Impact of WTO on Indian Agriculture

Submitted By:Sakshi GurabaMBA-IB

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Introduction

• India is one of the founding members of WTO which came into existence on January 1,1995 replacing GATT.

• WTO provisions related to international trade are now similarly applicable to agriculture which was brought within the fold of GATT in the Uruguay Round (1986-93) of multilateral trade Negotiations (MTNs).

• Application of WTO provisions on agriculture involves many contentions issues and is an area of serious concern for developing countries which are primarily agrarian economies

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The Tokyo Round – A First Try at Reforming the Trading System

Subsidies and countervailing measures  Technical barriers to trade  Import licensing procedures Customs valuation Government procurement Anti-dumping Bovine Meat Arrangement International Dairy Arrangement Trade in Civil Aircraft

Conducted between 1973 and 1979 with 102 participating countries

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WTO Agreement on Agriculture

The Agreement on Agriculture has 3 major clauses:

Market AccessDomestic Support

Export Competition

Agreement on Agriculture

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Market Access

• Market Access commitment requires conversion of all non-tariff barriers into equivalent tariff barriers.

• Ordinary tariffs including those resulting from tariffication of non-tariff barriers are to be reduced by an average of 36% with minimum rate of reduction of 15% for each tariff item over a 6-year period.

• Developing countries are required to reduce tariffs by 24% in 10 years. Developing countries that were maintaining Quantitative Restrictions due to Balance of Payments problems were allowed to offer ceiling bindings instead of tariffication.

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Domestic Support

• Domestic Support to agriculture was also to be reduced considerably in countries where the aggregate measure of support exceeded the level specified in the member schedule. The limit for developed and developing countries was fixed at 5% and 10% of the total value of agricultural output respectively.

• There are three categories of support measures that are not subject to reduction under the agreement, they are: – Green Box Measures– Blue Box Measures– Amber Box Measures

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Domestic Support: 3 categories of support measures

• Green Box Measures: Policies that have minimum impact on the patterns of production and flow of trade.

• Blue Box Measures: These measures include direct payment to the farmers for production limiting programmes and are relevant only from the point of view of the developed countries.

• Amber Box Measures: These are the most important measures from the point of view of producers in developing countries. The AoA demands commitment to reduce support to be achieved by first quantifying, and then progressively reducing domestic support, i.e. the Aggregate Measure of Support (AMS).

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Export Subsidies

• Export Subsidies are also to be reduced. The Agreement contains provisions regarding members’ commitment to reduce export subsidies.

• Developed countries are required to reduce their export subsidy expenditure by 36 per cent and volume by 21 per cent in six years, in equal installments from 1986-1990 levels.

• For developing countries the corresponding cuts are 24 per cent and 14 per cent in equal annual installments spread over ten years. The least developed countries are not subject to any reduction commitments.

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Short term Implications Of AoA for Indian Agriculture 

• India has been maintaining quantitative restrictions (QRs)on import of 825 agricultural products as on 1.4.97. Quantitative Restrictions (QRs) are proposed to be eliminated within the overall time frame of six years in three phases – 1.4.97 to 31.3.2003.

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Long term Implications Of AoA for Indian Agriculture 

• Regarding the impact of liberalisation of trade in agriculture in the long term, Indian agriculture enjoys the advantage of cheap labour. Therefore, despite the lower productivity, a comparison with world prices of agricultural commodities would reveal that domestic prices in India are considerably less with the exceptions of a few commodities(notably oilseeds). Hence, imports to India would not be attractive.

• With the decrease in production subsidies as well as export subsidies, the international prices of agricultural commodities will rise and this will help in making India’s exports more competitive in world market. Given India’s agro diversity, it has the potential to increase India’s agro exports in a substantial way

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India’s Commitments to AoAMarket Access

No tariffication; ceiling bindings of 100% for primary commodities 150% for processed agricultural products 300% for edible oils

The only commitment India has undertaken is to bind its primary agricultural products at 100%; processed foods at 150% and edible oils at 300%. Of course, for some agricultural products like skimmed milk powder, maize, rice, spelt wheat, millets etc. which had been bound at zero or at low bound rates, negotiations under Article XXVIII of GATT were successfully completed in December, 1999, and the bound rates have been raised substantially.

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Domestic Support Domestic Support• Price Support for 19 products• AMS is negative by a large margin.

• India does not provide any product specific support other than market price support. During the reference period (1986-88 ), India had market price support programmes for 22 products, out of which 19 are included in India’s list of commitments filed under GATT.

• The negative figure arises from the fact that during the base period, except for tobacco and sugarcane, international prices of all products was higher than domestic prices, the product specific AMS is to be calculated by subtracting the domestic price from the international price and then multiplying the resultant figure by the quantity of production. Since India’s total AMS is negative and that too by a huge magnitude, the question of India’s undertaking reduction commitments did not arise. As such, India has not undertaken any commitment in India’s schedule filed under GATT. 12

Export Subsidy

Export subsidyIndia does not have these.

No commitments

In India, exporters of agricultural commodities do not get any direct subsidy

Only subsidies which India allowed were:

exemption of export profit from income tax under section 80-HHC of the Income Tax Act 

subsidies on cost of freight on export shipments of certain products like fruits, vegetables and floricultural products

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Agricultural negotiations in Doha round of WTO

• The Doha Ministerial Declaration of November 2001 committed Members to comprehensive negotiations aimed at: – substantial improvements in market access;– reductions of, with a view to phasing out, all forms of export subsidies; – substantial reductions in trade-distorting domestic support. – Special and differential treatment for developing Members is also

intended to be an integral part of the modalities.

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Main elements of draft agriculture that were proposed in Doha Round:

Market Access

Special Products

Special Safeguard Mechanism

Tariff Capping

Tariff Simplification

Tropical and Diversification Products and long-standing preferences

Domestic Support

Cotton

Export Competition

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1.Market Access

• The customs tariff is the duty charged on the import of any good into the domestic territory of a country. The negotiations at the WTO are on bound customs tariffs, which are the ceiling rates notified to the WTO, while the tariffs which are actually applied by the customs authorities on imports into a country are the applied customs tariffs. The applied tariffs cannot ordinarily exceed the bound customs tariffs in the WTO Member countries.

• Developed countries have to reduce their tariffs in equal installments over five years by minimum 54%.

• Developing countries have to reduce their tariffs in equal installments over ten years upto 36%.

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2. Special Products

• This is a special and differential treatment provision that allows developing countries some flexibility in the tariff cuts that they are required to make on a designated number of products. This is critical for countries such as India to meet their food and livelihood security concerns and rural development needs.

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3. Special Safeguard Mechanism

• This is another special and differential treatment provision exclusively for developing countries that gives them the right to have recourse to a Special Safeguard Mechanism (SSM) based on import quantity and price triggers. The SSM is important for developing countries in order to protect their poor and vulnerable farmers from the adverse effects of an import surge or price fall.

• The safeguard duties under the proposed SSM would be triggered by either an import quantity trigger or a price trigger. The trigger for invoking the SSM determines when the safeguard duty can be imposed.

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4. Tariff Capping

• This is primarily a developed country concern, particularly some countries belonging to the G-10, namely, Japan, Iceland, Switzerland and Norway. These countries impose prohibitively high tariffs on their agricultural products. Tariff capping would bring down these very high tariffs, over and above what would be required by the tariff reduction formula. 

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5. Tariff Simplification

• This is an entirely developed country concern, particularly for the EU, Norway, Switzerland and Canada.

• These countries use a large number of non-ad valorem (NAV) tariffs on their agricultural imports. Developing countries, on the other hand, rely predominantly on ad valorem (AV) duties.

• NAV duties act as an additional layer of non-transparent protection. As these are used mainly by developed countries, they act as a barrier to market access for developing country exports. In contrast, in the case of industrial goods, the draft modalities propose 100% tariff simplification. 

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6. Tropical and Diversification Products and long-standing preferences

• The mandate of the Doha Round committed Members to addressing the issue of achieving the fullest liberalisation of trade in tropical agricultural products. The draft modalities, accordingly, propose faster and deeper cuts on such products. 

• In the WTO agriculture negotiations, the proponents are 10 Latin American countries (the Tropical Products Group). They want the EU, US, Switzerland, Japan and some of the other developed country importers to take faster and deeper cuts on tropical products.

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7. Cotton

• The mandate of the Doha Round committed Members to addressing the issue of achieving the fullest liberalisation of trade in tropical agricultural products. The draft modalities, accordingly, propose faster and deeper cuts on such products. 

• In the WTO agriculture negotiations, the proponents are 10 Latin American countries (the Tropical Products Group). They want the EU, US, Switzerland, Japan and some of the other developed country importers to take faster and deeper cuts on tropical products.

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8. Domestic Support

•  Domestic support that has a direct effect on production and trade has to be cut back.

• The draft modalities propose cuts in the Overall Trade-distorting Domestic Support (OTDS) as well as cuts or caps on the individual categories of domestic support, referred to as Amber Box, Blue Box and Green Box support.

• US is mandated to cut OTDS by 70%.

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9. Export Competition

• In terms of the draft proposals of 6 December 2008 , developed countries are required to eliminate all forms of export subsidies by 2013. Developing countries have to do so by 2016.

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India’s Priorities in the Agriculture Negotiations

• Overall tariff reductions on bound rates of not more than 36%•    An operational and effective Special Safeguard Mechanism to

check against global price dips and import surges• Substantial and effective cuts in OTDS by the US and the EC and

tighter disciplines on product-specific limits on AMS and the Blue Box

•  Simplification of non-ad valorem tariffs on agricultural products, by the developed countries, as has already been done by developing countries

• Capping of tariffs on agricultural products, over and above the tariff reduction formula, to address the issue of some very high tariffs 

•  Safeguarding India’s export interests in the negotiations on tropical products and preference erosion. 

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Bali Negotiations

• WTO agreed to allow countries to provide subsidy on staple food

crops without any threat of punitive action

• The 159-member World Trade Organization (WTO) reached a

historic agreement that will boost global trade by USD 1 trillion.

• The deal allows nations such as India to fix a Minimum Support

Price (MSP) for farm produce and to sell staple grains to the poor at

subsidised rates.

• It also permits countries to store food grains to meet contingency

requirements.

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References

• http://www.damodarcollege.org/dhiru_final/branmanvol4.1.html

• http://www.commerce.nic.in/trade/international_trade_tig_agriculture_stateofplay_Doha_round.asp

• http://www.commerce.nic.in/trade/international_trade_tig_agriculture_wtoaoa.asp

• http://www.ndtv.com/article/india/historic-wto-deal-on-india-s-terms-food-security-stand-prevails-455488

• http://www.journalcra.com/sites/default/files/Download%201070.pdf

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• Thank You

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