The WTO agreement proposed an agenda for aggressive liberalization of agricultural trade through: (i) Improved market access, (ii) Removal of quotas from production levels or prices, and (iii) The elimination subsidies. The agreement aimed to bring about a structural change in global agricultural trade. The AoA focuses on three areas: market access, domestic support and export subsidies.
Market access has two aspects: (i) tariffs reduction, and (ii) Using Tariff Rate Quota (TRQ) for minimum market access. In tariffs reduction measure, a single ‘bound’ tariff rate replaces all Non-Tariff Barriers (NTBs) on imports. such as Quantitative Import Restrictions (QRs), variable import levies, minimum import prices and discretionary import licensing procedures. The bound tariff should be determined keeping in view the nominal protection given to the agricultural goods in the base period of the country. The final tariffs and other tariffs on agricultural goods have to be reduced by average 36, per cent (or a minimum of 15 per cent per tariff line) by 2000 in developed countries and 24 per cent (or a minimum reduction of 10 per cent per tariff line) by 2004 in developing countries. The Least Developed Countries (LDCs) are exempted from such commitment. However, they had to fix the tariff to their base period level without raising the protection level above the base.
Using the ‘Tariff Rate Quota’ (TRQ), the agreement on giving minimum market access has been stipulate. Two effective tariff rates will be: a lower tariff rate for imports below the prescribed volume of quota and a higher tariff for imports in excess of the prescribed volume. Besides, as a share of domestic consumption each country would import a minimum level of agricultural goods. Countries would also keep their base year level of access for each product and if the base level of import in the base year is negligible, the minimum access ‘should at least 3 per cent of domestic consumption in the base period.
This minimum level was to rise to 5 per cent by 2000 for developed countries and by 2004 for developing countries. A Special Safeguards Provision (SSP) was made for allowing the application of extra duties when shipments are made at prices below certain reference levels or if imports suddenly increase. The market access provision is not applied if the commodity is a traditional staple of a developing country. In India, the tariff rates on primary agricultural products are 100 per cent, on processed foods 150 per cent and on edible oils 300 per cent. However, the actual tariff rates on various agricultural products are much less than the bound rates.
Domestic support is provided through subsidies to the agriculture sector. These subsidies can be particular for a product or not specific to any product. The AoA divides these supports into: (i) Trade-distorting, and (ii) Non-trade distorting. Trade-distorting subsidies are provided due to reduction commitment as per the AoA guideline. Domestic support measures can be categorized into four different types and are called as:
- Green box measures.
- Blue box support.
- Special and differential (S&D) treatment.
- The amber box support/measures.
Green Box Measures: These measures have very minimal or zero distorting effects on trade on farm products. These measures will be placed in the Green Box if the general and measure-specific criteria set out by the AoA are fulfilled. These measures are exempt from reduction commitments. These can also be raised without any, financial restrictions. They should be offered through a government-funded programme, including government revenue foregone, not involving transfers from consumers and must not have the impact of providing price support to farmers. Green box measures provision are applied in the developed as well as the developing countries. For developing countries, special treatment is given with regard to government food security schemes for offering subsidized food products to the poor in both urban and rural areas.
Blue Box Support: This support is provided for limiting the agricultural production. This is generally relevant in developed countries as direct payment to producers is rarely found in developing nations. Such support is directly linked to acreage or animal numbers of the producer. This support puts production quotas and is important for supporting and reforming agriculture. It is for achieving certain non-trade objectives like environment protection.
Special and Differential (S&D) Treatment: The special and differential treatment is applicable only for developing countries. This support for agriculture is provided in the form of subsidized inputs to small farmers. It also includes purchases from food security stocks bought at administered prices given the subsidy to producers is included in the calculation of aggregate measure of support. Besides, the developing countries are allowed un-targeted subsidized food distribution to meet the needs of the urban and rural poor. Subsidies generally available to small farmers are also excluded for developing countries.
Amber Box Support/Measures: These measures include support by the country such as the minimum support prices or subsidies tied to production levels, These measures distort production and trade and are thus subjected to the reduction commitments.
Aggregate Measure of Support (AMS): The support is provided under two heads: (i) A product-specific aggregate measure of support (AMS), and (ii) Support to agricultural producers in general (non-product specific subsidies). The product-specific AMS is calculated by deducting the domestic price from the global price and multiplying the resultant figure by the total production. The product-specific AMS will be positive if the global price is lower than the domestic price of a commodity. For instance, if the domestic price of a commodity as Rs. 1000 and its global price is Rs. 800, the product specific AMS is positive. If the global price is Rs. 1200, the multiplying component of product-specific AMS is 200, which is-negative.
In India, there is no product specific support except the Minimum Support Price (MSP) for some farm products. During 1986-88, India offered the price support programs for 22 products and had a total product specific AMS of Rs. (-) 24,442 crore. Thus, the total non-product specific AMS was Rs. (+) 4581 crore during the period. The Total AMS was (-) Rs.19,861 crore, or about (-) 18 per cent of the value of total production. For 1995-91, the product specific AMS was (-) 38 per cent and the non-product specific AMS 7.5 per cent of the value of total output.
From these estimates, if we deduct the domestic support provided to small farmers under Article 6 of the AoA, our aggregate AMS would be below the 10 per cent permitted level. Since the setting up of the WTO, the price of agricultural commodities in the global market has been higher than the domestic administered prices in India. Therefore, the product-specific AMS of India is negative. Since July 2008, the AMS in India is positive because the global prices have been lower than the domestic support prices of agricultural commodities.
Non-product Specific Subsidies (De minimis): This is the total support for the agricultural sector. This included subsidies on inputs such as fertilizer, electricity, irrigation, seeds and credit. The AoA stipulated that the developed countries can provide farm subsidies up to 5 per cent of their total value and agricultural output while it is I per cent for developing country. There are two criteria for identifying non-trade distorting support:
- It has to be paid from the government budget.
- It would not have the impact of offering price support for the farmers.
These measures include government services like:
- Conducting agricultural. research.
- Control of disease.
- Infrastructure development.
- Maintaining extension and buffer stocks for food security.
- Providing domestic food aid.
- Making direct payments to producers.
- Decoupled income support.
- Government help in income insurance and income safety-net scheme.
- Payment under environmental and regional assistance schemes.
- Providing relief payments during natural disasters,
- Supporting farmers for restructuring agriculture.
- Services for marketing and promotion. If the Natal value of the support given is more than the ceiling of 5/10 per cent of value of total agricultural output under the de minimus provisions of the AoA, domestic support does not need reduction.
Controversy on Blue Box Subsidies: One of the most controversial issues in the WTO ministerial conference is the decoupling of domestic support. Exclusion of the ‘blue box’ products which is for limiting production from reduction commitments is considered as unfair discrimination against emerging countries like India. The subsidies under the blue box support distort trade and should thus be treated under trade discipline measures. Because of the implementation of AoA provisions in recent years, the amber box support has fallen in many developed countries and support under blue and green box policies has substantially increased. The developed countries have been changing domestic support to the permissive categories of green and blue boxes from the prohibited amber box.
The export subsidy commitment is made on two aspects: (i) reducing the total quantity of export covered under the subsidy, and (ii) reducing the total budgetary allocation on export-subsidies. Developed countries committed to cut the quantity of subsidized export by 21 per cent and outlays on export subsidies by 36 per cent by 2000. For developing countries, they were 14 and 24 per cent respectively by 2004. The reduction requirements exempt the subsidies given on transport, processing and packaging of agricultural exports of all countries.