THE WTO AGRICULTURE AGREEMENT: FEATURES, EFFECTS, NEGOTIATIONS, AND WHAT IS AT STAKE Martin Khor

A. THE WTO AGREEMENT ON AGRICULTURE This paper starts with a brief summary of the main features of the commitments made by Members in the World Trade Organisation's Agreement on Agriculture (AoA). It then outlines some of the imbalances and biases in the AoA that disad antage the de eloping countries (!art "). The paper e#amines how the de eloped countries ha e failed to li e up to the e#pectations at the end of the $ruguay %ound that they would liberalise their agriculture sector and significantly reduce their subsidies (!art &). It then e#amines in some depth a ma'or flaw of the AoA( the categorisation of domestic support into subsidies that are supposed to be mar)et*distorting (and thus sub'ect to reduction commitments) and those that are not (and thus allowed to increase without restraint). It is shown that de eloped countries are shifting their subsidies from the first type to the second type+ but there is still a damaging effect on de eloping countries (!art ,). Meanwhile some de eloping countries ha e also been pressurised to reduce their domestic subsidies+ with ad erse effects (!art -). The effects of import liberalisation on de eloping countries+ with special reference to the Asian region+ are then e#amined and illustrated with se eral e#amples (!art .). .inally the paper ma)es some general points and some specific proposals on how the negotiations on the AoA could proceed+ in particular on the modalities of the negotiations (!art /). The WTO's Agreement on Agriculture which came into effect in 0112 brought world agriculture production and trade under multilateral trade rules. It was supposed to herald a new era of trade liberalisation in the agriculture sector+ as hitherto agriculture had been mainly e#empted from the disciplines of /ATT. 3owe er+ as this paper will show+ the AoA is imbalanced in many ways. It has been fashioned in such a way as to enable de eloped countries to continue high le els of protection+ whilst many de eloping countries ha e liberalised and their farmers are facing se ere and often damaging competition+ often from imports artificially cheapened through subsidies. The AoA contains three main categories of commitments( 0. Mar)et access. All member countries ha e to abolish 4uantitati e restrictions and non*tariff barriers and replace these with tariffs. Members also ha e to reduce their tariff le els( by 56 per cent o er si# years 0112*7888 for de eloped countries+ and by 79 per cent o er 08 years 0112*7889 for de eloping countries. :east de eloped countries (:,&s) do not ha e to reduce their tariffs+ but also commit not to raise their bound rates.

7. ,omestic support. ,omestic support measures are categorised under three types( (a) the Amber "o#+ or measures that are ta)en to be trade*distorting and ha e effect on production+ such as input subsidies and price support; (b) the /reen "o#+ or measures that are assumed not to ha e effects on production+ such as support for research+ mar)eting assistance; (c) the "lue "o#+ or measures such as direct payments to farmers to compensate them for programmes to limit their production. <ubsidies under the Amber "o# are calculated under the Aggregate Measurement of <upport (AM<) and are sub'ect to reduction discipline. <ubsidies up to a certain limit (2 per cent of the total alue of agricultural production for de eloped countries+ and 08 per cent for de eloping countries) are e#empted. <ubsidies abo e those le els ha e to be reduced from the base period 01=6*== le el by 78 per cent for de eloped countries (o er si# years 0112*7888) and by 05 per cent for de eloping countries (o er 08 years 0112*7889). :,&s are e#empted from these reduction commitments; howe er they ha e also committed not to raise the le el of support beyond the de minimis le el. 5. -#port competition. ,irect e#port subsidies are sub'ect to reductions from the 01=6* 18 a erage le el by 56 per cent in alue and 70 per cent in olume for de eloped countries (o er si# years 0112*7888) and by 79 per cent in alue and 09 per cent in olume for de eloping countries (o er 08 years 0112*7889). The abo e shows that de eloping countries are sub'ected to the same disciplines to liberalise their agriculture sector as the de eloped countries+ the only concession being slightly lower reduction rates and slightly longer time schedules. The :,&s do not ha e to reduce their tariffs or subsidies+ but they are also committed not to raise them. Thus+ de eloping countries ha e to abide by a programme of liberalisation. B. IMBALANCES IN THE AGREEMENT

The AoA contains se eral types of imbalances that are fa ourable to de eloped countries and unfa ourable to de eloping countries. These imbalances ha e been analysed by ,as (011=) and in Third World >etwor) (TW> 7880). The essence of the imbalances is the following( ?The WTO Agreement on Agriculture has permitted the de eloped countries to increase their domestic subsidies (instead of reducing them)+ substantially continue with their e#port subsidies and pro ide special protection to their farmers in times of increased imports and diminished domestic prices. The de eloping countries+ on the other hand+ cannot use domestic subsidies beyond a de minimis le el (e#cept for ery limited purposes)+ e#port subsidies and the special protection measures for their farmers. In essence+ de eloped countries are allowed to continue with the distortion of agriculture trade to a substantial e#tent and e en to enhance the distortion; whereas de eloping countries that had not been engaging in such distortion are not allowed the use of subsidies (e#cept in a limited way) and special protection? (TW> 7880).

The main form of unfairness is in the area of domestic support. ,e eloped countries with high le els of domestic subsidies are allowed to continue these up to =8 per cent after the si#*year period. In contrast+ most de eloping countries (with a ery few e#ceptions) ha e had little or no subsidies due to their lac) of resources. They are now prohibited from ha ing subsidies beyond the de minimis le el (08 per cent of total agriculture alue)+ e#cept in a limited way. In addition+ many types of domestic subsidy ha e been e#empted from reduction+ most of which are used by the de eloped countries. While these countries reduced their reducible subsidies to =8 per cent+ they at the same time raised the e#empted subsidies substantially. The result is that total domestic subsidies in de eloped countries are now much higher compared to the base le el in 01=6*==. Thus+ in the --&+ the subsidy in the base period 01=6*== was $<@=5 billion+ and it was increased to $<@12 billion in 0116. In the $nited <tates+ the corresponding le els are $<@28 billion and $<@2= billion. The professed reason for e#empting these subsidies in the de eloped countries from reduction is that they do not distort trade. 3owe er+ such subsidies clearly enable the farmers to sell their products at lower prices than would ha e been possible without the subsidy. They are therefore trade*distorting in effect. The e#emption from reduction applicable to de eloping countries is limited to four items( input subsidy gi en to poor farmers; land impro ement subsidy; di ersion of land from production of illicit narcotic crops; and pro ision of food subsidy to the poor. The scope is ery limited and hardly half a doAen of the de eloping countries use these subsidies (,as 7888+ 011=). .urthermore+ subsidies e#empted from reduction and used mostly by de eloped countries (Anne# 7 subsidies) are immune from counteraction in the WTO; they cannot be sub'ected to the counter ailing*duty process or the normal dispute settlement process. "ut those e#empted from reduction and used by de eloping countries do not ha e such immunity. With regard to e#port subsidies+ the de eloped countries get to retain 69 per cent of their budget allocations and B1 per cent of their subsidy co erage after si# years. The de eloping countries+ on the other hand+ had generally not been using e#port subsidies+ e#cept in a ery few cases. Those that ha e not used them are now prohibited from using them+ whilst those that ha e subsidies of little alue ha e also to reduce the le el. Another ine4uity is in the operation of the ?special safeguard? pro ision. &ountries that had been using non*tariff measures or 4uantitati e limits on imports were obliged to remo e them and con ert them into e4ui alent tariffs. &ountries that undertoo) such tariffication for a product ha e been gi en the benefit of the Cspecial safeguardD pro ision+ which enables them to protect their farmers when imports rise abo e some specified limits or prices fall below some specified le els. &ountries that did not underta)e tariffication did not get this special facility. This has been clearly unfair to de eloping countries+ which+ with few e#ceptions+ did not ha e any non*tariff measures and thus did not ha e to tariffy them. The result is that de eloped countries+ which were engaging in trade*distorting methods+ ha e been allowed to protect their farmers+ whereas de eloping countries+ which were not engaging in such practices+ cannot pro ide special protection to their farmers (,as 7888+ 011=).

This ine4uity and imbalance appears aggra ated when one considers the limitation to the use of the general safeguard pro ision (in /ATT) in the agriculture sector. One necessary re4uirement for ta)ing a general safeguard measure is that there be in'ury (or threat thereof) to domestic production+ which will be e#tremely difficult to demonstrate in this sector because of the large dispersal of farmers across the country. Apart from these specific problems in the areas of subsidy and protection+ there is a basic problem with the agreement. The AoA is based on the assumption that production and trade in this sector should be conducted on a commercial basis. "ut agriculture in most of the de eloping countries is not a commercial operation+ but instead is carried out largely on small farms and household farms. Most farmers ta)e to agriculture not because it is commercially iable+ but because the land has been in possession of the family for generations and there is no other source of li elihood. If such farmers are as)ed to face international competition+ they will almost certainly lose out. This will result in large* scale unemployment and collapse of the rural economy+ which is almost entirely based on agriculture in a large number of de eloping countries (TW> 7880). C. FAILURE OF DEVELO ED COUNTRIES TO EFFECTIVEL! REDUCE THEIR ROTECTION OR SU ORT

After many years of the implementation of the AoA+ two ma'or problems ha e arisen. .irstly+ the de eloped countries ha e not met their commitments (at least in spirit). <econdly+ the de eloping countries ha e encountered serious problems arising either from the first or from their ha ing to meet their own obligations. The first problem is discussed in this section. The AoA was supposed to discipline the high le els of protection in the de eloped countries and+ by doing so+ offer ery substantial benefits in terms of mar)et access to many de eloping countries+ as they ha e a comparati e ad antage in agricultural products. In reality+ howe er+ the de eloped countries ha e made little progress in reducing agriculture protection and subsidies. 3igh tariffs on selected items of potential interest to the <outh ha e had to be reduced only slightly.

In the first year of the agreement+ there were tariff pea)s at ery high rates in the $nited <tates (e.g.+ sugar 799 per cent+ peanuts 0B9 per cent); the --& (beef 705 per cent+ wheat 06= per cent); Eapan (wheat 525 per cent) and &anada (butter 568 per cent+ eggs 756 per cent) (,as 011=( 21). According to the agreement+ de eloped countries needed to reduce their tariffs by only 56 per cent on a erage to the end of 7888+ and thus the rates for some products remain prohibiti ely high (,as 011=).

,omestic support has increased rather than decreased.

Although the agreement was supposed to result in decreases in domestic support in agriculture+ in fact+ the o erall alue of such support has increased. The agreement obliged de eloped countries to reduce the Aggregate Measurement of <upport. 3owe er+ only some types of subsidies fall under the AM<+ and two categories of subsidies are e#empted. While de eloped countries reduced their AM<+ they also increased their e#empted subsidies significantly+ thereby offsetting the AM< reduction and resulting in an increase in total domestic support. According to O-&, data+ the !roducer <ubsidy -4ui alent (!<-) for all de eloped countries rose from $<@79B billion in the base period to $<@7B9 billion in 011=. (In the --& it rose from $<@11.6 billion to $<@071.= billion+ and in the $nited <tates from $<@90.9 billion to $<@96.1 billion.) (,as 7888( 7*5). A more comprehensi e co erage of domestic support in agriculture calculated by the O-&, is the Total <upport -stimate (T<-)+ which for the 79 O-&, countries rose from $<@7B2.6 billion (annual a erage for base period 01=6*==) to $<@576 billion in 0111 (O-&, 7888). As e#plained earlier+ what is e en more ironic is that most de eloping countries+ by contrast+ had pre iously little or no domestic or e#port subsidies. They are now barred by the Agriculture Agreement from ha ing them or raising them in future (,as 011=( 67). There is a great imbalance in a situation in which de eloped countries with ery high domestic support are able to maintain a large part of their subsidies (and in fact+ due to loopholes in the agreement+ to raise their le el) while de eloping countries with low or no subsidies are prohibited from raising their le el beyond the de minimis amounts. -#port subsidies are still high. %egarding e#port subsidies+ the agreement also committed de eloped countries to reduce the budget outlay by 56 per cent and the total 4uantity of e#ports co ered by the subsidies by 70 per cent. The base le el was the a erage annual le el for 01=6*18 and the reduction is to be done o er the period 0112*7888. Thus+ e en in the year 7888 the le el of e#port subsidies is allowed to be as high as 69 per cent of the base le el (,as 7888( 5). D. T! E OF SUBSIDIES IN DEVELO ED COUNTRIES MA! SHIFT, BUT EFFECT OF ROTECTION REMAINS As discussed earlier+ the AoA has categorised domestic support measures into three categories( the ?mar)et*distorting? measures that ha e to be disciplined and reduced (Amber "o#)+ and the supposedly less or non*distorting subsidies that do not ha e to be disciplined or reduced and in fact can be increased without limit (the "lue "o# and /reen "o#). ,ue to this peculiar categorisation+ there has been a shift in the de eloped countries in their domestic agriculture subsidies from directly price*related subsidies (which are

sub'ected to reduction commitments) to direct payments and other CindirectD subsidies (which are e#empted). This has enabled these countries to increase their o erall le el of domestic support. In particular+ the $< has already redesigned its subsidy system and mo ed the bul) of its subsidies from the Amber to the "lue and /reen "o# types of subsidies. According to one estimate+ in the $<+ the /reen "o# subsidies ha e predominated for the past se eral years. In 011=+ it was estimated that the $< had $<@28 billion /reen "o# subsidies and @08 billion Amber "o# subsidies. The -$ is also in the process of shifting. According to one estimate+ the -$ in 0112F6 year had $<@9= billion Amber "o# subsidies and @98 billion "lue and /reen "o# subsidies. In 7887+ it would ha e shifted to @59 billion Amber "o# and @27 billion "lue "o# and /reen "o# subsidies. The o erall subsidy le el would be about the same (@== billion mo ing to @=6 billion). This shift in the -$ can also be seen in pro'ections for its &ommon Agricultural !olicy (&A!). $nder the &A!+ subsidies under !illar 0 (commodity support regime+ especially price*based) ha e ta)en up 18 per cent of the &A! budget whilst subsidies under !illar 7 (payments to farmers for structural ad'ustment+ di ersification+ en ironment management) form 08 per cent of the &A! budget. There are also indirect measures (state assistance) for e#ample to deal with disease control and regional income disparity. It is estimated that !illar 0 subsidies will be reduced from 18 per cent to 70 per cent of the &A! budget in 7886. (ActionAid 7887( 6*B). Most subsidies will be mo ed to direct payments to farmers to form 6= per cent of the &A! budget in 7886 (ActionAid 7887( =). .or e#ample+ payments made supposedly to limit production (e4ui alent to WTO "lue "o# subsidies) are paid on the basis of area grown andFor a fi#ed number of li estoc) owned+ and are thus said to be not directly lin)ed to production. Gnown as direct payments+ these were introduced in the -$ under the &A! reform process in 0117+ either to compensate arious sectors for cuts in mar)et price support (arable+ beef) or simply as a means of gi ing further support to a sector (sheep). In the WTO+ direct payment subsidies fall within the "lue "o# (ActionAid 7887( =) and thus are not sub'ected to reduction disciplines and can instead be increased. <ubsidy payments in the -$ fa our the largest producers. ,ata from 0116 show that 0B per cent of farms that are large or e#tra*large recei ed 28 per cent of agricultural support under the &A! (ActionAid 7887( =). Another study shows that in 011B*1=+ direct payments in the $G's arable+ sheep and beef sectors totalled about <terling 7+B58 million+ and 06 per cent of the largest holdings recei ed 61 per cent of the subsidies (ActionAid 7887( 1). Although there is a shift from one category of subsidies (which is considered mar)et* distorting and thus sub'ect to reduction discipline) to other categories (that are not considered mar)et*distorting because they are said to ha e little or no impact on the mar)et or trade+ and are thus allowed to be maintained and to increase)+ in fact these other categories of subsidies ha e significant effects on the mar)et and on trade. .or the farmer+ what is important is whether he can obtain sufficient re enue and ma)e a profit (i.e. the re enue is more than the production cost). It is not so important whether he

obtains this sufficient re enue from a higher price (through price support measures) or from direct payments and arious forms of grants from the go ernment. If a subsidy+ in whate er form+ is assisting the farmer to obtain re enue and to be economically iable+ then that subsidy is ha ing a significant effect on production and on the mar)et. An e#ample of the comparison of the effects of Amber "o# and "lueF/reen "o# subsidies as methods of ma)ing a farm iable is gi en in Table 0. In Model A (Amber "o#) the subsidy is gi en through price support (considered to be mar)et*distorting). In Model " ("lue and /reen "o#) the subsidy is gi en through direct payment or grants of arious types to the farmer (wrongly assumed to be not mar)et*distorting). In both models it is assumed that the world price and cost of production are the same. In Model A+ the domestic price is pulled up much higher than the world price through price support. This enables the farmer's re enue to be abo e the production cost+ thus resulting in profit. The farm is iable e en though its production cost is far abo e the world price. Moreo er+ part of the output is e#ported. This is made possible through a high e#port subsidy that enables the farmer to sell at an e#port price e4ui alent to the world price. In this model+ the domestic and e#port subsidies are clearly mar)et* distorting and they ha e to be sub'ected to reduction or elimination. In Model "+ there is no price support+ nor is there tariff protection. Thus the domestic price is the same as or lower than the world price (in this e#ample+ slightly lower). The farmer gets a price which is much lower than his cost of production. "ut he recei es a high subsidy in the form of a direct payment andFor other types of grants. This enables the farm to ha e the same re enue le el as in Model A+ and to ma)e the same profit. Thus+ the farm remains iable due to the high subsidy. Moreo er+ since the grants enable the farmer to sell at a price le el below the world price+ he is able to e#port at a competiti e price (which is artificially low because of the subsidy). The farmer does not need an e#port subsidy to sell abroad. In Model "+ the effect of the subsidy is perhaps less ob ious or isible than the clearly isible price support and e#port subsidy of Model A. In Model "+ the country is assumed to be ?in the clear? as far as meeting its AoA commitments; it is seen as not using mar)et*distorting subsidies nor e#port subsidies. Het the effect of the Model " subsidy is effecti ely also mar)et*distorting in that it enables the farm to be iable although it is inefficient; and moreo er it enables the farm to ?dump? its produce onto other countries (i.e. selling below the cost of production) e en though it does not recei e e#port subsidies. In this manner+ Model " could be considered e en more trade*distorting. The conclusion is that the AoA has erroneously categorised se eral types of subsidies under the so*called "lue "o# and /reen "o# and made them respectable and not sub'ect to discipline+ e en though they gi e an unfair ad antage to the farms recei ing the subsidies. This has allowed the de eloped countries to maintain or e en increase the le el of their total domestic support+ with damaging effects on the de eloping countries+ whilst they can claim to be meeting their legal obligation of reducing the Amber "o# subsidies under the AM<.

Ta"#$ % E&a'(#$: Co'(ari)on o* '$tho+ o* *ar' r$'ainin, $-ono'i-a##. /ia"#$ thro0,h A'"$r Bo& an+ B#0$1Gr$$n Bo& )0")i+i$) Model A IT-M A. World price per ton ". ,omestic price per ton &. &ost of production per ton ,. ,irect payments (grant) per ton -. .arm re enue (" plus ,) .. .arm profit (- minus &) AM"-% <$"<I,H B5 058 005 8 058 0B Model " ":$-F/%--> <$"<I,H B5 B8 005 68 058 0B

********************************************************************************************************** T.($ o* )0")i+. 0. -#port subsidy (" minus A) per ton for the part of the output that is e#ported 7. !rice*support subsidy or consumer subsidy (with tariff protection) for the part of output that is locally consumed (" minus A) 5. ,irect payment (grant) subsidy 2B no need

2B

no need

68

E**$-t) o* D$/$#o($+ Co0ntri$)2 S0")i+i$) on D$/$#o(in, Co0ntri$) The effect of agriculture subsidies in de eloped countries is that their farm production le els are )ept artificially high and their producers dispose of their surplus in other countries+ by often dumping on world mar)ets at less than the production cost. .armers in de eloping countries incur losses in three ways( (a) They lose e#port opportunities and re enues from ha ing their mar)et access bloc)ed in the de eloped countries using the subsidies; (b) They lose e#port opportunities in third countries+ because the subsidising country is e#porting to these countries at artificially low prices; (c) They lose their mar)et share in their own domestic mar)et+ or e en lose their li elihoods+ due to the inflow of artificially cheap subsidised imports. The following are some e#amples of the effects of de eloped*country subsidies. D%. UK Wh$at In 7888+ the world price of wheat was IB5 a tonne+ the production cost of $G wheat was I005 a tonne+ and the $G wheat price was IB8 a tonne. Thus the selling price in the $G was I95 below the production cost. 3ow could the $G farmer sell below the production costJ "ecause of a massi e subsidy paid by the go ernment in the form of direct payments+ e.g. subsidy on each acre of wheat to compensate for reducing the pre ious system of price support (I776 per hectare in 7880) and subsidy for Cset*asideD (another I776 per hectare). In 7888+ I92= million was paid for 7 million hectares of wheat and another I07B million for set*aside for 228+888 hectares. !re iously the system of support was for the go ernment to subsidise through price inter ention+ i.e. to buy from the farmers at a price higher than the world mar)et price+ and this contributed to the farmers being able to stay in business. In the period 0117 to 0111+ the inter ention price fell+ and thus the -$ wheat price has fallen in ten years+ to a point now where there is little price support and the -$ wheat price is similar to the world price. "ut there has instead been an increase in direct payments. .armers get their e#tra re enue not in the form of being paid an artificially high price+ but by being gi en direct payments (or grants). The effect is the same+ i.e. the farmers get a re enue higher than if there were no subsidy+ and they remain economically iable+ e en though the price they are paid is far below the cost of production. Moreo er this shift from price*support subsidy to grant (or direct payment) subsidy enables the $G or -uropean farms to ha e a price similar to (or e en below) the world price+ and thus they are able to sell in the world mar)et at an artificially low price+ and without needing an e#port subsidy.

E&a'(#$) o* E**$-t): 3%4 &heap wheat e#ported from $GF-urope was imported by a de eloping country. The wheat was processed and the country could e#port cheap wheat flour to other countries. One country (Genya) found that low*priced wheat flour imports undermined the local flour industry. It also affected the mar)et and li elihood of wheat farmers that supplied to the local flour industry. 354 Indonesia has found that -$ and other e#porters dumped wheat flour on its mar)et. (<ource of ,0 subsection( ActionAid 7887). D5. EU S0,ar The -$ maintains high domestic sugar price abo e the world mar)et price+ then pro ides e#port refunds (totaling -uro 0.2 billion) to local farmersFcompanies. The refunds are the difference between the local and the world prices. This allows the inefficient farms to sell at prices below the -$ price and the -$ cost of production. The $G produces 0.5 million tons of sugar+ e#ports 68=+888 tons outside the -$ and 18+888 to the -$ (ActionAid 7887). E**$-t: The -$ sugar regime allows the high*cost -uropean farmers to benefit at the e#pense of the much more efficient <outh African producers+ who lose in terms of lost 'obs and e#ports (&A.O, 7887). D6. US Cotton "raAil and African countries are affected by $< subsidies. The $< production cost is twice the world mar)et price of 97 cents a pound. Het $< growers raised their share of global e#ports in 02 years and it is now at one third. In 7880+ $<@9 billion in subsidies was paid on @5 billion worth of crops in the $< (Financial Times). E**$-t: According to an O#fam report+ African countries lost @580 million in lost e#ports. "ur)ina .aso+ Mali and "enin lost the e4ui alent of 0 to 7 per cent of their /,! (O#fam 7887a). E. REDUCTION OR ELIMINATION OF SUBSIDIES B! DEVELO ING COUNTRIES As e#plained abo e+ de eloping countries ha e also been constrained in regard to domestic subsidies for local farmers. The o erall amount of the rele ant subsidies was recorded for 0112 as a ceiling+ and de eloping countries (e#cept :,&s) are re4uired to reduce this amount by 05.5 per cent o er a period of 08 years. There is a small general de minimis e#clusion from the subsidy discipline for de eloping countries of 08 per cent of the alue of production (for product*specific subsidies) and 08 per cent of the alue of total agricultural production (for non*product*specific subsidies); and also e#emptions for

08

limited purposes (such as in estment subsidies and input subsidies for poor farmers). These e#clusions apart+ de eloping countries are now constrained from increasing the le el of domestic support to their farmers and instead ha e to bring down the le el. ,e eloped countries+ which in general ha e offered ery high le els of domestic support+ ha e committed themsel es to only slightly reducing these. Most de eloping countries ha e pre iously maintained low le els of subsidy and are unable to increase them beyond the e#emptions. And e en in areas where domestic support is permissible+ most de eloping countries cannot a ail themsel es of the facility because of the lac) of financial resources. The concessions to de eloping countries are that the rates of reduction (of tariffs+ domestic support and e#port subsidies) are two*thirds those for the de eloped countries+ and that there is a longer implementation period (08 years compared to si# years for de eloped countries). :,&s are e#empt from reductions. These concessions are minor+ especially in iew of the fact that de eloped countries are allowed to continue to maintain ery high le els of import protection and agricultural subsidies. Meanwhile+ serious problems of implementation ha e emerged in de eloping countries. <ome countries were as)ed to reduce or eliminate subsidies+ or institutions set up to assist farmers in mar)eting their products+ under the loan conditionalities of the international or regional financial institutions. There is thus an unfair practice of double standards. Whereas the de eloped countries ha e maintained or increased their ery high domestic support+ se eral de eloping countries ha e had their agricultural subsidy system dismantled or their rates reduced. The following are e#amples. E%. So0th$rn A*ri-a <ubsidies in <outhern African countries were reduced or eliminated+ and mar)eting boards closed+ under the influence of World "an) loan conditions. A study was done on Malawi+ Kambia and MoAambi4ue on the effects. There was a collapse of input and credit supply in some cases+ and food reser es were liberalised. In Kambia+ maiAe and fertiliser subsidies were remo ed. An internal World "an) study in 7888 said( CThe remo al of subsidies led to stagnation and regression instead of helping KambiaLs agriculture sectorD (O#fam 7887c). E5. a7i)tan

!a)istan+ to follow conditions of an A," loan+ slashed go ernment procurement targets (from =.2 to 9 million tonnes) for wheat and shut down many procurement centres. This had negati e effects on many small farmers who could not sell at the procurement price and had to sell cheaply to traders+ often at a loss (ActionAid 7887).

00

F. EFFECTS OF IM ORT LIBERALISATION ON DEVELO ING COUNTRIES F%. G$n$ra# $nder the AoA de eloping countries (including :,&s) ha e to remo e non*tariff controls on agricultural products and con ert these to tariffs. ,e eloping countries are then re4uired to progressi ely reduce these tariffs+ while :,&s are e#empt from this re4uirement. In many de eloping countries this has threatened the iability of small farms that are unable to compete with cheaper imports. Many millions of small Third World farmers could be affected. The process has also increased fears of greater food insecurity+ in that the de eloping countries will become less self*sufficient in food. .or many+ food imports may not be an option due to shortage of foreign e#change. F5. FAO St0+i$) 58889588% One of the most comprehensi e studies of the effects of the WTO Agriculture Agreement was conducted by the .ood and Agriculture Organisation (.AO)+ which sur eyed the e#perience of 09 de eloping countries in implementing the agreement. The two* olume study (.AO 7880+ 7888) made se eral interesting findings+ including the following (.AO 7880( 5*76)( Import liberalisation had a significant effect. The a erage annual alue of food imports in 0112*1= e#ceeded the 0118*19 le el in all 09 countries+ ranging from 58 per cent in <enegal to 06= per cent in India. The food import bill more than doubled for two countries (India and "raAil) and increased by 28*088 per cent for another fi e ("angladesh+ Morocco+ !a)istan+ !eru and Thailand). Increases in food imports were generally significantly greater than increases in agricultural e#ports. In only two countries was e#port growth higher while in most other countries import growth far outstripped e#port growth. The study also measured the ratio of food imports to agricultural e#ports and found the ratio was higher in 0112*1= than in 0118*19 for 00 of the 09 countries. An increase in the ratio indicates a negati e e#perience+ as it shows food import bills growing faster than agricultural e#port earnings. The worst e#periences were those of <enegal (=6 per cent rise in the ratio)+ "angladesh (=8 per cent) and India (91 per cent) (ibid.( 77*79). As the .AO's <enior -conomist concluded( CA ma'ority of the studies showed that no impro ement in agricultural e#ports had ta)en place during the reform periodM. .ood imports were reported to be rising rapidly in most of the countries+ and import surges+ particularly of s)im mil) powder and poultry+ were common. While trade liberalisation led to an almost immediate surge in food imports+ these countries were not able to raise agricultural e#ports due to wea) supply response+ mar)et barriers and competition from subsidised e#portsD (.AO 7888( 58).

07

Although bound tariffs were generally high+ the applied tariffs were on a erage much lower for the countries sur eyed. Most countries had already reformulated their domestic policies under structural ad'ustment programmes. The simple a erage of the applied rates for 07 of the 09 countries was 77 per cent whereas the bound rate was 18 per cent. <ome countries were obliged to set applied rates well below their WTO bound rates due to loan conditionality. While bound tariffs were high on a erage+ there were se eral e#ceptions( -gypt's rates (7= per cent a erage) were low; India's tariff binding was Aero for 00 commodities (including sensiti e items li)e rice and some coarse grains)+ and all of <ri :an)a's agricultural tariffs were bound at 28 per cent with applied rates capped at 52 per cent for 0111. <e eral case studies reported import surges in particular products+ notably dairy products (mainly mil) powder) and meat. In some regions+ especially the &aribbean+ import*competing industries faced considerable difficulties. In /uyana+ there were import surges for many main foodstuffs that had been produced domestically in the 01=8s under a protecti e regime (.AO 7880). In <ri :an)a+ policy reforms and associated increases in food imports ha e put pressure on some domestic sectors+ affecting rural employment. There is clear e idence of an unfa ourable impact of imports on domestic output of egetables+ notably onions and potatoes. The resulting decline in the culti ated area of these crops has affected appro#imately 588+888 persons in ol ed in their production and mar)eting. The immediate possibilities for affected farmers to turn to other crops are limited. &onse4uently+ the economic effects of import liberalisation in this sector ha e been significant (ibid.( 572*76).

There was Ca general trend towards the consolidation of farms as competiti e pressures began to build up following trade liberalisationD and this has led to Cthe displacement and marginalisation of farm labourers+ creating hardship that in ol ed typically small farmers and food*insecure population groups+ and this in a situation where there are few safety netsD (ibid.). The study noted especially the case of "raAil+ where consolidation ta)ing place in the dairy+ maiAe and soybean sectors has affected traditional cooperati es and marginalised small farmers.

F6. M$+ia R$(ort) on E**$-t) o* A,ri-0#t0ra# I'(ort Li"$ra#i)ation on A)ian Co0ntri$) The ad erse effects of import liberalisation on the agriculture sector in se eral Asian countries ha e also been reported in recent years in the media. The following is a sample. ?China2) leaders worry that economic reforms could be placing more burdens on farmers than they can bear. .armers are on the recei ing end of the earliest and sharpest changes from the new policies that &hina agreed to implement to gain entry

05

to the WTO. !rotecti e tariff must be lowered. .oreign foods must be allowed into the country to compete with local produceM.According to a report by &hina's <tate &ouncil+ the country's WTO commitments are li)ely to wipe out the li elihoods of 05 million farmers who grow wheat+ rice and cotton+ while creating new ones in non* grain crops for only about 0.2 million. <ome economists rec)on that &hina will e entually need to find 'obs for about 788 million farmers as its mar)et reforms continue. 'The &hinese farmer is in a ery unen iable position+' said Ge "ing*sheng+ director general of the %esearch &entre for %ural -conomy+ which is part of &hina's Ministry of Agriculture. 'The impact of reforms on agriculture is profound.'D (!eter /oodman+ International Herald Tribune+ 76 <eptember 7887). :China is facing big challenges in raising the incomes of farmers and )eeping a lid on social unrest in 7887+ its first year in the WTO+ said Agriculture Minister ,u Ninglin. &hina's entry into the WTO will bring a flood of foreign farm imports and speed layoffs in a country where almost two thirds of its 0.5 billion people li e in the countryside. 'After WTO entry+ imports will lash &hina's agriculture. The difficulties will be more prominent+' ,u told a news conferenceM.Analysts say farm product prices are li)ely to fall this year as imports increase after WTO entry+ since domestic prices are far higher than in the international mar)et. &hina must find 'obs for 98 million 'surplus' rural wor)ers between 7880 and 7887+ officials say. ,u said B= million rural dwellers migrated in search of 'obs at some point last year.? ("ill <a ado e+ %euters+ 2 .ebruary 7887). In+ia: The import of 0B+888 tonnes of s)immed mil) powder from ,enmar) at Aero duty a couple of years ago resulted in a political uproar in !un'ab. The dairy industry is once again up in arms. >ew Kealand has dumped a large 4uantity of butter oil into India. - en after paying an import duty of 52.7 per cent+ the butter oil imports ha e been at less than $<@0+888 per tonne against the pre ailing global price of $<@0+588 per tonne. ,omestic prices crashed+ coming down by 08*02 per centM.It too) India nearly 58 years to achie e self*sufficiency in mil) production+ in ol ing farmers through a networ) of cooperati esM.The logic behind allowing M>&s to import mil) powder without counter ailing duties is difficult to fathom+ when their own go ernments are gi ing them massi e subsidies. The !roducer <ubsidy e4ui alent (subsidy as a percentage of alue of mil) produced) in 011B was =7 per cent in Eapan+ 21 per cent in &anada+ 29 per cent in the -$+ 9B per cent in the $< and 75 per cent in Australia. .urther+ the per tonne subsidy of $<@=00 for mil) powder declared by the -$ in 011= or the $<@=B2 per tonne subsidy by the $< under its dairy e#port incenti e programme constituted 22 per cent of the pre ailing international price of $<@0+288 per tonne in the same yearM.<uch has been the high le el of protection that e en with the stipulated reduction in subsidies+ the -$ and $< can continue to flood and dump their highly subsidised mil) and mil) powder onto the unsuspecting de eloping countries+ which ha e little safeguard mechanisms to protect their small dairy producers. The signs are therefore ominous. 3ighly subsidised imports of mil) flowing into India will only further marginalise millions of mil) producers. Thousands of dairy cooperati es which pulled the po erty*stric)en masses into a path of economic emancipation will collapse faced with cheap and highly subsidised

09

imports. (,e inder <harma+ ?,estroying India's White %e olution?+ 0B April 7887+ ag-impact listserver). In+on$)ia has spent the last few years ad'usting its import policies with WTO agreements. "ut lowering import duties and lifting bans on arious commodities ha e not sat well with local producers+ who say they are being forced to close shop as a result. &omplaining loudest are those in agriculture*related businesses as well as poultry and animal husbandry entrepreneurs+ who grumble that the flood of imports is hurting them most. .ood imports ha e been growing. Indonesia is already a ma'or importer of rice. Intensifying dependence on e#pensi e corn imports+ meanwhile+ has led to an =8 per cent contraction in the chic)en industry+ which uses corn for feed. When the price of imported feed soared in mid*Eanuary+ many poultry farmers went out of business. >ow+ an upcoming lifting of a ban on imported chic)en legs has local chic)en breeders up in arms again; at least 9=+888 breeders ha e suspended their operations. The local industry is not yet ready to compete with cheaper imports. M When Indonesia e#perienced a food crisis in 0111+ Ea)arta lowered import tariffs on rice and corn. The imported arieties made such an impact on the local mar)et that the domestic rice and corn industries are now described as being paralysed. These days+ the ?foreign food? bogey is scaring farmers of other crops. :ast wee)+ hundreds of sugarcane growers from Ea a and <outh <umatra floc)ed to the compound of the Industry and Trade Ministry and poured sac)s of sugar and sugarcane onto the ground in protest of the sugar import. The farmers say they ha e simply been unable to compete with imported sugar. They are demanding the import duty increase from 78 to 008 per cent. (Gafil Hamin+ I!<+ 7= April 7887). A)ian *ar'$r): <e en years after the AoA+ small farmers are not e#periencing the prosperity promised by the agreement's proponents+ according to a se en*country study by the !esticide Action >etwor) Asia and the !acific. Its e#ecuti e director <aro'eni %engam said( ?These were empty promises+ and for millions of small farmers and peasants+ especially women+ the result has been the entrenchment of po erty+ destruction of li elihoods+ increased burdens and for many it has literally meant empty stomachs. Agricultural trade liberalisation has indeed harmed small farmers and impo erished the poor further+ ma)ing them more food insecure.? The study e#amined cases in Thailand+ the !hilippines+ Indonesia+ Malaysia+ Gorea+ India and !a)istan+ most cases focusing on a single crop important to the areaM. In Thailand+ small soybean and cassa a farmers ha e come under hea y pressure from cheap imports of soybean and e#port barriers to cassa a in Western mar)ets+ and are forced to wor) harder in efforts to increase production. In Indonesia+ farming credits were planned as a safety net to help those affected by falling rice prices but the implementation was ineffecti e. Gorean farmers faced falling prices and rising costs+ stagnating farm incomes+ and farmers ha e to ta)e up additional wor) or migrate. In 08 illages in India+ a shift from food to cash crops led to higher food prices+ lower employment and income and lower food consumption among marginal farmers and landless women wor)ers. In !a)istan+ pri atisation policies increased the cost of agricultural production+ lea ing more people without access to land. (!A>A! press release+ B March 7887).

02

Sri Lan7a: .irst it was protests by potato farmers; then from chili and onion producers; now <ri :an)a's chic)en farmers are up in arms against cheap+ ruinous imports. With <ri :an)a's once*thri ing poultry business buc)ling+ farmers say they are forced to sell below production cost. There are B2+888 chic)en and egg farmers with more than 788+888 in ol ed in the trade. Thousands of small farmers+ worried about growing imports of chic)en meat and eggs+ too) to the streets in April+ demanding the go ernment ban imports since it was affecting their li elihoods. They had good news. Two wee)s ago the go ernment said it would permit imports only under licence and put in place a proper pricing formula for importsM../lobalisation+ as in many of <ri :an)a's traditional industries+ is hurting the country's poultry industry and threatening to s4ueeAe out small farmers. !otato+ onion and chili farmers ha e been complaining about the influ# of cheap imports from India and 3olland. :ocal farmers are unable to produce food cheaper than their foreign counterparts and are demanding protection through higher import duties+ lower local ta#es and reduced tariffs on imported inputs. (.eiAal <amath+ I!<+ 58 August 0111). A)ian *ar'$r)2 a))o-iation) grouped in the Asian .armers /roup for &ooperation at their second meeting held in Ea)arta will as) the WTO to let Asian countries continue to protect their agricultural products. Its president+ <utrisno Iwantono (also chair of the Indonesian "oard of &ooperati es) said the WTO was tending to be more representati e of de eloped countries' aspirations+ and wanted to abolish import duties particularly of de eloping countries. ?We don't want this situation. We will as) the WTO to gi e priority to efforts to ma)e de eloped countries open their mar)ets first.? The agriculture sector is important particularly to nations with large populations. If the sector was liberalised+ many farmers would mo e into the industrial sector. If they no longer want to be farmers+ we would be threatened in the matter of food security+ he said. (Antara agency+ 01 April 7888). RO OSALS FOR MODALITIES OF NEGOTIATIONS IN AoA

G.

G%. G$n$ra# Agriculture is a ery important sector for most Asian countries. In terms of 'obs+ food security+ e#port earnings and potential e#ports+ it is the )ey sector for many of the countries. Therefore it is crucial that the AoA is supporti e of the de elopment needs and efforts of the region. $nfortunately+ from the abo e analysis+ it is clear that in its present form the AoA is unfair and imbalanced+ that the de eloped countries ha e been able under the AoA rules to increase their subsidies and maintain high protection+ and that many Asian de eloping countries ha e been unable to match the subsidies of their rich trading partners in the least+ whilst they ha e liberalised their imports+ often to the detriment of the local farmers and at the e#pense of food security.

06

The present AoA negotiations in /ene a ha e reached a crucial stage+ with the first draft of the modalities of future negotiations e#pected in ,ecember 7887. The current negotiations present a rare opportunity to rectify the present unfairness+ imbalances and shortcomings of the AoA. If the opportunity is not ta)en+ or if ta)en it does not succeed+ there will be further dire conse4uences for farmers in many Asian countries. The ,oha ,eclaration of >o ember 7880 (WTO 7887) is disappointingly inade4uate on the issue of disciplining the subsidies of the de eloped countries. It see)s ?reductions of+ with a iew to phasing out+ all forms of e#port subsidies? but does not gi e a time frame for phasing out nor rates of reduction. On the crucial issue of domestic support+ it states a commitment to ?substantial reductions in trade*distorting domestic support.? This appears to be a code for maintaining the artificial distinction between ?trade*distorting subsidies? and ?non*trade*distorting subsidies?+ thus pa ing the way for the continuation or increase in o erall subsidies. -arlier this year+ the $< .arm "ill 7887 was announced+ representing an increase of almost =8 per cent in the subsidies allocated to agriculture+ at $<@0=8 billion o er 08 years. %ecently+ a summit of -$ leaders concluded that the &ommon Agricultural !olicy subsidy le els would be maintained at least until 7805. It seems clear that both the $< and the -$ ha e decided to maintain or increase their agriculture subsidy le els+ probably with more changes in the direction away from the Amber "o# to the "lue and /reen "o# subsidies+ but with the same damaging effects on de eloping countries. This situation should not be allowed to go unchallenged. ,e eloping countries can and should propose that there be clear measures in the modalities for the o erall rapid reduction of domestic support (in ol ing the subsidies in all three bo#es) and e#port subsidies. The ,oha ,eclaration also recognises that ?special and differential treatment for de eloping countries shall be an integral part of all elements of the negotiations and shall be embodied in the schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated+ so as to be operationally effecti e and to enable de eloping countries to effecti ely ta)e account of their de elopment needs+ including food security and rural de elopment? (WTO 7887). The challenge is for de eloping countries to flesh out the concrete manifestations and pro isions of special and differential treatment and ensure that they be made operationally effecti e in all the elements+ rules and disciplines of the AoA. Th0) th$ 'o+a#iti$) )ho0#+ $n-o'(a)) t;o 'ain (oint). Fir)t#., th$r$ '0)t "$ $**$-ti/$ an+ ra(i+ +$-r$a)$ in (rot$-tion in th$ +$/$#o($+ -o0ntri$). S$-on+#., th$r$ '0)t "$ $**$-ti/$ )($-ia# an+ +i**$r$ntia# tr$at'$nt *or +$/$#o(in, -o0ntri$), an+ thi) '0)t "$ (0t in (#a-$ 0r,$nt#..

0B

G5. Th$ N$$+ to C0r" A,ri-0#t0ra# rot$-tion in th$ D$/$#o($+ Co0ntri$) All forms of domestic subsidies and support in de eloped countries should be sub'ected to reduction+ and they should all be included in the calculation of domestic support that should be reduced+ and these should be reduced in as short a period as possible. In relation to e#port subsidies+ de eloped countries should eliminate all forms of e#port subsidies and other e#port support as soon as possible. In relation to mar)et access+ the de eloped countriesL high tariffs+ tariff pea)s and escalation+ a erage tariff and each product tariff should also be sub'ected to rapid reduction+ in order to enable mar)et access for de eloping countries.

G6. S($-ia# an+ Di**$r$ntia# Tr$at'$nt *or D$/$#o(in, Co0ntri$) As mentioned earlier+ it is crucial that de eloping countries put forward clear and concrete proposals on special and differential (<O,) treatment in the modalities in a manner that ensures (or at least increases the chances) that they are made operationally effecti e in all the elements+ rules and disciplines of the AoA. $ntil the high protection in de eloped countries is totally or mainly remo ed+ de eloping countries will continue to suffer the effects of dumping as well as denied access to the rich countriesL mar)ets. This is a fundamental in'ustice and imbalance in the AoA. It has to be rectified immediately through the current negotiations. The ,oha ,eclaration recognises that <O, treatment Cshall be an integral part of all elements of the negotiationsD and that it shall be Coperationally effecti eD by being embodied in the rules+ disciplines and schedules of commitments. In particular+ the <O, measures should enable de eloping countries to pre ent cheap subsidised imports from displacing the products and li elihoods of their farmers. ,e eloping countries should be gi en the right to protect themsel es from dumping+ cheap imports and import surges. There should also be measures to assist de eloping countries to realise the goals of food security and rural de elopment. G<. D$tai#$+ ro(o)a#) *or Mo+a#iti$) ". Bha,irath La# Da) In a comprehensi e paper ?<ome suggestions for modalities in agriculture negotiations?+ "hagirath :al ,as has put forward a set of concrete proposals for reducing the protection and subsidies of de eloped countries+ for rebalancing the AoA and for special and differential treatment for de eloping countries. The proposals are on the three pillars of the AoA+ i.e. mar)et access+ domestic support and e#port subsidies. The following is a summary of the proposals.

0=

In r$#ation to MARKET ACCESS: With the ob'ecti e of reducing current distortions in rights and obligations and reducing the current severe imbalance caused by the domestic support and e#port subsidies of the de eloped countries in arious forms+ the de eloping countries may ta)e direct import control measures+ e.g.+ 4uantitati e restrictions+ on imports of agricultural products from the de eloped countries+ until the domestic support of all types (including those included in paragraphs 2 to 05 of Anne# 7 to the Agreement on Agriculture and Article 6.2 of the Agreement on Agriculture+ i.e.+ the /reen "o# and "lue "o# subsidies) and e#port subsidies in all forms in the de eloped countries are eliminated.

,as suggests that the route of 4uantitati e restrictions be ta)en here as the alternati e route of counter ailing duty will be inade4uate in this case. &ounter ailing duty is generally meant to pro ide defence against specific and occasional cases of subsidies+ whereas the de eloping countries are faced with a structural problem of widespread use of subsidies in agriculture in the de eloped countries. "esides+ pro ing in'ury is an essential condition for imposing counter ailing duty and it will be e#tremely difficult to pro e in'ury to domestic production in agriculture on the basis of the usual norms+ since the production is generally highly dispersed throughout the country. This route for relief will be too cumbersome to be of any practical utility. With regard to )($-ia# an+ +i**$r$ntia# tr$at'$nt *or +$/$#o(in, -o0ntri$):

--- For the purposes of ensuring food security, it may be necessary to protect domestic producers from imports. Accordingly+ the modalities should clearly lay down that a de eloping country( (a) can ta)e direct import control measures in respect of food products; (b) shall not be re4uired to lower its bound tariffs on food products; (c) when it finds that the bound tariff on a particular food product is not ade4uate to protect its domestic production of that product+ may raise the bound tariff after entering into consultations with the countries ha ing principal supplying interest. It need not pay compensation in such cases. --- For the purposes of facilitating rural development, especially to protect the small farmers in the de eloping countries+ the modalities should clearly lay down that a de eloping country( (a) may ta)e direct import control measures+ e.g.+ 4uantitati e restrictions on the import of agricultural products; (b) shall not be re4uired to lower its bound tariffs on agricultural products; (c) if it percei es that the current bound le el of tariff on an agricultural product is not ade4uate to protect the small farmers+ may enter into consultations with the countries ha ing the principal supplying interest and increase the bound tariff. It need not pay compensation in such cases. --- On general tariff reduction: The proposal of ,as is that de eloped countries shall be re4uired to ha e a ma#imum tariff on any product+ shall reduce the a erage tariff by a specified percentage o er fi e years+ and reduce each tariff le el by a minimum rate. ,e eloping countries should be allowed a much higher ma#imum tariff and lower

01

reduction rates for those products not co ered under the food security and rural de elopment pro isions. Moreo er+ a de eloping country+ e en if not co ered by the e#ceptions relating to food security and rural de elopment+ shall ha e the option of e#cluding some specific products from the obligation of tariff reduction. --- On special safeguard (SSG): A country can ta)e special safeguard measures in agriculture without pro ing in'ury or threat of in'ury to domestic production. The special safeguard is rele ant in agriculture as the general safeguard pro isions may be ery difficult to use. The e#istence of in'ury or threat of in'ury to domestic production+ as is re4uired for applying the general safeguard+ may be difficult and cumbersome to pro e in the agriculture sector in de eloping countries+ due to the highly dispersed nature of the farms in de eloping countries. 3owe er+ <</ is generally a ailable to only the de eloped countries as only the countries that con erted their non*tariff measures to e4ui alent tariffs can use the <</ and only ery few de eloping countries 4ualify. It is ironic and unfair that those distorting trade through non*tariff measures were gi en the right to <</ whereas those that did not distort trade were denied this ad antage. The modalities should correct this situation+ by laying down that the de eloping countries that ha e been denied <</ in agriculture will now ha e the right to ta)e special safeguard measures. Also+ the presently comple# criteria for triggering the <</ should be simplified for the de eloping countries. .or e#ample+ a de eloping country may ta)e <</ if the import le el in a gi en year e#ceeds a specified percentage of the a erage of the pre ious three yearsL import. <imilarly+ for the price trigger+ it may be prescribed that a de eloping country may ta)e <</ if the price of the product falls below a specified percentage of the pre ious yearsL a erage price. -- On tariff rate quotas, some proposals are also made by ,as. In r$#ation to DOMESTIC SU ORT:

o correct the imbalance under !hich developed countries that have high subsidies can continue using them (!ith only some reduction) !hile developing countries that had no or lo! subsidies are prohibited from using them or raising their level, and to rectify the "o" loophole allo!ing Green #o$ subsidies ("nne$ %) not to be disciplined, ,as proposes the following be part of the modalities(

(a) The domestic support listed in paragraphs 2 to 05 of Anne# 7 to the AoA (/reen "o# subsidies) and those listed in Article 6.2 ("lue "o# subsidies) must be treated similar to the e#isting reducible subsidies and must be sub'ected to the discipline of reduction and elimination as in the case of reducible subsidies. (b) All subsidies in the de eloped countries+ including the ones currently included in the /reen "o# and "lue "o#+ shall be eliminated by a specified period. To fulfill the target of elimination+ the de eloped countries shall reduce their domestic support+ including those in the /reen "o# and "lue "o#+ by a specified percentage per year.

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(c) There shall be no immunity to the domestic support from counteraction through the dispute settlement route or through the counter ailing duty route. (d) There shall be a presumption that the subsidy on an agriculture product e#ceeding 2 per cent of production in a de eloped country causes serious pre'udice to other countries+ including in'ury to their domestic production. With r$,ar+ to S=D tr$at'$nt *or +$/$#o(in, -o0ntri$):

--- For the purpose of ensuring food security, the following modalities should be proposed( (a) to facilitate domestic production of food products for domestic consumption+ de eloping countries may pro ide subsidies for domestic production of food products for domestic consumption. <uch subsidies shall not be sub'ected to the dispute settlement process or counter ailing duty process. (b) To ensure that the facility is used only for domestic production for domestic consumption and not for e#port+ this facility will be a ailable to a de eloping country in respect of food products which had not been e#ported or e#ported only within a de minimis limit (M.per cent of production) in the pre ious three years. --- For the purpose of facilitating rural development, the following modalities should be proposed( In pursuance of the ob'ecti e of protecting small farmers+ the de eloping countries may pro ide subsidies to small farmers. <uch subsidies shall not be sub'ected to the dispute settlement process or counter ailing duty process. The definition of small farmers will be wor)ed out in the conte#t of the socio*economic conditions of a de eloping country. In r$#ation to E> ORT SUBSIDIES: ,e eloped countries were e#pected to reduce the budgetary outlay and e#port 4uantity for their e#port subsidies by certain percentages in si# years+ and de eloping countries by a slightly lower rate in 08 years. Pery few de eloping countries were using e#port subsidies and thus they did not gi e a commitment schedule and cannot introduce e#port subsidies in future. Ironically and unfairly+ the de eloped countries are entitled to continue using e#port subsidies to a substantial e#tent+ whereas the de eloping countries are prohibited from pro iding such subsidies. Although there are other measures with similar effects as e#port subsidies in artificially boosting e#ports+ e.g.+ e#port credit+ e#port credit guarantee and e#port insurance+ there is no commitment in the AoA to reduce these. Thus+ a de eloped country can reduce its e#port subsidies according to its commitment but increase e#port credit at the same time. 3ence+ li)e domestic support+ there is an escape route here too for effecti ely circum enting the obligation of reducing e#port subsidies.

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The de eloping countries do not ha e ade4uate financial resources to pro ide e#port subsidies or e#port credit or similar other facilities. 3ence they cannot use these e#port* enhancing facilities e en if they are allowed to do so. This feature adds to the imbalance and ine4uity in the system of e#port subsidies. It needs to be corrected. With the ob'ecti e of correcting inequity and imbalance, the following modalities are proposed( (a) -#port subsidies+ including e#port credit+ e#port credit guarantee and e#port insurance+ must be eliminated immediately+ say within one year+ i.e.+ not later thanM... (b) All countries shall notify their current e#port credit+ e#port credit guarantee and e#port insurance programmes and measures to the WTO <ecretariat+ so that the obligation of elimination is monitored effecti ely. With r$,ar+ to S=D tr$at'$nt *or +$/$#o(in, -o0ntri$), the following modality is proposed( In order that the e#porters and e#port producers in the de eloping countries are enabled to o ercome their structural handicaps+ the de eloping countries may pro ide e#port subsidies+ specially for adoption of higher technology and adaptation to product and process standards as well as for compensating for arious handicaps+ e.g.+ those in financing+ guarantees and insurance+ in respect of the e#port production and e#port. There shall be a ceiling on the e#port subsidy on a product of Mper cent of the e#port price.

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REFERENCES ActionAid (7887). .armgate( The de elopmental impact of agricultural subsidies. ActionAid+ :ondon. &A.O, (7887). ?,umping on the !oor.? &A.O,+ :ondon.

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