Agriculture Agreement Most Contentious Issues Within The Wto Economics Essay

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This report will deal with the role of WTO in trade and development of the world economy, and specifically the content of the agricultural agreement on agriculture. Most of us have already known that the aim of the WTO policies is to make the world to have free trade. The organization contents that free trade is the most effective ways to carry out development to improve the human welfare. With free trade production and consumption will move to efficiency points. The production will have the lowest cost and the consumption will face the cheapest price and for each individual in the world. Hence, free trade will be able to move factors of production into the most efficient production system and enjoy the highest price, while the output of the production activities will increase and reach the most efficient point with the lowest price for the consumers.

However, while trade has been understood as an engine of growth, it does not mean that free trade does not carry with it any problem, especially for the developing countries. Although the trade regulation does not prohibit the developing countries to export their products to the developed countries; but in practice many developing countries do not have enough capacities to produce and to fulfill the developed countries markets due to many reasons. Among the many reasons is that the developing countries lack of efficient technology and skills. These factors result in a high cost of production in the domestic market as well as in the world markets. Furthermore, most developing countries are producing similar products among themselves and even similar with the products produced by the developed countries where technologies are better developed and efficient. Consequently the developing countries output prices become more expensive than those of the developed countries. Besides that, the qualities of the outputs are also better for the developed countries compared with those for the developing countries. As a final result, demands for the domestic products in the developing countries become lower relative to the demand for the developed countries' commodities. This high competition of the two kinds of product will hit the domestic production activities of the developing countries, and may cause a high level of unemployment and reduce the income level of the people. This is in fact the tragedy of the free trade for the developing countries. Without any trade barriers, it seems that the developing countries will suffer from high competition. Due to the extremely low capacity and technology resulted from the high intensity of poverty in the region; therefore they will never have any capacity for free competition. They loose their fight against the developed countries, especially because the rule or regulation is developed in favor of the developed countries. The end result is a good one in theory, but in practice the process toward the gains from trade is painful for the developing countries, since they do not have strong capacities and technology as well.

The WTO agreements on agriculture tend to abolish tariffs and subsidies both at the cultivation and trade sectors. The introduction of the WTO agreement on agriculture in fact has caused developing countries to suffers from double attacks in the field of agriculture, because the trade agreement prohibit the adoption of high import tariffs and was accompanied with the abolition of input subsidies in the agricultural sector.

The WTO agreement on agriculture

The Agreement on Agriculture is one of the two main sectoral agreements in the Uruguay Round Agreements that provides the specific rules in the liberalisation of agricultural products. The other one is the Agreement on Textiles. As in all the other multilateral trade agreements that came into effect in 1995, the Agreement of Agriculture is binding to all members of the WTO.

Based on its declared goal of establishing a fair and market-oriented trading system in agriculture, the Agreement of Agriculture obliges member nations to increase market access and reduce trade-distorting agricultural subsidies.

The implementation period is different for developed and developing countries, with the former given six years or until 2000 to implement their commitments and the latter ten years or until 2004.

However, it can be discuss that, the agriculture agreement itself is fundamentally flawed and highly iniquitous and that instead of leveling the playing field in international trade in agriculture, it reinforces the monopoly control of wealthier countries and their transnational corporations over global agriculture production and trade.

The main components of the Agriculture Agreement

The agriculture agreement has three main pillars: market access, domestic support, and export competition. Trade liberalization commitments in these three areas are required for all members of the WTO.

The commitments, which had been largely negotiated among countries before the end of the Uruguay Round, are reflected in the country schedules which are integral parts of the Agreement. These commitments are supposedly based on an agreed set of modalities which were outlined in a modality paper. This paper is not part of the Agreement as it served only the purpose of providing the basis for calculation of each member's commitment.

Market Access

All countries are obliged to eliminate all their non-tariff barriers like import ban, import quota or quantitative restrictions on imports, etc. and convert these to tariffs. This is called, in the WTO, "tariffication." The tariff rate should be equivalent to the barriers that were imposed in the base reference period of 1986-88. All countries have to bind their tariffs on all agricultural products and progressively reduce all tariffs starting from their initial bound rate in 1995 to their final bound rate at the end of the implementation period. The average reduction for developed countries is 36% within six years and for developing countries, 24% within 10 years.

Exceptions to tariffication are allowed under the Special Safeguard provision and the Special Treatment clause for specific commodities. The Special safeguard can be invoked only for commodities which have been subjected to tariffication. This provision allows countries to apply additional duties on imports that should not exceed one-third of their existing normal custom duties, in the event of import surges or sudden fall in the world price of the affected commodities. Only one of this condition can be used to justify a safeguard action at any one time. The Special Treatment clause, like the safeguard clause is not a full exemption to tariffication but a mere postponement to allow protection of specific commodities like staple foods. For developed countries, postponement is allowed until at least at the end of their implementation period which is 2000 and for developing countries until the 10th year or 2004.

Another provision for increasing market access is the minimum and current access volumes. However, this is contained only in the modality paper and is therefore legally binding only if it is reflected in the specific commitments and detailed in the members' country schedules. The minimum access obliges a country to provide access opportunities for agricultural products where there have been no significant imports in the past, at lower or minimal tariffs. This lower tariff is referred to as the "within-quota tariff" and the quantity of goods imported at this lower tariff is called the "tariff-rate quota" (TRQ). The TRQs are to be allocated equally to all countries or

on what they call the most-favoured nation (MFN) basis.

Domestic Support.

This pertains to government support to domestic producers. The AoA categorizes domestic support measures into three types:

Amber Box - These are measures that are considered trade-distorting and are therefore subjected to reduction. These are supports that have effect on production like price support and input subsidies.

Green Box - These are assumed not to have effects on production and therefore considered not trade-distorting. They are acceptable under AoA and are not subjected to reduction. They include support for research, marketing assistance, infrastructure services, domestic food aid, etc.

Blue Box - These are measures such as direct payments to farmers that are intended to limit production. These are considered acceptable and are not subject to reduction, too.

Subsidies categorized under the Amber Box are calculated using the Aggregate Measure of Support (AMS) and are reduced in each year of the implementation period. This means that the annual reduction is computed based on the over-all support in terms of the annual amounts and not on product-specific subsidies. A country is free to choose the product and the rates of subsidy subjected to reduction discipline within the over-all limit of the total amount of subsidy during that year. This provision stipulates for a general de minimis exclusion from subsidy reduction, which is 5% of the value of production of a product for product-specific subsidies and 5% of the value of total agricultural production for non-product specific subsidies for developed countries and 10% for both subsidies for developing countries. Subsidies above those levels are subjected to reduction from the base period 1986-1988 level by 20 percent for developed countries over six years (1995-2000) and by 13 percent for developing countries over 10 years (1995-2004).

Export Subsidy.

Countries providing direct export subsidies are obliged to reduce these subsidies from their 1988-1990 average level by 36% percent in value and 21 percent in volume for developed countries over 6 years and by 24% in value and 14% in volume for developing countries over 10 years. Countries which do not have any export subsidy and therefore did not reflect these in their schedule are not allowed to provide export subsidies in the future.

why the Agriculture Agreement is unfair.

The agreement is basically skewed in favor of developed countries' interests. The discipline on market access, domestic support and export subsidies couched numerous provisions that basically enhance measures used by developed countries to protect their markets and agriculture. While developing countries are accorded what they call special and differential treatment, in the form of slightly lower tariff and subsidy reduction and longer implementation period, it remains grossly negligible compared to the huge concessions and exemptions that are made available to developed countries to protect their existing trade-distorting subsidies and agricultural dumping practices.

The principle of free trade which underpins the trade liberalization commitments in the AoA inherently works against the development and food security needs of developing countries. Under free trade, countries should produce only the goods which they can produce cheaply or with which they have comparative advantage and import those including the food crops which they produce domestically, from others who can produce them cheaper and more efficiently. The implication is that developed countries, which by virtue of their huge subsidies can dump food products in the international market, should continue supplying developing countries with their highly subsidized agricultural surplus and developing countries should focus on exporting crops that will earn them the foreign exchange to buy food from rich countries. Thus, developing countries end up becoming more dependent on imports that continually drain their scarce foreign reserves, stunt the growth of their agriculture and economies and weaken their capacity to feed their own population in the long-term.

AoA focuses merely on further liberalizing markets of poorer countries even as it continues protecting the subsidies and protectionist measures such as tariff peaks and other trade barriers employed by rich countries. Reciprocity, which is a core principle of the WTO and which supposedly directs the trade liberalization commitments of members has been rendered meaningless. It has, in fact misled many developing countries to rapidly open up their markets to dumped imports from the North in order to gain access to the latter's huge markets. But their actions were not "reciprocated" by equally aggressive steps in the North. Instead, developed countries put up higher tariff walls called tariff peaks and tariff escalation upon tariffication that effectively discriminated against developing countries' exports. Worse, the subsidies employed by developed countries to protect their agriculture, expand their production and gain monopoly control in the international market are accorded more protection with the exemptions introduced in the AoA's subsidy reduction. The categorization of subsidies into trade-distorting, which are subject to reduction discipline and into non-trade distorting, which are not, allows the developed countries to shift their existing grossly huge subsidies into acceptable boxes or categories that are exempted for subsidy reduction (e.g. green box and blue box). Meanwhile, the exemptions that apply to developing countries, are often of not much use given the long-running negative fiscal position of many of these countries. In the end, with such gaping loopholes, the AoA clearly serves only to legitimize and strengthen the trade-distorting practices of developed countries.

Developing countries are prohibited from using the same tools that enable developed countries to pursue their development and food security goals in the past decades. While developed countries are allowed to retain and even expand their huge agriculture subsidies, developing countries are prohibited from raising their subsidies beyond the de minimis level. They are not also allowed to use any export subsidy in the future.

Many important provisions in the AoA allow developed countries to circumvent their trade liberalization obligation thus ensuring that their agriculture remain protected. The Due Restraint Clause under Article 13 protects those subsidies that have been exempted from reduction from being challenged. The Special Safeguard provision, which applies only to those products which have been tariffied has benefited mostly developed countries.

The AOA exacerbates the inequalities existing between the highly industrial agriculture of the North and the predominantly subsistence and backward agriculture of the South. In many developing countries, agriculture is dominated by small-scale producers tilling very small plots of land, with very little access to capital and productive resources, and are perennially indebted to landlords and moneylenders. Because of their marginal existence, small-scale farmers are not in a position to compete in the international markets. Thus, as the small-scale and traditional farming of the South lose out in a clearly unfair competition with the industrial North, millions of small farmers are displaced and the livelihoods of the majority of agricultural producers in these countries are put to increasing risks. This condition worsens the deepening income inequalities between and within nations.

The AoA and its inherent bias for commercial agriculture production devastates not only the livelihood of poor farmers but also the food security of many developing countries. The dismantling of protection and support to agriculture in developing countries creates not only gross disincentives against domestic food production, but wipes out its viability and sustainability. Since the mid-90's developing countries have faced declining growth rates in food production output which seriously threatens their capacity to meet domestic food consumption.