WTO Agreement on Agriculture: Key Provisions, Impact & Challenges

The Agreement on Agriculture (AoA) is a foundational WTO treaty aimed at reforming global farm trade. The World Trade Organization Agreement on Agriculture-AoA was initiated in 1995 and still up-to-date created the purpose for effecting modifications in the global agricultural trade by diminishing the trade-distortive subsidies and barriers. The three constituents are domestic support, market access, and export subsidies. The agreement further recognizes some non-trade concerns, such as food security and protection for the environment, and provides special cases and differential treatment for developing countries.The agreement applies to the goods of agriculture that are called agricultural goods. The Agreement on Agriculture was signed as part of the Uruguay Round Agreements that established the World Trade Organization in 1995. The key objectives of the agreement were to reduce agricultural subsidies and trade barriers like import quotas. The agreement aimed to discipline global agriculture trade and reduce trade-distorting policies and subsidies. However, many developed and developing countries could not fully meet the commitments and reductions agreed under the international agreement.

The WTO Agreement on Agriculture UPSC/ UGC NET Commerce topic holds high weightage in the Commerce syllabus, and questions are frequently asked in both Paper 1 and Paper 2

In this article the readers will be able to know about the following:

• Agreement on Agriculture
• WTO Agreement on Agriculture
• Types of Agricultural Subsidies Under WTO Agreement on Agriculture
• Agriculture Land Lease Agreement in India
• WTO Agreement on Agriculture India
• Objectives of Agreement on Agriculture
• Features of WTO Agreement on Agriculture
• Agricultural Land Lease Agreement Format
• Agreement on Agriculture Criticism

This article also serves as comprehensive Agreement on Agriculture notes for UGC NET and UPSC aspirants.

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What is the Agreement on Agriculture?

The Agreement on Agriculture is part of the World Trade Organization agreements that aim to liberalize and promote free trade in agriculture. The key objective of the agreement is to reform trade policies that distort agricultural production and trade. 

The agreement tries to achieve this objective by requiring countries to reduce the types and amount of subsidies they give farmers. It also requires countries to lower the tariff barriers, like import duties restricting agricultural imports. This way, agricultural markets are made more open and competitive through reduced subsidies and trade barriers.

Understanding the Agreement on Agriculture is essential for anyone preparing for UGC NET or studying international trade reforms

Fig: agreement on agriculture

The Agreement on Agriculture was one of the biggest achievements of the Uruguay Round talks that led to the formation of the World Trade Organization in 1995. The key aim of the agreement was to reform trade policies that distort agricultural production and limit market access.

The agreement sought to correct and reduce the trade-distorting impact of governments' agricultural support and protection policies. These policies include subsidies to farmers, import tariffs and quotas that insulate domestic farmers from global competition.

Let’s understand the major provisions of Agreement on Agriculture WTO that member countries are obliged to implement for trade liberalization

• Reduce agricultural export subsidies by 36% over 6 years. This was to make exports more based on market prices and competition.
• Cut internal support measures like input subsidies and price supports by 20% over 6 years. This was to reduce policies that artificially raise farm incomes.
• Lower tariffs on agricultural imports by an average of 36% over 10 years. This was to reduce high import duties that protect local farmers.
• Increase minimum access opportunities or import quotas to allow more imports into domestic markets. This is to further open markets.

Types of Agricultural Subsidies Under WTO Agreement on Agriculture

The WTO Agreement on Agriculture classifies government subsidies into three main categories or "boxes" depending upon their effect on trade distortion. These categories are color-coded like traffic lights: Green, Blue, and Amber, which are central to an understanding of the WTO's efforts to discipline agricultural support around the world.

Green Box Subsidies - "Permissible and Non-Trade Distorting"

Green Box subsidies are government assistance programs that minimally or not distort international or domestic trade. Under the Agreement, these are exempt from limit irrespective of the member's economic status.

Characteristics

• Not related to the levels of current production or prices.
• Do not significantly affect supply or demand.
• Program ideals are long-term agricultural sustainability.

Examples

• Such expenditures can be for agricultural research and development.
• Environmental protection programs (like soil conservation).
• Investment in infrastructure (e.g. irrigation, roads).
• Public stockholding for food security (limited to certain conditions).
• Direct payments to farmers that are not related to production.

Exempted from Limitations

• Members of the WTO can provide unlimited Green Box subsidies if they meet the condition of being transparent and complying with notification purposes.
• India, under Green Box, is utilizing subsidies for R&D, disaster relief, and some public food distribution costs. 

Blue Box Subsidies - "Production-Limiting but Permissible"

Definition: A subsidy that is linked to production but, through conditions limiting agricultural production, is thereby minimally trade-distorting.

Characteristics

• Direct payments under programs which limit production.
• Mostly used in developed countries to support farmers' incomes while curtailing overproduction.
• To encourage farmers not to increase cultivation beyond a certain limit.

Examples

• Farmers are paid by the EU through the CAP on condition that they leave a portion of their land uncultivated.
• Payments existed that related to fixed crop area or yield and not current actual output.

Not Allowed Without Reduction Commitments

• Unlike Amber Box, immediate reduction commitments do not apply to the Blue Box.
• India is hardly using any Blue Box subsidies, as opposed to the developed countries such as the EU which are utilizing them widely.

Amber Box Subsidies - "Trade Distorting and Subject to Reduction"

Definition: Amber Box includes all subsidies that distort production and trade, including those directly linked to price, output, or inputs.

Features

• Tied directly to production levels or production costs.
• Encourage overproduction, affect international competitiveness.
• Subject to limits and reduction commitments under AoA.

Examples

• India's Minimum Support Price (MSP).
• Input subsidies such as subsidized fertilizers, electricity, or water.
• Price guarantee for selected crops.

De minimis level

• Countries are permitted to maintain some Amber Box type subsidies subject to certain limits:
• Developed countries - 5% of the value of agricultural output.
• Developing countries (including India) - 10% of agricultural output value.
• MSP and input subsidies in India come under the Amber Box. It maintains its share within the de minimis of 10%. However, its sizeable food security program has stirred global debate.

Comparison Table: WTO Subsidy Boxes

Agriculture Land Lease Agreement in India

In India, leasing agricultural land involves an agreement between the landowner (lessor) and a tenant or lessee. Such arrangements are usually governed by either verbal contracts or written lease agreements. However, the laws related to agricultural land leasing slightly vary from state to state, due to agriculture being a state subject in India.

Key components of an agricultural land lease agreement typically include:

• Parties to the Lease: This section identifies the landowner and the lessee, including their names, addresses, and other relevant details.
• Description of the Property: The agreement should provide a precise description of the agricultural land being leased, including its address, boundaries, area, and any significant nearby landmarks.
• Terms of the Lease: The duration of the lease and terms of renewal should be specified.
• Rent Amount and Payment Terms: The lease agreement must state the rent due and the frequency of payments. It should also describe any late payment fees and mode of payment.
• Rights and Responsibilities: This section outlines the lessee's rights, such as the right to cultivate the land and sell the output, and responsibilities, such as maintaining the property and not degrading the soil. The owner's rights, like the right to inspect the property, and their responsibilities, such as taxes and levies, should be clearly articulated as well.
• Termination Clause: Conditions for the termination of the lease should be laid out. This could involve the breach of terms, non-payment of rent, or natural disasters causing the land to become uncultivable.
• Dispute Resolution: It includes the mechanism to handle potential disputes, whether through litigation or alternative dispute resolution mechanisms like arbitration.
• Signatures: Both the landowner and lessee must sign the agreement, signifying they have read, understood, and agreed to the terms.

WTO Agreement on Agriculture India

The WTO Agreement on Agriculture India impact includes both opportunities and challenges for the domestic agricultural economy, particularly for small and marginal farmers

• As part of the agreement, India had to reduce import duties and eliminate quotas on several agricultural products. This exposed domestic farmers to international competition and price fluctuations.
• India had to cut its agricultural export subsidies by 36% over 6 years as agreed in the pact. This affected India's ability to effectively promote farm exports.
• India also had to reduce domestic support measures like minimum support prices and input subsidies for crops. This caused uncertainty for farmers dependent on such policies.
• However, developed countries could still provide higher subsidies to their farmers within the agreed ceilings. This made competition difficult for Indian farmers.
• There was also little immediate gain for India from developed country market access commitments due to non-tariff barriers faced by Indian exports.
• Over time, India has gained more from provisions to increase import quotas for products like pulses, fruits etc., that it cannot produce enough off. This has helped control inflation.
• Overall, the agreement opened India's farm sector to international competition and discipline while developed countries could still support their farmers more. This tilted the playing field against Indian farmers.

Comparison Table on WTO Agreement on Agriculture, India

The WTO Agreement on Agriculture (AoA) introduced a framework to liberalize global farm trade through reduced subsidies, tariff cuts, and open market access. However, the implementation and impact of AoA differ significantly between developing countries like India and developed nations. The table highlights how the Agreement on Agriculture in international trade law applies differently to developed and developing countries.

Objectives of Agreement on Agriculture

The objectives of the Agreement on Agriculture in international trade law include food security, trade fairness, and sustainable development. The AoA was established by the WTO to establish a fair and market-oriented agricultural trading system. Its objectives are to enhance global food security while promoting sustainable agriculture in its member countries. The WTO AoA three pillars—Market Access, Domestic Support, and Export Subsidies—form the structural foundation of global agricultural trade reform.

Market Access

Enhanced access to international markets will improve competition and efficiency in the agriculture sector. Expanding greater access to international markets, trade liberalization like scrapping tariffs, and quotas to farmers will improve competition and efficiency in the agriculture sector both to the benefit of producers and consumers.

Domestic Support

Other areas of governance include domestic support measures on which governments give their agricultural sectors. The agreement tries to eliminate this disparity in subsidies, made by countries to their farming sector that distort trade, to make a level playground for farmers from different countries. It promotes fair competition and moves toward healthier agricultural practices.

Export Subsidies

Another critical objective is to abolish export subsidies that are treated as assisting distorting export competition. The AoA should place constraints on these subsidies to facilitate the realization of more balanced conditions of trading, thereby providing a better opportunity for developing-country farmers to compete in the world market.

Food Security

After all, the Agreement on Agriculture emphasizes food security through promotional policies that enhance food production and distribution so that every country can ensure that its people have enough to eat.

Special and Differential Treatment

Finally, AoA calls for special and differential treatment of the developing nations. This objective provides that these countries ought to be accorded a relatively lengthier period to comply with commitments, thereby building agriculture sectors and enhancing their capability to compete favorably in world trade.

Features of WTO Agreement on Agriculture

Here are the key features of the WTO Agreement on Agriculture in simple language that have been discussed below.

• Required members to reduce agricultural export subsidies. Export subsidies distort international trade by making exports artificially cheap. The agreement mandated members to cut export subsidies by 36% over 6 years to reduce this trade distortion.
• Needed members to cut domestic support measures. Price supports and input subsidies distort production and trade. The pact required members to lower these trade-distorting domestic subsidies by 20% over 6 years.
• Called for a reduction in import tariffs. High import duties protect domestic farmers from international competition. The agreement required members to cut agricultural tariffs by an average of 36% over 10 years to increase market access.
• Increased minimum access opportunities for imports. The agreement made members increase the quotas for minimum imports of certain farm goods. This is to facilitate more imports into domestic markets and increase competition.
• Brought transparency in subsidies and policies. The agreement created rules and reporting requirements, making subsidies and policies more transparent. This is to facilitate the monitoring of compliance with subsidy reduction commitments.
• Defined which types of subsidies are exempt and allowed. It exempted some subsidies considered non or minimally trade distorting. But 'Green Box' subsidies were required to meet certain conditions to remain exempt.
• Mandated special treatment for developing countries. The agreement allowed developing countries to give domestic subsidies for agricultural development and food security. It also provided them with longer periods to implement their commitments.

Agricultural Land Lease Agreement Format

An agricultural land lease agreement is a legal contract between a landowner and a tenant farmer. The landowner leases or rents out his agricultural land to the tenant farmer for a certain period in return for rent.

A proper land lease agreement should cover the following key details in simple terms, has been discussed below.

• Names and contact details of the landowner and tenant farmer.
• The exact location and size of the land being leased. The boundary details should be clear.
• The purpose for which the land is being leased, like crop cultivation or animal husbandry.
• The exact period or duration of the lease agreement, like one year or multiple years.
• The rent amount that the tenant farmer will pay to the landowner and the schedule of rent payments.
• Responsibilities of both parties like who will arrange for irrigation, labour, machinery etc.
• Restrictions, if any, on land use, like prohibiting certain crops or livestock.
• Permissions are required, if any, from the landowner for certain activities on the land.
• Details of any improvements the tenant farmer can make to the land during the lease.
• What happens to the improvements made at the end of the lease period?
• Terms for early termination of the lease agreement if required by either party.
• Signatures of both parties with dates as proof of agreement to the contract.

Agreement on Agriculture Criticism

Despite its ambitious goals, the Agreement on Agriculture has received criticism from both developing and developed nations. The Agreement on Agriculture negotiated as part of the Uruguay Round Agreement that formed the WTO has received mixed reviews. While it aimed to reform agricultural trade, it has been criticized on several grounds:

• Developed countries could still provide higher subsidies to farmers within agreed limits. This made competition difficult for farmers in developing countries.
• The base period for calculating reduction commitments favored developed countries. They had to cut subsidies from already low levels while developing country cuts were from higher bases.
• Many countries, including developed ones, did not fully meet their subsidy and tariff reduction commitments. This limited the effectiveness of the agreement.
• There are large loopholes that allow developed countries to continue providing trade-distorting subsidies in the form of 'Green Box' measures.
• Provisions to increase market access through lower tariffs have mainly benefited developed country exporters, not developing country farmers.
• The agreement did not impose caps on the maximum subsidies that countries can provide. They can still support farmers excessively within agreed percentage cut commitments.
• Many developed countries continue to provide export subsidies for selected farm products to promote their exports. This affects competition.
• There are difficulties in monitoring and enforcing the subsidy and trade commitments of some countries that report incomplete or inaccurate data.

Conclusion

The Agreement on Agriculture aimed to reform world farm trade by reducing subsidies, import barriers and export competition. However, it has faced several criticisms and challenges in implementation. While the intent was good, many countries have not fully met their commitments. Several loopholes allow developed countries to still provide trade-distorting subsidies. The benefits have also accrued more to developed country exporters than developing country farmers. Overall, the agreement has only partially achieved its objectives of reducing trade distortions and making global agriculture market-driven. There remains an uneven playing field between developing and developed countries due to the ability of the latter to still substantially support their farmers. Understanding the WTO AoA three pillars and the Agreement on Agriculture India impact is essential for scoring well in WTO Agreement on Agriculture UPSC/UGC NET based questions

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Agreement on Agriculture Previous Year UGC NET Questions

Which of the following is not one of the three main pillars of the WTO Agreement on Agriculture?

1. A) Market Access
   B) Export Subsidies
   C) Domestic Support
   D) Intellectual Property Rights

Answer: D) Intellectual Property Rights