Understanding the WTO’s Agreement on Agriculture (AoA)

Context:

The US and Australia have contended that India has provided sugarcane subsidy beyond the limits set out in the WTO’s Agreement on Agriculture (AoA), which may have distorted global trade.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. Understanding the WTO’s Agreement on Agriculture (AoA)
2. Critique of WTO’s AoA
3. Concerns Regarding India’s Sugarcane Subsidies

Understanding the WTO’s Agreement on Agriculture (AoA):

• The AoA, part of the World Trade Organisation’s (WTO) framework, was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade and took effect on January 1, 1995.
• It categorizes subsidies into “boxes” based on their impact on production and trade: Amber (linked to production levels), Blue (production-limiting but trade-distorting), and Green (minimally distorting).
• While subsidies in the amber box must be reduced, those in the green box are exempt from reduction commitments but must meet specific criteria to avoid significant trade or production distortion.

Three Pillars of the AoA:

Domestic Support:

• Classified into trade-distorting and non-trade-distorting categories, allowing significant spending by developed countries on agricultural subsidies, leading to global market saturation and price depression, particularly affecting producers in developing countries.

Market Access:

• Involves reducing tariff or non-tariff barriers to trade, with developed and developing countries mandated to decrease tariffs by specific percentages over defined periods, with exemptions and provisions for least developed countries (LDCs) to convert non-tariff barriers to tariffs or establish tariff ceilings.

Export Subsidies:

• Requires developed countries to reduce export subsidies by defined percentages over set timeframes, with similar obligations for developing countries, aimed at curbing trade-distorting practices and fostering fairer global trade in agricultural products.

Critique of WTO’s AoA:

• Civil society groups have criticized the Agreement for diminishing tariff protections for small farmers in developing nations while allowing affluent countries to maintain domestic agricultural subsidies.
• NGOs have faulted the categorization of subsidies into trade-distorting (amber box) and non-trade-distorting (blue and green boxes), alleging that this arrangement permits an increase in non-trade-distorting subsidies.
• There’s concern that as developed countries face pressure to reduce trade-distorting support, their spending on non-trade-distorting (green box) subsidies has surged.

Concerns Regarding India’s Sugarcane Subsidies:

• US-Australia report claimed that India’s sugar subsidies exceeded 90% of production value, surpassing the permissible limit of 10%.
• The report utilized a methodology endorsed by a WTO panel that ruled against Indian sugar subsidies in 2021 for calculating subsidy levels (Aggregate Measurement of Support [AMS]), categorizing it as a trade-distorting subsidy.
• India contends that its Fair and Remunerative Price (FRP) for sugarcane and State-Advised Prices (SAPs) do not constitute market price support under the AoA.
• Each sugar season, India sets the Fair and Remunerative Price (FRP) for sugarcane, which acts as a floor price for sugar mills to pay farmers. Additionally, farmers receive premiums for increased production efficiency, and some states offer additional support known as State-Advised Prices (SAPs).
• India’s appeal against the 2021 WTO panel report prevented its adoption by the WTO Dispute Settlement Body due to the non-functionality of the Appellate Body, delaying decisions on appeals.

-Source: The Hindu