JAMIA MILLIA ISLAMIA

Faculty of Law

ECONOMICS PROJECT

WTO: AGREEMENT ON AGRICULTURE

SUBMITTED TO: BILAL SIR

SUBMITTED BY: PRASHANT ALOK

B.A. LL.B (1st year) (S/F) II’nd SEM

BATCH: (2019-2024)
INTRODUCTION
The possible welfare gains and likely beneficiaries for the facilitation of agricultural world trade
formulated by the Agreement on Agriculture remains a matter of debate and concerns. Therefore
the impact of the Agreement on Agriculture on production, price structure and trade in
agricultural sector needs proper introspection and evaluation from Indian perspectives. The paper
attempts to evaluate and analyzed the impact of the agricultural reforms brought about by the
Agreement on Agriculture on the Indian agricultural economy and its position in world trade.1

What is Agreement on Agriculture (AOA) :

The Agreement on Agriculture was formed on April 1994 at Marrakesh, Morocco as a part of the
final Act of the Uruguay Round of multilateral trade negotiations which came into force on 1st
Jan. 1995. This was a result of the long drawn talks on General agreement on Tariffs and Trade
(GATT) aimed at opening up of International markets and also to reform world trade which was
highly distorted. A major reason for the formation of the Agreement on Agriculture was the need
to reduce excessive surplus production in agricultural sector in the global commodity markets
during the 1980`s and early 1990`s. This was caused by the rising levels of support and
protection in a number of developed countries as some of the largest agricultural exporters
competed on the basis of their government`s ability to subsidized production and exports of
agriculture while limiting access to their markets to keep out foreign agricultural products from
their domestic markets. Therefore the core objective of AOA was to establish a fair and market
oriented trading system which was to be implemented for a period of 6 years in developed
countries and 9 years in developing countries. With this, agriculture was brought under the new
rules of world trading system for the first time.

There are 3 main features of the Agreement:

1. Market Access

2. Domestic support.

3. Export subsidy.

The market access required that tariffs for agricultural product fixed by individual countries be
reduce to equivalent tariff in order to allow free trade and encourage liberalization in world trade.
Under this, the AOA required the conversion of all non tariff barriers into tariff barriers. This
process was known as Tariffication. This was to be implemented for a period of 6 years for the
developed countries and 10 years for the developing countries, least developed countries were
exempted from undertaking such reductions.2

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Sleepy class, C R Prasad
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Ukessays.com
Domestic support was targeted to reduce the subsidies given by governments within their
country for agricultural production and related activities. The total domestic support should be
below the level of de minimis within a maximum period of 3 years for developed countries and 5
years for developing countries. This was to reduce price distortion and unfair competition in
agricultural world trade. Export subsidy aims to reduce subsidies of export related to
agricultural products and to ban the introduction of new subsidies. This aimed to protect small
and marginal farmers in home countries especially in developing countries.

Another highlight of the Agreement was the provision of special and differential treatment for
the protection of the interest of the developing countries. In addition, there are provisions of
Special Products and Sensitive Products, which are to be exempted from stringent discipline of
the above provisions of tariffication process. Provision of Special Products designates a certain
number of products of the developing countries that would be exempt from tariff reduction
requirements and other disciplines in order to protect and promote food production, livelihood
security and rural development worldwide. The idea was to protect the developing countries and
least developed countries from unfair competition in world market and to create a world trading
system where each individual country can come together and trade on equal footing without any
discrimination and distortion by the more advantageous countries of the world. However, the
possible welfare gains and likely beneficiaries for the facilitation of agricultural world
trade formulated by the Agreement remains a matter of debate and concerns. Therefore
the impact of the AOA on production, price structure and trade needs proper
introspection and evaluation from Indian perspectives. The structure of the Agreement on
Agriculture as it exists today seems to be slightly imbalanced, since it enables countries
subsidising the agriculture sector heavily to retain a substantial portion of their subsidies
up to the end of the implementation period while those countries which were not using
these measures earlier are prohibited to use these measures in future beyond the de-
minimis. Therefore, ways to bring about more equity into the structure of the Agreement
has to be sought.3

Indian Agricultural Economic scenario:

Until the liberalisation of 1991, India was largely and intentionally isolated from the
world markets, to protect its economy and to achieve self reliance. India`s foreign trade
was subjected to import tariffs, export taxes and quantitative restrictions. So far it had
followed an inward looking economic policy until the attempts to liberalise its economy.
The Green revolution which was introduced in 1990`s further brought about reforms in
agricultural sector and increase its production. This in a way opened the gate for
participation in the world economy through the production of excess agricultural goods.
Thus, India`s economy shifted from subsistence economy to production for exports in the
world market. At present, Indian agriculture contributes to 24% of GDP, however
agriculture exports accounts for less than 1% of world trade in agricultural commodities
while a major share of the world`s exports are supplied by developed countries which
accounts for around 64%.
3
UKessays.com , WTO article
Impact of AOA on India:
Indian agriculture is characterised by an overwhelming majority of small and marginal farmers
holding less than two hectares of land, less than 35.7% of the land, is under any assured
irrigation system. Farmers, therefore, require support in terms of development of infrastructure
as well as extension of improved technologies and provisions of requisite inputs at reasonable
cost. There is no doubt that during the last 30 years, Indian agriculture has grown at a reasonable
pace, but with stagnant and declining net cropped area it is indeed going to be a difficult task to
maintain the growth in agricultural production. The implications of the Agreement would thus
have to be examined in the light of the food demand and supply situation. The size of the
country, the level of overall development, balance of payments position, realistic future outlook
for agricultural development, structure of land holdings etc. are the other relevant factors that
would have a bearing on India’s trade policy in agriculture. Implications of the Agreement on
Agriculture for India should thus be evaluated from the impact it will have on the following:

i) Whether the Agreement has opened up markets and facilitated exports of products; and

ii) Whether India would be able to continue with its domestic policy aimed at improving
infrastructure and provision of inputs at subsidized prices for achieving increased agricultural
production.

With India being under balance of payments, it has not undertaken any commitments under the
Uruguay Round Agreement on Agriculture (AOA) which constrain it from following its
developmental policy with regard to agriculture or which entail any action immediately. The
only commitment India has undertaken is to bind its tariffs on primary agricultural products at
100%; processed foods at 150%; and edible oils at 300% .

However, it is needed to study the implications of removal of quantitative restrictions on market

access, subsidy to farmers and tariffs on imports. One of the major impacts of the Agreement
was that India has been maintaining Quantitative restrictions (QRs) on certain agricultural import
products. Under the provision of the market access, such QRs will have to be eliminated latest by
April 1st 2001. Immediate outcome was increased import of cheap and highly subsidized
agricultural products which resulted in decline of domestic agricultural prices in India since
1999-2000. This adversely affected small and marginal farmers who resorted to selling off their
agricultural lands to corporate and MNC`s at a very nominal prices. This further distorts
domestic agriculture and rural structure of the economy that are mostly dependent on agriculture
for survival. For example in Andhra Pradesh farmers were then hit by a crash in international
prices, low rates of tariff applied on imports of commodities like edible oils, sugar, etc. and the
removal of quantitative restrictions. Therefore a separate WTO cell was set up as these states felt
that the central government was not doing enough to protect the interest of such states from the
adverse impact of the Agreement. It aims to adapt state government policies to changing events
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and to influence future government negotiating positions. This clearly suggests that the AOA

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INSIGHT IAS class notes
was more beneficial for the developed countries as it furthers opened up new market
opportunities for them to exploit with their cheap agricultural products.

Agreement on Agriculture (AOA) aims to remove trade barriers and promote transparent market
access and integration of global markets. The agreement on agriculture is on three pillars:

Domestic Support: This calls for a reduction in domestic subsidies that distort free trade and fair
prices.Under this provision, the gross measurement of support (AIIMS) is to be reduced by 20%
over a 6-year period by developing countries and 13% over a 10-year period by developing
countries.

Under this, the subsidy is classified into:

Green box: subsidies that do not distort trade, or at least cause distortion. They are funded by the
government and should not include price support. These include environmental protection and
regional development programs."Green box" subsidies are allowed without limits, provided they
comply with policy-specific criteria.

Amber box: All domestic support measures considered to distort production and trade (with
some exceptions) fall within the amber box because all domestic supports except the blue and
green boxes.

These include measures to support prices, or subsidies directly related to production volume.

Blue Box: This is the "amber box with conditions". Such conditions are designed to minimize
distortion.

Any support that is usually in an amber box is placed in a blue box if the support also requires
farmers to limit production. Currently, there is no limit on spending on blue box subsidies.

Market Access: Market access to goods in the WTO means terms, tariffs and non-tariff
measures, agreed by members for the entry of specific goods into their markets. Market access
requires that tariffs fixed by individual countries (like custom duties) be progressively cut to
allow free trade. Countries were also required to remove non-tariff barriers and convert them into
tariff duties.

Export subsidies: Subsidies on agricultural inputs, making exports cheaper or other incentives for
exports such as import duty exemption etc. are included under the export subsidy. This may
result in dumping of highly subsidized (and cheap) products in another country and damage to
the domestic agricultural sector of another country.5

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Drishti ias lecture notes
CONCLUSION
In India, more than half of the population is still dependent upon agriculture for subsistence even
after governments continued attempt to bring about increase in industrialization and
technological advancement. Therefore, agriculture remain a core importance for the sustenance
of the population and also constitute a major share in the country’s economy. Agricultural self
reliance forms a vital underpinning for the growth of the GDP of any agrarian developing
economies since good agricultural production provides purchasing power to a large majority of a
population, which in turn spurts industrial growth. Self-sufficiency in food production has,
therefore, specific developmental perspective as opposed to a purely commercial perspective.
Hence, it is important that the developing countries like India need to be provided with the
requisite flexibility within the AOA to pursue their legitimate non-trade concerns of food
security. More specifically, developing countries need to be allowed to provide domestic support
in the agricultural sector to meet the challenges of food security and to be able to maintain the
need of rural employment.