Agriculture And The WTO: Sheer Inequity

AMIDST the 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 concerns.” 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. This 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 India.

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.