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Role of Agriculture Though Agriculture contains only 9 percent of the total global trade. But highly sensitive sector; It is related with the culture.

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Presentation on theme: "Role of Agriculture Though Agriculture contains only 9 percent of the total global trade. But highly sensitive sector; It is related with the culture."— Presentation transcript:

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2 Role of Agriculture Though Agriculture contains only 9 percent of the total global trade. But highly sensitive sector; It is related with the culture and history of a country; The food we eat comes from the agriculture sector; Three of every four poor people in developing countries live in rural and most depend on agriculture for their livelihoods In agriculture-based countries, it generates on average 29 percent of the gross domestic product (GDP) and employs 65 percent of the labor force. GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture (World Development Report, WDR, 2008).

3 Concerns of Agriculture Protection of agriculture through tariff and subsidies result unfair competition. Non-tariff measures in the form of Sanitary and Phytosanitary measures and TBT standards are rapidly increasing. Due to growing concerns on the health and hygiene, agriculture trade has become more contentious issues. Strong protections are provided in developed countries. Governments cannot take drastic reform programms due to Social, Environmental and finally for Political reason.

4 GATT Provisions GATT treated agriculture trade differently than non-agricultural products. Article XI, GATT prohibited quantitative restrictions, but allows quantitative restrictions on for agricultural products. Article XVI permits export subsidies on agricultural products. Trade barriers dropped progressively in other goods, they remained relatively high in agriculture. GATT negotiations made little headway in dismantling protectionist domestic policies over several decades. Until the Uruguay Round (UR) of negotiations, there was very little progress in removing trade barriers in Agriculture. agricultural trade barriers.

5 Agriculture in Uruguay Round Negotiations By the end of the UR, the Agreement on Agriculture (AOA) was adopted by the GATT/WTO Members. The WTO Agreement on Agriculture (AOA) was successful in making binding commitments in some important areas: It eliminates country-specific exemptions for agriculture; Some liberalizations were made in the domestic support, market access, export competition, and sanitary and phyto-sanitary measures and Almost all agricultural products are now subject to multilateral disciplines in cluding maximum tariff bindings.

6 Agriculture in UR Negotiations The AOA set out special provisions for developing countries and countries in transition from centrally planned economies. It was also able to reach consensus to convert the quota and other types of measures to tariffs familiarly known as “tariffication”. This was achieved by a system of “tariff quotas” – lower tariff rates for specified quantities, higher rates for quantities that exceed the quota. 37 Members maintained about 1,374 tariff quota.

7 Product Coverage and Base-period Annex 1 of AOA describes the product coverage under the AOA; All products under HS Chapter 1 to 24 excluding fish and fish products and forestry products Basic agricultural products as well as the products derived from them such as bread, butter and meat, chocolate and sausages are included; Wines, spirits, tobacco products, fibers such as cotton, wool and silk and raw animals skins for leather production are included, jute is not an agriculture products/ Base period is ; UR implementation period means the six-year period commencing in the year 1995, except for the purpose of Article 13 (Peace Clause), it id nine-year period commencing 1995.

8 Three Pillars Agriculture negotiations are carried out in three pillars: Market Access: various trade restrictions confronting imports such as tariff, quota, ban. Domestic Supports: subsidies and other programmes, including those that raise or guarantee farm gate prices and farmers’ incomes Export Competition: methods used to make exports artificially competitive.

9 Domestic Support: Amber Box All domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box, These include measures to support prices, or subsidies directly related to production quantities. These supports are subject to limits. “de minimis” minimal supports are allowed (5% of agricultural production for developed countries, 10% for developing countries);

10 Domestic Supports: Blue Box Production limiting supports. This is the “amber box with conditions” to reduce distortion. Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production. UR round did not put any limits on spending on blue box subsidies. In the current DDA negotiations, maximum limit is decided.

11 Domestic Supports: Green Box The Green Box is defined in Annex 2 of the Agreement on Agriculture. In order to qualify for the Green Box a subsidy programme must not have more than a minimal trade-distorting effect or effect on production. In addition, such measures have to be government-funded and must not involve price support.

12 Total Domestic Support by WTO Members, 1996 ($ million) Country GroupGreen BoxDomestic SupportTotal Industrialized Countries139,650114,118253,757 Developing Countries18,4687,26925,737 Least Developed Countries 1120 All countries158,230121,387279,617 Percentage Share (%) Industrialized Countries (23) Developing Countries Least Developed Countries Source: South Asian Yearbook of Trade and Development, 2005, published by CENTAD

13 Total Supports in United Sates, European Union, Japan and all others in 2003 (in million US $ and %) CountryAmber BoxDe minimis Blue BoxGreen BoxTotal USA6,9503,237064,06274,249 EC (27)34,8522,20429,30326,10192,460 Japan5, ,99624,120 Rest of the World 5,1053, ,66322,038 Total52,4438,61429,988121,822212,867 Percentage USA EC (27) Japan Rest of the World Total100.00

14 Numeric target for cutting agricultural subsidies and protection during the UR Implementation period Developed Countries (6 years reduction) ( ) Developing Countries 10-year reduction Least Developed Countries Tariffs: Average cut—all agricultural goods 36%24%No reduction commitment Minimum cut per product 15%10%No reduction commitment Domestic Support: Cuts for sector (Aggregate Measures of Support) 20%13%No reduction commitment Export Subsidies: Value of Subsidies36%24%No reduction commitment Subsidized quantities21%14%No reduction commitment

15 Negotiations on Agriculture: Background Original mandate of negotiations was mentioned in Article 20 of the AOA; Article 20 of AOA mentioned, “Recognzing the long- term objective of substantial progressive reduction in support and protection resulting in fundamental reform is an ongoing progress, Members agree that negotiations for continuing process will be initiated one year before the end of the implementation period (i.e. 2000) [see Article 1(f) for implementation period]”. Negotiations on agriculture began in early 2000 under Article 20 of the AOA.

16 Agriculture Negotiations: Doha Mandate Doha mandate for agriculture Substantial improvement of market access. Reduction of, with a view to phasing out, all forms of export subsidies. Substantial reductions in trade-distorting domestic support. S&D treatment for developing countries are integral part of negotiations. Non-trade concerns will be taken into consideration. Modalities for the further commitments, including provisions for S&D treatment shall be established no later then 31 March, 2003.

17 Agriculture Negotiations: Doha Mandate WTO Fifth Ministerial meeting held in Cancun, Mexico was the mid-term review of the Doha mandate. Cancun failed mainly because of the Agriculture, Cotton issue and Singapore issues. The G-20 was established on 20 August 2003, comprises a group of developing countries. G-20 was created to open up a space for negotiations in agriculture, in the Doha Development Round. It has strong role for the Cancun setback.

18 Hong Kong Decisions on Agriculture Agreed to eliminate export subsidies by 2013 which is only 2.5% of the total subsidies; Export subsidies on cotton will be eliminated by 2006; Domestic subsidies on agriculture will be reduced substantially; Modalities for agriculture will be established by April, Safe box will be created to deal will emergency food aid; Developing country Members are allowed to provide agriculture export subsidies for up-gradation, internal and external handling and shipment until 2018 under the Article 9.4 of AOA without any circumvention. There will be discipline on food aid.

19 Draft Modalities on Agriculture The first draft Modalities was published on 17 July, 2007; It was subsequently amended in December, 2007, January, 2008, February, 2008 and the last version was published in May, 2008; Base period is proposed as or

20 Domestic Supports OTDSCutsImplications More than US $ 60 billion 80%EC has to cut to € 22 billion. More than US $ 10 billion and less than or equal to US $ 60 billion 70%US to cut US $ 14.5 billion. US $ 10 billion or less55%All the rest LDCs are exempted from any reduction commitment. A 70% cut brings US OTDS to about 14.5 billion which is still well above their estimated applied level of US $ 7 billion in This means that they would only make a paper cut, no real cut of domestic subsidies would be made.

21 AMS (OTDS-Blue Box) Cut AMS (Aggreegate measurement of Supports) CutsImplications More than US $ 40 billion 70%EC has to cut to € billion. More than US $ 15 billion and less than or equal to US $ 40 billion 60%US to cut US $ 7.6 billion. US $ 15 billion or less45%All the rest These reductions are to be made in six equal steps over a period of five years. Developing country Members would be required to undertake two- thirds of the cuts in nine equal instalments over a period of eight years.

22 De minimis Supports Developed countries are to cut the de minimis supports by 50% from day on (i.e. cap at 2.5% of the value of production, from the current 5%). Developing countries with Amber Box commitments are required to cut de minimis by two-thirds of developed countries cuts (from the current 10% of the value of production, i.e. ending up with 6.7 of the value of production). NFIDCs can continue with their current De minimis levels of 10% of the value of production.

23 Blue Box Supports Blue Box subsidies has to be capped at 2.5% of the value of agricultural production for a developed county and 5% developing countries.

24 Green Box Supports The Doha Round mandated to review of the criteria for defining Green Box support and to allow effective coverage of programme of developing countries that cause no more than minimal trade-distortion. The draft modalities include proposals to tighten criteria for developed countries and possible revision of conditions for developing countries food stockpiling purchases from low-income farmers or those with few resources, at prices that are higher than the market.

25 Market Access: Tariff Cut Developed Countries BandCut % % % 75+70% Minimum average cut=54% Developing Countries BandCut % % % % Maximum average cut=36%

26 Market Access: Sensitive Products Members (both developed and developing) may designate an appropriate number of tariff lines to treat as sensitive products on which they would undertake lower tariff cuts. Developed countries can designate 4% of tariff lines as sensitive products. Developing countries can designate one-third more (5.3% or 8%) of products as sensitive products.

27 Market Access: Special Products Developing country Members shall be entitled to self- designate Special Products guided by indicators based on the criteria of food security, livelihood security and rural development. There shall be 12 per cent tariff lines available for self- designation as Special Products taking on average tariff cut of 11% including 5 per cent of lines at zero-cuts. However, G-33 countries expressed their reservation on this issue noting that this may be affected by what is decided in other areas of the text. On the other hand, US said that "no more than 5 tariff lines at detailed duty level" should be designate as SPs.

28 Least Developed Countries (LDCs) LDcs including Bangladesh are not required undertaking reductions in bound duties. Hence the tariff reduction formula, sensitive products and special products are not directly relevant for these countries. Developed countries and developing countries in a position to do so shall provide duty-free and quota-free market access for at least 97% of the tariff lines for the products originating from LDCs.

29 Special Safeguard Mechanism (SSM): Most Contentious Issue at Present !!! The safeguard duties under the SSM would be applied by either an import quantity trigger or price trigger. There are threshold level of imports quantity and prices. Crossing the quantity thresholds or price falls below the recourse to a remedy, namely, temporary levy of a safeguard duty over. The revised draft modalities of 10 July 2008 proposes the volume triggers ranged from 110% to over 135%. US proposed a single minimum volume trigger of 140%, i.e. 40% higher imports than the normal level before the remedy available. The actual use of this provision would be rare for Bangladesh as its Bound Tariff (average 197%) is much higher than applied. Moreover, as a net food importing countries, Bangladesh has to huge quantity of food for feeding its mass population.

30 Export Competition Developed countries shall eliminate all forms of export subsidies by 2013 and the developing countries shall eliminate by But the developing countries and LDCs shall provide certain subsidies, such as providing export subsidies for marketing, internal and international transport and freight charges etc. under Article 9.4 of AOA respectively until 2016 and Bangladesh use this provisions and provides subsides in terms of cash incentives to a number of sectors. Extension of the period would provide us an opportunities to continue those subsidies up to 2021.

31 Bangladesh in the Agricultural Modalities Bangladesh is exempted from tariff or domestic subsidies reduction; Duty free access will be provided for 97% of the tariff lines. Comments: We are not sure whether the products have our export interest will be included in 97% list; Preference erosion: A list is provided where the duty cut will be 10 years. We need to examine the list; Bangladesh overall subsidies is less than 3%, far below the 10% allowable De minimis limit. LDCs are granted 360 days for repayment of exports.

32 Impact of Food and Cotton Prices Global food price will increase as a result of reduction of OTDS. Bangladesh’s food import bill will increase and food price will also increase. The withdrawal of subsidies is expected to result in a decline in US production of 1.4 million tonnes, or around 10%. The overall effect, taking into account increased production by lower cost producers and an increase in world prices increase by 26%. Bangladesh is the seventh largest importer of raw cotton and 21% of cotton is imported from USA. Annual growth of import value of Bangladesh is 23%. If the global price increase by about 26%, the cotton import bill would increase which in turn will raise the cost of production of textile & apparels and reduce the competitiveness of the textile and apparel sector. Bangladesh however, strongly pursues the reduction of global cotton subsidies to express its solidarity with the poor cotton producers of the West African countries.

33 Export Restrictions GATT Article XI.2 (a) and Article 12.1 of the Agreement on Agriculture (AOA) allow export restricts for ensuring domestic food security. A number of developing countries like China, Thailand, Viet Nam, and India are frequently using this provision and artificially increases the global food prices. This hampers the food security of the NFIDCs of LDCs. LDC Trade Ministers (October, 2009) thus demanded, “In view of ensuring food security in LDCs, no non-LDC Member shall apply any export restriction on food items imported by any LDC”. Bangladesh currently maintains restrictions on export of aromatic rice. This is however, not yet notified to WTO.

34 EXERCISE on Agreement on Agriculture

35 Please elaborate the following abbreviations: GDP: WDR: GATT: UR: AOA: WTO: HS: LDC: NFIDCs S&D: OTDS AMS: SSM: LDCs:

36 Fill in the Blanks 1.Agriculture covers only percent of the total global trade treated agriculture trade differently than non-agricultural products. 3.Article XVI of GATT permits on agricultural products eliminates country-specific exemptions for agriculture 5.GATT parties reached consensus to convert the quota and other types of measures to tariffs familiarly known as

37 Fill in the Blanks 6.All products under HS Chapter..... to excluding..... and products and products are treated as agricultural products. 7.All domestic support measures considered to distort production and trade (with some exceptions) fall into the Box. 8.Hong Kong Ministerial conference agreed to eliminate export subsidies by After the implementation of Doha Round de minimis support for developed countries would be % and for developing countries %.

38 Please mention True or False 1.UR round put limits on spending on blue box subsidies. 2.Green Box supports distort trade more. 3. LDCs are exempted from tariff and subsidies reduction. 4.Peace clause will expire in G-20 is a group of developed country members for agriculture negotiations. 6.Agriculture modalities capped Blue Box subsidies at 2.5% of the value of agricultural production for a developed county and 5% developing countries. 7.Developed countries can designate 8% of tariff lines as sensitive products. 8.WTO Members did not yet reach consensus on SSM issues. 9.After implementation of DDA Agriculture modalities cotton import prices will be lower for Bangladesh.

39 Sectoral Contribution to GDP showing transition from Agriculture to Moderate Industrialization (in %) YearSectorTotal AgricultureIndustryService 1969/ / / / / / / / / NB: At Present, Industry Contribution to GDP stands at 28% against that of Agriculture at around 20.1%. 39


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