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WTO Agreement on Agriculture unfair for developing nations

WTO Agreement on Agriculture unfair for developing nations

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  • GS 3 || Economy || Agriculture || Agricultural Exports

Why in the news?

  • Recently, while addressing the G-33 Virtual Informal Ministerial Meeting, India’s Commerce and Industry Minister pointed out the imbalances in the Agreement on Agriculture at the World Trade Organization (WTO).

Details

  • Commerce and Industry Minister Piyush Goyal claimed that it was in favour of developed countries and historical asymmetries and imbalances must be corrected to ensure a rule-based, fair and equitable order.
  • India highlighted that the Agreement on Agriculture at the WTO was riddled with deep imbalances, which favour the developed countries and have tilted the rules against many developing countries.

What is Agreement on Agriculture?

  • Its goal is to eliminate trade obstacles and enhance market transparency and global market integration.
  • The Agriculture Committee of the World Trade Organization oversees the execution of the Agreement and provides a platform for members to discuss related issues.

Agriculture Agreement has three pillars

  • Market Access:Market access for goods in the WTO means the conditions, tariff and non-tariff measures, agreed by members for the entry of specific goods into their markets.
    • Market access requires that tariffs fixed (like custom duties) by individual countries be cut progressively to allow free trade.It also required countries to remove non-tariff barriers and convert them to Tariff duties.
    • Market Access includes provisions on tariffication, tariff reduction and trade facilitation in agriculture.
  • Tarrification and tariff reduction
    • Tariffication is the process of conversion of all non-tariff market protection measures such as quotas, sanitary requirements, licences etc into tariff equivalents.
    • After the tariffication, the Tariff reduction provision mentions the amount of tariff reduction required from countries.
    • Developed countries have to reduce tariffs by 36% from tariffication with the minimum rate of tariff reduction of 15% for each item over 6 years.
    • But the Developing countries were required to reduce tariffs by 24% from tariffication over the next 10 years.
    • Least-developed country Members were required to bind all agricultural tariffs, but not to undertake tariff reductions.
    • Tariff concessions for imports to be maintained at 1986-1988 level at least (‘existing’ market access);
  • Trade facilitation
    • This provision called for a certain percentage of agricultural products should be met from the imported agricultural products in domestic consumption.
    • Developed Countries must provide access to at least 5% of imported agricultural products in domestic consumption by the year 2000.
    • Developing countries have to provide the same but by the year 2004 only.
    • The least developed countries are exempted from this provision.
  • Export Subsidy:Subsidy on inputs of agriculture, making export cheaper or other incentives for exports such as import duty remission etc are included under export subsidies.
    • These can result in the dumping of highly subsidized(and cheap) products in other countries and damage the domestic agriculture sector of other countries.
  • These subsidies include  
    • cash payments
    • disposal of government stocks at below-market prices
    • subsidies financed by producers or processors as a result of government actions such as assessments
    • marketing subsidies
    • transportation and freight subsidies
    • subsidies for commodities contingent on their incorporation in exported products
  • Export subsidies gradually have to be reduced to 36% of the value and 21% over a volume in the six years 1995-2000, compared with the reference period of 1986-1988, for developed countries and for developing countries it was fixed 24% and 14% respectively over 10 years.
  • Domestic Subsidies:It advocates for a reduction in domestic subsidies that stifle free commerce and fair pricing. Subsidies are divided into three categories under this heading
  • Green box
    • Subsidies that do not, or generate only minor distortions in trade.
    • They must not include price support because they are government-funded.
    • Environmental protection and regional development programmes are also included.
    • Subsidies in the “green box” are thus unrestricted as long as they meet the policy-specific criteria.
  • Amber box
    • Except for those in the blue and green boxes, all domestic support measures believed to distort production and trade (with some exceptions) fit into the amber box as all domestic supports.
    • These include price support measures as well as direct subsidies tied to production volumes.
  • Blue Box
    • This is the “conditional amber box” Such circumstances are intended to reduce distortion.
    • Any assistance that would ordinarily be in the amber box gets moved to the blue box if it also requires farmers to reduce their output.
    • At the moment, there are no restrictions on how much money can be spent on blue box subsidies.

Criticism of AoA from developing countries

  • More flexibility to Developed nations– The India-China study shows that developed members including the US, the EU and Canada have been using the flexibility to subsidise a large number of items heavily at some point of time over the past two decades.
    • They give out several times higher subsidies to their farmers than the rest of the world.
    • In the US, the product-specific support was 10 per cent or more of the value of production for around 30 products in some years during 1995-2014.
  • Provide trade-distorting subsidies-The developed world has the intellect to cleverly classify most of the sops as non-trade distorting subsidies (green-box), which supposedly has minimal effect on world trade.
  • A study has also revealed that developed countries also cornered the right to a lion’s share in the total trade-distorting subsidies (amber box) too.
    • The developing countries have demanded the US to cut their “trade-distorting” farm subsidies from $55 billion to around $13-16 billion. They have also asked the European Union to bring down their agricultural subsidies that is worth billions of dollars.
    • This is possible as most developed countries have adopted the overall cap on subsidies instead of the product-specific one (5%), which helps them better target sops for specific crops.
    • This exposes the hypocrisy of the rich nations which highly subsidise their farmers but routinely reprimand countries such as India and China for their ‘minimum support price’ programmes for poor farmers.
  • It is unfair that even with low overall subsidies, India has to worry about breaching the 10 per cent ceiling for rice once the food subsidy programme is fully implemented as it could then get into trouble.
  • Small farmers are a vital source of income in developing nations, and the AoA has been attacked for eliminating tariff safeguards for them while allowing rich countries to continue supporting agriculture at home.

India’s stand

  • Recently, India stressed that G-33 must strive for positive outcomes on a permanent solution to public stockholding for food security purposes, which is of utmost importance, finalisation of a special safeguard mechanism quickly and a balanced outcome on domestic support.

Way forward

  • The outrageously unfair arrangement came about because at the time when the Uruguay Round (1985) was negotiated, very few countries, including India, understood its implications.
  • These unfair rules need to be challenged even if they seemingly have been democratically framed.
  • India hopes to get its long-standing grievances in the area of food security and inadequate safeguards against import surges seriously deliberated upon at the forthcoming WTO ministerial meeting in Buenos Aires.
  • Since the WTO is consensus-based, reaching an agreement on reforms among all 164 members is extremely difficult. One possibility moving forward could be a plurilateral agreement with a group of like-minded countries on a new set of rules that serve as an addendum (supplement) to the broader WTO.
  • It can do that only if it manages to have developed countries on the defensive.
  • It needs to keep up the momentum and adopt a more offensive posture by laying bare more such inequities in AoA, which is habitually brushed under the carpet by the powerful.

Mains model Question

  • Subsidies are often criticised that instead of offering solutions to the problems they become a problem. In the light of the above statement, discuss the issues surrounding the subsidy system in India.

References