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World Trade Organization Toolkit
Agriculture
Even though the original GATT of 1947 applied also to agricultural goods, it included important exceptions with respect to agricultural goods. For example, under the GATT 1947, countries were allowed to use import quotas or subsidies in the agricultural sector. This specific regime originally applicable to agricultural goods resulted from the unwillingness of various countries, mainly developed countries, to make commitments in what was, and remains, a very sensitive political sector.
Agricultural trade became highly distorted especially because of the use of export subsidies which normally would not have been allowed for industrial products. Several countries increasingly felt the necessity to have stricter rules for international trade in the agricultural sector. The negotiation of a specific agreement dealing with agriculture during the Uruguay Round is therefore a great achievement.
The outcome of the Agreement on Agriculture (AoA) is not to integrate the agricultural goods within the ambit of the GATT. However, the AoA represents an important improvement towards increased liberalisation of the trade rules in the agricultural sector. The Agreement addresses the agricultural problem in basically three subject categories:
Tarification: the first pillar of the AoA is to phase-out non-tariff barriers such as quotas or import levies and convert those measures into tariffs. This process is called "tarification". Since tariffs are more transparent forms of barriers to trade, it is considered better to have tariffs than non-tariff barriers to trade. Under the AoA, the WTO Members committed to replace their non-tariff barriers to an equivalent tariff.
WTO Members further committed to cut the tariffs. Tariffs must be reduced by at least 36% overall by each Member over the six-year phase-in period with a minimum of 15% on each product. The idea behind this process is to achieve further tariff reductions in the future. Developing countries undertook to reduce their tariffs by 24% over a ten-year period, while least-developed countries did not make any commitments.
Domestic support: Under the AoA, Members agreed to progressively reduce agricultural support. The agreement classifies domestic support into three categories: "amber box", "blue box" and "green box". Domestic support which has a direct effect on production is classified in the "amber box" and cannot be used above the maximum level which each country committed not to exceed. Measures which have minimal impact on trade, classified in the "green box" may be used freely. Finally, some specific kinds of support, such as certain government assistance programmes to encourage agricultural and rural development in developing countries, and which are classified in the "blue box", are allowed under certain specific conditions.
Export subsidies: Under the AoA, a WTO Member cannot maintain export subsidies except when they are listed in its schedule of commitments. Developed countries agreed to cut their export subsidies by at least 36% over a six-year period and developing countries by 24% over ten years.
Tarification
Under the AoA, Members agreed to phase-out non-tariff barriers such as quotas, variable import levies, and others, and "convert" the effect of such measures to tariffs. This is called the "tarification". Tariffs are more transparent than other forms of protection.
In addition to tarification, countries negotiated to place concessions in their schedules providing minimum access for certain products, tariff reductions for certain products, and tariff bindings for all agricultural goods.
Under the AoA, WTO Members undertook to reduce their tariffs by at least 36% overall over a six-year phase-in period, starting on 1 January 1995 and with a minimum 15% reduction on each product category. Developing countries committed to reduce their tariffs by 24% over a ten-year period. Finally, least-developed countries did not make any commitments with respect to tariff reductions.
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Domestic support
The second major area of the AoA is a series of commitments on domestic supports. During the Uruguay Round, Members agreed to progressively reduce agricultural support. To that end, domestic measures have been classified into three categories: "amber box", "blue box" and "green box". Depending on the category in which they fall, domestic support disciplines are subject to different rules.
- Amber box
The most trade-distortive subsidies, i.e. subsidies which have a direct effect on trade and production, are classified in the "amber box" and subject to strict reduction commitments. As for subsidies classified in the amber box, Members undertake not to provide support in favour of domestic producers in excess of the commitment levels specified in their Schedule.
About 30 Members have undertaken reduction commitments on domestic support in their respective schedule of commitments. These Members are entitled to continue to provide domestic support so long as the level of support does not exceed their level of scheduled commitments.
Members which have not scheduled any domestic support reduction commitments during the Uruguay Round are prevented from using "amber box" domestic support. The absence of domestic support reduction commitments is equivalent to a commitment not to provide any such subsidies.
- Blue box
Under Article 6, domestic support provided subject to production-limiting conditions is exempted from reduction commitments and is classified as "blue box" domestic support. De minimis domestic support and certain development programmes provided by developing country Members are also authorised under Article 6.
Domestic support authorised under Article 6 can be subject to unilateral countervailing actions as well as non-violation nullification or impairment complaints but on stricter grounds than those generally applicable. Consequently, "blue box" subsidies and other measures authorised under Article 6 are only permitted to a certain extent.
- Green box
Domestic support considered to have no or minimal trade distorting effects is not subject to any disciplines and is classified under the "green box". The following schemes are considered to fall within the "green box": general services, public stockholding for food security purposes, domestic food aid, direct payments to producers, decoupled income support, government financial participation in income insurance and income safety-net programmes, payments for relief from natural disasters, structural adjustment assistance provided through producer retirement programmes, structural adjustment assistance provided through resource retirement programmes, structural adjustment assistance provided through investment aids, payments under environmental programmes and payments under regional assistance programmes.
Under the Peace Clause provision of Article 13, "green box" measures are completely immune from unilateral and multilateral actions. They cannot serve as a basis for the imposition of countervailing measures or be directly challenged by Members under the dispute settlement system.
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Export subsidies
The third general category of attention by the AoA is a focus on export subsidies. Although some negotiators wanted to see a scheduled and phased elimination of all export subsidies, that did not prove to be possible. Nevertheless, there are a series of basic obligations that should result in lowering the amount of export subsidies over a period of time.
Definition
Export subsidies are defined as "subsidies contingent upon export performance, including the export subsidies listed in Article 9". The list of Article 9.1 covers most of the export subsidy practices which are prevalent in the agricultural sector. Listed subsidies include:
- direct export subsidies contingent on export performance;
- sales of non-commercial stocks of agricultural products for export at prices lower than comparable prices for such goods on the domestic market;
- producer-financed subsidies such as government programmes which require a levy on all production which is then used to subsidise the export of a certain portion of that production;
- cost reduction measures such as subsidies to reduce the cost of marketing goods for export;
- internal transport subsidies applying only to exports; and
- subsidies on incorporated products contingent on their incorporation in exported products.
A distinction is generally drawn between "listed" subsidies, i.e., those listed under Article 9.1, and other or "non-listed" subsidies. Export credit, export credit guarantees and insurance programs are examples of non-listed subsidies. The distinction between listed and non-listed subsidies is fundamental since, as detailed below, the rules governing the provision of listed and non-listed subsidies are different.
- Listed subsidies
The principle with respect to listed subsidies is that Members undertake not to provide subsidies in excess of the quantity commitments as specified in that Member's Schedule.
Members which failed to make any agricultural export subsidy reduction commitments in their Schedule are prohibited from granting listed export subsidies. These Members cannot provide subsidies that are consistent with their scheduled commitments since they failed to make any. During the Uruguay Round, a majority of Members failed to schedule agricultural export subsidies commitments. All in all, 25 Members - counting the EU Member States as one - have export subsidy reduction commitments in their Schedules. Members having made reduction commitments and, thus, entitled to continue to use export subsidies are mostly developed country Members.
- Non-listed subsidies
Non-listed export subsidies are not subject to any specific direct reduction requirements. Members, in principle, remain free to grant non-listed export subsidies. However, pursuant to Article 10.1, "export subsidies shall not be applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments".
As a result, Members which have not scheduled any agricultural export subsidies reduction commitments, retain the possibility to use non-listed agricultural export subsidies as long as they do not circumvent the prohibition concerning listed export subsidies.
Export credit, export credit guarantees or insurance programs are non-listed export subsidies pursuant to Article 10.2. At the end of the Uruguay Round, Members had undertaken to work toward the development of internationally agreed disciplines to govern these types of export subsidies. However, since the work undertaken has not yet led to the adoption of measures, Members remain free to use these types of export subsidies. Members also have the possibility of granting food aid provided that it is: not tied to commercial exports of agricultural products to recipient countries; carried out in accordance with the relevant FAO rules; and in fully grant form or according to the terms of the 1986 Food Aid Convention.
Under Article 10.3, "any Member which claims that any quantity exported in excess of a reduction commitment level is not subsidised must establish that no export subsidy, whether listed in Article 9 or not, has been granted in respect of the quantity of exports in question." The onus of proof is on the subsidising Member and not on the Member which claims that an export subsidy has been provided in excess of scheduled commitments. This provision is particularly important for countries which are prevented from providing listed 9.1 subsidies, since they must demonstrate that they have not provided listed subsidies if requested by another Member.
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