Agriculture - WTO

Category: WTO Sub-category: World Trade Organisation
Document type: article

The Agreement on Agriculture is an international treaty of the World Trade Organization. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995. It includes specific commitments by WTO member governments to improve market access and reduce trade-distorting subsidies in agriculture. These commitments are being implemented over a six year period (10 years for developing countries) that began in 1995.

The objective of the Agriculture Agreement is to reform trade in the sector and to make policies more market-oriented. This would improve predictability and security for importing and exporting countries alike.

Three Pillars

The AoA has three central concepts, or "pillars": 

Domestic support: It includes the various subsidies and other programs that guarantee support prices and minimum income to domestic farmers.  Domestic support is classified in three categories or boxes: 

The Green Box allows payments linked to environmental  programs, pest and  disease control ,infrastructure development, and domestic food aid. It also includes direct payments to producers if those payments are linked to a fixed, historic base period (called decoupled payments because they are not linked to current production).Government payments to income insurance and emergency programs are also included in the Green Box.

Amber Box: This includes producer payments and other domestic subsidies that governments have to reduce but not eliminate. These expenditures are calculated in an Aggregate Measure of Support (AMS), which is a cash equivalent of all the programs subject to reduction. All government spending agriculture is presumed to be in the amber box, unless it fits the criteria for one of the other boxes (blue or green –see below). The AoA required amber box reductions of 20 percent from developed countries over five years and 13.3 percent from developing countries over nine years. The baseline for measuring reduction commitments was set by using the average expenditures over1986–1988, years when spending was particularly high in both the European Union and the United States.

Blue Box: The Blue Box allows countries unlimited spending for direct payments to farms if the payments are linked to production–limiting programs with fixed baseline levels. The U.S. abandoned the programs that it categorized under the Blue Box in its domestic agricultural policy reforms of 1996 (the so–called “Freedom to Farm” legislation). The primary users of the Blue Box are now t he European Union, Japan, Norway and Switzerland. A few developing countries have blue box programs.

Market Access

"Market access" is the second pillar of the AoA, and refers to the reduction of tariff (or non-tariff) barriers to trade by WTO member-states.

The AoA required developed countries to reduce their tariffs by an average of 36percent, with a minimum per tariff line reduction (covering a specific product) of15 percent, over five years. Developing countries were required to reduce their tariffs by 24 percent overall, with a 10percent per tariff line minimum, over nine years. LDCs were exempt from tariff reductions, but either had to convert non–tariff barriers to tariffs—a process called  tariffication—or bind their tariffs, so that in the future no increase would be allowed from the ceiling set. Non–tariff barriers include such measures as volume controls, which are necessary in supply–management schemes where governments seek to limit the quantity of imports available on the domestic market to stabilize domestic prices. All countries were allowed to choose  tariffication, which allows countries to utilize a special safeguard

The Market Access provisions include two important elements:

Special Safeguards (SSG): SSGs are a measure made available to those countries that converted non–tariff measures into tariffs when they agreed to the AoA. Each crop that was ‘tarrified’ could be protected through the application of a special safeguard. These are tariffs that provide temporary protection against sudden import surges or falls in world prices. Countries could elect to tariffy or to declare a general ceiling for tariffs across all their imports –but not both. It was mainly developed countries that tariffied and thereby gained the right to use the SSG. Only 21developing countries have access to the SSG provision. Although imperfect, the SSG does offer one of the simplest mechanisms for a country to defend its producers from import surges. A number of developing countries have proposed the creation of a variation on the existing SSG for developing countries only. These proposals are now on the negotiating table.

Tariff Rate Quotas (TRQs): TRQs create a tariff band between duty–free access and the high tariffs that resulted from tariffication to ensure that a minimum level of import access is established. Thus, if the tariff that resulted from tariffication was 150 percent, a TRQ was created to ensure at least five percent of domestic demand could be met by imports through a much reduced tariff level.

Export subsidies

"Export subsidies" is the third pillar of the AoA. The AoA required developed countries to reduce their export subsidy spending by 35 percent over five years in value terms, with a reduction of at least 21percent in the volume of products subsidized. The baseline used for reductions was set at an average over the1986 to 1990 period. The reduction commitments were taken on a product specific basis (a country could not reduce one product subsidy level by a large margin to protect another product with a much smaller reduction). Developing countries were to cut their export subsidies by 24 percent in value terms and 14 percent by volume over nine years. LDCs were exempt from any obligation in this area.

The Peace Clause: The Peace Clause, also known as the Due Restraint Clause ,overrides the WTO Agreement on Subsidies and Countervailing Measures, which is the reference agreement in the WTO system specifying which subsidies governments are permitted to use. In effect, the Peace Clause prohibit s countries from protecting their markets against exporters that subsidies  their agriculture, so long as the subsidies are within the obligations undertaken in the AoA. That is, so long as exporting countries conform to export subsidy and domestic support rules, importing countries cannot impose protective measures against their products, even when those imports are priced below fair market prices (a practice known as dumping). The Peace Clause is due to expire in December 2003 ,  which should pressure the EU and others that rely heavily on export subsidies to reach anew agreement on agriculture. The Peace Clause undermines countries ’ability to enforce the anti–dumping provisions of the WTO. If allowed to expire, countries will be able to challenge export subsidies and high levels of domestic support, even if they are within the limits set by the AoA.

Non–Trade Concerns (NTCs): Listed in the preamble to the AoA, non–trade concerns include food security, rural development and environmental protection. The