Agriculture and the WTO: Sheer Inequity

 sickle_s.gif (30476 bytes) People’s Democracy

(Weekly Organ of the Communist Party of
India (Marxist)


No. 04

January 27, 2002

Agriculture And
The WTO: Sheer Inequity

Amit Sen Gupta

furore regarding the attempt by developed countries at the WTO meeting in Doha to push for
a new round to the detriment of the interests of developing countries, an issue of vital
importance for developing countries has received much less attention. The final
declaration from Doha reflects the fact that very little progress has taken place to
address the concerns relating to agriculture. In discussions leading up to the Doha
meeting and at Doha developed countries (especially the European Union) were able to
resist attempts to bring down the level of subsidies that these countries provide to
domestic agriculture and agricultural exports. All that the final declaration states that
takes note of the concerns of developing countries like India is: “..Urges Members
to exercise restraint in challenging measures notified under the green box by developing
countries to promote rural development and adequately address food security
There is no clear commitment beyond this in the declaration.

India is just
beginning to feel the rigours of the Agreement on Agriculture (AoA) that was part of the
WTO agreement of 1995. Specifically, the lifting of restrictions on imports, as required
by the AoA has resulted in widespread disruption of the rural economy. The spate of
suicides by farmers in many states is a testimony to the grim situation that is fast
unfolding before us. It would be instructive at this stage to take a new look at the AoA
and the inherent inequities in it.


The Agreement on
Agriculture was supposed to have been a major concession to developing countries. It was
argued that a multilateral regime that progressively reduces trade barriers on
agricultural produce would benefit producers of primary commodities, i.e. developing
countries in Africa, South America and Asia. Towards this end, recognising that almost all
developed countries heavily subsidise their domestic agriculture, the agreement was
required to prepare a schedule for phasing out of subsidies.

What the AoA
ended up doing, is quite the reverse of the above. By a virtual sleight of hand the
agreement ensured that subsidies provided to domestic agriculture by developing countries
would be phased out while those being provided by developed countries would be retained.

This has resulted in exports of primary commodities by developing countries becoming
uncompetitive while their domestic markets are being flooded by subsidised imports from
developed countries. The agreement through devious manouvers also ensures that developed
countries are allowed higher levels of subsidy to their exports and are also able to
provide for higher tariff barriers against access to their markets.


How did this
happen? To understand this we need to understand the complex system of categorisation for
domestic support to agriculture that was worked out under the agreement. The agreement
categorised these subsidies to be a) trade distorting, and b) non-distorting. It was the
first category of subsidies that were sought to be phased out, and the quantum was
described as the Aggregrate Measurement of Support (AMS). The second set of subsidies were
allowed to be continued under, what were termed, as the “Green Box” provisions.
is where the trap lay. Virtually all the subsidies that developing countries provide lay
in the first category. Conversely, most of the subsidies provided by developed countries
are considered “non-trade distorting” and are not required to be phased out.

How was this
categorisation done? According to the agreement, the Aggregate Measurement of Support
(AMS) is to be calculated for each product receiving market price support, non-exempt
direct payments, or any other subsidy not exempt from the reduction commitment. All other
non-product specific support is to be put together into one non-product specific AMS. The
Agreement further provides that the AMS would have to include not only budgetary outlays,
but also revenue foregone by the government and its agents. Additionally, the
subsidy-discipline stipulates that support provided to agriculture both at national and
sub-national levels have to be taken into account. This last mentioned proviso is clearly
aimed at including price support granted by federal governments in some countries like

On the other
hand the agreement stipulates that several categories of subsidies would be exempt from
AMS calculations. These include domestic support policies that have, at most, a minimal
impact on trade (so-called “green box” policies). Two classes of support can be
seen as qualifying for exemption as per the agreement: (i) government service programmes,
and (ii) direct income support to producers. Included in the first category are government
support for research programmes, pest and disease control, training services, extension
and advisory services, inspection services, marketing and promotion services and
infrastructural services of various kinds. Budgetary allocations for all these forms of
agricultural support would not have to be included in the AMS. In a similar vein, payments
to farmers under environmental programmes or to producers in disadvantaged regions would
also qualify for exclusion, according to the provisions of the Agreement. In the second
category, two forms of income support qualify for exemption: (i) payments under
production-limiting programmes (i.e. support offered to farmers not to produce so that
process can be kept artificially high!), including direct payments, and (ii) de-coupled
income support. The latter is the principal form of support that the US and European
farmers enjoy.

Thus we have a
situation where developed countries are not required to reduce a major part of their
subsidies because they are covered by the “Green Box” provisions. But the
story gets murkier still. In the case of AMS — which is to be reduced—highly
subsidising developed countries are required to reduce these by 20 per cent. Which means
they can retain subsidies at 80 per cent of previous levels. On the other hand countries
that were not subsidising their agriculture, or doing so nominally (i.e. developing
countries like India), cannot subsidise their agriculture by more than 10 per cent. Even
more diabolic is the manner in which the developed countries, anticipating the AoA hiked
their subsidies in the period leading up to the Uruguay Round. Thus whatever little
reductions they are now required to make in subsidies, still leaves them at levels that
are in fact higher than what were being provided in the late seventies.


The agreement
also requires member countries to decrease the value of subsidies granted by 36 per cent
as compared with the 1986-90 level over the six year implementation period of the
agreement. The volume of subsidised exports would have to be decreased by 21 per cent over
the same six year period. Developing countries would have to reduce their subsidies by
two-thirds of the levels stipulated for developed countries. As in the case of domestic
support, least developed countries would not have to undertake any commitment to reduce
export subsidies. Here again, the field was anything but even to start with. The agreement
also states that countries that didn’t subsidise their exports in their base period
(1986-90) are prohibited from using export subsidies. Thus while countries like India
cannot provide for any subsidies, countries in the EU, US, etc. can continue to subsidise
their exports, albeit at lower levels.


The Agreement
also lays down provisions for market access. The first provision has to do with removal of
Quantitative Restrictions (QRs) on agricultural imports. Countries like India which have
removed such restrictions are now faced with severe problems. Domestic producers – ranging
from apple growers to poultry owners – are faced with unfair competition from imported
products from developed countries. These products are heavily subsidised because of the
asymmetries in the AoA described earlier. The Agreement also provides for tarriffication
(establishment of tariff rates) for items covered by non-tariff barriers (NTBs) earlier
and reduction of existing levels of tariff protection. The average reduction of tariffs
after tariffication of NTBs would have to be 36 per cent for developed countries and 24
per cent for developing countries. The calculations for these tariff rates are complex and
are linked to the kind of barriers that were in existence earlier. The net result is that
tariff rates that developed countries are allowed are higher than those allowed for
developing countries.


The sheer
inequity inherent in the Agreement would be clear if we examine some of the statistics.
The competition which millions of Indian farmers face from developed countries is clear
from the fact that in 1995 subsidies provided amounted to nearly US 20,000 dollars per
full-time farmer in the USA and European Union. This subsidy alone is seventy times the
income of the typical Indian farmer.

Further, the
official Aggregate Measure of Support (AMS) in the US, which amounted to about US 23
billion dollars in 1994, was a minor part – just over one-quarter only – of the total
transfers to their farmers amounting to US 90 billion dollars. The US offer in WTO to
reduce its AMS to 19 billion dollars by year 2000, was meaningless from the viewpoint of
fairness vis a vis Indian farmers. Even if the entire AMS had been reduced to zero in 1994
itself, there would still have remained at least US 65 billion dollars of subsidy to their
farmers, or nearly 22,000 dollars per full-time farmer (numbering 3.5 million), i.e. more
than sixty times the annual income of the average Indian farmer. The implementation period
of the AoA has, in fact, further worsened the disparities. Domestic subsidies in OECD
countries have risen from US 275 billion dollars in 1994 to US 326 billion dollars in 1999
(according to OECD data).

In such a
situation it is imperative that the government strive to ensure in the WTO that
commitments given by developed countries regarding reduction in domestic and export
subsidies are honoured. At the same time the Agreement on Agriculture needs to be reviewed
in the light of the fact that developed countries are able to retain the right to
subsidise their agriculture by making use of the infamous “green box”
provisions. Further India needs to argue that direct food support to the poor should not
qualify as support to domestic agriculture. In order to protect Indian farmers from the
effects of withdrawal of Quantitative Restrictions (QRs) on agricultural imports, high
tarriff rates and tariff rate quotas have to be established to provide only minimum access
to imports. Further, in future review of the Agreement on Agriculture, India must argue
for reimposition of QRs – something that was considered perfectly legal by the global
trading system before 1995.

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