Agreement on Agriculture (AoA)
WTO members have taken steps to reform the agriculture sector and to address the subsidies and high trade barriers that distort agricultural trade.
What did Uruguay Round do?
Agreement on Agriculture was negotiated during the Uruguay Round (1986-1994).
The Uruguay Round achieved two things in relation to agriculture.
- It introduced specific disciplines on market access, domestic support and export subsidies.
- It took away the traditional “exception” which agriculture had been hiding from the full force of general GATT disciplines.
The WTO Agreement on Agriculture came into force in 1995.
What is the Aim of the Agreement on Agriculture(AoA)?
- The overall aim is to establish a fairer trading system that will increase market access and improve the livelihoods of farmers around the world.
- The agreement will create a level playing field for farmers around the world, particularly those in poor countries and cannot compete with rich countries that artificially boost their exports through subsidies.
- The long-term goal of the AoA is to establish a fair and market-oriented agricultural trading system and to initiate a reform process through the negotiations and ensuring strengthened and more operationally effective rules and discipline
What are the important provisions of Agreement on Agriculture?
The Agreement on Agriculture is fairly short, with only 21 Articles and 5 Annexes. But represents a significant step towards reforming agricultural trade and making it fairer and more competitive.
The important provisions include:
- The Agreement on Agriculture mentions that it will apply to agricultural products.
The term Agricultural products not only cover the basic products such as wheat, milk and live animals but also covers the derived products such as bread, butter, oil and the processed products such as chocolate, yogurt, wines, spirits and tobacco products, fibres such as cotton, wool and silk etc.
- The Agreement on Agriculture has three major pillars. They are:
- Market access
- Domestic support (subsidies)
- Export subsidies/competition
- The Agriculture Committee oversees the implementation of the Agreement. The committee is made up of WTO members and usually meets three or four times a year.
- The commitment under the agreement are based on special and differential treatment (Giving flexible and different timeline for developing and Least developed countries in implementing the terms)
- The Agreement also has a Special Safeguard Mechanism (SSM). SSM means there is an option available for countries to impose additional temporary duties on imports when there is a surge in imports at a lower price.
1. What is Market Access?
Market access means the right which exporters have to access a foreign market. In simple terms, this provision calls for access to imported agricultural goods in the member countries.
Market Access includes provisions on tariffication, tariff reduction and trade facilitation in agriculture.
Tariffication is the process of conversion of all non-tariff market protection measures such as quotas, sanitary requirements, licences etc into the tariff equivalents.
After the tariffication, Tariff reduction provision mentions the amount of tariff reduction required from countries.
- Developed countries have to reduce tariffs by 36% from tariffication with the minimum rate of tariff reduction of 15% for each item over a 6-year period.
- But the Developing countries were required to reduce tariffs by 24% from tariffication over the next 10 years.
- Least-developed country Members were required to bind all agricultural tariffs, but not to undertake tariff reductions.
- Tariff concessions for imports to be maintained at 1986-1988 level at least (‘existing’ market access);
This provision called for a certain percentage of agricultural products should be met from the imported agricultural products in domestic consumption.
- Developed Countries must provide access to at least 5% of imported agricultural products in domestic consumption by the year 2000.
- Developing countries have to provide the same but by the year 2004 only.
- Least developed countries are exempted from this provision
2. What is Domestic support or Domestic Subsidies?
Domestic support refers to the government subsidies that guaranteed Minimum Price (or Input subsidies) which are provided at the domestic level either directly or product-specific or both.
Domestic Subsidies are generally categorized into 3 boxes:
2.1 Green Box Subsidies:
These are the subsidies that don’t distort free trade or distort the free trade at a very minimal or negligible level.
The example for subsidies are publicly funded government programmes including expenditure on agriculture research and development, agricultural training, subsidies under environmental programmes etc.
Green box subsidies are non–price supportive thus are exempted from the calculation of Aggregate Market Support (AMS).
2.2 Blue Box Subsides:
Blue box subsidies are direct payments under production limiting programmes. According to the WTO, the Blue Box is the “amber box subsidy with conditions” attached.
The Blue box subsidies aim towards limiting production, by imposing production quotas or requiring farmers to set aside part of their land.
Blue Box subsidies are also exempted from calculation of AMS.
2.3 Amber Box Subsides:
These are the subsidies that are trade-distorting in nature and need to be curbed at any cost.
The Amber Box contains the category of domestic subsidy that is scheduled to reduce based on the formula called “Aggregate Measure of Support” (AMS).
The AMS is the amount of money spent by governments on agricultural production, except the money spent in the Blue Box, Green Box and ‘de minimis’ level.
AMS = Total amount of money spent in agricultural production – total amount of blue, green box subsidies – De minimis level prescribed in AoA
What is de minimis’ level?
The minimum level prescribed in AoA towards product specific and non-product specific (Amber box) subsides. For Developed countries the de minimis level is 5% and for developing countries it is 10%.
2.4 Special and Differential Box subsidies
This is a special and differential box that does not apply to developed countries but applicable to developing and Least Developed Countries.
These are the subsidies provided by the government to encourage agricultural and rural development activities in the country.
3. What are Export subsidies?
Export subsidies are special incentives provided by governments to encourage increased foreign sales. These may be in Cash or in kind.
These subsidies include
- cash payments
- disposal of government stocks at below-market prices
- subsidies financed by producers or processors as a result of government actions such as assessments
- marketing subsidies
- transportation and freight subsidies
- subsidies for commodities contingent on their incorporation in exported products
Export subsidies gradually have to be reduced to 36% of the value and 21% over a volume in the six years 1995-2000, compared with the reference period of 1986-1988, for developed countries and for developing countries it was fixed 24% and 14% respectively over the period of 10 years.
What is Peace Clause?
Developed countries criticised the developing and LDC’s food security programmes (public stock holding programmes) as a trade distorting subsidy. Since the negotiation went on among countries a temporary peace clause was introduced in Bali Package 2013.
The ‘peace clause’ said that no country would be legally barred from food security programmes even if the subsidy breached the limits specified in the WTO agreement on agriculture.
This ‘peace clause’ was expected to be in force for four years until 2017, by the time a permanent solution to the problem was found.
The recent developments:
Members continue to conduct negotiations for further reform. In 2015 at Nairobi Ministerial conference, members adopted a historic decision to abolish agricultural export subsidies and to set rules for other forms of farm export support in the future.