book shows can have a particularly significant impact on production and trade.
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... like a magician’s trick. This is why after the Uruguay Round the total amount of subsidies in OECD countries have gone up instead of going down, despite the apparent promise that Northern subsidies will be reduced." Moreover, Martin Khor argues that the green and blue box subsidies can be just as trade-distorting - as "the protection is better disguised, but the effect is the same".
At the WTO meeting in Hong Kong in 2005, countries agreed to eliminate export subsidy
Export subsidy
Export subsidy is a government policy to encourage export of goods and discourage sale of goods on the domestic market through low-cost loans or tax relief for exporters, or government financed international advertising or R&D. An export subsidy reduces the price paid by foreign importers, which...
and equivalent payments by 2013. However, Oxfam has stated that EU export subsidies account for only 3.5% of its overall agricultural support. In the US, export subsidies for cotton were announced to be removed but these represent 10% of overall spending which "does not address the core issue of domestic payments that have been proven to distort trade and facilitate dumping".
Mechanisms for developing countries
During Doha negotiations, developing countries have fought to protect their interest and population, afraid of competing on the global market with strong developed and exporting economies. Many still have large rural populations composed of small and resource-poor farmers with limited access to infrastructure and few employment alternatives. Thus, these countries are concerned that domestic rural populations employed in import-competing sectors might be negatively affected by further trade liberalization, becoming increasingly vulnerable to market instability and import surges as tariff barriers are removed.Several mechanisms have been suggested in order to preserve those countries: the Special Safeguard Mechanism (SSM) and treatment of Special Products (SPs).
Special Safeguard Mechanism
A a Special Safeguard Mechanism would allow developing countries to impose additional safeguard duties in the event of an abnormal surge in imports or the entry of unusually cheap imports.Debates have arise around this question, some negotiating parties claiming that SSM could be repeatedly and excessively invoked, distorting the normal flow of trade in the process. In turn, the G-33 negotiating bloc of developing countries, which has been the major proponent of the SSM, has argued that breaches of bound tariffs should not be ruled out if the SSM is to be an effective remedy. A study by ICTSD simulated the consequences of SSM on global trade for both developed and developing countries.
Special Products
At the 2005 WTO Ministerial Conference in Hong KongHong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, Members agreed that “Developing country Members will have the flexibility to self-designate an appropriate number of tariff lines as Special Products guided by indicators based on the criteria of food security, livelihood security and rural development.”
See also
- Peace ClausePeace ClauseTrade negotiators generally refer to Article 13 of the World Trade Organization's Agreement on Agriculture as the Peace Clause. Article 13 holds that domestic support measures and export subsidies of a WTO Member that are legal under the provisions of the Agreement on Agriculture cannot be...
- World Trade OrganizationWorld Trade OrganizationThe World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
- International Centre for Trade and Sustainable Development
- Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals by Ricardo Meléndez-Ortiz, Christophe Bellmann, Jonathan Hepburn, September 2009.
- WTO Negotiations on Agriculture and Developing Countries by Anwarul Hoda and Ashok Gulati, (2007) Johns Hopkins University Press
External links
- Text of the Agreement on Agriculture: html(1), html(2), doc, pdf
- Institute for Agriculture and Trade Policy, Agreement on Agriculture Basics 2003.
- Institute for Agriculture and Trade Policy, WTO Agreement on Agriculture: A Decade of Dumping, Feb 2005.
- Devinder Sharma, The Indian Experience of Liberalisation of Agriculture, Aug 17, 2005.
- World Trade Organization and Agriculture: Selective Bibliography, prepared by Hugo H.R. van Hamel, Peace Palace Library
- International Centre for Trade and Sustainable Development, Simulations on the Special Safeguard Mechanism: a look at the December 2008 Draft Agricultural Modalities, April 2010, by Raul Montemayor, Federation of Free Farmers Cooperatives, Inc. (FFFCI)