Impact of WTO Agreement on Agriculture on Developing Countries

1. Introduction

Agreement on Agriculture is definitely a historic decision which was approved, by the member countries during the Uruguay Round in order to create a global trading reign for agriculture under the GATT disciplines. As the principles objectives lay, Agreement on Agriculture prowled to introduce code of conduct in Market Access, Domestic support measures and Export subsidies in order to cut down restrictions on agricultural products, by mainly forbidding the extensive use of NTB, which is the non-tariff barriers for the easy market access, removing the domestic support policies, and reducing export subsidies. The agreement on agriculture is important as it takes into account the concerns that are non-trade with the inclusion of security of food and the need for protection of the environment. In this essay, we are going to have a discussion on the agreement of agriculture as a whole followed by its impacts and an overview of the literature in relation to the agreement in the first part. In the second part of the essay, we will be discussing the impact of the agreement on the developing countries like India and the mechanisms and demand employed for safeguarding these developing countries. Finally a conclusion regarding the scope of the agreement as developing countries are concerned.

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2. Literature Review

Agriculture is identified as the oldest culture in the entire civilisation of humans. The history in relation with agriculture within India has relevant traces back from ten thousand years. The WTO agreement is the successor of the General Agreement on Trade and Tariff, comprised of eight rounds. The WTO agreement based on agriculture is known to be the ‘International Treaty’ and is one of the major agreements that has been negotiated during the participation of one hundred and twenty-three countries in the Uruguay Round. The main aims and the objectives of the laws in relation to WTO are the promotion of liberal and free trade. There was a certain misuse of the concept that was identified which resulted in the dumping of products in the importing countries by the exporting countries, with a serious threat to the economy of the countries which are developing, like that of the agriculture in India (Merlinda,2003).

According to iatp.org. (2018), the WTO Agreement on Agriculture imposes an impact on the agriculture of India. There has been domination of exports by trading agents and Multi-National Companies whereas the imports which were cheap has hit the market of India severely. The effects of the policies of Agreement on Agriculture proved to be under democratic due to a lack of negotiation transparency. Other factors evolved around the low production in India which eventually has to lead to a very negligible force in the market which is global to agriculture. The products that have been included in the purview of the Agreement on Agriculture are usually the ones that are considered to be the part of agriculture except for the forestry and fishery products along with jute, coir, sisal etc.

As there have been maintenances of quantitative restrictions by India resulting from a balance of the reasons of payment, India did not require the undertaking of any kind of commitments in relation to the access to the market. The negotiations that have been implemented by the WTO agreement on agriculture has been conducted in a special set of sessions like the concerns that are non-trade, differential and special treatment for developing members and the establishment of a fair market in relation with the trading system of agriculture. There were also proposals made on the areas adhering to the Access to market, support that is domestic, a competition of export and the security related to the food. These proposals were drafted by the member countries based on the inputs that were received from the wide range of consultations from the different stakeholders of the agreement and taking into consideration the objective of India within the negotiations.

Due to the implementation of the agreement on agriculture, it can be commented that the US has got 90% from this agreement. Along with that, per capita income of some countries has also inclined. Moreover, a country like India has got a benefit of 7.52% increase in total production. Non-product subsidies have increased by to Rs 4581 crores of India (Wilkinson, Hannah & Scott, 2016). Some other benefits of agreement on agriculture is that level of production and level of food import has also increased. Developing countries like Mali and Kenya is experiencing an increase in employment and earning from foreign exchange rate due to the change in agriculture policy. It has been seen that 70% population of 13 under-developing countries are employed in the agricultural sector. Countries like Mali and Chad contributes 40% of their income from agriculture. On the other hand, countries like South Korea and Poland makes 6% contribution on GDP at the end of the financial year (oecd.org, 2018).

Another benefit of this agreement is that level of subsidised export has also increased due to change in the agreement, that is 14% in developing countries, 24% in developing countries and 35% in developed countries. On the other hand, Ghana is experiencing a 60% increase in the labour force in terms of agriculture like cocoa and another crop production (Narayanan, 2014).

Graph 1: Showing the import value country wise after implementation of AoA

 (Source: fao.org, 2018)

Graph 2: Showing the domestic support to the agriculture producers

 (Source: iatp.org, 2018)

3.Agreement on Agriculture at a glimpse

We can see that prior to the establishment of this agreement, agriculture was not given much importance among the GATT disciplines rather they were not interested in viewing or altering the agricultural policies of the other countries which had resulted in large amount of export subsidies, domestic support schemes. These all made other countries to watch agricultural games from outside without being a part of it. Soon after the negotiations between the member countries, the historic agreement on agriculture was put on the table, with strict rules and regulations binding on the member countries with a single motive – creating a Global Trading Reign for Agriculture with international agricultural market access, enabling the member states to export-import agriculture products while viewing some commitments and considerations. With the agreement they have tried to bring liberalisation in the agriculture domain by mainly implementing some regulations and rules in three major areas, which is as follows (categorised by Posh Raj Pandey,2003)

 Table 1: Components of AoA

Source: WTO website 

Market Access:

Market access is mainly viewed that in order to promote agricultural trade market access is an important condition which can be made possible only through reducing the tariffs charged on imports by the member countries, that is removing or converting the non-tariff barriers to tariffs by a single bound rate with minimal commitment to access, and by introducing ‘tariff rate quota’ to maintain minimum import access. As a result of this developing countries was supposed to make a cut of 24% on all agricultural products and a minimum of 10% for products over 10-year periods.

Domestic Support:

The member countries give domestic support in order to support their domestic agricultural products, which the AoA see as the trade distortion activity. It can be in the form of subsidies which is granted for inputs, research and development, food security. So, in practice, AoA classified this subsidy into trade-distorting ones and non-trade distorting ones, so obviously they put some restrictions on the trade-distorting ones which may affect the price and quantity. By analysing the exemption categories, they introduced five parameters which include three prominent boxes. In the amber box, which is also known as the Aggregate Measurement of Support will have product specific and non-product specific support. The former is given to every single product, and the latter is given to the agricultural sector as a whole irrespective of crops. It is the only box AoA requires cut downs. In the green box, it has supports which will not seriously cause distortion, so they are permissible and requires any cut downs, these include government support on research and development, pest and disease control programs, which comes under public service programs. It also has direct payment to producers like decoupled income support policy, natural disaster relief etc. In the blue box, it is the box which is rarely used, and it comes under non-distorting support as this will limit production, and in order to receive the fund, there should be some production as well. Apart from the three boxes, there are two more support schemes. The special and differential treatment box is the box which is exclusive for the developing countries, which includes the investment subsidies, input services for the low-income producers and domestic support to farmers to set back them from illegal farming. Under the de-minimis support, there is no need to cut down the distorting support unless the total value of the product-specific product is not exceeding 10% of the total value of agricultural production. The domestic support as far developing countries are least concerned like for India the aggregate Amber box or AMS was somewhat to -22.5% of the average value of agricultural production.

Export Subsidy:

An export subsidy is the central motive of implementing reform in export subsidy is to reduce the amount spend on export supports and the subsidised quantities of goods. It is subjected to reductions or cut downs. And also, it is obligatory for all the member countries to give the report of their subsidised exports according to the Article 9.4 of the agreement.

4. AoA on Developing Countries with special reference to India

In India the role of agriculture is keen in a way that its tale to 52% of employment, it also accounts to 12.2% of the country’s export in 2016-17, along with providing basic materials to industrial sectors, grains to farm animals and food to the people (Economic Survey 2008-09). While the world is moving around for trade liberalization in agriculture that is decent competition with an aim to bring changes in the distorted agricultural trade, India is one among the signatory member of the Uruguay Round of  GATT, it made obligatory for India to open their agriculture market to the world for access by keeping in mind about the food shortage that they encountered during the 1950s and 1960s and about the vast majority of people that is 60 % of the population which is dependent in rural agriculture for livelihood and food (Neera,2006) So, this area will focus on how India put forward its stance on self-sufficiency while negotiating for trade liberalisations.

If we take the case of developing countries we can see that, agricultural plays an important role in their economy with more than one-fourth of the total gross product is from agriculture, even though there is variation in the development and nation economies, their level of per capita growth in agriculture is so high in the sense that it is higher than the rate of population, but the agriculture productivity in these developing country is less in the sense that it is not even enough to supply for its population, which is shown in the tables below, where one quarter of population still living in hunger, where they cannot lead and happy and healthy life. Table 2 shows the basic economic conditions in the people of SAARC countries and the Table 3 shows their farm productivity which is not upto the level.

                        Table 2.  Basic Economic Indicators of Developing Countries

                                                                    Source:  World Bank (2002)

 Table 3.  Agricultural Productivity and Land Use of Developing Countries

                                           Source: Countryeconomy.com, 2018

                                                                     Source: World Bank (2002). 

From the below table we can understand that it was only in India that the share and volume of agricultural products in total imports and exports have been increased, for the rest developing countries volume of agricultural products to total exports and imports has increased but the share of them didn’t increased. Raw juice, nuts, rubber, pulses, raw cotton etc.  were the importable goods and tea, coffee, tobacco, cereals etc. were the exportable goods in India (UNCTAD, 2001). The low level of this agricultural share in export and import is not due to the high performance of the manufactured sector but there were many advantages to the agricultural products that was not given serious attention and the policy of self-sufficiency in most of the countries lead to reduce share of agricultural imports.

Table 4.  Exports and Imports of Agricultural Products of  Developing Countries 1990-99

                                                                        (million $ and %)

                                                         Source: WTO (2002)       Note: Data for 1998

The table below shows the changes in value and volume of exports and imports of SAARC countries from 2009-2019

Table 4: Changes in value and volume of exports and imports of developing economies

                                                     (Source: UN, 2018)

Inequalities faced by the Developing Countries

It is mainly argued that the agreement not only restricted the developing country to access their domestic market but also global market, it is shown that the other WTO members are treating the developing countries discriminately, It is evident through

1) due to the high tariff rates and tariff escalation policies where agricultural tariff being higher than the industrial tariff at 62%, agriculture sector is main sector which got effected immensely (Gibson , et al. 2001).

 2) Due to the non- ad-valorem rates, the tariffs in agriculture sector is more complex.

 3) the exports that is coming from the developing countries is not that much effected by the market access possibilities, which shows an inequality process as compared to developed.

In case of India the average bound tariff is 200%, 100% for basic agricultural products, 300% for edible oils and 150% for processed foods, which makes all under the prohibitive levels, so we evaluate the table below we can understand that India, Pakistan and Bangladesh is having high bound tariff rates, which they were not earlier obliged to.

Table 5. Tariff Bindings in Developing Countries

Source: Athukorala (2000)

Apart from the high tariffs, Lindland (1997), is with the opinion that there is still positive presence of escalation of nominal tariff wedges in the developed countries at 17%, even after the post Uruguay Round, were they have tried to reduce the tariff escalations in the agricultural market.

In the field of domestic support, post Uruguay round displayed high level of allowed AMS, that too in favor of the developed countries, if we take the case of US they accounted 90% of all permitted AMS of WTO countries, which is around $146 billion, and for other developed countries it was 50% of the total. If we take case of developing countries the total AMS to the average value of production was -5.22%,-22.5%, for Pakistan and India respectively, Sri Lanka also mentioned this as a negative per cent (Sharma 1999, Qureshi 1999).So if we take these example, all will be less than the approved 10% de-minimis agricultural production value.

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From the above mentioned, it is made clearer that AoA and its principle objective of reducing subsidies was not a success story, what member countries especially the developed have done is shifting boxes, that is to exempt Green and Blue boxes from non-exempt Amber box. Like adding fuel to fire the new farm bill also allowed US to make an increase of 79%, which accounts to $16.9 billion in a single year for farm income agriculture product support. EU also took same farm policy through their policy of changing the direction of the subsidy in favor of rural and environmental protection and development, thereby running away from subsidy cut, other developed countries like Norway, Japan, and South Korea also wears the shoe of puzzling the WTO commitments in favor of their domestic agriculture support.

As developing countries are concerned there is special protection scheme for them if they come across any injuries to their domestic market or farmers, which is known as Special Safeguard Mechanism (SSM), which allow the developing countries to yield any contingency restrictions that is they can impose tariffs if they feel the agricultural imports harm the domestic farmers. It mainly came into light during Doha Development Agenda, where developing countries were given a chance to yield a new safeguard scheme rather than adopting  the old Special Agricultural Safeguard or (SSG),If anyone wants to know the difference between SSM and SSG , it is simple to explain that SSG was available to all developing countries as well as developed countries mainly because it came into force as an instrument of GATT agreement, whereas SSM is available to only developing countries, which makes Doha MC an important round in the prospects of development.

If we take the case of India alone we can see that even after five years of implementation of AoA the benefit that India receives is zero because of two major reasons (Sharma,2000) 

1)      India agreed to reduce its tariff and import duties, but as the developed countries keep on supporting their domestic market, India became a market for cheap commodities which drastically increased from 1996-2004 like 300 percent in value and 270 percent in volume terms which ultimately resulted in the increase in poor farmer suicide in India up to 2500 from 1997-2004 due to their debts, and many started to migrate to urban areas for unskilled works which reduced agriculture’s share in GDP as well as in its workforce.

2)      India also faced reduction in their export of traditional products which was high before as other developing countries like Malaysia and Indonesia started to export to developed countries like vegetable oils.

Demands made by the developing countries on WTO’s Agriculture discussions

The events of the WTO and AoA made clearer that the developed countries and their opinions and stands was always against the poor countries thereby leading to a state of injustice which witnessed many deficiencies in the AoA platforms, whereas, India spoked for the developing as well as for the least developed countries in the WTO’s agriculture trade discussions in Nairobi and Bali and Doha Round. Hence they demanded some alterations and reforms in the AoA’s implementations (Tojo Jose, 2016) 

1)      The agricultural support which the developed countries extents to support their domestic agricultural domain should be reduced.

2)      There should be a ceiling on the boxes support strategies especially the green box as it is frequently happening that developed countries are shifting their boxes.

3)      Special Safeguarding Mechanism for the developing countries to have restrictions on imports and tariffication on imports.

4)      As the matter of socio-economic problem of the developing countries, poverty eradication which can be counteracted through food procurement, for that domestic food subsidy is an import, and it may be higher than the de-minimis limit, so the food security shall be exempted from the reduction commitments.

5)      With respect to tariff reduction commitments, least developing countries should get special considerations.

5. Conclusion

From the above discussions it is very clearer that any matter of agriculture is important in the WTO discussions, and it is the most disputed and discussed matter also, On the success side we can proudly say that for the first time in the history of agriculture was given an equal space in the international trade regime, by imposing strict rules for market access, domestic support and export subsidies, but from the above-mentioned events it is made visible that the strong countries or the developed countries took an unfaithful stand in order to support their domestic market even by denying the market access to developing countries, as developing countries are concerned, they should uphold their self-sufficiency policy and domestic market protection policy, even that is equally important as food security is concerned, but whole developing country has an equal opportunity to raise the issue of market access as a whole with one collective sound in the negotiation discussions thereby tilting the wheel of international agriculture trade in their wish. As a developing country like India is concerned, this agriculture trade liberalizations might bring many everlasting effects on its majority of agricultural livelihood thereby affecting the food security, each and every country use agriculture to gain innumerable, but from the case of India we can see that India raised many such concerns which not only affects India, but the whole developing countries as a whole, so they have engaged in many disputes in this regards, which may reach the Dispute Settlement body or solved within the review committees headed by the Chairman to mediate whenever concerns arise.

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