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WTO & Indian Agriculture

October 19, 2011

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WTO Agreements

Agreement on Agriculture

Agreement on manufactured goods

Agreement on Trade in Textile & Clothing

(Multi Fiber Agreement)

Agreement on TRIMs

Agreement on TRIPs

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Agreement on Agriculture (AoA)

Agreement on Agriculture provides long term reform on

agriculture trade & domestic policies.

Its objective is to increase market orientationin agriculture

trade.

AoA deals with:

1. Providing market access

2. Regulating domestic support.

3. Containing export subsidies.

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1. Providing market access

AoA required that non tariff barriers to be abolished.

Countries could convert them into tariffs for protection but

they had to be reduced progressively (36% by developed

countries till 2000 and 24% by developing countries till

2004).

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2. Reducing domestic support

AoA divides domestic support in two categories.

1. Trade distorting

2. Non-trade distorting (minimal trade distorting)

All trade distorting domestic support comes

under mber Box

Non-trade distorting is divided into:

Green Box

Blue Box

Special & Differential Box (S &D)

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-Subsidies in mber Box are quantified

according to Aggregate Measure Support

(AMS).

-AMS could be product or non product specific.

-AMS support by developed countries had to be

reduced by 20 till 2000 & 13 reduction had

to be done by developing countries by 2004.

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3. Containing Export Subsidies

Developed countries has to reduce

volume of subsidized export by 21%

till 2000 & developing countries had

to reduce it by 10% till 2004.

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Other Agreements Related to Agriculture

1. Agreement on Agreement on Sanitary and Phyto-Sanitary

(SPS) measure.

2. Agreement on Technical Barriers to Trade (TBT).

3. Trade Related Intellectual Property Rights (TRIPS)

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SPS measure covers protection for human, animal

or plant life or health.

TBT encourages international standards and calls

for national testing and certifying bodies to avoid

discrimination against imports.

TRIPS in agriculture covers various intellectual

property for protection of plant varieties, improved

seeds or chemicals developed for plant protection.

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Highest Green Box support to agriculture is given by US, whichspends 1/3rdof agricultural GDP on its support. Japan uses 1/4thof

agricultural GDP. Among developing countries, Brazil provides 3%

of its GDP & Thailand support is around 7 %.

Artificial distinction is made by developed countries between pricesupport and input subsidies on one hand and Green Box, Blue Box

on the other. They exclude non trade distorting from subsidies.

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Share of Agricultural Subsidies

(% AGDP)

34

44

67

25

40

6.2

14

38

57

14

31

7.5

18

45

62

22

36

6.8

20

49

65

24

40

6.5

0

10

20

30

40

50

60

70

86-88 97 98 1999

Canada

EC

JapanUSA

OECD

India

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Percentage of Total Export Subsidies

87.1

6.7

1.6 0.54.1

0

10

20

30

40

50

60

70

80

90

EU15 Switzerland Norway USA Other countries

Countrys

Sharein

TotalExportSub

sidies,

2000

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Market access

I

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Market access

36 % over 6 yrs; 24% 10 yrsMin. levels of imports: current level, 3% domestic

consumption; (5% 2000 &2004).

SSP (Traditional StapleDeveloping Country)

-several loopholes in AoA:fixing up very high level of minimum access tariff quota,

unweighted average reduction commitment, developed

countries have succeeded in maintaining a high level of

protection.

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Domestic Support

II

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Domestic Support

All payments decoupled (green box measures) togetherwith blue box measures & other diminimis payments

deducted from AMS.Residual made up of most coupled trade distortingmeasures placed in amber box.

Remaining AMS which are trade distorting (amber

box) subjected to reduction requirements

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AMS :two parts: product specific subsidies & non product

specific subsidies. Highest green box support toagriculture by US, more than a third of its agricultural

GDP. Japan one- fourth.

Decoupling of domestic support, one of most

controversial issues -- artificial distinction created

between price support & input subsidies on one hand &

green box & blue box subsidies on other & excluding laterfrom subsidy cuts, is unfair discrimination against

developing countries like India.

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In recent yrs Amber box support has declined in developedcountries, but support under green box policies has

significantly increased.

-Developed countries shifted domestic support from

prohibited amber box to permissive categories of green &blue boxes.

Thus, several OECD countries have increased their total

support to agriculture from base.

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bulk of support provided by 3 Members; EU,U.S. & Japan.During 1995-2001, EU spent an average of

US$96.1 billionUSA - 66.2b & Japan 1.8 b.- amount provided by others drop off very

quickly. fourth largest provider of support,

republic of Korea, averaged US$7.5 billion duringperiod. While seven of top ten providers ofsupport are OECD members, three are not Brazil, Thailand & Cuba.

Leading Providers of Domestic Support

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Table 7: Leading Providers of Domestic Support, 1995-2001 (Billion Dollars)

RankMember Support

1 European Union(15) 96.1

2 United States 66.2

3 Japan 41.84 Korea, Republic Of 7.5

5 Switzerland 4.6

6 Brazil 3.5

7 Norway 3.0

8 Canada 2.69 Thailand 1.9

10 Cuba 1.3

Source: World Trade Report, Exploring the links between subsidies, trade and the WTO; WTO.2006

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Members Share Of Total Value Of

Agricultural Production

Total Domestic

SupportAMS

Australia 3.9 0.7

Bangladesh 1.2 ---

Brazil 7.2 0.0

Canada 14.5 2.7

EU 15 34.3 15.9

Hungary 14.6 10.7

India 10.6 ---

Israel 20.9 7.8

Japan 37.6 7.5

Jordan 14.3 0.0

Korea 22.2 5.1

South

Africa6.5 0.9

United

States36.3 7.3

Uruguay 3.6 ---

Total Domestic Support and AMS as Share of Total Value of Agricultural Production of selected WTO

members (%)

Scale of Total Domestic Support

large variation in amount of agricultural

subsidies, Even when scaled against total valueof agricultural production, domestic supportlooms large in the EU, US, and Japan, withdomestic support spending representing over athird of the value of agricultural production in2001.However, Australia which is also an OECDmember provides less than 4 per cent of total

support to its agricultural sector. Amongdeveloping countries, republic of Korea & Israelprovide domestic support that amounts to overa fifth of total value of agricultural production.Turning to case of Current total AMS, variationtends to be more muted. It exceeds a tenth ofvalue of agricultural production only in case ofEU (15) and Hungary. Current total AMS isbetween 7% to 8 % of value of agriculturalproduction for both Japan and U.S.

Source: World Trade Report, Exploring the Links between Subsidies, Trade and the

WTO; WTO.2006 24

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Producer Support Estimate by Countriesgreat variance.

Australia & New Zealand provide almost no support to theiragricultural sector. ---U.S. EU & Japan, provide supportrepresenting between 18 % to 56 % of agricultural output.Iceland, Norway & Switzerland provide support that reaches

almost 70%OECD data are consistent with pattern of large variations insupport across countries observed in WTO notifications.

Agricultural subsidies, as share of agricultural production,range from 3-4 % Australia and New Zealand to nearly 70

percent in Norway and Switzerland.U.S.& EU share of subsidies in agricultural production

is between one-fifth and one-third.

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Table 9: Producer Support Estimate in Selected OECD countries, 2004, (Billion $ and %)

CountryPSE, Value Share Of Receipts

(Value Of Production

& Support)

Australia 1.1 4

Canada 5.7 21

EU (15) 133.4 33Iceland 0.2 69

Japan 48.7 56

Korea, 19.8 63

Mexico 5.5 17

New Zealand .3 3

Norway 3.0 68Switzerland 5.8 68Turkey 11.6 27

United States 46.5 18

OECD 279.5 30

Source: World Trade Report, Exploring the links between subsidies, trade and the WTO; WTO.2006

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average domestic support in OECD countries (Amber box, green box,

blue box,de minimis

, & special & differential treatment) amounted to nearly US$234 b. in 1986-88 base period, which increased to US$ 282 billion during 1995and then declined by about 7 per cent in 1996 and 12 per cent in 1997 to US$232 billion (OECD, 2001).Now it is about 280 b. majority of AMS expendituresare accounted for by EU, Japan and United States, with several other OECDcountries reporting relatively high AMS levels. Most OECD countries were able to

meet their AMS reduction commitments by reformulating their policies to satisfycriteria for green box or" blue box exemptions. Furthermore, since AMScommitments are not commodity-specific, some countries met their commitmentsby reallocating expenditures among commodities within AMS Thus, althoughcountries having AMS commitments are generally agreed to have metrequirements of AoA, and some policies have been redesigned to be less

trade-distorting, overall level of support to agriculture in these countries(measured by economic criteria rather than negotiated criteria used inAgreement) has fallen very little, if at all., (The State of Food andAgriculture; 2005).

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trends indicate that there has not been any significant reduction in producersupport estimates. PSE levels between 1986-88 ( base period for WTO, AOA )

and 2001-03, indicating that WTO has made little impact on trade distortingsupport. How has this been possible? European Union & United States haveinvented a category of supportknown as Green Box & Blue Box in WTOtalksdeemed to be decoupled from production & therefore exempt from cuts insubsidies.

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Green Box

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Ag. Research,disease control,infrastructure,

extension &buffer stocks for F.S.payments for relief from natural disaster,

assistance to farmers to restructure ag.Marketing & promotion services

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Blue box

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Direct payments

under production limiting program.

relevant for developed nations.Payments directly linked to acreage or animal nos. to limitproduction by imposing production quotas.

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Green box, blue box drawn up

with developed countries in mind.

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Table 12: Agricultural subsidies (PSE) in selected OECD Countries and India (US million $)

Country Base year(1986-88)

1997 1998 1999(provisional)

Per

farmerPer ha Per farmer Per ha Per farmer Per ha Per farmer Per ha

Canada12000 75 7000 42 8000 48 9000 52

EC 11000 707 16000 815 18000 890 17000 831

Japan 15000 10048 21000 10211 22000 10005 26000 11792

USA 17000 98 12000 73 19000 116 21000 129

OECD 11000 187 10000 189 11000 209 11000 218

India

11 855 43 61 46

66 53

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Export Subsidies

III

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huge subsidization of milk in Europe. Who is the largest milk producer? Its India.

How can we compete? The upshot is an agricultural trading system in whichsuccess depends less on comparative advantage than on comparative

access to subsidies. But the worlds poorest farmers cannot compete against theworlds richest treasuries. Table 12, make it abundantly clear that subsidies givenby developed nations are many times more than what it is being given bydeveloping countries like India. But what does free trade mean in a context wherethe worlds largest exporter of dairy produce, the EU, is providing subsidies in

excess of US$300 billion a year.

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C) Incidence of Direct Export Subsidiesthe EU is dominant, accounting for 90 percent of the value of export subsidies notif ied to the WTO during the period 19952001.Figure: Country Share in Total Export Subsidies, 2000

87.1

6.7

1.6 0.54.1

0

10

20

30

40

50

60

70

80

90

100

EU 15 Switzerland Norway United States Other Countries

countries

%ag

eof

Tota

l Exp

ortSub

sidi

es.

%

Country Share in Total Export Subsidies, 2000.

Source: World Trade Report, Exploring the Links between Subsidies, Trade and the WTO; WTO.2006

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Export subsidies of developed countries severely limited export potential ofdeveloping countries as prices are substantially depressed, &,

competitiveness of developing countries like India adversely affected. Enablethem to export well below actual cost of production.

1. - Most of developing countries not in a position to provide export subsidydue to

severe budget constraints.

Therefore, even after satisfying

reduction requirements, developed countries still leave with substantialsubsidization.

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Implications

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AOA -, reducing trade barriers in developed countries- to have a

significant impact . not enough

-Distortions far larger in industrialized countries .

-Agreement did little to liberalise agricultural trade

-expected AoA would raise international prices & improve export

prospects for developing countries like India.

-Heavy export & domestic subsidies & little market access offered bythem.

- a framework for negotiating further reductions in support

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-Reduction in 3 components of AoA may

push up international prices of

agricultural products that can make

our product competitive in world

market.

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Major global economic benefits were predicted.e.g.most rapid growth in livestocks is occurring indeveloping countries. Yet, Most of world trade in

livestocks takes place between developed countries.Because developing countries face a daunting array oftrade barriers. Distorting policies & high tariffs, deniesthem benefit of trade liberalization and increasingglobalization.

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Most OECD countries were able to meet their

AMS reduction commitments by reformulatingtheir policies to satisfy criteria for greenboxor" blue boxexemptions.

E U & U.S. have invented a category ofsupportknown as Green Box & Blue Box inWTO talksdeemed to be decoupled fromproduction and therefore exempt from cuts insubsidies.

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India would stand to gain in world market of agricultural products if domesticsupport & export subsidies substantially reduced by developed countries.In India product specific subsidies is in almost all cases negative.Non- product subsidies are lesser than 10 percent.

-It was due to substantial negative product specific that India put forward aproposal for permitting negative product specific support to be adjustedagainst non-product specific support.-Reduction in 3 components of AoA may push up international prices

of agricultural products that can make our product competitive in

world market.

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There has been little progress on agricultural issues.OECD countries continue to subsidize agriculture by 48 percent of total farm

production; just 3 percent lower than 1986 and maintain high tariffs.

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Developed Countries Dominate

Global Agricultural Trade

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Developing Countries

Will Become Net

Agricultural

Importers

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F Os OutlOOk tO 2030suggests that, as a group,developing countries will become net agricultural

importers ag.trade deficit of $18 billion (in 1997/99US $ terms) 201535b.- 2030

Recent simulations by IFPRI show that those policies by industrializedcountries have displaced about US$40 billion in net agricultural exportsper year from developing countries and reduced agricultural incomes inthose countries by nearly US$30 billion.

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What has happened since

Uruguay Round? A

Daunting Array of Trade

Barriers

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Special Safeguards Provisions

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special safeguards (SSG) provisions raise a number of

important issues in implementation of market accessprovisions.-First, only 38 member countries (mostly developed) havereserved right to use SSG in their URAA schedule of

commitment.-Second, agricultural tariff lines covered by SSG varyfrom less than one per cent for many developingcountries to 31 per cent for EU, and 59% for Switzerland(OECD, 2001).Thus use of SSG is significantly higher in dairy productsand EU & US are largest users of SSG provisions.

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Sanitary

Phytosanitary Measures

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Clearly trade rules are

unfair.

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Milk And Dairy (Fresh Milk Eq.)

Milk And Dairy (Fresh Milk Eq.)

1979-81 -17.6 18.51997-99 -19.8 19.7

2015 -29.6 28.1

2030 -39.1 35.8

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Globalization and Priority issues of Indian Agriculture

-India has provided market access to other countries by removing quantitativerestrictions. To protect Indian agriculture and its farmers it has to take some

decisions.

-India should press to club all kind of agricultural support in one category &

then seek reduction in total domestic support.

-Developing countries should have freedom to impose protective tariffs

according to difference in domestic support.

-For India, food sufficiency should be there so that reliance on trade should be

kept within limits.

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-India should protect itself from dumping as large scale import of agriculturalcommodities would lead to volatility in domestic prices and farm income.

-Indian Agricultural policy needs to built safety nets to protect interest of crop,

people and regions.

-Most of Indias agricultural products are not at international par. So foreign

collaborations in export oriented projects should be encouraged.

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same time India need to carefully consider its ownagricultural policies. we have discriminated againstagriculture, and although most obviousmacroeconomic biases may be gone, still do not investenough in agriculture and rural development. best

approach is to eliminate biases against agriculturalsector in their general policy framework and to maintaina neutral trade policy that reduces protection over time.Further, India should use transition periods negotiated

in WTO to increase investments in human capital, landtenure,

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Clearly trade rules are unfair. worldshighest tradesbarriers are against someof poorest countries - on an average, three to four times higher than thosefaced by rich countries when they trade with each other. In Uruguay Round, richcountries promised to cut agricultural subsidies. Instead they have increased

them. They now spend $1 billion a year on aid for agriculture in poor countriesand just under $1 billion a day subsidizing agricultural production at homeundermining the livelihoods of agricultural laborers in poor countries. In thissituation, India will find it very difficult selling its goods in international marketsince factors determining comparative advantage is also not favorable to India,well shown in the table, 13.

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Cost of Production & Export prices of Selected crops

of USA in 2001

Item Cost of

Production

($/bushel)

Export Price

($/bushel)

Wheat 6.24 3.5

Soyabean 6.96 4.93

Maize 3.47 2.28

Cotton 0.93 0.39

Rice 18.66 14.55

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Developing Countries & AoA

Developing countries expected that signing up of AoA agreement

would open market for their products in developed countries. Further

AoA would led to increase in international prices of agri. Products.

In post WTO period, int. prices of agri. products had declined due to

heavy subsidies given by developed countries.

All agreements were heavily biased against developed countries.

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Authentic market opportunities:

Rebalancing of rules in favor ofdeveloping countries.