Agreement on Agriculture
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.
History of the Agreement
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.
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.
The AoA has three central concepts, or "pillars": domestic support, market access and export subsidies
Domestic support: the boxes
The first pillar of the AoA is "domestic support". The WTO Agreement on Agriculture negotiated in the Uruguay Round (1986–1994) includes the classification 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." . 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.
"Market access" is the second pillar of the AoA, and refers to the reduction of tariff (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 (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.
"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.
The AoA has been criticised by civil society 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 subsidies (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  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 United States 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".
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 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.
At the 2005 WTO Ministerial Conference in Hong Kong, 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.”
- Peace Clause
- World Trade Organization
- International Centre for Trade and Sustainable Development
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- Agricultural Subsidies in the WTO Green Box, ICTSD, September 2009.
- “The Historical Context of the Green Box”, Stancanelli, N. (2009), ,In Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with sustainable Development Goals. Eds. Meléndez-Ortiz, R., Bellmann, C., and Hepburn, J. Cambridge University Press, UK.
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