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WTO AGREEMENT ON AGRICULTURE

Rajan Sudesh Ratna Professor Centre for WTO Studies Department of Commerce Indian Institute of Foreign Trade rsratna@nic.in. WTO AGREEMENT ON AGRICULTURE.

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WTO AGREEMENT ON AGRICULTURE

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  1. RajanSudesh Ratna Professor Centre for WTO Studies Department of Commerce Indian Institute of Foreign Trade rsratna@nic.in WTOAGREEMENT ON AGRICULTURE

  2. Established through negotiation under the UN Conference on Trade and Employment as the “third” of the Bretton Woods “institutions” for conduct of international relations • General Agreement on Tariffs and Trade, 1947 • Entered into force: 1 January 1948 • Terminated: 31 December 1995, but substance lives on as GATT 1994 • “Provisional” set of rules, since Havana Charter for the Internnational Trade Organisation never entered into force • “Original” 23 contracting parties, including India, agreed on substantial tariff reductions GATT1947 - The Origin

  3. TheUruguayRound — Key dates The 15 original Uruguay Round subjects TariffsNon-tariff barriersNatural resource productsTextiles and clothingAgricultureTropical productsGATT articlesTokyo Round codesAnti-dumpingSubsidiesIntellectual propertyInvestment measuresDispute settlementThe GATT systemServices Sep 86 Punta del Este: launch Dec 88 Montreal: ministerial mid-term review Apr 89 Geneva: mid-term review completed Dec 90 Brussels: “closing” ministerial meeting ends in deadlock Dec 91 Geneva: first draft of Final Act completed Nov 92 Washington: US and EC achieve “Blair House” breakthrough on agriculture Jul 93 Tokyo: Quad achieve market access breakthrough at G7 summit Dec 93 Geneva: most negotiations end (some market access talks remain) Apr 94 Marrakesh: agreements signed Jan 95 Geneva: WTO created, agreements take effect

  4. The original GATT did apply to agricultural trade, but it contained loopholes. For example, it allowed countries to use some non-tariff measures such as import quotas, and to subsidize. Agricultural trade became highly distorted, especially with the use of export subsidies which would not normally have been allowed for industrial products. The Uruguay Round produced the first multilateral agreement dedicated to the sector. • The new rules and commitments apply to: • market access — various trade restrictions confronting imports • domestic support — subsidies and other programmes, including those that raise or guarantee farm gate prices and farmers’ incomes • export subsidies and other methods used to make exports artificially competitive. AGRICULTURE

  5. Continuation of the Reform Process • Recognizing that the long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process, Members agree that negotiations for continuing the process will be initiated one year before the end of the implementation period, taking into account: (a)  the experience to that date from implementing the reduction commitments; (b)  the effects of the reduction commitments on world trade in agriculture; (c)   non-trade concerns, special and differential treatment to developing-country Members, and the objective to establish a fair and market-oriented agricultural trading system, and the other objectives and concerns mentioned in the preamble to this Agreement; and (d)   what further commitments are necessary to achieve the above mentioned long-term objectives. Agriculture - the original mandate (Article 20)

  6. Market access to be governed by a ‘tariffs only’ regime. • Remove non-tariff barriers – through tariffication process. • Reduction in tariffs: • Simple average of 36% over 6 years for developed countries; and • 24% over 10 years for developing countries. • India’s binding: • 100% for primary products • 150% for processed products • 300% for edible oils • Few items have lower bindings (on some 119 tariff lines). Marketaccess

  7. Subsidies in general are identified by “boxes” which are given the colours of traffic lights: • Green – permitted • Amber – slow down i.e. to be reduced • Red – forbidden or prohibited. • Though GATT developed rules for subsidies on industrial goods, it had failed to bring the discipline to subsidies granted by governments to the agriculture sector. • AoA for the first time brought this discipline. • No Red Box in agriculture. • Developed countries to reduce in 6 years, the base period (1986-90) volume of subsidies by 21% and the corresponding budgetary outlays for export subsidies by 36%. For developing countries these are 14% in volume terms and 24% in budgetary outlays over a period of 10 years. • Developing countries allowed to provide certain subsidies like subsidising of export marketing costs, internal and international transport and freight charges etc. Export Subsidies

  8. Meant to identify • acceptable measures of support to farmers, and • curtailing unacceptable trade distorting support to farmers. • Categories: • Support with no or minimal distortive effect on trade ( Green Box and Blue Box), and • Trade distorting support (Amber Box) – measured in terms of “Total Aggregate Measurement of Support” (AMS): • Expressed as a percentage of the total value of agriculture output and includes both product specific and non-product specific support (calculated by using product – by – product basis by taking the difference between average external reference price for a product and its applied administered price multiplied by the quantity of production. Non-product specific domestic subsidies are further added). • Reduction by 20% in 6 years and 13.33% in 10 years by developed and developing countries respectively, taking 1986-1988 as a base period. • Under the de minimisprovision the Amber Box supports upto 10% of the total agricultural produce in developing countries and 5% in developed countries are allowed. AMS within this limit is not subject to any reduction commitment. Domestic Support

  9. BLUE BOX (para 5 of Article 6 of AoA): • Amber box with conditions • Any support that would normally be in Amber Box, is placed in Blue Box if the support also requires farmers to limit production. • No limits prescribed on Blue Box spending. GREEN BOX (Annex 2 of AoA): • Subsidies that do not distort trade, or at most cause minimal distortion. • Have to be government funded (not by charging consumers higher prices) and must not involve price support. • Green Box subsidies are allowed without limits, subject to the conditions prescribed in Annex 2. Boxes

  10. Uruguay Round did not bring about trade liberalisation in agriculture to the desired extent. • No significant reduction in domestic support and export subsidies done by developed countries. • Non-tariff barriers were raised with stricter and new SPS and TBT measures. • Anticipated increase in exports of agriculture products from developing countries was not realised. • Market access to efficient producers were denied. • Developed countries started shifting their Blue Box measures to Green Box and also restructured their policies/programmes to comply with their reduction commitments without making any effective reductions. RESULTS

  11. 13. We recognize the work already undertaken in the negotiations initiated in early 2000 under Article 20 of the Agreement on Agriculture, including the large number of negotiating proposals submitted on behalf of a total of 121 members. We recall the long-term objective referred to in the Agreement to establish a fair and market-oriented trading system through a programme of fundamental reform encompassing strengthened rules and specific commitments on support and protection in order to correct and prevent restrictions and distortions in world agricultural markets. We reconfirm our commitment to this programme. Building on the work carried out to date and without prejudging the outcome of the negotiations we commit ourselves to comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support. We agree that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development. We take note of the non-trade concerns reflected in the negotiating proposals submitted by Members and confirm that non-trade concerns will be taken into account in the negotiations as provided for in the Agreement on Agriculture. 14. Modalities for the further commitments, including provisions for special and differential treatment, shall be established no later than 31 March 2003. Participants shall submit their comprehensive draft Schedules based on these modalities no later than the date of the Fifth Session of the Ministerial Conference. The negotiations, including with respect to rules and disciplines and related legal texts, shall be concluded as part and at the date of conclusion of the negotiating agenda as a whole. AGRICULTURE - THE DOHA MANDATE (November 2001)

  12. Three basic pillars: • market access: substantial reductions • export competition: reductions of, with a view to phasing out, all forms of these (in the 1 August 2004 “framework” members agreed to eliminate export subsidies by a date to be negotiated) • domestic support: substantial reductions for supports that distort trade (in the 1 August 2004 “framework”, developed countries pledged to slash trade-distorting domestic subsidies by 20% from the first day any Doha Agenda agreement is implemented. CONTENT OF AGRICULTURE NEGOTIATIONS

  13. Components of Market Access • Tariff cuts for developed and developing countries • Sensitive Products • Tariff capping • Tariff simplification • Special Products (SPs) • Special Safeguard Mechanism (SSM)

  14. Cuts in Overall Trade-distorting Domestic Support (Amber + de minimis+ Blue Box) • Cuts in Aggregate Measure of Support (AMS) • Product-Specific ceilings • Blue Box and associated disciplines • Green Box • Cotton Domestic Support: Key components

  15. Phase out of export subsidies • Food Aid and commercial displacement • State trading enterprises • Export credits and guarantees Export Competition: Key components

  16. Fifth Ministerial Conference in Cancún, Mexico, 10–14 September 2003. The conference ended without consensus. Ten months later, the deadlock was broken in Geneva when the General Council agreed on the “July package” in the early hours of 1 August 2004, which kicked off negotiations in trade facilitation but not the three other Singapore issues. The delay meant the 1 January 2005 deadline for finishing the talks could not be met. In the Sixth Ministerial Conference in Hong Kong in December 2005, the Ministers resolved to complete the negotiations in 2006. In pursuance of this objective, they further resolved to establish modalities in agriculture and NAMA no later than 30 April 2006 and to submit comprehensive draft schedules based on these modalities no later than 31 July 2006. In respect of Services, they agreed that Requests may be submitted by 28 February 2006; a second round of Revised Offers by 31July 2006; and Final Draft Schedules by October 31, 2006. The April and July 2006 deadlines were missed because of lack of convergence on the major issues in agriculture and NAMA. Several mini - Ministerial level meetings were held. Next mini Ministerial is being held on 21st July 2008 in Geneva. POST DOHA

  17. Agriculture – Chair: Crawford Falconer, New Zealand NAMA – Chair: Don Stephenson Draft modalities paper issued on 17th July 2007. Draft blueprints issued – 8th February 2008. Revised – 19th May 2008. Further revised papers – 10th July 2008 ( Still has 15 + 2 square brackets). FURTHER DEVEOPMENTs

  18. No change from May 2008 proposals. (1) OTDS: US to cut to between $13-16.4 billion ( size of cut 66-73%) Its present OTDS is below US $10 billion. EU to reduce to €16.5-27.6 billion (size of cut 75-85%). For US $ equal or less than 10 billion, the size of cuts would be 50-60%. Reduction 6 cuts in 5 years for developed countries & developing countries will do 2/3rd of the cuts - 9 cuts in 8 years.  (2) AMS: EC to cut by 70% to €20.15 billion; US to cut by 60% to $7.6 billion. (3) Product specific: AMS caps: Base period for all countries except US to be 1995-2000; special dispensation for the US on the base period. Proposals on domestic support

  19. Blue Box - less trade-distorting than Amber Box subsidies • Blue Box cap at 2.5% of value of agricultural production in the base period [1995-2000] • Product –specific support for a crop not to exceed average value of support during 1995-2000 • Several concessions for developed countries, both explicit and implicit DOMESTIC SUPPORT PROPOSALS

  20. Green Box - exempt from reduction commitments • Greater flexibility built in the May text in eligibility conditions (implicitly for developed countries) • Cotton • Formula proposed for reduction in AMS for cotton Rc = Rg + (100 – Rg) * 100 3 * Rg Rc = Specific reduction applicable to cotton as a percentage Rg = General reduction in AMS as a percentage This shall be applied to the base value of support calculated as the arithmetic average of the amounts notified by Members for cotton in supporting tables DS:4 from 1995 to 2000. DOMESTIC SUPPORT PROPOSALS

  21. MARKET ACCESS PROPOSALS

  22. Minimum average cut for developed countries – 54%. Maximum overall average cut for the developing countries is 36% . If the above formula for the developing countries imply an overall cut of more than 36%, flexibility to apply lesser reductions in proportionate manner across the board. MARKET ACCESS PROPOSALS

  23. INDIA’S AGRICULTURAL TARIFF PROFILE • Average Bound Tariff = 114% • Average Applied Tariff = 37% • 2/3rds band-wise proportionality implies average tariff cuts of 41-44% for India • However, the 36% cap provides a cushion

  24. Criteria: Food Security, Livelihood Security and Rural Development needs • Core Elements: Self-designation of “an appropriate number” of SPs on the basis of indicators framed to satisfy one of the 3 criteria • G-33 demanded that the treatment should be more favorable than developing countries. 20% of total agriculture tariff lines must be designated as SPs & 8% must be exempt from tariff cuts. • May 2008 proposal: Maximum of 20% & minimum of 8% as SP; no cuts on 0-40% of total number of SPs; on balance 60% overall cut of 15% with minimum 12% and maximum 20% cuts. • July 2008: • Developed countries – [(4) – (6)]% of total agriculture TLs. • Developing countries – 10-18%. Upto 6% of/no lines may have no cuts. Overall cut , in any case be 10-14%. Special Products (SPs)

  25. Rationale: Protection against import surges (leading to price dips) for poor and vulnerable farmers of developing countries • July proposals: • No a priori product limitations – can be invoked for all TLs, in principle. • The condition to use on 3-8 products in 12 months time period (specified in May text) - dropped. • two independent triggers for applying SSM: price based and volume based. But no simultaneous application of both. Can’t use if Article XIX of GATT or WTO Safeguard is in place on the same product. Special Safeguard Mechanism (SSM)

  26. SSM Proposal contd. • For volume based SSM – rolling average of imports in preceding 3 year period to be taken.

  27. Price Trigger • 15% fall in prices (reduced from 30% proposed in May 2008 proposal) below the average of the most preceding 3 year period for which data is available. • Additional duty shall not exceed 85% of the difference between the import price of the shipment concerned and the trigger price. • Following in square brackets: “[For developing country Members other than those referred to in the preceding paragraph, they may apply the maximum remedy provided for above even if this would otherwise entail breach of a pre-Doha bound tariff provided that (a) the maximum increase over the pre-Doha bound tariffs would be no more than 15 ad valorem percentage points or 15 per cent of the current bound tariff, whichever is the higher; (b) the maximum number of products for which this provision would be invoked would be no more than 2-6 in any given period; and (c) this would not be permissible for two consecutive periods. All other provisions would be applicable.] “ SSM Proposal contd.

  28. Developed countries to eliminate export subsidies by end 2013. Subsidies to be halved by end 2010 and remaining commitments eliminated in equal installments by end 2013. As a flexibility, the developing countries to continue to have right for some export subsidies up to 5 years after the end date for elimination of all subsidies. Disciplines to Export credits, State Trading etc. prescribed in the proposal ( Annexes – J,K & L to the main document). Export Competition

  29. SCENARIO Mr. Pascal Lamy, Director General, reported “that the main blockage is on the Agriculture legs [domestic support and market access] of the triangle of issues” that were being sought to be addressed, and that “it remained clear that the gaps remain too wide”. The main reason of the deadlock is lack of consensus in Agriculture. The most crucial country is USA.

  30. THANK YOU

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