Argument Against Agreement Of Agriculture Economics Essay

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Since the greater part of the world's population live in rural areas in developing countries, agriculture remains a key economic activity to supply people with food and it creates employment and is a source of income to many people.

Therefore trade in agriculture is important as some countries don't have the natural resources to produce agricultural products.

In order to combat unfair trade and other related problems concerning agricultural trade, the World Trade Organisation (WTO) introduced the Agreement on Agriculture (AoA) for it member countries, especially for developing and least-developed countries.

Whether the AoA has brought benefits or drawbacks to countries still remains an argumentative issue. Thus, this assignment will be based on the contributions and drawbacks of the AoA, along with some cases concerning the particular topic.

2.0 THE WORLD TRADE ORGANISATION (WTO)

'The World Trade Organisation (WTO) is an only global intercontinental organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world's trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.'

The WTO provides a medium for negotiating agreements intended to reduce obstacles to international trade and ensuring a level playing field for all, hence contributing to economic growth and development. Moreover, the WTO provides a legal and institutional framework for the implementation and monitoring of those agreements and it settles disputes arising from their interpretation and application.

The WTO which was established in 1995, and its forerunner organisation, the General Agreement on Tariffs and Trade (GATT) have helped, over the past 60 years to create a well-built and successful international trading system. This has helped in contributing to unmatched global economic growth.

The main function of the WTO is to ensure that trade flows smoothly, predictably and freely.

The goal of the WTO is to improve the welfare of the peoples of the member countries.

Among the different agreements which were negotiated during the Uruguay Round, the Agricultural Agreement is one of the most important of the agreements.

3.0 THE AGREEMENT ON AGRICULTURE (AoA)

The AoA represents the primary article governing international agricultural trade and it is the foundation for the existing international agricultural trading system in the WTO.

The Agreement on Agriculture (AoA) established rules for agricultural trade for all WTO members. The AoA's main objective is "to establish a fair and market-oriented agricultural trading system." This would improve predictability and security for importing and exporting countries alike.

Its implementation period was six years for developed countries and nine for developing countries, as at January 1, 1995, the day AoA came into effect.

The agreement allows governments to support their developing countries; however, in preference through policies that cause little harm to trade.

Moreover, developing nations are given superfluous time to complete their obligations and they do not have to reduce their subsidies or tariffs by much, like the developed countries. And least-developed countries do not have to do this at all.

The AoA has three pillars, which are namely; market access, domestic support and export subsidies.

3.1 Market Access

Market access aims at reducing tariffs, which are barriers to trade, for imports of agricultural products. Since the establishment of the AoA, member countries had to eliminate restrictions on the amount of agricultural goods incoming their markets.

'Non-tariff barriers' had to be transformed into tariffs, which is referred to as "tariffication." Only countries that carried out "tariffication" were protected momentary against import surges or decreases in world prices. But developing countries, apart from Korea, Malaysia, Philippines, Taiwan and Thailand in Asia, could not go through "tariffication" because of insufficient non-tariff barriers.

3.2 Domestic Support

Since farmers in developed countries were benefitting a lot from subsidies provided to them by their government, they had a massive advantage over the developing and least-developed countries that were not benefitting from such subsidies. Hence, domestic Support in AoA aims at reducing subsidies that prevent free trade of agricultural products

The amount of support is measured on the basis of an "Aggregate Measure of Support" (AMS) that calculates all monetary factors that persuade a farmer to manufacture a particular product. There are three different boxes that measure the amount of support to be received.

The green box: some support is permissible and it is not part of the AMS. Examples are services like research, training, for infrastructural purposes, pest control, food aid for the poor and environmental security.

The amber box: the 1995 level of AMS is acceptable subject to capping and reduction. The reduction scheme is as follows; developed countries had to cut subsidies by 20% over 6 years, developing countries had to cut subsidies by 13% over 10 years and least developed countries had no cut on subsidies.

The red box: any support beyond amber levels is not allowed

3.3 Export Subsidies

The AoA's approach is to make member countries of the WTO to reduce export subsidies and to prohibit the introduction of new subsidies. Export subsidies are damaging as they disadvantage local producers, especially small-scale farmers.

The agreement requires developed countries to reduce the value of export subsidies by 36% and to reduce the volume of subsidized exports by 21% over six years. Whereas developing countries must cut the value of subsidies by 24% and volume of subsidized exports by 14% over ten years.

The AoA was established so as to create a fair and market-oriented agricultural trading system. Still, it is a debatable issue. We will discuss the arguments for and against AoA; that is, what are the benefits and drawbacks of the AoA in respect of developed and developing countries.

4.0 ARGUMENTS FOR AGREEMENT ON AGRICULTURE (AoA)

AoA has brought benefits to some countries since its establishment. These will be discussed below.

4.1 Fairness in trade

Since the AoA aims to create fairness in the agricultural trading system among countries, this will help to bring security among member countries; exports and imports. This helps traders among countries to have secured transactions, to be competitive and agricultural market access conditions are more predictable. This has helped to bring more legal and disciplined international trading rules in agriculture. Moreover, fair trade also ensures environmental safety, no misuse of natural resources and quality products are obtained.

4.2 Benefits in terms of Green Box

Member countries of the WTO benefit from subsidies linked to environmental issues like, for the control of pests and diseases in agricultural products, improvement in infrastructure and food aid in the home country. Furthermore, subsidies for countries or producers with green box need not be reduced.

4.3 Benefits of Special and Differential Treatment (SDT) for Developing Countries

Developing countries and least-developed countries benefit from Special and Differential Treatment (SDT). For instance, they are provided with technical assistance by developed countries in order to help them implement multilateral rules. Hence the developing and least-developed countries are likely to take much advantage of these for the development of their countries.

Moreover, developing nations are given more time for the reduction commitments of each area of the agreement compared to developed countries. The percentage rate for cut in tariffs and other related issues for AoA concerning developed countries is much less than that of developed countries and for least-developed countries there are no cut-offs at all. Thus, this is a major advantage for the developing and developed nations.

4.4 Benefits in terms of tariffs

Since the reduction of tariffs in both developed and developing countries (though the percentage of reduction in tariffs for developing countries is much lower than that of developed countries), it has helped countries to have better international market access and greater in international trade among member countries of the WTO.

4.5 Trade liberalization enhances efficiency and employment

Since member countries of the WTO would compete amongst themselves, this would help to bring in more efficiency as the producers would produce agricultural of better quality and they would put in much effort to produce the products so as they stay in business or make profits.

Moreover countries can better deal in imports and exports. That is, countries having a deficiency in agricultural products can imports it and those having a surplus can export, those having a comparative advantage in producing agricultural products would export their products, thereby maximising efficiency by making use of resources to produce the products they have a comparative advantage in. This would also create employment for those countries exporting agricultural products, thereby generating income.

4.6 Benefit for consumers and global food companies

For liberalized domestic markets, imports of agricultural products (which have led to more competition) have helped to bring down price of domestic products which acts as a benefit to consumers in the home country.

Global food companies have greatly benefitted from the low prices of raw materials for their products. They have been able to buy raw materials at a low price due to the liberalisation of agricultural products.

5.0 ARGUMENTS AGAINST AGREEMENT OF AGRICULTURE (AoA)

AoA has also brought lots of drawbacks and deficiencies to countries, though it was aimed only at benefitting member countries of the WTO.

The negative sides of the AoA are discussed below.

5.1 Unfair obligation

The AoA proposes that those countries that have been using measures for import control and domestic subsidy needed to diminish the levels by 36% and 20% respectively.

Export subsidy was estimated to be condensed respectively by, 36% and 21%. For developing countries, it was two-thirds of these percentages. Hence, countries that were making use of these measures would be capable to keep a large fraction of them. However, the nations that had not been using these measures earlier are forbidden to use them in the future. This is unjust as countries distorting the market in the past are permitted to keep on distorting those measures and those that had refrained from doing so in the past, are entirely forbidden to use these measures in the future.

5.2 Need for domestic food production

Only nations having adequate foreign exchange can rely on the import of low-priced food items and those that don't have enough foreign exchange will find it difficult to always depend on imports for their vital and staple food items. Many developing nations have continual shortage of foreign exchange and if they continue to rely on imports, they will have to bear hunger as they may not have enough foreign exchange to import those agricultural products. A country may postpone the import of industrial products for some time, however, it cannot postpone giving basic food items to its population.

Thus, it is better for these developing nations to have as much domestic production of necessary food items as their land resources allow, even if it costs more to produce the same products locally compared to the import of the food articles. Moreover, many developing and least-developed countries become too dependent on other countries for some particular agricultural products. Hence it is better to produce food items in the country itself rather than importing to avoid the negative consequences explained above.

5.3 Non-commercial farming

The main problem of the AoA is that it is based on the assumption that the production and trade of agriculture can be operated under profit-making conditions. In most developing countries, agricultural activities is operated mainly by peasant farms and farmers, who gain their living on farming not for earning money but because the lands are owned by them for generations and they do not have other source income. Thus, it is tough for them to face the fierce international competition and this has resulted to a large scale unemployment and breakdown of country economy. That leads the fact that the protection of agriculture in developing countries is even more important than that in developed countries.

5.4 Reduced subsidies for farmers

Due to the rules of AoA, subsidies given to local farmers had been decreased. Many of them highly depended on the subsidies, especially those of developed countries. This has led to a major decrease in their profits as they have to bear all costs themselves. Hence, farmers all around the world, inclusive of U.S farmers are making losses.

The amount of production unit has also been restricted and this has led to the marginalization of farmers.

Local farmers are being disadvantaged due to competition, leading to cheap imports.

5.5 The disappointing effect of the AoA.

Since the implementation of the AoA, global agricultural trade did not increase as expected,. The developing countries experienced import surges, flooding their domestic markets with cheap, subsidized imported products from developed countries (FAO, 2006). Although all members were required to liberalize agricultural trade, many developing countries, especially the poorest ones, had already substantially liberalized their agricultural sectors under programs of structural adjustment in the 1980s (Jennifer Clapp, 2006). Under the AoA the developing countries made cuts that were on average greater than the cuts made in developed countries (Anderson, Kym and Will Martin, 2005, pp.263). The result is that developing countries were left much more vulnerable. This has meant that even though the rich countries were required to make steeper tariff cuts than the developing countries, they started from a much higher level and it was not enough to eliminate the inequality. Rather than level the playing field, the AoA made it more steeply stacked against developing countries. The effects on small peasant farmers, whose very livelihoods have been threatened by competition from cheap subsidized imports, have been particularly serious.

It can be seen that such favourable provisions are not as effective as developing countries' anticipation. It is because the provisions of the AoA are unfair to developing countries in fact. In other words, it has never done enough in considering the interests of developing countries.

Developing and least-developed countries cannot compete with developed countries because they have fewer facilities. For instance, developed countries benefit from the subsidies provided to them by their government, but developing and least-developed nations' governments cannot afford to give them the same facilities a they have other more important policies, with their budget deficit.

Moreover, there is high protection for agriculture in developed countries while developing countries are compelled to open their markets, according to M. Khor. Developed countries are eligible to keep high import duties and quotas for particular products

Hence, AoA ignores the fact that developed countries are given exceptions, hence disadvantaging developing nations.

Developing countries have fewer human and technical resources and most of them cannot cope with the 40-50 meetings held in Geneva each week. Hence they often enter negotiations less prepared than their developed country counterparts.

5.6 AoA causing threats to the economy

A research carried out to study the changes in agricultural trade since the AoA started has proved that food import surges have been harming local farmers worldwide and the wider agricultural sector. This has weakened the local economy's capacity to provide food security and employment to its population.

5.7 Increased Dumping

It has been found that dumping has increased since the establishment of the WTO and AoA. Especially US-based companies have engaged in high levels of agricultural dumping for their five most imported products.

Dumping from developed countries occurs, in part, because export subsidies bridge the gap between high domestic prices and lower world prices and direct payments bridge the gap between higher costs of production and the lower world price.

It is generally accepted that currently "practically everything exported from the USA and EU involves some level of dumping".

Dumping has three main effects. It depresses world prices, displaces developing country exports in third markets, and undermines domestic production in developing countries as local producers are unable to compete with the cheap imports. Dumping can have a devastating impact on developing country farmers, depriving them of their livelihoods and forcing them to leave their lands. In the process it seriously undermines food sovereignty and food security.

5.8 The Standards Obstacle

AoA did not consider the issue of quality and safety standards though it is closely linked to agricultural market access. Developing countries are rarely represented in the decision-making bodies that set quality and safety standards, hence, they find it difficult to meet the standards issued.

5.9 The Continued Drop in Commodities Price

Implementation of the AoA was expected to raise commodities prices of agriculture on international markets but the prices of many basic agricultural products have fallen. Between 1997 and 2001, the price of coffee decreased by nearly 70%, falling below production cost in many countries. Cocoa prices followed an analogous trend, despite a short recovery in 2000 that lasted until prices began to fall again in 2003 when the supply was once again abundant. This depicts the limitations of trade liberalisation concerning prices, thereby showing the need to design and implement other mechanisms.

5.11 Uncertainty about specific domestic support

The commitment on domestic support is to limit it within the ceiling mentioned in the schedule. A country can modulate the choice of the product and the rate of subsidy, depending on its own need. This keeps the exporters in other countries in uncertainty; thus they have some handicap in planning their own exports.

5.14 AoA fails to discriminate between different needs of different countries

While LDCs are exempt from reduction commitments, the AoA affords very limited special and differential treatment (S&DT) to developing countries. Rather than ensuring the flexibility to implement trade policies that are consistent with their development objectives, these provisions amount to little more than providing additional time to implement agreements. The AoA fails to discriminate between the different needs of diverse developing countries and provides no guarantee of food security. In contrast, the way subsidies are classified, the provision of special safeguards (SSG) and the Peace Clause, all work in favour of producers in developed countries.

5.15 Least-developed countries and net food-importing countries are the biggest losers in agricultural liberalization

During the Uruguay Round there was general recognition that the AoA would have negative effects in least developed countries (LDCs) and other developing countries that import the majority of their food, known as net food-importing developing countries (NFIDCs). The Marrakesh Decision on Measures Concerning the Possible Negative Effects of the Reform Progra on Least Developed and Net Food-Importing Developing Countries was adopted at the final conference of the Round, promising additional support to these countries. However, the decision was legally ambiguous as well as vague in terms of mechanisms, timing and the criteria for the provision of assistance, and it has not been properly implemented.

Thus the AoA has brought many drawbacks for many countries, especially developing and least-developed countries.

6.0 TRADE DISPUTE RELATED TO AOA: The Case of Brazil and US

In 2002, the Brazilian government with the WTO filed a case against the US claiming that the latter violated trade agreements due to the fact that US farmers were given cotton subsidies. In 2009, Brazil got the consent of the WTO to put sanctions on US goods over the cotton subsidies and in 2010 the two countries reached a provisional agreement over Federal subsidies to US Cotton Farmers. According to the agreement, the US is supposed to give assistance to the Brazilian Cotton industry, and Brazil has planned to put a 100% tariff for cotton prices, duties on car and suspend intellectual property rights.

 

7.0 RECOMMENDATIONS

The essential improvements that can be considered are as follows:

For the reduction of import control, domestic support and export subsidy to be fair, it may be advantageous to remove the embargo on those countries that have not included these measures in their schedules.

For developing countries which do not have enough foreign exchange to buy imported agricultural products, it should be allowable to encourage and develop their own home food production; and they should be allowed to protect their agricultural production against cheap imports.

There should be suppleness concerning import limit and domestic subsidy for the protection of and support to domestic subsistence farming and small-scale farming in countries where such type of farming is very common.

There should be terms for ceilings on the highest tariffs in developed countries. There should also be tariff quotas with lower tariffs.

Concerning net food-importing developing countries, there should be precised and solid decisions about food aid and soft loans to purchase food internationally. Countries which are steady net exporters of food items should be able to bear this load.

Tariff quotas should be made universal, with the exception of some very extreme cases. If country quotas follow bilateral agreements, the global tariff quotas should be furthermore shared by those who are not sheltered by the nation quotas.

There should be some expectedness about the particular products and their rates, concerning domestic support. One way it could be done is to request the countries to make their plans of distribution of the domestic support within the ceilings, some years in advance.

The subsidy provided by developing nations for the obtaining food items for their population should be excluded from the calculation of the AMS, as in the case of other exempted subsidies.

U.S. domination should come to an end and decision making should be democratic.

8.0 CONCLUSION

Among all the agreements of the WTO, the most concerned and important one seems to be the AoA. The AoA was established to provide a fair and market-oriented agricultural trading system. It has enabled countries to trade with each other in a fairer and more secure way due to the rules of the AoA.

However, the AoA ignores the real differences among countries and puts forward the fact that all nations can benefit from subsequent varying degrees of the same liberalisation policies. The agreement enables rich nations to benefit from unusual exceptions to the rules and something developing countries cannot look forward to to do.

While considering the restriction of applying protected provisions on agriculture in developing countries, the AoA should be much vigilant and fair. The foremost thing that should be considered is the specific situation of developing countries, and not the political balance between them and the developed nations.

The AoA has not brought about any major changes in the conditions of international trade. It does; however, tend to strengthen a well-advanced process of liberalisation in African countries, while developed countries are able to maintain strong domestic support and protection policies.

Therefore, it can be said that the AoA has brought benefits but developed countries have benefitted much than the developing and least-developed countries, though developing and least-developed countries have received Special and Differential Treatment. However, there are many drawbacks as mentioned earlier. The rules should be fairer to all countries and more reform is needed for the AoA.

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