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Agricultural Agreement Within The Wto Framework Economics Essay

Introduction

The purpose of this report is to provide an insight about the agricultural agreement within the WTO framework. we will also discuss further on the implication and impact of such agreement.

Literature review

2.1 WORLD TRADE ORGANISATION (WTO)

The world trade organization (WTO) is a global international organization officially established on the 1st January 1995. From 1986 to 1994, the last and largest General GATT (Agreement on Tariffs and Trade) round which was the Uruguay round formally led to the creation of the WTO. The WTO actually consists of 153 members among whom 117 are form developing countries or separate customs territories. Where GATT dealt with trade in goods, WTO on the other hand, dealt with trade in services and by mean of agreements and negotiations they try to ensure fair and free trading between nations. It is therefore consider as being a “round-table” where governments can negotiate and settle trade dispute faced with each other. The documents signed out of these agreements, provide a legal ground- rules for international trade. As a result, each country would be given the assurance that its exports will be treated fairly and consistently in other countries’ market too. Governments should thus, ensure that their trade policies are as per these agreements and that it is respected by their producers.

According to Matsushita et al (2006) the (WTO) has four specific functions which are:

to provide a forum for negotiations among members

to administer the system of dispute and settlement

to administer the trade policy review mechanism

to cooperate as needed with the IMF and the world bank , the two other Breton woods institutions

The WTO covered several agreements dealing with goods, services and intellectual property but for the purpose of this study, we will limit ourselves on the agricultural agreement which focus mainly on the tariffs, quotas, domestic supports and export subsidies.

2.2 AGRICULTURAL AGREEMENT

During the Uruguay round of 1986-94, the WTO’s Agriculture Agreement was negotiated with aim to reform market access, reduce trade-distorting subsidies and hence bring in fairer competition. The agreement is made up of three “pillars”:

market access

domestic support

export subsidies

Market access

Before the agreement, some agricultural imports were restricted by quotas and other tariff measures. With the “tariffication” process covered by this agreement, tariff related to agricultural products in develop countries should be reduced by an average of 36% and 24% for developing countries. These tariffs reduction should as per the agreement de undertaken within 6 years for develop countries, 10 years for developing countries while least developed countries are exempted from it.

For example, import under the tariff-quota (up to 1.000 tons) a charge 10% while those exceeding the tariff-quota are change 80 %. Therefore, under the agreement, the 1, 000 tons would be charge lower traffic rate.Quantities which were imported before the agreement could continue to be imported while some new quantities would be charged duty rates that were not prohibited. With the tariff-quotas, those who would import quantities exceeding the quota would pay higher rate while those importing specified quantities would be change lower traffic rate.

It should be noted that under the Agriculture Agreement in order to avoid prices from falling quickly or surges in imports, governments are allowed to take special action on those products which are non-tariff restricted and yet have been converted to tariff. Moreover, Japan, Rep. of Korea, Philippines and Israel used the “special treatment” provisions to restrict imports under predefined conditions, including minimum access for overseas supplier during the implementation period.

Domestic support

By supporting domestic prices, or subsidize production, over production is therefore encouraged and this impact on the world market. The agricultural agreement comes up with a calculation that helps to distinguish between those supports program which have a direct effect on production and trade and those which have no effect. With the “Total aggregate measuring support” or “Total AMS”, WTO members have been able to calculate how much support program which affect trade and production they have provide per year in the agricultural context.

Measures such as research, disease control, infrastructure, payment made to farmers and food security are considered to have a minimal impact on trade are categories in a “green box” and thus can be used freely. Whereas all subsidies and other domestic support which affect production and trade are classified in the “amber box” and the total value of these measures must be reduce. All subsidies linked to production which are exempted and not under control fall in the “blue box”.

Export subsidies

WTO member are expected to cut the amount of money they sped on export subsidies as well as the quantities of export they received subsidies. For 1986-60, developed countries agreed to cut the value of subsidies by 36% over the six year starting in 1995 and 24% over 10 years while developed countries agreed to reduce quantities subsidized exports by 21% and 14% over 10 years. Least developing countries do not have to undergo such adaptation.

With the enforcement of the Agriculture Agreement barriers which was an obstacle to the movement of certain goods across borders have been removed. Countries like US and EU, who due to exemptions and waivers form GATT were benefiting form considerable subsidies and was causing distortions such as dumping in the agricultural trade. But with the multilateral trade rules of this agreement, a more fair and market-oriented agricultural trading system was enact which liberalizes the economies as well as opens the host market to foreign product. While on the other hand, developing countries, saw those rules as a mean to stabilize and increase world price for food exports which would generate additional export revenue to alleviate poverty and other further development goals. Transnational commodity traders and processors view the agricultural trade as an opportunity of accessing new market, especially in developing country and by the way, increase their market share.

3.0 ANALYSIS

The Agriculture agreement therefore, brings in trade liberalization which allows trade country to make well fair gain. With such development local production could be exported to new market which will be beneficial to employment and income. It also, helps to reduce poverty in developing countries and can act as a complementation of local production and hence provide more dietary choices.

But with liberalization, small-scale farmers who do not have easy access to land, water, technology, infrastructure and capital find themselves disadvantaged as compared to transnational commodity traders and processors who enjoy the facilities of developed countries. Moreover, the gap that exists between local farmers of developing countries and agribusiness of rich countries also prevent them form competing on an equal basis (Kevin Watkins, 1995).

Transnational, especially the US, benefit form billion of dollars subsidies from the government so as to permit them to maintain and increase their share of world agricultural markets. By so doing the agricultural market become further distorted and cause the inability of small-scale farmers to compete. With these agreements and the benefice that transnational like US get, allow them to produce more and hence enjoy more international trade as compared to those who have limited mean such as developing countries. As even if the international trade have been liberalize, it does not mean that everyone have the ability to enjoy this privilege as both developing and develop country have to cater for the local consumption before thinking of exportation. For those, who usually consume most of their production such as developing countries find themselves with only a small portion left to trade internationally. International standard of developed country also pay an important role as for those developing countries which do not have the capacity or infrastucture to meet them find their access to develop country market very challenging. At this level, the question arise, who benefit form this agreement? Is it the developing countries or developed one? For whom does this agreement really make sense?

The Agriculture agreement as per the WTO agreement has help in achieving the WTO aim which are to raise standard of living, ensure employment and increase incomes. In Asia for example, the best part of the population rely agricultural sector for employment and income, while in India 60% out of 72% of those living in the rural area find a job in the agricultural sector. In many other Asian counties, the situation support the WTO aim. On the other hand, it is also true that with the agriculture agreement developed countries are allowed to keep a large portion of their domestic support programmes while developing countries are forbidden form taking any legal action. Developed countries, sustain high level of production and sells products as artificially low prices through their agricultural support programmes. By so doing, developed counties which are already in a better position to benefit form international trade make this traffic be more difficult for developing countries which are already trying hard to follow the trend with their poor structure and infrastructure. According to Devinder Sharma (2003), the boxes used in the domestic support, help the rich countries to protect their subsidies while dumping their surplus over the world. Consequently, causing food bills to rise, threatening right to food, and affect the standard of living.

Moreover, the lack of transparence during negotiation and decision making, create inequality between the participant, even though the developing countries make up two-third of the membership, they do not have much influence over the decision making, especially where their economies are more at sake and need so help to achieve development, growth and reduce poverty. The result of this agreement may improve the standard of living, provide employment and income as it is true as since it open the door for international trade in term of industrialize and export-oriented agriculture production. But since this agreement favorites those who are already well off, some members of the WTO do not find this agreement as a real opportunity and a mean for development. Even if the several mechanism such as special safeguard mechanism (SSM) and the special and differential treatment (S&D) have been introduce in order to assist those countries whose facing difficulties with the free trading. But even thought, the developing countries still insist on the fact that these concessions do not address their disadvantage situation and inequality.

Analysis and discussion

Advantages and disadvantage to developing and develop country

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