The discipline in the GATT on the government policies in the area of agriculture was initially at a much lower level than in the area of industrial products. It was mainly because of the influence of the farm lobby in the USA and the UK, which wanted its governments to retain the freedom to modulate the agricultural policies, depending on the domestic needs. The agriculture sector in the USA, European Union and several other developed countries remained highly subsidised and protected against competition from imports.

Introducing higher level of multilateral discipline in this sector had been under consideration in the GATT, but no concrete results could be achieved until the conclusion of the Uruguay Round (1986-94). The Tokyo Round (1973-79) got engaged in it, but no forward move could be made. Thereafter, there were regular informal consultations organised by the GATT Secretariat for moving this process further, but there was no progress. Finally it was taken up in the Uruguay Round as one of the important subjects for negotiation.

These negotiations proved to be quite tortuous, as important domestic interests in several major developed countries were involved. The main agricultural exporting countries joined into a formal group, called the Cairns Group (named after the place where the group first met) and effectively coordinated their negotiating policies and strategies. The USA, though not a member of this group, provided its support to the demands of this group for full liberalisation of trade in this sector. The countries of the EU, which had been protecting their farm sector for a very long time, were the main targets of this group. There were internal problems in the EU, as the various countries did not have totally convergent perception of the agricultural protection. The countries, which had been protecting their farm sector, were hesitant to dismantle the protection, whereas the other countries, which had to bear the cost of this protection, were keen on having liberalisation in this sector.

During the course of the Uruguay Round, the negotiation was mostly centred around the talks between the Cairns Group and the European Commission. And towards the end, the bilateral talks between the USA and the EC concluded the negotiations. The developing countries, which were not the members of the Cairns Group, did intervene in the negotiations from time to time, but could not be effective in this process.

The importance of the agreement of the Uruguay Round in this sector lies in the fact that it has initiated the process of bringing agriculture into the folds of the normal multilateral trading rules. In several ways the disciplines are still softer than those applicable to the industrial goods; yet in some ways the disciplines are tougher as will be explained later.

Main Provisions

The main disciplines are contained in the Agreement on Agriculture. This agreement has a special feature as it overrides the provisions of GATT 1994 and those of the other WTO agreements (Article 21). If there is a conflict between the provisions of this agreement and any provision of GATT 1994 or another WTO agreement, the provisions of this agreement will be applicable.

The Agreement covers the products in the Harmonised System of Classification Chapters 1 to 24 except fish and fishery products and some small number of items in some other chapters. Thus fish and fishery products are covered by the disciplines contained in GATT 1994 and other WTO agreements as applicable to the non-agricultural products.

The disciplines in the Agreement are broadly in three areas, viz., (i) market access, (ii) domestic support, i.e., the subsidy given for production and (iii) export subsidy. In these areas, the commitments of Members are contained in their respective schedules which are preserved as WTO publications. Hence in order to know what the commitments of the Members are, one has to consult these schedules; merely the reading of the Agreement does not give this information.

The commitments in these areas contained in these schedules have been worked out by the Members on the basis of the modalities set for this purpose during the negotiations in the Uruguay Round. The paper containing the modalities, however, is not a part of the Agreement, hence it is no more enforceable. What is enforceable is the commitment of a Member contained in its schedule which was presumably based on the modalities.

The modality paper gave the guidelines for the calculation of the base levels of import restraint, domestic support and export subsidy. It laid down the extent of required reductions in these levels (in terms of percentages) during the implementation period. The schedules prepared by a Member were supposed to be verified by other Members in the process of verification; but the time was too short for a thorough verification.

The restrictions on market access were earlier in the form of tariffs and certain non-tariff measures, like quantitative restrictions, variable import levies, minimum import prices, discretionary import licensing, state trading, voluntary export restraints and similar other border measures. Members were required to remove all these non-tariff measures and replace then by their tariff equivalents. These additional tariff levels were to be added to the ordinary tariffs resulting in the total tariffs on different agricultural products. This is called the "tariffication" of the non-tariff measures.

The base tariff levels have been calculated by a Member and these were to be reduced by certain specified percentages over the implementation period. These are to be the final levels of tariffs at the end of the implementation period. The base levels and the final levels of tariffs have been recorded by a Member in its schedule. This reduction was required to take place uniformly over the implementation period. In this manner, the tariffs would get reduced successively from year to year during this period. The modalities required that a developed country would reduce the tariff by 36 percent and a developing country by 24 percent over their respective implementation periods, which in the former case is until the end of 2000 and in the latter case until the end of 2004.

Import control measures taken in pursuance of some specific provisions of GATT were not required to be covered by the process of tariffication. For example, the measures taken by developing countries for balance of payment (BOP) reasons in accordance with Article XVIIIB of GATT 1994, or the measures taken by Members in pursuance of general exceptions as contained in Article XX of GATT 1994 were not required to be subjected to tariffication process. The implication is that once a developing country Member ceases to have the protection of the BOP provisions, it cannot resort to such import control measures in agriculture except through the procedure of safeguard action.

All Members, including the developing country Members and even the LDC Members, have been required to bind all tariffs on agricultural products. It is a severe discipline, particularly on the developing countries, specially the LDC's. However, the LDC's are exempt from the obligation to reduce the tariffs.

It had been apprehended that the Members would have very high tariffs as a result of tariffication, which would have made market access in these products almost impossible. Hence the Members were required to provide certain levels of import opportunity through tariff quotas, i.e., by providing very low tariffs up to certain specified import quantities in different products.

There were three types of import opportunities provided by the Members in this manner as given below.

1. Current market opportunity was to be provided by including in the tariff quota (i.e., by providing very low tariffs) the levels of import equal to the average annual import for the reference years 1986-88. The quantities covered by the then existing bilateral or plurilateral agreements were to be continued.
2. There would be minimum market access opportunity by laying down certain quantity in the tariff quota for this purpose. The quantity against this provision in 1995, i.e., the first year of the implementation period, would not be less than 3 percent of the average annual consumption in 1986-88. It would be raised to 5 percent by the end of the implementation period.
3. Special minimum market access opportunity was to be provided by Japan, Philippines and the Republic of Korea for rice and Israel for sheep meat and some dairy products. These Members did not resort to tariffication in respect of these products, and in lieu of that, the special minimum market access opportunity has been provided by them.

The tariff quotas in the WTO are generally to be available for use by the other Members on a non-discriminatory basis. Thus these tariff quotas in agriculture were to be laid down at the global level, except for the country-specific quotas in pursuance of the bilateral or plurilateral agreements. But in actual practice, several developed countries mixed up various elements of access opportunities and have provided for country-specific quotas in a large number of cases.

Whereas it is possible to take general safeguard measure (explained in the chapter on safeguard) in agriculture, there are also provisions for special safeguard measure (SSM) in this area under certain conditions. Members that have taken to tariffication in respect of some products are authorised to use SSM on those products. The SSM can be in the form of additional duty on imports. Unlike the general safeguard, quantitative restriction cannot be imposed through this route of SSM. An important point of difference from the general safeguard action is that in the case of the SSM, injury to the domestic production is not required to be proved, as is the case with the general safeguard action.

There are two alternative pre-conditions for taking SSM, viz., (i) the import quantity rises above a trigger level, or (ii) the price level falls below a trigger level.

The import quantity trigger level is the sum of two components, viz., the import component and the change in the domestic consumption. The import component is taken as 105 to 125 percent of the import in the three preceding years. Actually which percentage in this range will be taken, depends on the import penetration, i.e., the volume of import as a percentage of domestic consumption. A formula has been given for this purpose in the Agreement.

An example will clarify it. If the import of a product is up to 10 percent of the domestic consumption, the trigger quantity will be: 125 percent of the average annual import in the last three years plus the change in the quantity of domestic consumption in the current year over the previous year.

There is a limit to the additional duty, which can be imposed through the import quantity trigger. The additional duty cannot exceed one third of the ordinary customs duty on the product.

The price trigger is to be announced by a Member. It is generally the average price during 1986-88. In this case too, there is a limit to the additional duty which can be imposed. Different limits have been prescribed based on the differential of the import price and the trigger price. No additional duty will be imposed, if the differential is 10 percent or less.

If the trigger price announced by a Member is high, the occasion for using SSM will naturally be more.

The modalities agreed during the negotiations provided for the quantification of the domestic support and its reduction over the implementation period. The quantification is done through Aggregate Measurement of Support (AMS). The AMS for different products, and also those that are of a general nature and thus not related to any specific product, are added to get the Total AMS. The level of the Total AMS which forms the basis for reduction is called the Base Total AMS and is calculated on the basis of the figures for 1986-88.

The modalities required that the Base Total AMS would be reduced by the developed countries by 20 percent and by the developing countries by 13.3 percent over the implementation period which is the end of 2000 for the former and the end of 2004 for the latter. This total reduction is distributed over the successive years. The reduced level for a particular year in the implementation period is called the Annual Bound Commitment level of the Total AMS for that year. In order to examine whether or not a Member has fulfilled its commitment of reduction of the domestic support, the Annual Bound Commitment level is compared with the actual level of the support in that particular year, which is called the Current Total AMS for that year.

It is to be noted that the commitment is on the reduction of the Total AMS; thus a Member has the flexibility to choose the type of the measures and the products which will be covered by the particular measures within the overall ceiling of the Annual Bound Commitment level of the Total AMS for that particular year.

The Members have calculated their base levels and annual levels and included them in their schedules.

The LDC's do not have to undertake any commitment for the reduction of their domestic support.

The exemptions from the reduction commitment are recorded at two places in the Agreement, viz., in Article 6 and in Annex 2. These two types of domestic support have been given different treatment in respect of their exemption as will be explained later.

Article 6 covers: investment subsidies generally available to agriculture in developing countries, input subsidies generally available to low income or resource-poor producers in developing countries, support to producers to encourage diversification from growing illicit narcotic crops in developing countries, product-specific domestic support which does not exceed 5 percent of the total value of the production of that product in the year under consideration (this de minimis limit is 10 percent for developing countries), non-specific domestic support which does not exceed 5 percent of value of the total agricultural production in a country (this de minimis limit is 10 percent for a developing country), and direct payments under production limiting programmes subject to certain maximum limits.

Annex 2 covers: general services, like research, pest and disease control, training, extension and advisory services, inspection services, marketing and promotional services and infrastructure services, public stock-holding for food security purposes, provided the purchases are made at the current market prices and sales at no less than the current domestic market prices (developing countries have the flexibility to have the purchase and sale at administered prices, but the price subsidy in purchases is to be counted in the AMS, which means that some other subsidy in agriculture in that year will have to be reduced if there is price subsidy in purchases for this purpose), domestic food aid, provided the purchases are made at current market prices (developing countries may provide food to the poor at reasonable prices, without this subsidy being counted in the AMS), certain types of direct payment to producers, like decoupled income support, financial participation in income insurance and income safety net programmes, payment for relief from natural disasters, structural adjustment assistance through producer retirement programmes, resource retirement programmes or investment aids, payment for environmental programmes and payment under regional assistance programmes.

There is a difference between the immunity provided to these two types of domestic support. Those included in Annex 2 are exempt from both countervailing duty action and countermeasure based on the dispute settlement process. Those included in Article 6 are, however, exempt from only the countermeasure based on the dispute settlement process, and that too only if the domestic support is not in excess of the level in 1992. These exemptions will remain in force till the end of 2003.

In respect of the export subsidy the discipline on reduction is on two parameters, viz., the annual budgetary outlay and the quantity of export covered by the export subsidy. The modalities prescribed that the base for the calculation of reduction in these cases would be the figures for 1986-1990. These base figures would be kept for 1995. The requirement of reduction in the developed countries over the period of implementation would be 36 percent for the budgetary outlay and 21 percent for the quantity of export covered by the export subsidy. The period of implementation is till the end of 2000. In case of the developing countries, these percentages would be respectively 24 and 14, and the period of implementation is till the end of 2004. The reduction in the levels of subsidy would be spread uniformly from year to year, during the implementation period. The Members have calculated their base levels and annual levels and included them in their schedules.

The LDC's are exempt from the commitment to reduce their export subsidy.

Some examples of the export subsidy given in the Agreement are: subsidies contingent on export performance, sale or export of a products by governments at prices lower than those of the like products in the domestic market, payments on the export of a product that are financed by virtue of governmental action, either through public account or through a levy on the product, subsidies to reduce the cost of marketing, including handling, upgrading, processing and international transport and freight, provision of internal transport and freight charges on terms more favourable than for domestic transport and subsidies contingent on the incorporation of the product into exported products.

The developing countries are exempt from the disciplines on two types of export subsidies, viz., (i) payment to reduce the cost of marketing, including handling, upgrading, processing and international transport and freight, and (ii) provision of internal transport and freight for export shipment on terms more favourable than those for domestic shipments.

The special provisions for the developing countries, including the LDC's have been mentioned earlier at the relevant places; but for convenience, it may be proper to put them at one place.

There is no obligation on the LDC's to reduce tariffs, domestic support and export subsidy. But even they have to bind tariffs on all agricultural products.

In accordance with the modalities, the developing countries, other than the LDC's, have the commitment to reduce their tariffs, domestic support and export subsidy to the extent of two thirds of the respective percentages of reduction applicable to the developed countries. Thus for tariffs, domestic support, budgetary outlay for export subsidy and the quantity of export covered by the export subsidy, the reduction in case of developing countries, other than the LDC's, would be respectively 24, 13.3, 24 and 14 percent.

The implementation period for the reduction commitment for the developing countries is from 1995 to 2004, whereas for the developed countries it is 1995 to 2000. Thus the developing countries have a longer duration to bring about the prescribed reduction, which means that the reduction per year during the implementation period is lower compared to that for the developed countries.

Further, a Ministerial Decision at Marrakesh (April 1994) has mentioned about the special problems of the LDC's and other net food importing developing countries. The decision is to work towards more effective food aid. Also, the special difficulties faced by these countries in importing foodstuff have been recognised. However, there is no decision about any specific action in this regard.

The developed countries have kept their tariffs very high in respect of several agricultural products as they have taken very high tariff equivalents of their non-tariff import restraints. Some countries have kept their tariff levels between 300 percent and 400 percent in respect of some products, e.g., 352.7 percent for wheat, 388.1 percent for wheat product and 361 for barley product in Japan and 360 percent for butter in Canada. Some countries have kept their tariffs between 200 percent and 300 percent for some products, e.g., 244.4 percent for sugar in the USA, 213 percent for beef in the EU and 289 percent for cheese and 236.3 percent for eggs in Canada. These are clearly prohibitive tariffs, making any import almost impossible.

The requirement on the developed countries was to reduce their tariffs, domestic support and export subsidy by 36 to 20 percent over the period 1995-2000. Thus even at the end of this period, they will still have 64 to 80 percent of these protective measures in their countries. On the other hand, the developing countries which were not using non-tariff measures, domestic support and export subsidy before the coming into force of the WTO agreements, are prohibited from using them in future beyond the de minimis level. This is patently unfair and iniquitous in the sense that the countries which had been distorting the market in the past are allowed to distort it in future to a substantial extent, while the countries which were not distorting the market in the past are prohibited from doing so in future and thereby there is an unfair burden of obligation on them.

As mentioned above, there is recognition of the problems of the LDC's and the net food importing countries regarding additional burden on them caused by the liberalisation in agriculture. However, there is no specific action mentioned in the agreement for the remedy. Consequently, these countries have continued to remain with their problems without any relief.

It has been mentioned in the section on market access that the Members have provided special market access through tariff quotas, but in several cases these are country-specific quotas and not global quotas. The Members in general cannot take advantage of the tariff quotas which are made country-specific.

A Member has the flexibility to choose the products as well as the types and rates of domestic support within the overall limits of the annual domestic support amounts. Thus exporting countries are not sure which products and which types and rates of support would be used by a particular Member in a particular year. This creates an uncertainty about their export prospects.

The Agreement mentions that negotiations will commence at the beginning of 2000 for further reduction of protection and subsidies. Since general non-tariff measures have already been converted to tariffs, the negotiation on reduction of protection will be focussed on reduction of tariffs. Besides, the reduction in the domestic support and export subsidies will also be covered by the negotiations.

As the tariffs on several products and domestic support as well as export subsidies are still very high in the developed countries, it is in the interest of developing countries, including the LDC's to press for a high degree of reduction in these levels in the developed countries. Their objective in the negotiations should be to achieve this objective. Further, it will also be important for them to resume some flexibility for themselves regarding the use of import control, domestic support and export subsidy in this area. The recommended action for developing countries, particularly the LDC's, is elaborated later in the form of suggestions for improvement.

It is desirable for developing countries, particularly the LDC's, to produce food for domestic consumption even if such production is somewhat costly. It will be dangerous for them to depend on imported food. They generally do not have a stable and comfortable foreign exchange reserve and income; hence they do not have an assured capacity to import food. And provision of food to the country's population is an absolute necessity. Hence production of food in developing countries, particularly the LDC's, must be encouraged and any impediments to it must be removed.

It is therefore necessary for them to have the flexibility to use domestic support and import control as may be necessary for encouraging their food production for domestic consumption. At present they do not have the flexibility in domestic support beyond the de minimis level and they do not also have the flexibility to use direct import control measures. These should be allowed for the purpose of enhancing food production in these countries for domestic consumption.

Hence, food production for domestic consumption in the developing countries, particularly the LDC's, should be kept out of the current disciplines of the WTO.

The underlying objective behind the disciplines in the Agreement on Agriculture is the working of the price mechanism and commercial practices. However, in a large number of developing countries, it is a common practice for farmers to take to farming not as a commercial venture but simply as a family activity coming on for generations. They cultivate their land as it has come to them as inheritance and they have no other source of livelihood. This is in the nature of subsistence farming at the household level. Besides, many developing countries have a large number of small farmers who will not be able to stand the competition in international trade.

Hence, if this sector is subjected fully to the disciplines on import control and domestic support as contained in the Agreement, vast number of such small farmers and household farmers may lose their source of livelihood. Therefore it is necessary for the developing countries, particularly the LDC's, to have the flexibility regarding import restraint and domestic support for the protection of and for providing support to such farmers. This activity should remain outside the disciplines of the Agreement.

As mentioned earlier, several developed countries are maintaining high tariffs in agricultural sector, which in many cases are at prohibitive levels. All they have been required to do is to reduce the tariffs by 36 percent from the beginning of 1995 to the end 2000. Thus even by the end of 2000, their tariffs levels on a large number of items will remain very high. Their farmers have already benefited by protection for a very long time, earlier through direct import control measures and lately by prohibitive tariffs. Continuation of such high level of protection in the developed countries is very unfair.

It is necessary for the developed countries to reduce their tariffs in this area significantly. Mere reduction by a certain percentage will not be sufficient; what is needed is to have a reasonable tariff level and remove all tariffs beyond that level within a short period.

As explained earlier, the developed countries are still continuing with very high levels of domestic support and export subsidy, as they were required to reduce them only by 36 to 21 percent from the beginning of 1995 to the end of 2000. The farmers in these countries have enjoyed government support for a long time in the past. They have much higher levels of resources and infrastructure. Their continuing to get such high levels of domestic support and export subsidy distorts the international trade significantly and grossly undermines the production and export prospects of the farmers of developing countries.

Therefore, the domestic support and export subsidy in developed countries should be totally eliminated over a short period of time. Mere reduction by certain percentages is not enough.

Only a few of the developing countries were using domestic support and export subsidy during the base period as defined in the modalities for commitment in the Uruguay Round. Hence a very large number of the developing countries have not recorded domestic support and export subsidy in their schedules. The result is that they are debarred from applying these measures in future beyond the de minimis levels. This is highly iniquitous, particularly as their farmers are in much more disadvantageous position compared to those in the developed countries.

There is therefore a grave need for removing the prohibition on the developing countries, particularly the LDC's, on the use of domestic support and export subsidy. Those of them that have given their schedules for these measures should be allowed to have a slower pace of reduction.

The "due restraint" provision contained in Article 13 of the Agreement is highly iniquitous. No countervailing duty action or countermeasure through the dispute settlement process can be taken against the subsidies covered by Annex 2, which are generally prevalent in developed countries. However, no such exemption has been made in respect of the subsidies covered by Article 6, some of which are very relevant and necessary for the developing countries, e.g., investment subsidies and input subsidies. In respect of them it is said that no countervailing duty will be imposed unless injury is established. It appears totally meaningless since countervailing duty cannot be in any case imposed without the establishment of injury. Further it is said that due restraint will be shown in initiating the action for countervailing duty. We know by experience that such expression of good intention does not bind any country in the WTO. Further, the countermeasure through the dispute settlement process is also allowed in such cases if the level of the subsidy on a product exceeds that in 1992.

It is necessary to make the subsidies of developing countries covered by Article 6 totally immune from the countervailing duty action and countermeasure through the dispute settlement process.

As mentioned earlier, a country has the flexibility to chose the product, the type of subsidy and the rate of subsidy in a year within the overall discipline of not exceeding the amount of subsidy beyond the Annual Bound Commitment level. The exporting countries thus remain in doubt about their export prospects as they do not know well in advance which products will be covered by the subsidy and to what extent.

It is desirable for the countries to announce well in advance, say more than a year ahead, about the choice of the product, the type of subsidy and the rate of subsidy proposed to be applied in a particular year.

As mentioned earlier, the current provision about the relief to the LDC's and net food importing developing countries does not contain specific and concrete action. No relief has been provided so far. There is a need for specific action for relieving the burden on these countries arising out of increase in the cost of import of food as a result of the liberalisation in agriculture.

It will be useful to have a fund for this purpose, to which contribution should be made by the developed exporting countries. Specific criteria for the contribution to the fund should be worked out and should be made enforceable in the Agreement.