The Agreement on Agriculture (AoA) is an international treaty of the World Trade Organization. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO on January 1, 1995.
The idea of replacing agricultural price support with direct payments to farmers decoupled from production dates back to the late 1950s, when the twelfth session of the GATT Contracting Parties selected a Panel of Experts chaired by Gottfried Haberler to examine the effect of agricultural protectionism, fluctuating commodity prices and the failure of export earnings to keep pace with import demand in developing countries.
The 1958 Haberler Report stressed the importance of minimising the effect of agriculture subsidies on competitiveness and recommended replacing price support with direct supplementary payments not linked with production, anticipating discussion on green box subsidies. Only more recently, though, has this shift become the core of the reform of the global agricultural system.
The Agreement on Agriculture constitutes of three pillars domestic support, market access, and export subsidies.
The first pillar of the Agreement on Agriculture is “domestic support”. AoA divides domestic support into two categories: trade-distorting and non-trade-distorting (or minimally trade-distorting). The WTO Agreement on Agriculture negotiated in the Uruguay Round (1986–1994) includes the classification of subsidies by “boxes” depending on consequences of production and trade: amber (most directly linked to production levels), blue (production-limiting programmes that still distort trade), and green (minimal distortion). While payments in the amber box had to be reduced, those in the green box were exempt from reduction commitments. Detailed rules for green box payments are set out in Annex 2 of the AoA. However, all must comply with the “fundamental requirement” in paragraph 1, to cause not more than minimal distortion of trade or production, and must be provided through a government-funded programme that does not involve transfers from consumers or price support to producers.
The Agreement on Agriculture’s domestic support system currently allows Europe and the United States to spend $380 billion a year on agricultural subsidies. The World Bank dismissed the EU and the United States’ argument that small farmers needed protection, noting that more than half of the EU’s Common Agricultural Policy subsidies go to 1% of producers while in the United States 70% of subsidies go to 10% of its producers, mainly agribusinesses. These subsidies end up flooding global markets with below-cost commodities, depressing prices, and undercutting producers in poor countries, a practice known as dumping.
Market access refers to the reduction of tariff (or non-tariff) barriers to trade by WTO members. The 1995 Agreement on Agriculture consists of tariff reductions of:
- 36% average reduction – developed countries – with a minimum of 15% per-tariff line reduction in next six years.
- 24% average reduction – developing countries – with a minimum of 10% per-tariff line reduction in next ten years.
Least developed countries (LDCs) were exempt from tariff reductions, but they either had to convert non-tariff barriers to tariffs a process called tariffication or “bind” their tariffs, creating a ceiling that could not be increased in future.
Export subsidies are the third pillar. The 1995 Agreement on Agriculture required developed countries to reduce export subsidies by at least 36% (by value) or by 21% (by volume) over six years. For developing countries, the agreement required cuts were 14% (by volume) and 24% (by value) over ten years.
The Agreement has been criticised by civil society groups for reducing tariff protections for small farmers, a key source of income in developing countries, while simultaneously allowing rich countries to continue subsidizing agriculture at home.
The Agreement was criticised by NGOs for categorizing subsidies into trade-distorting domestic subsidies (the “amber box”), which have to be reduced, and non-trade-distorting subsidies (blue and green boxes), which escape discipline and thus can be increased. As efficient agricultural exporters press WTO members to reduce their trade-distorting “amber box” and “blue box” support, developed countries’ green box spending has increased.
A 2009 book by the International Centre for Trade and Sustainable Development (ICTSD) showed how green box subsidies distorted trade, affecting developing country farmers and harming the environment. While some green box payments only had a minor effect on production and trade, others have a significant impact. According to countries’ latest official reports to the WTO, the United States provided $76 billion (more than 90% of total spending) in green box payments in 2007, while the European Union notified €48 billion ($91 billion) in 2005, around half of all support. The EU’s large and growing green box spending was decoupled from income support, which could lead to a significant impact on production and trade.
Third World Network stated, “This has allowed the rich countries to maintain or raise their very high subsidies by switching from one kind of subsidy to another…This is why after the Uruguay Round the total amount of subsidies in OECD countries have gone up instead of going down, despite the apparent promise that Northern subsidies will be reduced.” Moreover, Martin Khor argued that the green and blue box subsidies can be just as trade-distorting as “the protection is better disguised, but the effect is the same”.
At the 2005 WTO meeting in Hong Kong, countries agreed to eliminate export subsidy and equivalent payments by 2013. However, Oxfam argued that EU export subsidies comprise for only 3.5% of its overall agricultural support. United States, removed export subsidies for cotton which only covers 10% of overall spending.
On 18 July 2017 India and China jointly submitted a proposal to the World Trade Organization (WTO) calling for the elimination by developed countries of the most trade-distorting form of farm subsidies, known in WTO parlance as Aggregate Measurement of Support (AMS) or ‘Amber Box’ support as a prerequisite for consideration of other reforms in domestic support negotiations.