Agreement on Agriculture (AoA)

SEP 18

Preliminary   > Agriculture   >   Miscellaneous   >   Subsidies

Why in news?

  • The Agreement on Agriculture at the WTO is riddled with deep imbalances, which favour the developed countries and have tilted the rules against many developing countries, said Commerce and Industry Minister Piyush Goyal.

About Agreement on Agriculture:

  • The Agreement on Agriculture (AoA) is a World Trade Organisation treaty that focuses on reducing the agricultural support and subsidies given to domestic producers by countries.
  • It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and formally ratified in 1994 at Marrakesh, Morocco

Aim of the Agreement on Agriculture:

  • The overall aim is to establish a fairer trading system that will increase market access and improve the livelihoods of farmers around the world.
  • The agreement will create a level playing field for farmers around the world, particularly those in poor countries and cannot compete with rich countries that artificially boost their exports through subsidies.

Features of the agreement:

  • The provisions of the WTO Agreement on Agriculture relate mainly to three broad categories of agriculture and trade policy:
    • Market Access:
      • Market access means the right which exporters have to access a foreign market. In simple terms, this provision calls for access to imported agricultural goods in the member countries.
      • Market Access includes provisions on tariffication, tariff reduction and trade facilitation in agriculture. 
      • Tariffication:
        • Tariffication is the process of conversion of all non-tariff market protection measures such as quotas, sanitary requirements, licences etc into the tariff equivalents. 
      • Tariff reduction:
        • After the tariffication, 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 a 6-year period.
        • 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.
        • Least developed countries are exempted from this provision
    • Domestic Support:
      • This concerns the policy support and subsidies given by countries to enhance domestic production.
      • WTO has classified agricultural subsidies and policies into different boxes
      • Green Box Subsidies:
        • These are the subsidies that don’t distort free trade or distort the free trade at a very minimal or negligible level.  
        • The example for subsidies are publicly funded government programmes including expenditure on agriculture research and development, agricultural training, subsidies under environmental programmes etc.
        • Green box subsidies are non–price supportive thus are exempted from the calculation of Aggregate Market Support (AMS).
      • Blue Box Subsides:
        • Blue box subsidies are direct payments under production limiting programmes. According to the WTO, the Blue Box is the “amber box subsidy with conditions” attached. 
        • The Blue box subsidies aim towards limiting production, by imposing production quotas or requiring farmers to set aside part of their land.
        • Blue Box subsidies are also exempted from calculation of AMS.
      • Amber Box Subsides:
        • These are the subsidies that are trade-distorting in nature and need to be curbed at any cost. 
        • The Amber Box contains the category of domestic subsidy that is scheduled to reduce based on the formula called “Aggregate Measure of Support” (AMS).
    • Export Subsidies
      • Here, there are provisions related to member countries’ commitments to reduce export subsidies.

Special and Differential Treatment (SDT)

  • Other than the three boxes, there is also another box of subsidies that confer special and differential treatment for developing countries and LDCs.
  • Under this, countries are permitted untargeted subsidized food distribution to satisfy the requirements of the urban and rural poor.
  • They may also give investment subsidies that are usually available to agriculture and agricultural input subsidies available to low income and resource-poor farmers.

What is Aggregate Measure of Support?

  • The AMS is the amount of money spent by governments on agricultural production, except the money spent in the Blue Box, Green Box and ‘de minimis’ level.
  • AMS = Total amount of money spent in agricultural production – total amount of blue, green box subsidies – De minimis level prescribed in AoA
  • What is de minimis level?
    • The minimum level prescribed in AoA towards product specific and non-product specific (Amber box) subsides. For developed countries the de minimis level is 5% and for developing countries it is 10%.

What is Peace Clause?

  • Developed countries criticised the developing and LDC’s food security programmes (public stock holding programmes) as a trade distorting subsidy.
  • Since the negotiation went on among countries a temporary peace clause was introduced in Bali Package 2013.
  • The ‘peace clause’ said that no country would be legally barred from food security programmes even if the subsidy breached the limits specified in the WTO agreement on agriculture. 
  • This ‘peace clause’ was expected to be in force for four years until 2017, by the time a permanent solution to the problem was found.

PRACTICE QUESTION:

‘Agreement on Agriculture’, sometimes seen in news, is associated with:

(a) International Fund for Agricultural Development

(b) World Trade Organization

(c) Food and Agriculture Organization

(d)  World Food Programme

Answer