Domestic policies that do have a direct effect on production and trade have to be cut back. WTO members have calculated how much support of this kind they were providing (using calculations known as “total aggregate measurement of support” or “Total AMS”) for the agricultural sector per year in the base years of 1986-88. Developed countries have agreed to reduce these figures by 20% over six years starting in 1995. Developing countries are making 13% cuts over 10 years. Least developed countries do not need to make any cuts.
Measures with minimal impact on trade can be used freely — they are in a “green box” (“green” as in traffic lights). They include government services such as research, disease control, infrastructure and food security. They also include payments made directly to farmers that do not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture, and direct payments under environmental and regional assistance programmes.
Also permitted, are certain direct payments to farmers where the farmers are required to limit production (sometimes called “blue box” measures), certain government assistance programmes to encourage agricultural and rural development in developing countries, and other support on a small scale when compared with the total value of the product or products supported (5% or less in the case of developed countries and 10% or less for developing countries).
Background: Before the WTO, particularly in the 1970s and 1980s, success in international market for agricultural products became increasingly determined by the financial power of national treasuries rather than the efficiency and marketing skills of agricultural producers and exporters. Export subsidies also became a major factor in depressing, or destabilizing, world market prices for many agricultural products. When the Uruguay negotiations began, the common objective of the US and the Cairns Group1 countries was the pure and simple abolition of export subsidies. The possibility of granting export subsidies was finally incorporated in the Agreement on Agriculture at the request of the EU.
Definition: Export subsidies are subsidies contingent on export performance, including:
1) direct export subsidies contingent on export performance
2) sales of non-commercial stocks of agricultural products for export at prices lower than comparable prices for such goods on the domestic market
3) producer-financed subsidies such as a levy on all production is then used to subsidize the export of a certain portion of that production
4) cost reduction measures such as subsidies to reduce the cost of marketing goods for export like handling cost and cost for international freight
5) international transport subsidies applying only to exports
6) subsidies on primary agricultural products incorporated in a processed agricultural product such as wheat contingent on their incorporation in export products of biscuits.
The Agriculture Agreement prohibits export subsidies on agricultural products unless the subsidies are specified in a member’s lists of commitments. Where they are listed, the agreement requires WTO members to cut both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies. All in all, 25 Members (counting the members of the EU as one) have export subsidy reduction commitments specified in their schedules, with a total of 428 individual reduction commitments.
Taking averages for 1986-90 as the base level, developed countries have agreed to cut the value of export subsidies by 36% over the six years starting in 1995 (24% over 10 years for developing countries). Developed countries have also agreed to reduce the quantities of subsidized exports by 21% over the six years (14% over 10 years for developing countries). Least developed countries do not need to make any cuts.
During the six-year implementation period, developing countries are allowed under certain conditions to use subsidies to reduce the costs of marketing and transporting exports.
1) Export restrictions on foodstuffs should not be introduced without giving due consideration to the effects of such restrictions on importing Member’s food security.
2) Due restraint or peace clause should be applied when subsidies in respect of agricultural products are to be subject to other WTO agreements.
3) Net food-importing developing countries should be ensured the availability of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions.
1. Why are trade in agricultural products and textiles and clothing subject to special agreements in GATT 1994?
2. Who will benefit more from the Agreement on Agriculture, the developed countries or the developing ones?
3. What are areas of commitments under Agreement on Agriculture?
4. What is AMS and how is it calculated?
5. Explain Special Safeguard Provisions.
6. Discuss the tariff reduction formulas in Agricultural Trade.
1. GONZALEZ, C.G., Institutionalizing inequality: the WTO Agreement on Agriculture, food security, and developing countries. Colum. J. Envtl. L., 27 (2002), p. 433-490.
2. Bhagirath Lal. The World Trade Organization - A Guide to the Framework for International Trade, Third World Network, Malaysia 1999.