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.

Three Pillars
The AoA has three central concepts, or "pillars": domestic support, market access and export subsidies [edit] Domestic support The first pillar of the AoA is "domestic support". The AoA structures domestic support (subsidies) into three categories or "boxes": a Green Box, an Amber Box and a Blue Box. The Green Box contains fixed payments to producers for environmental programs, so long as the payments are "decoupled" from current production levels. The Amber Box contains domestic subsidies that governments have agreed to reduce but not eliminate. The Blue Box contains subsidies which can be increased without limit, so long as payments are linked to productionlimiting programs. [1] The AoA's domestic support system currently allows Europe and the USA to spend $380 billion every year on agricultural subsidies alone. "It is often still argued that subsidies are needed to protect small farmers but, according to the World Bank, more than half of EU support goes to 1% of producers while in the US 70% of subsidies go to 10% of producers, mainly agribusinesses." [2]. The effect of these subsidies is to flood global markets with below-cost commodities, depressing prices and undercutting producers in poor countries a practice known as dumping. [edit] Market Access "Market access" is the second pillar of the AoA, and refers to the reduction of tariff (or nontariff) barriers to trade by WTO member-states. The 1995 AoA required tariff reductions of:

36% average reduction by developed countries, with a minimum per tariff line reduction of 15% over six years. 24% average reduction by developing countries with a minimum per tariff line reduction of 10% over ten years.

Least Developed Countries (LDCs) were exempted from tariff reductions, but either had to convert nontariff barriers to tariffsa process called tarifficationor "bind" their tariffs, creating a "ceiling" which could not be increased in future.[3] [edit] Export subsidies

"Export subsidies" is the third pillar of the AoA. The 1995 AoA required developed countries to reduce export subsidies by at least 35% (by value) or by at least 21% (by volume) over the five years to 2000.

[edit] Criticism
The AoA has been criticised by civil society groups for reducing tariff protections for small farmers a key source of income for developing countries. At the same time, the AoA has allowed rich countries to continue paying their farmers massive subsidies which developing countries cannot afford. The Agriculture Agreement has been criticised by NGO's for categorizing subsidies into tradedistorting domestic subsidies (the amber box) which have to be reduced, and non- trade distorting subsidies (blue and green boxes) which escape disciplines and thus can be increased. Third World Network states that; "This has allowed the rich countries to maintain or raise their very high subsidies by switching from one kind of subsidy to another... like a magicians trick. This is why after the Uruguay Round the total amount of subsidies in OECD countries have gone up instead of going down, despite the apparent promise that Northern subsidies will be reduced." Moreover, Martin Khor argues that the green and blue box subsidies can be just as tradedistorting - as "the protection is better disguised, but the effect is the same".[1] At the WTO meeting in Hong Kong in 2005, countries agreed to eliminate export subsidy and equivalent payments by 2013. However, Oxfam has stated that EU export subsidies account for only 3.5% of its overall agricultural support. In the US, export subsidies for cotton were announced to be removed but these represent 10% of overall spending which "does not address the core issue of domestic payments that have been proven to distort trade and facilitate dumping". [2]

WTO AGREEMENT ON A BACKGROUND PAPER

AGRICULTURE

Under Article 20 of the Agreement on Agriculture (AOA) which emerged from the Uruguay Round of Multilateral Trade Negotiations, the review of the Agreement is mandated one year before the end of the six-year implementation period of the Agreement i.e., 2000, with the objective of continuing the process of reform in the world trade in agriculture. The negotiations have commenced in March this year and in accordance with the time-table set for the first phase of negotiations, all WTO member nations are expected to submit their proposals by 31 December, 2000. In the process of preparations for evolving India's negotiating position on agriculture, the government has initiated regional consultations at various places, besides national level consultations with a view to generating greater awareness of the issues and to receive views and suggestions which would facilitate a consensus regarding India's position. In its continuing effort to promote transparency, the Ministry of Commerce & Industry

(Department of Commerce) has already decided to put on its website a series of background papers on important WTO related issues. The second in the series of such background papers relates to the WTO Agreement on Agriculture and can be accessed at: http://commin.nic.in. You are invited to e-mail your comments and suggestions to: abhatia@ub.delhi.nic.in which would serve as useful inputs in evolving our stand in the ongoing negotiations under the WTO Agreement on Agriculture. Introduction Salient features India's commitments Mandated negotiations State of Play Likely issues for negotiations and suggestions for a possible Indian stand Annexures: Food security an important non-trade concern Issues of interest to developing countries INTRODUCTION After over 7 years of negotiations the Uruguay Round multilateral trade negotiations were concluded on December 15,1993 and were formally ratified in April 1994 at Marrakesh,Morrocco. The WTO Agreement on Agriculture was one of the many agreements which were negotiated during the Uruguay Round. The implementation of the Agreement on Agriculture started with effect from January 1, 1995. As per the provisions of the Agreement, the developed countries would complete their reduction commitments within 6 years, i.e., by the year 2000, whereas the commitments of the developing countries would be completed within 10 years, i.e., by the year 2004. The least developed countries are not required to make any reductions. The products, which are included within the purview of this agreement are what are normally considered as part of agriculture except that it excludes fishery and forestry products as well as rubber, jute, sisal, abaca and coir. The exact product coverage can be accessed in the legal text of the agreement from the web site http://www.wto.org SAILENT FEATURES

The WTO Agreement on Agriculture contains provisions in 3 broad areas of agriculture and trade policy: market access, domestic support and export subsidies. Market Access This includes tariffication, tariff reduction and access opportunities. Tariffication means that all non-tariff barriers such as quotas, variable levies, minimum import prices, discretionary licensing, state trading measures, voluntary restraint agreements etc. need to be abolished and converted into an equivalent tariff. Ordinary tariffs including those resulting from their tariffication are to be reduced by an average of 36% with minimum rate of reduction of 15% for each tariff item over a 6 year period. Developing countries are required to reduce tariffs by 24% in 10 years. Developing countries as were maintaining Quantitative Restrictions due to balance of payment problems, were allowed to offer ceiling bindings instead of tariffication. Special safeguard provision allows the imposition of additional duties when there are either import surges above a particular level or particularly low import prices as compared to 1986-88 levels. It has also been stipulated that minimum access equal to 3% of domestic consumption in 1986-88 will have to be established for the year 1995 rising to 5% at end of the implementation period. Domestic support For domestic support policies, subject to reduction commitments, the total support given in 1986-88,measured by the total Aggregate Measurement of Support (AMS) should be reduced by 20% in developed countries (13.3% in developing countries). Reduction commitments refer to total levels of support and not to individual commodities. Policies which amount to domestic support both under the product specific and non-product specific categories at less than 5% of the value of production for developed countries and less than 10% for developing countries are also excluded from any reduction commitments. Polices which have no or at most minimal trade distorting effects on production are excluded from any reduction commitments (Green Box-Annex 2 of the Agreement on Agriculture - http://www.wto.org). The list of exempted green box policies includes such policies which provide services or benefits to agriculture or the rural community, public stock holding for food security purposes, domestic food aid and certain de-coupled payments to producers including direct payments to production limiting programmes, provided certain conditions are met. Special and Differential Treatment provisions are also available for developing country members. These include purchases for and sales from food security stocks at administered prices provided that the subsidy to producers is included in calculation of AMS. Developing countries are permitted untargeted subsidised food distribution to meet requirements of the urban and rural poor. Also excluded for developing countries are investment subsidies that are generally available to agriculture and agricultural input

subsidies generally available to low income and resource poor farmers in these countries. Export Subsidies The Agreement contains provisions regarding member's commitment to reduce Export Subsidies. Developed countries are required to reduce their export subsidy expenditure by 36% and volume by 21% in 6 years, in equal instalment (from 1986-1990 levels). For developing countries the percentage cuts are 24% and 14% respectively in equal annual installment over 10 years. The Agreement also specifies that for products not subject to export subsidy reduction commitments, no such subsidies can be granted in the future.

INDIAS COMMITMENTS Market Access As India was maintaining Quarantine Restrictions due to balance of payments reasons (which is a GATT consistent measure), it did not have to undertake any commitments in regard to market access. The only commitment India has undertaken is to bind its primary agricultural products at 100%; processed foods at 150% and edible oil at 300%. Of course, for some agricultural products like skimmed milk powder, maize, rice, spelt wheat, millets etc. which had been bound at zero or at low bound rates, negotiations under Article XXVIII of GATT were successfully completed in December, 1999 and the bound rates have been raised substantially.

Domestic Support India does not provide any product specific support other than market price support. During the reference period (1986-88), India had market price support programmes for 22 products, out of which 19 are included in our list of commitments filed under GATT. The products are: rice, wheat, bajra, jawar, maize, barley, gram, groundnut, rapeseed, toria, cotton, soyabean, (yellow), soyabean (black), urad, moong, tur, tobacco, jute and sugarcane. The total product specific AMS was (-) Rs. 24,442 crores during the base period. The negative figure arises from the fact that during the base period, except for tobacco and sugarcane, international prices of all products was higher than domestic prices, and the product specific AMS is to be calculated by subtracting the domestic price from the international price and then multiplying the resultant figure by the quantity of production. Non-product specific subsidy is calculated by taking into account subsidies given for fertilisers, water,seeds, credit and electricity. During the reference period the total non-

product specific AMS wasRs. 4581 crores. Taking both product specific andnon-product specific AMS into account, the total AMS was (-) Rs.19,869 crores i.e., about (-) 18% of the value of total agricultural output. Since our total AMS is negative and that too by a huge magnitude, the question of our undertaking reduction commitment did not arise. As such, we have not undertaken any commitment in our schedule filed under GATT. The calculations for the marketing year 1995-96 show the product specific AMS figure as (-) 38.47% and non-product specific AMS as 7.52% of the total value of production. We can further deduct from these calculations the domestic support extended to low income and resource poor farmers provided under Article 6 of the Agreement on Agriculture. This still keeps our aggregate AMS below the de minimis level of 10%. India's notifications on AMS www.wto.org/wto/online/ddf.htm. Export Subsidies In India, exporters of agricultural commodities do not get any direct subsidy. The only subsidies available to them are in the form of (a) exemption of export profit from income tax under section 80-HHC of the Income Tax Act and this is also not one of the listed subsidies as the entire income from Agriculture is exempt from Income Tax per se. (b) subsidies on cost of freight on export shipments of certain products like fruits, vegetables and floricultural products. We have, in fact, indicated in our schedule of commitments that India reserves the right to take recourse to subsidies (such as, cash compensatory support) during the implementation period. are available at website address:

MANDATED NEGOTIATIONS Article 20 of the Agreement on Agriculture (http://www.wto.org) mandates that negotiations for continuing the reform process in agriculture will be initiated one year before the end of the implementation period. As the implementation period for developed countries culminates at the end of the year 2000, the negotiations on the Agreement on Agriculture have begun this year. These negotiations are to be conducted in special sessions of the WTO Committee on Agriculture at Geneva. The following are to be the broad parameters for carrying out negotiations: a. Experience of member countries in implementation of reduction commitments till date. b. The effects of reduction commitments on World Trade in Agriculture.

c. Non-trade concerns, special and differential treatment to developing country members and the objectives of establishing a fair and market oriented agricultural trading system are the other objectives of the negotiations. d. What further commitments are necessary to achieve the long term objectives of the Agreement. During extensive deliberations in the WTO Committee on Agriculture and in the General Council, member countries have agreed to broadly adhere to the mandate of Article 20 of the Agreement. Members have also agreed to submit their proposals by the end of this year.

STATE OF PLAY Through formal and informal discussions in the Committee on Agriculture, the WTO membership has been debating on various issues of concern to them. The demarcation in various groups of countries has now become clearer. The EU, certain Nordic countries like Norway and Japan are on the one side, wanting to continue their subsidy regimes in agriculture, whereas the Cairns group of countries who are naturally endowed agriculture producers, are totally opposed to the trade distorting subsidies and the protectionist regime being practiced by EU and Japan. The United States, though opposing EU and not completely with the Cairns group either, forms the third dimension. The developing countries are somewhere in the middle, not having decided whether or not to form a 4th dimension. The Cairns group of countries, votaries of unrestricted trade, comprises a group of 18 major agricultural exporting countries. They have listed the elimination of export subsidies and domestic subsidies as goals of the ongoing agricultural negotiations at the World Trade Organisation. They have also called for better information and analysis of tariff rates, quota administration, export subsidies, domestic support programmes and market access as well as members position on bio-technology and Genetically Modified Organisms. The U.S agenda for negotiations would be driven by further trade liberalisation in the agricultural sector, which would benefit US interests. There is likely to be an emphasis on global tariff reduction on agricultural products, greater transparency and improved disciplines on state trading enterprises, proper implementation of tariff rate quotas and greater disciplines on bio-technology, as well as, further strengthening of the sanitary and phytosanitary agreement. The European Union is more vulnerable to attack in the WTO on the issue of its distortion of markets through domestic subsidisation of agriculture. In the context of further liberalisation, EU would strongly defend its "Blue Box" policies. They feel that in case Blue Box is to be abolished, the WTO contracting parties will have to agree to

change of the present rules in the Agreement on Agriculture. The EU would be pressing at the international level for improvements in food safety and food quality standards as well as in supporting environmental and social sustainability. It is, thus, apparent that EU intends to maintain protection of its agricultural industry at the highest possible level while maximising concessions to be gained in other country markets. Japan highlights the importance of the multifunctional role of agriculture, food security and a fair balance between rights and duties of importing and exporting countries from the standpoint of a net importer of farm products.

India's position has been articulated in WT/GC/W/152 available at the web site http//www.wto.org. Briefly, it has been emphasised that Article 20 of the Agreement adequately reflects both the emphasis and context in which these negotiations should be entered upon. The most important aspect of the negotiations would be to address implementation problems up front, in the areas of market access, domestic support, export subsidy, notification requirements & technical assistance. The inadequate implementation of special & differential provisions in the above mentioned areas is a cause of particular concern to us.

India has suggested that an in-depth analysis and assessment of the effect of the Uruguay Round on the trade of developing countries should be an essential prerequisite of any negotiations. We have also drawn attention to the peculiar agricultural scenario obtaining in large agrarian economies like India, where rural employment and production of sufficient food to meet the domestic requirements are of paramount importance. Thus, for addressing food security issues, a certain degree of autonomy and flexibility is required by developing countries in their domestic policies. These concerns have been articulated not with the intention of creatinga negotiating base but with the hope that the forthcoming negotiations would provide us adequate opportunity to pursue our legitimate trade and non- trade concerns. LIKELY ISSUES FOR NEGOTIATIONS AND POSSIBLE INDIAN STAND Market Access: i) High agricultural tariffs and tariff peaks being applied by some WTO members are significant barriers to meaningful market access opportunities. We would have to very carefully articulate it as India will need to have a reasonable level of tariff protection for taking care of its food security and rural employment concerns.

ii) Tariff escalation is another factor, which discourages developing countries from diversifying from primary commodity production to processed value added agricultural products for export purposes. iii) The operation of tariff rate quotas in a non-transparent and complex manner limits trade opportunities of new suppliers, particularly from developing countries. In this context, thus, guidelines on TRQ allocation and administration would be sought so as to enhance market access opportunities. It may be desirable to press for the elimination of tariff rate quota system itself. iv) Certain aspects of sanitary and phytosanitary measures which limit market access particularly for exports of developing countries would also figure prominently in the forthcoming negotiations. v) The special safeguard provisions, which are available to only a few Member countries, would also be coming up for review and India would press for its availability to all developing countries. Domestic Support: i) During the course of implementation of obligations/commitments, a number of member countries particularly from the developing world have experienced difficulty in calculating and notifying their aggregate measurement of support (AMS) on account of the following factors:a) Financial/resource constraints limit the capacity of most developing countries to provide support to their agricultural sector even upto the de minimis level. b) Lack of clarity in the agreement with regard to the treatment of negative AMS and "excessive inflation", reduces the flexibility provided to developing countries during the Uruguay Round to address their domestic policy concerns. Such implementation issues would require clarification during the current negotiations. ii) The 'Green Box' should be revisited for a further tightening of criteria as it currently incorporates various provisions for support, many of which are not non-trade distorting. Moreover, as it is currently designed, it is not of much assistance to developing countries as it does not reflect their support programmes. iii) The Blue Box measures which refer to direct payments to farmers under production limiting programmes which are currently exempt from AMS reduction commitments, should either be totally dispensed with or alternatively should be subject to reduction commitments. iv) Ways and means to incorporate increased flexibility in the level and use of de minimis support would also be discussed.

Export Subsidies: i) Export subsidies are universally acknowledged to be the single most trade distortive impact in agriculture because of their potential of displacing developing country exports. There would be a strong demand for a complete outlawing of export subsidies. India would also press for it. However, as long as the export subsidies are permitted to be given by any country above the de minimis limit provided under the WTO's Subsidies and Countervailing Measures agreement, India should also have right to give export subsidies upto an appropriate level. ii) Establishment of disciplines in the field of export credits, guarantees and deferred payments which have a negative effect on prices and competition in the world agricultural market, would be insisted and India would like it to be also included under the disciplines of Export Subsidies. iii) On account of ambiguity in the existing language of the Agreement on Agriculture, certain countries are resorting to 'rolling over of export subsidies. This practice would need to be suitably addressed as it amounts to negation of reduction commitments. Non Trade Concerns: The Non Trade Concerns (NTCs) including food security and the need to protect the environment, alluded to in Article 20 of the Agreement on Agriculture would be taken into account during negotiations. Food Security for India is not only availability of sufficient food but also adequate means to procure the same. Eminent agricultural economists and scientists like Dr. Swaminathan also believe that food security is economic access to food. Accordingly this has ramifications for employment and livelihood. For developing countries like India which are still grappling with the twin problems of poverty and unemployment, the production of food and economic access to it are primary objectives. As opposed to this certain developed countries are advocating multifunctional character of agriculture which essentially signifies that agriculture has functions other then providing food and fibre and also includes the protection of evironment and maintaining the economic viability or rural areas. Viewed against the needs of developing countries concerns about the maintenance of rural landscape appear to be hollow. Any attempts to try and equate the two different scenarios and continue heavy subsidisation of agriculture would be resisted. The concept of multificationality needs to the examined from the perspective of developing countries. Here, we would like to highlight the fact that the non-trade concerns of devloped countries and those of developing countries differ not only in content but in priority also. For countries like India, multifunctionality of agriculture is best mainfested in its ramifications in areas such as food security, employment and the elimination of poverty

in rural areas. Moreover, these issues are neither emotive nor undefined but are practical and harsh realities which decision makers have to confront when addressing issues of agricultural policies. The need to provide employment opportunities in predominantly rural agrarian areas is one of the main NTCs which India would like to see addressed. Biotechnology: Biotechnological inventions are increasingly affecting agricultural production and trade. New genetically engineered varieties of crops have increased productivity and are more pest resistant. This has important ramification for increasing productivity which is of central concern to almost all developing countries. To this extent, we would support carefully controlled use of biotechnology in agriculture. At the same time, there are environmental concerns relating to biotechnology. It is feared that Genetically Modified Organisms (GMOs), not having been fully tested for their effect on human health or the environment, should be treated as a class apart. There are also fears that new technologies like the so called 'terminator gene' could imbalance the ecosystem if it spreads beyond controlled production areas. A concrete country position needs to be evolved in this regard. Strengthening of the Special & Differential Treatment: Special & Differential Treatment accorded to developing countries under the Uruguay Round would be another area of importance to developing countries. These special provisions were designed to take into account the constraints faced by many developing countries in taking advantage of trading opportunities due to structural problems like inadequate infrastructure, lack of resources etc. The existing imbalance and problems of implementation of the agreement would be a high priority item in the next round.

Annexures

FOOD SECURITY-AN IMPORTANT NON-TRADE CONCERN (Informal Paper by India) 1. The objective of the Agreement on Agriculture (AOA) was to bring about discipline in one of the most distorted sectors of trade, by, inter alia, disciplining the unrestricted use of production and export subsidies, as well as by reducing import barriers, including

non-tariff barriers. Thus, the AOA sought to limit the extent of support granted by individual countries and attempted to ensure that countries adopt a more liberal policy as far as agricultural trade was concerned. At the same time, as indicated in the Preamble, the AOA recognised non-trade concerns (NTCs) of countries. These NTCs amongst others include food security and the need to protect the environment. 2. However, this fine balance between trade and non-trade concerns, as mandated in the Preamble, does not appear to have been fully reflected in the provisions of the Agreement and consequently in its implementation. The major thrust of the Agreement appears to be based on the hypothesis that liberalisation is the panacea of all ills in the agricultural sector. While this may be tenable from a conventional economic view point, such a reasoning does not take into account the problems faced by a number of developing countries, which because of certain underlying constraints, have to necessarily take into account non trade concerns such as food security, while formulating their domestic policies. This is particularly true of developing countries, where a significant percentage of the population is not only dependent on the agricultural sector for its livelihood, but is also surviving just around the poverty line. In such countries a purely market oriented approach may not be appropriate. Instead, for some countries it may be necessary to adopt, what we would like to term a market plus approach, in which non trade concerns such as the maintenance of livelihood of the agrarian peasantry and the production of sufficient food to meet domestic needs are taken into consideration. We, therefore, feel that at this juncture it is important to closely examine this aspect of the AOA, so as to ensure that the reform process in the agriculture sector takes into consideration the food security and other non trade concerns of countries like India. 3. Ensuring food security, that is the access of the population to sufficient food to meet its nutritional requirements is a basic objective of governmental policies in agrarian developing countries. Hence, food security issues cover not only issues related to the availability and stability of food supplies but also to issues of access to this supply i.e. related to the resources that may be needed to procure the required quantity of food. It is therefore clear that issues related to food security are sensitive issues and hence countries in which a large percentage of population is dependent on this sector, would like to have a certain degree of autonomy and flexibility in determining their domestic agricultural policies. These policies would naturally be geared towards improving productivity, enhancing income levels, reducing vulnerability to market fluctuations, ensuring stability of prices etc. Inter alia, this would be achieved through reliability of production and supplies, so that seasonal variations in access to food are minimal. It is for this reason that national food production policies have been central to domestic agricultural policies not just for developing countries, but also for the developed countries who are net importers of food, as has been brought out in the papers submitted by Norway and Japan. It is, therefore, clear that in this sense food security is a legitimate national concern and has been so recognised by the FAO (Food & Agriculture Organisation). In fact, during the World Food Summit of 1996 "the importance for food security of sustainable agriculture, fisheries, forestry and rural development in low and high potential areas" was explicitly recognised. This recognition

of the importance of food security even for low potential areas clearly underlines a developmental perspective which goes beyond mere trade concerns, and is, therefore, germane to the outlook and interest of developing countries. 4. Let us, therefore, examine both the external and internal dimensions of this problem particularly from the perspective of developing countries. 5. Countries which argue and support rapid liberalisation of the agricultural sector contend that global food sufficiency would in a way ensure food security since countries could then produce what they are most competent and efficient in, while importing the rest of their food requirements. Such an argument presupposes that all countries would at all times have sufficient foreign exchange to procure their food requirements internationally. This assumption is obviously not true since not all developing countries would be in a position to import food grains, even if these were available at competitive prices, due to their limited foreign exchange reserves. Moreover, these countries often face cross sectoral pressures on their available funds, which further limits their capacity to procure internationally. This problem is further compounded in case there are unforeseen variations in the international prices. 6. Similarly, there are various internal constraints which if not appropriately addressed, would severely limit the capacity of developing countries to increase domestic production, to at least a certain minimum percentage of their requirement. Firstly, holdings are small and the majority of farmers belong to the small and marginal category. This limits any attempts to introduce mechanised farming and also constrains the adoption of new technologies unless accompanied by large scale extension programmes. Consequently, the productivity is low and the total production varies substantially, since a large percentage of the agricultural sector continues to be at the mercy of the vagaries of nature. Further, only a small percentage of what is produced finds itself in the market, the rest being used by the small and marginal farmers for sustenance or for simple barter. At the same time, there is increasing pressure on land from non agricultural users, both because of the rising level of urbanisation as also because of the geographic spread of industries. If this limitation on the availability of agricultural land is viewed in the context of the growth in population, which most of the developing countries invariably face, it would be clear that the only way in which agricultural growth can be sustained and the objective of food security attained, would be through increased governmental support in the use of inputs, particularly in terms of irrigation, electricity, fertilisers, pesticides, technical know-how, high yielding varieties, infrastructural development, market support etc. 7. It is, therefore, clear that there are significant external and internal ramifications of attaining the objectives of food security. While it may not be possible to immediately ensure that developing countries are able to produce at least a certain minimum percentage of their annual food requirement, this is a goal which has to be pursued, particularly in light of the constraints that developing countries would face in adopting an external solution to this problem. Recognising the percentage of small farmers in the agricultural sector of most developing countries, it is clear that a major part of the

financial burden of increased inputs would have to be met through governmental subsidies. It would need to be recognised that the small farmer would not be able to meet his principal responsibility without adequate support from government. Public intervention would therefore be necessary in order to achieve these national goals. 8. Finally, it needs to be said that agricultural self reliance forms a vital underpinning for the growth of the GDP of agrarian developing economies since good agricultural production provides purchasing power to a large majority of a population, which in turn spurts industrial growth. Self-sufficiency in food production has therefore a specific developmental perspective as opposed to a purely commercial perspective. Hence, it is our view that developing countries need to be provided the requisite flexibility within the AOA to pursue their legitimate non trade concerns. More specifically, developing countries need to be allowed to provide domestic support in the agricultural sector to meet the challenges of food security and to be able to preserve the viability of rural employment, as different from the trade distortive support and subsidies presently permitted by the Agreement. It is therefore important that a differentiation is made between such domestic support measures which are presently being used to carve out a niche in the international trade and between those measures which would allow developing countries to alleviate rural poverty. 9. India is anxious that the AIE process must therefore examine the manner in which developing countries can be provided additional flexibilities by appropriate adjustments to the provisions of the AOA, in order to enable them to pursue their legitimate nontrade concerns. India believes that a focussed discussion on the subject will contribute to increased awareness to the non-trade concerns of countries like India, such as food security and rural employment, and thus enable the WTO Membership to deal with the subject of continuation of the reform process in the agricultural sector with sensitivity to these concerns.

ISSUES OF INTEREST TO DEVELOPING COUNTRIES (Informal Paper by India) India welcomes the papers submitted by Pakistan, Peru and the Dominican Republic (AIE/6) and the paper submitted by Cuba (AIE/12) on the issues of interest to developing countries. We would also like to thank the Secretariat for their paper on the special and differential (S&D) treatment provisions relating to the AOA (AIE/S6) and the studies on the implementation and impact of the AOA on developing countries (AIE/S7). These papers provide extremely useful factual data in the context of the issues which have been highlighted by delegations regarding the S&D provisions for developing countries. 1. India would like to reiterate the importance that it attaches to the special and differential treatment provisions as provided for in the AOA. Since we are in a process,

which we hope will help to clarify some of the issues which are likely to be deliberated upon during the new round of negotiations, it would not be out of context to recapitulate some of the concerns which developing countries had during the UR and which were sought to be allayed by the S&D provisions. 2. As is well known a large number of developing countries are predominantly agrarian countries where a very large percentage of the population is dependent on agriculture for its livelihood. While in the initial years the main concern of these Members was to ensure food sufficiency, this concern, once fulfilled, gradually evolved into a concern of finding markets for their agricultural surpluses, so as to ensure the continued provision of agricultural livelihood to this large population. During the UR these concerns got manifested into two broad areas. The first of these broad provisions related to domestic support which allowed developing countries to provide assistance, whether direct or indirect, to encourage agricultural production as an integral part of the overall objective of rural development. The second area related to the market access, where it was felt that there was a need to improve access for developing country Members by improving both the opportunities and terms of access for agricultural products of interest to these Members. 3. These two very broad aspects were sought to be translated in to specific provisions for the developing countries. As highlighted in the Secretariat paper AIE/S6 there are five broad areas where special and differential provisions have been provided for in the AOA. These include the following, which in our view merit detailed deliberations: i. market access; ii. food security, with specific reference to net food importing countries: iii. domestic support commitment; iv. export subsidy commitment; and v. notification requirements and technical assistance. 1. All these five areas need to be considered in detail during the course of this informal process of analysis and information exchange since they have important ramifications for developing countries. For example in the context of the improved market access which the Agreement had sought to provide to developing countries, India would like to draw attention to the first special and differential treatment provision highlighted in the Secretariat doc. No. AIE/S6. The preamble of the Agreement specifically mandates developed countries to provide greater opportunity and market access to the agricultural products of interest to developing countries. Unfortunately, however, the status of implementation as far as this provision is concerned is not totally clear from the information provided in the Secretariat paper. Members have already highlighted some of the specific areas where we need additional information to correctly evaluate the impact of the Uruguay Round. We would like to highlight one specific area where we

need certain clarifications. On page 2 of the Secretariat paper AIE/S6 it has been indicated that there has been a "greater-than-average reduction in tariffs on products of interest to developing countries". The factual situation would perhaps have been clearer if figures relating to specific products had been provided. We no doubt agree that compiling data for all products may not be possible but it would be helpful if this committee could analyse the post-UR status for at least some products of interest to developing countries. In this context, we would like to draw attention to a World Bank Policy Research Working Paper titled "Agricultural Trade Liberalisation in the UR", in which it has been indicated that the post-UR base tariffs of a number of sensitive commodities in many industrialised countries are higher than the actual tariff equivalents of all border measures which existed in 1986-88. For instance, for rice, which is of particular interest to India, the World Bank had calculated that the tariff differential for a particular group of countries had increased by as much as 207%. It would therefore be helpful if the Secretariat could perhaps provide additional data as far as some specific products are concerned, since this would help us to better analyse the impact of the AOA on developing countries. 2. Similarly issues of food security also need to be adequately addressed. The preamble to the Agreement specifically highlights the need for Members to take into account non trade concerns such as food security. While this term has been extensively used in the past, we are not entirely sure whether the objectives relating to food security which have so clearly been spelt out in the preamble, have been met. In this context it may be mentioned that it was in the Bali Declaration of the Non-Aligned Movement that an attempt was made, perhaps for the first time, to define food security. The Declaration recognised that in spite of substantial increase in the worlds food output, the number of people suffering from hunger and malnutrition had increased in many developing countries. India therefore feels that it is extremely important that one of the goals of agricultural trade liberalisation remains, the achievement of the objective of food security. It would be perhaps too simplistic to assume that agricultural liberalisation would by itself be able to overcome the problem of food security. Free trade in agriculture is not without its long term social and economic ramifications. India would therefore like to suggest that it would help to clarify Members perception, if during this process of analysis and exchange of information the Committee consider certain specific examples where agricultural liberalisation may have had some undesirable effects, specially from the point of food security. This would help identify those areas, policies and practices which may have had such an effect and which the impending round of negotiations would provide an opportunity to rectify. 3. Issues relating to domestic support commitments, export subsidies, notification requirements and technical assistance also need to be similarly examined. A good way would be to encourage developing countries to submit papers on these issues. However, it may be necessary for the Secretariat to provide technical assistance to these delegations so that they can appropriately organise their country experiences in the form of submission papers.

4. In this context we also support the suggestion made earlier, that organisations like FAO, UNCTAD, WORLD BANK, etc. which have done some excellent work in this area are invited to make general contributions on issues of interest to developing countries, particularly regarding the implementation and impact of the Agreement on Agriculture. These contributions could be in the form of papers which the Secretariat could circulate to Members. The relevant organisations could then be invited to a special meeting of the AIE process when their papers can be taken up for consideration. 5. We have highlighted only some of the issues of interest to developing countries. As evident there are a number of other critical areas and issues which need to be addressed during the course of the Analysis and Information Exchange process. Some of these we have listed in para 3 above. Others have been identified in the papers submitted by Pakistan, Peru, Dominican Republic and Cuba. This list is obviously not exhaustive. We would therefore suggest that as the Committee deliberates on the special and differential provisions, an evolving check-list of issues of interest to developing countries is prepared. This would help focus further work on special and differential treatment in the context of market access, food security, domestic support, notification requirements, special safeguards and technical assistance.

Review of WTO Agreement on Agriculture : Likely issue for negotiations

The Agreement on Agriculture, entered into by WTO Member Countries in 1995, would be coming up for review at the end of this year. The full text of the Agreement is available on website address www.wto.org/ wto/legal/finalact.htm. Article 20 of the Agreement on Agriculture (AoA) points the way to further negotiations on agriculture. As a run up to the same, the WTO Committee on Agriculture has instituted a process of analysis and information exchange wherein informal papers are presented by various member countries highlighting implementation problems as well as areas of the agreement which need amendment, modification and further clarity. While Article 20 mandates further negotiations, there is neither a fixed agenda nor a timetable for the same, which could probably mean that this process would simply be the beginning which could last for some years. These negotiations may cover several issues depending upon the position of different groups of countries.

The Agreement on Agriculture contains provisions in following three broad areas of agriculture and trade policy: a) Market access envisages tariffication of all non-tariff barriers (that is removal of quantitative restrictions and export and import licensing). b) Domestic support measures or subsidies are disciplined through reduction in the total Aggregate Measurement of Support (AMS) and area of export subsidies is also a trade concern for India as these measures affect the export of developing countries, rendering them uncompetitive when compared to subsidised exports of the developed countries. Further, they also result in distorting the world prices of agricultural commodities and thereby adversely affecting those developing countries which are net importers of foodgrains. Likely Issues for negotiations 1) "Non Trade Concerns" include food security and the need to protect the environment. India is particularly concerned with the issue of food security which involves not only access to food but also adequate supply of food and stability in its supply. In Indias paper presented to the Committee on Agriculture, we have argued for additional flexibility by appropriate adjustments to the provisions of the Agreement on Agriculture, in order to enable us to pursue our legitimate non-trade concerns. India believes that a focussed discussion on the subject will contribute to increased awareness to the non-trade concerns of countries like India, such as food security and rural employment, and thus enable the WTO Members to deal with the subject of continuation of the reform process in the agriculture sector with sensitivity to these concerns. 2) Another area which needs to be flagged relates to implementation problems particularly in the area of domestic support. There are several problems relating to Aggregate Measurement of Support. Indias notifications on AMS are available at website address www.wto.org/wto/online/ddf.htmG/AG/N/IND/1. There are problems of systematic calculation. Likewise, there is no clarity regarding treatment of negative Aggregate Measurement of Support and "eligible production". There are also some genuine mistakes in certain calculations arising out of mistakes in base period prices, currency rates etc. With regard to the Aggregate Measurement of Support, the options that may be considered are as follows: - Set product-specific AMS as compared to total AMS - Further sharp reduction in de-minimis limits - Allow developing countries to recalculate AMS/revise schedules - Raise de minimis levels

- Even higher de minimis for basic foodstuffs - Exempt strictly food security measures - Correct/clarify methodological problems 3) The special and differential treatment accorded to developing countries under the Uruguay Round is another area for concern. These special provisions, designed to take into account the constraints faced by many developing countries in taking advantage of trading opportunities due to structural problems, inadequate infrastructure, lack of resources etc. have not yielded the desired results in implementation of the Agreement. It is felt that the existing imbalance and problems of implementation of the Agreement should be a high priority item in the next round. 4) The Agreement also mandates a further reduction of bound tariffs which could take the modality of either across the "board" or "border" tariff reduction or the use of a formula to cut higher tariffs at greater rates and negotiating a ceiling on agricultural tariffs. 5) There is also need to clarify and strengthen certain existing provisions of the Agreement on Agriculture which allow a certain degree of flexibility in the application of border and domestic and stabilisation measures. This pertains to the operation of the Special Safeguard Clause (SSG) of the Agreement on Agriculture. The special safeguard provisions allow the imposition of an additional tariff where certain criteria are met. The criteria involve either a specified rapid surge in imports (volume trigger), or, on a shipment by shipment basis, a fall of the import price below a specified reference price (price trigger). In case of the volume trigger, the higher duties only apply until the end of the year in question. In case of the price trigger, any additional duty can only be imposed on the shipment concerned. The additional duties cannot be applied to imports taking place within tariff quotas. Members have the right to invoke for tariffied products special safeguard provisions of the Agreement on Agriculture. The right to make use of the special safeguard provisions has been reserved by 36 Members and for a limited number of products in each case. Since access to the SSG is not universal, either in terms of product or countries, views on its continuation in the Agreement on Agriculture are solicited. India favours universal accessibility to the special safeguard clause since this was denied to most developing countries on account of the fact that it was linked to the tariffication process. 6) The future of State Trading Enterprises in a multilateral system would also be an important subject for review in the forthcoming negotiations. 7) Operation of non-tariff barriers in the name of Sanitary and Phytosanitary Standards (SPS) is also going to form an important issue in the review of the Agreement. With progressive reduction of high tariffs, concern has been expressed regarding the increasing propensity of a number of countries to use Sanitary and Phytosanitary Standards to restrict exports from developing countries.

India has been articulating its concern with regard to the non representativeness of the international Sanitary and Phytosanitary Measures which are framed by developed countries without taking into account the peculiar needs and situation prevalent in the developing countries. The developing countries in particular are directly affected by such partisan and impractical standards, since they not only restrict market access, thereby acting as non-tariff barriers, but also involve high costs of achieving impractical and unrealisitic standards. The special dispensation for developing countries envisaged in the SPS Agreement should be translated into reality by Members. This could be given effect to not only by providing a longer transitional period so as to enable the developing and least developed countries to integrate themselves effectively into the multilateral trading system, but also by providing them with a level playing field through adequate technical assistance on fair and reasonable terms. 8) Another contentious issue is administration of tariff rate quotas. The administration of tariff rate quotas can take place in various ways. These include entrusting import exclusively to State Trading Enterprises or producer organisations; auctioning of tariff quotas; limitations on imports of particular products under broadly defined tariff quota commitments (broad banding); making imports under tariff quotas conditional on absorption of domestic production of the product concerned. Several defects are noticed in administration, such as allocation to preferential suppliers and to non-members; low fill rates and problems in monitoring of administration of tariff rate quotas. The modalities with regard to administration of tariff rate quotas need to be ascertained. 9) There are certain support measures which are exempt from reduction commitments and have been enumerated in what is popularly known as the "green box". This is so since these measures have "no, or at most minimal, trade distorting effects on production" and do not have the effect of providing price support to producers. Examples of such measures are Government expenditure on agricultural research; pest control; inspection and grading of particular product; marketing and promotion services etc.; financial participation by Government in income insurance and income safety net programmes; payment for natural disasters; structural adjustment programmes; payments under environmental programmes; payments under regional assistance programmes; public stock holding for food security (PDS) and domestic food aid programmes. The Green Box also provides for the use of direct payments to producers which are not linked to production decisions. i.e. although the farmer receives a payment from the Government, this payment does not influence the type or the volume of agricultural production. It is thus, "decoupled". A review of the measures listed under the Green Box, which may require a tightening of criteria or re-classification may also be examined. 10) There could be likely pressure of re-negotiations of the "Peace Clause" i.e. Article 13 of the Agreement on Agriculture. The Agreement on Agriculture contains a "due restraint" or "peace clause" (Article 13) which regulates the application of other WTO agreements to subsidies in respect of agricultural products. The Articles provisions provide that Green Box domestic support measures cannot be the subject of countervailing duty action or other subsidy action under the WTO Agreement on Subsidies and Countervailing measures, nor can they be subject to actions based on non-violation, nullification or impairment of tariff concessions under the GATT. Other domestic support measures which are in conformity with the provisions of the

Agreement on Agriculture may be the subject of countervailing duty actions, but due restraint is to be exercised by Members in initiating such investigations. Further, in so far as the support provided to individual products does not exceed that decided in the 1992 marketing year, these measures are exempt from other subsidy action or nullification or impairment action. Export subsidies conforming to the Agreement on Agriculture are subject to countervailing duty actions, but here also due restraint is to be exercised by Members in initiating such investigations. The peace clause remains in effect for a period of nine years from the entry into force of the WTO Agreement.

Q&A WTO Agreement on Agriculture

Q. 1. What are the main features of the WTO Agreement on Agriculture which are of concern to India? Ans. The main features of the WTO Agreement in Agriculture which are of concern to India are: i) India has been maintaining Quantitative Restrictions (QRs) on import of 825 agricultural products as on 1.4.1997. Under the provisions of the Agreement, such Quantitative Restrictions will have to be eliminated. India has sought to remove them in three phases within an overall time frame of six years upto 31.3.2003. These Quantitative Restrictions will have to be replaced with appropriate tariffs. ii) The Agreement also imposes constraints on the level of domestic support provided to the agricultural sector. In Indias case, it may have in future some implications on minimum support prices given to farmers and on the subsidies given on agricultural inputs. However, the Agreement allows us to provide domestic support to the extent of 10% of the total value of agricultural produce. iii) Disciplines on export subsidy do not affect us as India is not providing any export subsidy on agricultural products. iv) The Agreement allows unlimited support to activities such as (i) research, pest diseases control, training, extension, and advisory services; (ii) public stock holding for food security purposes; (iii) domestic food aid; and (iv) Income insurance and food needs, relief from natural disasters and payments under the environmental assistance programmes. Moreover, investment subsidies given for development of agricultural infrastructure or any kind of support given to low income and resource poor farmers are exempt from any commitments. Most of our major rural and agricultural development programmes are covered under these provisions. Therefore, the Agreement does not constrain our policies of investments in these areas. Q. 2. Does the Agreement impinge on our domestic policy of giving of subsidy to agriculture and also, will it affect the operation of our Public Distribution System in any manner?

Ans. The Agreement neither circumscribes ability to pursue the domestic policies of giving subsidy to agricultural sector, nor does it affect the operation of our public distribution system in any manner. The non-product specific support calculated in terms of the Agreement in 1995-96 was 7.52% of the total value of production against 10% allowed under the Agreement. Public Distribution System is exempt from any discipline as it is covered under public stock holding for food security purposes and domestic food aid clauses of the Agreement which provide such exemption from any commitments in this regard. Q. 3. On how many agricultural items are Quantitative Restrictions (QRs) being maintained in India at present? Ans. India has been maintaining Quantitative Restrictions on imports of 825 agricultural products as on 1.4.1997. These Quantitative Restrictions are now being gradually removed. India has undertaken to remove Quantitative Restrictions on all products in three phases spread over six years upto 31.3.2003. Q. 4. What are the safeguard measures that can be taken to protect the interests of our agricultural sector once QRs are phased out? Ans. India has already reserved the right to impose high levels of import duties of 100%, 150% and 300% on primary products, processed products and edible oils respectively. The Quantitative Restrictions can easily be replaced with high import tariffs in case there is need to restrict import of these commodities for ensuring welfare of our farmers. Therefore, ability to restrict import of any commodity is not constrained in any manner by the provisions of the Agreement. Q. 5. What are the prospects and opportunities for increasing agricultural exports from India as a result of the WTO Agreement on Agriculture? Ans. It is expected that reduction in export subsidy and domestic support to the agricultural sector by the developed countries may lead to a decrease in production in those countries and, therefore, will give scope for expansion of exports from the developing countries. India, with its cheap labour, diverse agro- climatic conditions and large agricultural sector can definitely gain through expansion of international trade in agricultural products. However, the concerns relating to quality of products for seeking markets in the advanced countries needs to be addressed on an urgent basis. (Source : Ministry of Agriculture)

Glossary of terms Agriculture

AoA: Agreement on Agriculture, which formed part of the Uruguay Round Agreement signed by member countries including India in April 1994 and became operational with the establishment of the WTO from 1st January, 1995. AMS: Aggregate Measurement of Support. This is a means of quantifying the aggregate value of domestic support or subsidy given to each category of agricultural products. Each WTO member country has made calculations to determine its AMS level wherever applicable. AMS consists of two parts product-specific and non-product-specific. De Minimis: Under the De Minimis provision of the Agreement, there is no requirement to reduce trade distorting domestic support or subsidy where the aggregate value of support does not exceed a certain limit or ceiling. In the case of developing countries, the De Minimis ceiling is 10%. Green Box: This refers to policies or support measures which have a minimum impact on trade and are, therefore, free from reduction commitments. Tariff Quota: A quota that allows for import of a commodity at less than the general applied rate. (e.g., if a country applies a general tariff of 100% on a particular commodity and then allows a limited quantity, say 20,000 tonnes, to be imported at a lower rate of say, for 20%). Peace Clause: A clause in the Agreement on Agriculture which regulates the application of other WTO Agreements (such as the Agreement on Subsidies and Countervailing Measures etc.) to subsidies given in respect of agricultural products. Peace Clause is also known as the "due restraint" clause. SPS Measures: Refers to the Agreement on Application of Sanitary and Phytosanitary Measures which concerns the application of food safety and animal and plant health regulations. Food Security: This is among the important non-trade concerns (NTCs) of countries including India. Food security covers not only the availability and stability of food supplies but also the issue of access of the population to sufficient food to meet its nutritional requirements and is a basic objective of government policies in agrarian developing countries. Cairns Group: The group of agricultural exporting countries comprising both developed and developing countries. The member countries of the of the Cairns Group are: Argentina, Australia, Brazil, Canada, Chile, Colombia, Fiji, Hungary, Indonesia, Malaysia,

New Zealand, Philippines, Thailand and Uruguay.

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WORLD TRADE ORGANIZATION AGREEMENT ON Series Paper #2

WORLD TRADE ORGANIZATION AGREEMENT ON AGRICULTURE BASICS2

no.

Institute for Agriculture and Trade Policy

1

WTO Cancun Series Paper

Table of Contents Introduction 2 What Happened at Doha? 3 Pillars of AoA 4 Other Issues 7 Government Negotiation Positions 8 Sources 14 WTO Agreement on Agriculture Basics Sophia Murphy, Director of Trade Programs 2003 2105 First Ave S Minneapolis, Minnesota 55404 USA www.iatp.org
World Trade Organization Table of Contents

Introduction Many consider the Agreement on Agriculture (AoA) to be the centerpiece of negotiations within the World Trade Organization (WTO). Agriculture is essential to the development of most countries in the world. It plays a vital role in ensuring food security, creating livelihoods, generating foreign exchange and determining the allocation of natural resources. Yet the dominant interest within the AoA is to maximize market access and increase the volume of commodity flows. This agenda has done little to protect the multiple roles that agriculture plays in development and has been much criticized by countries around the world. At the fourth WTO Ministerial Conference, held in Doha, Qatar in November 2001, governments committed themselves to a "development" round, pledging to address developing country needs that have not been addressedand in some cases have intensifiedunder WTO trade rules. Governments agreed to reach new trade rules for agriculture by March 31, 2003, but because intense differences remain, this deadline passed without agreement. The next opportunity for progress on the AoA is the fifth Ministerial Conference, scheduled for Cancun, Mexico, on September 10-14, 2003. The AoA has many different components. Nearly every country is part of a negotiating group with specific interests. This white paper provides some history of the AoA, describes the various sections of the agreement, spells out the different negotiating positions of WTO member countries, and presents the state of current negotiations. History The General Agreement on Tariffs and Trade (GATT) Uruguay Round Agreements, which includes the Agreement on Agriculture, came into effect on January 1, 1995. With the signing of the Uruguay Round AoA, international agricultural trade was put under much stronger GATT disciplines, including capped and reduced export subsidies, import barriers and domestic support. The implementation period was five years (by 2000) for developed countries and nine (by 2004) for developing countries. Least Developed Countries (LDCs) were not subject to reduction commitments. However, LDCs did commit themselves to not increasing export subsidies or domestic support in the future, and they did bind their tariffs - meaning that they could lower but no longer raise their tariffs above a given ceiling. The AoA contained a provision to renew negotiations for further reform starting in 2000. This process included a review of the implementation experience, which took place over a series of meetings in 2000 and 2001. World Trade Organization Doha Review 3 What Happened at Doha? At the Doha Ministerial, Member States chose to link the completion of revised rules for agriculture to reaching agreement on other areas (such as services, investment and intellectual property) included in the Doha Agenda. This so-called "single undertaking" means a series of agreements will be signed as a package - countries cannot pick and choose which agreements they like. Countries hoped to secure an early agreement on agriculture to act as an incentive to make progress in other areas. The agriculture negotiations would then wait for negotiations in other areas to catch up, leading to the signing of a single undertaking on January 1, 2005. The mandate outlined for agriculture in Doha encompasses several objectives. first, the original objective, taken from the Uruguay Round Agreement on Agriculture, is reprised: "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." Then, governments committed themselves 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 tradedistorting domestic support." In Doha, many developing countries loudly argued that the AoA had not benefited them, and had actually made situations worse for some countries. A
Agreement on Agriculture Basics Introduction
2

1999 study by the UN Food and Agriculture Organization (FAO) reviewed 14 country case studies that assessed changes in agricultural trade since the AoA went into effect. The FAO study found that food import surges The WTO does not have its own formal rules for determining developed, developing and least developed country categories. For LDCs, they follow the UN determination, which considers a bundle of criteria including per capita Gross National Product, human assets (health, nutrition and education levels) and economic vulnerability (size of economy and its diversity). LDCs have populations below 75 million people. There are currently 49 countries on the LDC list. LDCs are a sub-set of the broader category of developing countries. Developed and developing countries are self-selected although considerable pressure is put on newly acceding members to chose developed, not developing country, status. For example, many of the newly independent former Soviet States of Asia are considered developed despite their economic vulnerability. Developed, Developing and Least-Developing Countries were hurting local farmers and the wider agricultural sector, which undermined the local economy ' s capacity to provide food security, employment, economic growth and poverty reduction. Many of the benefits widely predicted for developing countries with the implementation of the AoA failed to materialize. Where subsidies were reduced or eliminated, production levels did not go down. Most developed country spending on domestic programs was not significantly reduced. World prices for agricultural commodities decreased overall, but at the same time were more volatile, making budgetary planning difficult for food importers. Public stockholding was cut, reducing transparency in the market. Now the largest holders of grain are private trading companies, a small number of whom dominate global grain markets. With the decrease in public stockholding in developed countries, food sales at subsidized prices to developing countries decreased. In 1998, the FAO estimated that the reduction in public stockholding resulted in an average 20 percent price increase for net food importing developing countries. In Doha, WTO member governments attempted to respond to these problems by reaffirming their commitment to Special and Differential Treatment (SDT) - providing assistance for developing countries by allowing longer implementation periods, less stringent disciplines, occasional exemption from the rules altogether, and obligations of assistance and preference by developed countries. Governments promised in Doha to make SDT "operationally effective." The Doha Declaration also obliges member states "to effectively take account of their [developing country] development needs, including food security and rural development." However, the proposals now on the table for the revised AoA fall far short of the concrete changes developing countries were hoping for, and the implementation of SDT continues to be controversial within the WTO. Many developed countries continue to deny the fundamentally different needs and problems that confront agriculture in developing countries. Pillars of AoA The Agreement on Agriculture (AoA) has three so-called 'pillars': market access, domestic support and export subsidies. In short, the commitments in the agreement require WTO member states to increase market access, and to reduce both domestic support and export subsidy expenditures. The AoA also includes references to non-trade concerns, listed as food security, the environment and special and differential treatment for developing countries. Domestic Support The stated overall objective of the domestic support disciplines was to reduce the amount of money going into production that was destined for export. Agreement on Agriculture Basics Pillars of AoA 4 This area is complex and led to a series of debates on which programs were legitimate for domestic objectives versus those that had a significant effect on trade by artificially increasing production levels (which crowds out potential imports) or facilitating the export of

under-priced exports- (which generates dumping). In the end, a number of domestic support categories were introduced, and ascribed various colors as described below. 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 on 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 over 1986-1988, 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 the European Union, Japan, Norway and Switzerland. A few developing countries have blue box programs. Green Box: 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. De Minimis: De minimis is a threshold for spending on domestic support that is exempt from AMS calculations. De minimis levels for developed countries were set in the AoA at 5 percent of the total value of production of all agricultural production, with an additional 5 percent of total value on a per crop basis. Developing countries and LDCs were granted 10 percent for both general and crop specific support. Programs that cost less than the de minimis threshold are exempt from reduction. The two biggest spenders on domestic support are the U.S. and the 15-country European Union. Many elements of the controversial 2002 U.S. Farm Bill fit under the Green Box, although they still include some $18 billion in Amber Box programs. The U.S. also has a number of World Trade Organization
Pillars of AoA
5

programs that fit within the de minimis limits. The European Union continues to rely on the amber, blue and, increasingly, the green box. Most of its programs are above the de minimis threshold. The boxes are beside the point for most developing countries - they do not have the money to provide high levels of domestic support for their farmers. Market Access The AoA required developed countries to reduce their tariffs by an average of 36 percent, with a minimum per tariff line reduction (covering a specific product) of 15 percent, over five years. Developing countries were required to reduce their tariffs by 24 percent overall, with a 10 percent per tariff line minimum, over nine years. LDCs were exempt from tariff reductions, but either had to convert non-tariff barriers to tariffsa process called tarifficationor 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 (see below). 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 21 developing 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 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 21 percent in the volume of products Agreement
on Agriculture Basics Pillars of AoA
6

subsidized. The baseline used for reductions was set at an average over the 1986 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. Other Issues 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 prohibits countries from protecting their markets against exporters that subsidise 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 a new 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 European Union has added animal welfare and eco-labeling as NTCs they wish to protect in the next iteration of the agreement. Policies that protect NTCs are generally covered under the green boxif accepted by all the WTO members, they would be exempt from reduction commitments. Special and Differential Treatment (SDT): As the GATT evolved through several rounds from its inception in 1947, and as a growing number of developing countries became signatories to the agreement, member states established the principle that developing countries ought to be granted greater flexibility than developed countries. SDT is formal recognition of the disadvantages developing countries face in the world trading system. In agriculture, developing countries are seeking a number of SDT measures, including a new special safeguard, access to simpler anti-dumping provisions to protect themselves from dumped production in world markets, and the right to retain tariffs on crops of particular interest to food security and rural livelihoods. World Trade Organization Other Issues 7

Government Negotiating Positions In the year after the Doha Ministerial, WTO Members met four times to negotiate a new Agreement on Agriculture. The following section outlines the positions put forward by various countries and country groups. Summaries of the WTO Agricultural Negotiations are available in a Secretariat note entitled "WTO Agriculture Negotiations," published on the WTO web site. More detailed information is available at http://www.wto.org/english/tratop_e/agri c_e/negoti_e.htm. The following analysis focuses on the countries and country groupings that are active on agriculture. The analysis highlights the main features of the negotiating proposals and the response they have elicited as of May 2003. United States The U.S. released its proposal for the WTO agriculture negotiations in July 2002. The main elements of the proposal are: to eliminate export subsidies over five years; to reduce tariffs on agricultural products over five years such that no tariff will exceed 25 percent after the phase-in period; and, to reduce "trade distorting" domestic support to five percent of the total value of agricultural production over five years. In other words, to eliminate all AMS down to the de minimis level. For the U.S., this would create a threshold of some $10 billion, given the current value of its agricultural sector. The U.S. proposal also proposed to include production-limiting payments (those now categorized in the Blue box) in the AMS reduction commitments. This proposal, with the call to eliminate export subsidies, primarily targets the European Union. Developing countries criticize the U.S. proposal for not addressing U.S. food aid policy, which is used to off-load surplus production. The U.S. has also called for the elimination of the Special Safeguard (described above) and allowing developing countries to protect certain products from more substantial tariff reduction by self-designating them as products necessary for food security. Hanging over the AoA negotiations is the 2002 U.S. Farm Bill. The bill does not include any reduction in export subsidies or domestic support. The 2002 Bill features counter-cyclical payments to farmers enrolled in program crops. These are payments that rise as market prices fall, in an attempt to ensure a minimum price for farmers. Most view these payments as trade distorting because they interfere with the market signal to grow less as prices fall. At a minimum, the Farm Bill violates the spirit of the AoA, which is to reduce government support to agriculture. Agreement on Agriculture Basics Government Positions 8 The Cairns Group As of March 2003, the Cairns Group of agricultural exporting countries had 17 members: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Columbia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South Africa, Thailand and Uruguay. While the membership has changed over time, the Cairns Group has consistently represented a mix of developed and developing countries that identify their primary interest in agricultural trade negotiations as increasing market access for their exports. The Cairns proposal on the AoA includes: A reduction of all developed country tariffs to 25 percent or less and an expansion of developed country tariff quotas to 20 percent of domestic consumption. The Group proposed the elimination of the SSG for developed countries. Developing countries were granted lower tariff reductions (a maximum of 50 percent reduction on tariffs of 250 percent or less) and longer implementation periods. Canada, Malaysia and Indonesia did not sign on to this proposal. Led by the Philippines and Argentina, the Cairns Group endorsed a proposal to address dumping which suggests that a new special and differential provision be developed granting developing countries access to temporary countervailing duties against subsidized agricultural products from developed countries. The measure would relieve much of the burden of proof of injury, required under the GATT Agreement on Subsidies and Countervailing Measures. Instead, the proposed rules would allow the presumption of subsidy where a developed country had utilized export subsidies or certain kinds of domestic support. On domestic support, the

Cairns Group proposed the elimination of all amber box spending over five years for developed and nine years for developing countries. Developed countries would be required to cut amber box spending by half in the first year. Blue Box spending would be eliminated immediately. The de minimis provision would be eliminated over time for developed countries, but retained for developing countries. Some suggestions were also made to tighten the criteria for the Green Box, to ensure it is not abused. Canada again did not sign this proposal. The European Union The European Commission (which speaks for the EU in trade negotiations) was unable to present an agreed position from its members until January of 2003, long past the deadline agreed by governments to submit proposals. This reticence reflects the internal political differences among EU member states on how to reform the Common Agricultural Policy (CAP). A recent agreement between Germany and France has made it unlikely that there will be any significant reduction in the use of export subsidies before 2007. The EU has just World Trade Organization Government Positions 9 welcomed 10 new members into the Union, including Poland, which has more farmers than all existing EU members combined. The EU cannot afford to leave the CAP unreformed in these circumstances. However, the WTO process is not likely to be the main driver of reform. The EU proposal indicates how little reform they are ready for. It includes: a proposal to cut export subsidies by 45 percent, but on average rather than per product line; a proposal to cut AMS (amber box) levels by 55 percent. However, its gradual shift of payments to the Green Box means this will not require significant change in current policy; on tariffs, a straight 36 percent reduction from existing tariff levels (The EU does not support the U.S. call to "harmonize" tariffs by cutting higher tariffs more than lower tariffs); for developing countries, duty-free and quota-free access for all farm exports from LDCs, as well as zero tariff access for at least 50 percent of developed country imports from developing countries. The EU proposed a "food security box" that included measures for rural development and to protect food security crops through a special safeguard; New "Non-Trade Concerns" include geographical indicators (GI) regarding food products (so that only wine from Portugal could be called porto, and only ham from Parma could be called Parma ham); and strong precautionary measures to guide food safety rules, and the right to provide financial incentives for farmers to implement stringent animal welfare regulations. The United States and the Cairns Group have vigorously rejected these proposals. Like-Minded Group The group of developing countries that identifies itself as the Like-Minded Group in agriculture define their shared interest as seeking more liberalized agricultural sectors in developed countries while seeking additional protection for themselves. Member countries include Cuba, the Dominican Republic, El Salvador, Haiti, Honduras, Kenya, Nicaragua, Pakistan, Sri Lanka, Uganda and Zimbabwe. India occasionally joins submissions from this group. The heart of the Like Minded Group (LMG) proposals have been grouped into what is called the Development Box. The Development Box (DB) was first proposed at the WTO agricultural talks in 2000. The LMG was concerned that the liberalization of agricultural trade was jeopardizing their food security and the livelihoods of their producers, especially small farmers, who are among the most vulnerable sectors in their populations. The governments who proposed the DB wanted to create exceptions to the trade rules for countries with scarce resources and significant food security concerns. Agreement on Agriculture Basics Government Positions 10 Specific proposals include: the creation of a simpler special safeguard for developing countries only; a proposal that would allow developing countries to raise tariffs on food security crops where experience had shown the existing tariff binding to be too low; a joint proposal, submitted by seven members of the group in November, 2002, suggesting that if

production of a crop is below an UN FAO determined world average for national production, and if exports of that crop are less than 3.25 percent of world trade in that crop for five years or more consecutively, then domestic support for that crop should not be included in reduction commitments; and a proposal to exclude from domestic support restrictions for money spent on transporting staple foods to food deficit areas within the country. Friends of Multifunctionality Multifunctional agriculture (MFA) describes an approach to agriculture that goes beyond production-related measures to consider the broader benefits to society provided by the sector. For example, providing payments to farmers for managing water quality, soil erosion, habitats for particular species or other services that the market does not recognize or reward but that have a clear public value. The MFA framework provides a rationale for such payments, and considers some level of domestic food production in all countries to be an essential component of food security. The core support for multifunctional agriculture comes from Japan, South Korea, Norway and Switzerland. The EU associates itself with this group, although there are divisions among member countries as to the usefulness, validity and application of multifunctional agriculture. Japan's comprehensive proposal of November 2002 would leave significant leeway to countries to determine which products to liberalize and how. The proposal leaves domestic support at the levels reached under the existing AoA and seeks to raise market access barriers on rice. Former Eastern Bloc and Soviet States The former Eastern Bloc and Soviet States have made only a limited number of proposals. They largely reflect two, sometimes overlapping, concerns. The first concern is from the states that hope to accede to the European Union. This group is careful to reflect EU interests in their statements. The second is from those who recently acceded to the WTO. The WTO accession process famously requires much deeper liberalization than existing WTO rules, which leaves new members in a much-weakened negotiating position. Newly acceded countries, with support from China (another new member) proposed that they be credited for their accession commitments and thus avoid further World Trade Organization Government Positions 11 tariff cuts for themselves in the new round of agreements. All of these countries want to increase market access for their exports. Many of them depend on agriculture for a significant share of their foreign exchange earnings. Least Developed Countries While Least Developed Countries (LDCs) are singled out as a group in the AoA for special treatment, they do not work as a group in any formal sense. Their exemption from a number of disciplines under the AoA, as well as their institutional weaknesses, leads larger countries to ignore them in the negotiations. A number of LDCs cannot afford to maintain a mission in Geneva. They have very limited domestic capacity to develop and pursue a trade policy agenda. They are subject to intense bilateral pressures because of their dependence on foreign aid. They are of limited trade interest because their people are relatively few and poor, reducing the interest of traders in their domestic markets, and their production is too limited to create problems in world markets. On the other hand, LDCs are very much affected by international trade policies. They often depend on only one or two exports for their foreign exchange revenues, and their export markets are usually heavily concentrated. Thus, they have an important stake in the outcome of the negotiations, yet very little bargaining power to ensure an outcome favourable to their interests. Competing interests complicate solidarity even across LDCs countries. There is now a legal center that provides LDCs with help in using the WTO's trade dispute system, but much remains to be done. The Harbinson Draft On February 12th, 2003, the Chairman of the agricultural negotiations at the WTO, Stuart Harbinson, considered the proposals put forward by countries and released a first draft of what a new AoA might look like. Governments were under no

obligation to accept the proposal as a basis for negotiations, but it has considerable weight in the next steps for negotiators. In summary, the Harbinson draft proposes: the elimination of export subsidies over ten years; a 60 percent reduction in domestic support classified as amber box over five years; either moving the blue box into the amber box, so that it would have to be reduced, or introducing a cap on blue box spending and then imposing a 50 percent reduction over five years; cutting high tariffs by a larger percentage than low tariffs, through a series of three bands. Tariffs over 90 percent would be cut by an average of 60 percent with a 45 percent minimum per tariff line. Tariffs between 15 and 90 percent would be cut by an average of 50 percent and a minimum of 35 percent per tariff line. Tariffs lower Agreement on Agriculture Basics Government Positions 12 than or equal to 15 percent would be cut by 40 percent with a minimum per line of 25 percent; small tightening of the conditions for programs to be eligible for green box status; tightening of disciplines on the use of export credits; an outright ban on single-desk selling, which would close down export state trading enterprises such as the Canadian Wheat Board; significant tightening of the conditions under which food aid can be included in the green box; adding payments for environmental and animal welfare programs to the green box, in recognition of the European Union's proposal; a new Special Safeguard (SSG) for developing countries that restricts the SSG to a list of so-called "strategic products" (a proxy for food security crops, defined to take account of livelihood and rural development concerns). Strategic products would also not be subject to the same degree of tariff cuts, although a minimum five percent cut would be required on every tariff line. This proposal also included higher spending limits for domestic support aimed at agricultural development in developing countries. Initial responses from governments have not been warm. Overall, the United States and Cairns Group have expressed the most satisfaction with the text, although they say they want deeper and faster liberalization (the U.S. is careful to exclude its use of decoupled payments and other domestic support tools from further reductions). The European Union, Japan and other Friends of Multifunctionality have been the most vocal in their disappointment. Despite loud objections by the most powerful of WTO members, it is likely that the Harbinson text will be on the table in Cancun, although perhaps in a new draft version. The Harbinson text revives a frequent criticism of the WTO in general and the AoA in particular: that the rules support more powerful member countries at the expense of developing countries. The Harbinson text includes a sharp emphasis on increasing market access among all members without any concession to rebalancing measures that would allow developing countries to protect themselves from the continued use of export subsidies and trade-distorting domestic support in developed countries. Nor does the text mention the Peace Clause, which is due to expire in December 2003 and is sure to provide a major bargaining chip for developing countries throughout the negotiations. What stands out most about Harbinson ' s proposal is that there is no mention of the two most damaging effects of current agriculture trade rules - agriculture dumping and market concentration. World Trade Organization Government Positions 13 Harbinson ignored the proposal from the Cairns Group to make it easier for countries to impose immediate sanctions in the case of dumping. The impact of agricultural dumping from the U.S. and the EU on developing countries has been well documented as the most harmful effect of current WTO agriculture trade rules. Associated with dumping is the growing market concentration within agriculture trade by fewer multinational corporations. This increasing level of concentration is distorting the market and having an impact on global prices. Remarkably, the agricultural trade rules for the world have no antitrust enforcement measures. Cancun will provide yet another opportunity for these and other

issues to be raised at the negotiating table. How negotiators deal with the needs of developing countries, agriculture dumping, and market concentration will go a long way towards measuring the state of the negotiations. Agreement on Agriculture Basics Sources 14 Sources: World Trade Organization: www.wto.org GATT Agreement on Agriculture:
http://www.wto.org/english/docs_e/legal_e/14-ag. pdf WTO Legal Documents: http://www.wto.org/english/docs_e/legal_e/legal_e.htm Doha Declaration and Negotiations: http://www.wto.org/english/tratop_e/dda_e/dda_e. htm WTO Agriculture negotiations: http://www.wto.org/english/tratop_e/agric_e/negoti_e. htm Organization for Economic Cooperation and Development (OECD) on Uruguay Round and Agriculture: http://www.oecd. org/EN/home/0,,EN-home-141-nodi rectorate-no-no-no-24,00.html UN Food and Agriculture Organization (FAO) on WTO/Uruguay Round and Agriculture: http://www.fao.org/trade/index.asp?lang=en U.S. proposal for AoA negotiations: http://www.fas.usda.gov/itp/wto/as European Commission proposal for AoA negotiations: http://europa.eu.int/comm/agriculture/external/wto/of ficdoc/index_en. htm U.S. Farm Bill 2002: http://www.usda. gov/farmbill/ European Union s Common Agriculture Policy: http://europa.eu.int/pol/agr/index_en.htm U.S. Dumping on World Agricultural Markets: Can Trade Rules Help Farmers?, Institute for Agriculture and Trade Policy, 2003. http://www.trade observatory .org/library/uploaded files/ United_States_Dumping_on_World_Agricultural_Ma .pdf Managing the Invisible Hand: Markets, Farmers and International Trade. Institute for Agriculture and Trade Policy, 2002. http://www.trade observatory .org/library/uploaded files/ Managing_the_Invisible_Hand_2.pdf Development Box Proposals: http://www.iatp. org/tradeobservatory/library/index.cfm ?c_id=42 Additional Resources: www.tradeobservatory.org

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Many consider the Agreement on Agriculture to be the centerpiece of negotiations within the World Trade Organization. The dominant interest within the Agriculture Agreement is to maximize market access and increase the volume of commodity flows. This agenda has done little to protect the multiple roles that agriculture plays in development and has been criticized by countries around the world. It is now up to governments to act. Institute for Agriculture and Trade Policy 2105

first Avenue South Minneapolis, Minnesota 55404 USA www.tradeobservatory.org WTO Cancun Series Paper Number 2 World Trade
Organization Agreement on Agriculture Basics