CHAPTER 1:INTRODUCTION 1.1 WORLD TRADE ORGANISATION There are a number of ways of looking at the World Trade Organization. It is an organization for trade opening. It is a forum for governments to negotiate trade agreements. It is a place for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place where member governments try to sort out the trade problems they face with each other. The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTO’s current work comes from the 1986–94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the ‘Doha Development Agenda’ launched in 2001. Where countries have faced trade barriers and wanted them lowered, the negotiations have helped to open markets for trade. But the WTO is not just about opening markets, and in some circumstances its rules support maintaining trade barriers — for example, to protect consumers or prevent the spread of disease. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations. These documents provide the legal ground rules for international commerce. 1
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CHAPTER 1:INTRODUCTION
1.1 WORLD TRADE ORGANISATION
There are a number of ways of looking at the World Trade Organization. It is an organization
for trade opening. It is a forum for governments to negotiate trade agreements. It is a place
for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a
place where member governments try to sort out the trade problems they face with each
other.
The WTO was born out of negotiations, and everything the WTO does is the result of
negotiations. The bulk of the WTO’s current work comes from the 1986–94 negotiations
called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs
and Trade (GATT). The WTO is currently the host to new negotiations, under the ‘Doha
Development Agenda’ launched in 2001.
Where countries have faced trade barriers and wanted them lowered, the negotiations have
helped to open markets for trade. But the WTO is not just about opening markets, and in
some circumstances its rules support maintaining trade barriers — for example, to protect
consumers or prevent the spread of disease.
At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s
trading nations. These documents provide the legal ground rules for international commerce.
They are essentially contracts, binding governments to keep their trade policies within agreed
limits. Although negotiated and signed by governments, the goal is to help producers of
goods and services, exporters, and importers conduct their business, while allowing
governments to meet social and environmental objectives.
The system’s overriding purpose is to help trade flow as freely as possible so long as there
are no undesirable side effects because this is important for economic development and well-
being. That partly means removing obstacles. It also means ensuring that individuals,
companies and governments know what the trade rules are around the world, and giving them
the confidence that there will be no sudden changes of policy. In other words, the rules have
to be ‘transparent’ and predictable.
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Trade relations often involve conflicting interests. Agreements, including those painstakingly
negotiated in the WTO system, often need interpreting. The most harmonious way to settle
these differences is through some neutral procedure based on an agreed legal foundation.
That is the purpose behind the dispute settlement process written into the WTO agreements.
1.2 WORK OF WTO
While the WTO is driven by its member states, it could not function without its Secretariat to
coordinate the activities. The Secretariat employs over 600 staff, and its experts — lawyers,
economists, statisticians and communications experts — assist WTO members on a daily
basis to ensure, among other things, that negotiations progress smoothly, and that the rules of
international trade are correctly applied and enforced.
Trade negotiations
The WTO agreements cover goods, services and intellectual property. They spell out the
principles of liberalization, and the permitted exceptions. They include individual countries’
commitments to lower customs tariffs and other trade barriers, and to open and keep open
services markets. They set procedures for settling disputes. These agreements are not static;
they are renegotiated from time to time and new agreements can be added to the package.
Many are now being negotiated under the Doha Development Agenda, launched by WTO
trade ministers in Doha, Qatar, in November 2001.
Implementation and monitoring
WTO agreements require governments to make their trade policies transparent by notifying
the WTO about laws in force and measures adopted. Various WTO councils and committees
seek to ensure that these requirements are being followed and that WTO agreements are
being properly implemented. All WTO members must undergo periodic scrutiny of their
trade policies and practices, each review containing reports by the country concerned and the
WTO Secretariat.
Dispute settlement
The WTO’s procedure for resolving trade quarrels under the Dispute Settlement
Understanding is vital for enforcing the rules and therefore for ensuring that trade flows
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smoothly. Countries bring disputes to the WTO if they think their rights under the agreements
are being infringed. Judgements by specially appointed independent experts are based on
interpretations of the agreements and individual countries’ commitments.
Building trade capacity
WTO agreements contain special provision for developing countries, including longer time
periods to implement agreements and commitments, measures to increase their trading
opportunities, and support to help them build their trade capacity, to handle disputes and to
implement technical standards. The WTO organizes hundreds of technical cooperation
missions to developing countries annually. It also holds numerous courses each year in
Geneva for government officials. Aid for Trade aims to help developing countries develop
the skills and infrastructure needed to expand their trade.
Outreach
The WTO maintains regular dialogue with non-governmental organizations,
parliamentarians, other international organizations, the media and the general public on
various aspects of the WTO and the ongoing Doha negotiations, with the aim of enhancing
cooperation and increasing awareness of WTO activities
1.3 WTO STAND FOR
The WTO agreements are lengthy and complex because they are legal texts covering a wide
range of activities. But a number of simple, fundamental principles run throughout all of
these documents. These principles are the foundation of the multilateral trading system
Non-discrimination
A country should not discriminate between its trading partners and it should not discriminate
between its own and foreign products, services or nationals.
More open
Lowering trade barriers is one of the most obvious ways of encouraging trade; these barriers
include customs duties (or tariffs) and measures such as import bans or quotas that restrict
quantities selectively.
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Predictable and transparent
Foreign companies, investors and governments should be confident that trade barriers should
not be raised arbitrarily. With stability and predictability, investment is encouraged, jobs are
created and consumers can fully enjoy the benefits of competition choice and lower prices.
More competitive
Discouraging ‘unfair’ practices, such as export subsidies and dumping products at below cost
to gain market share; the issues are complex, and the rules try to establish what is fair or
unfair, and how governments can respond, in particular by charging additional import duties
calculated to compensate for damage caused by unfair trade.
More beneficial for less developed countries
Giving them more time to adjust, greater flexibility and special privileges; over three-quarters
of WTO members are developing countries and countries in transition to market economies.
The WTO agreements give them transition periods to adjust to the more unfamiliar and,
perhaps, difficult WTO provisions.
Protect the environment
The WTO’s agreements permit members to take measures to protect not only the
environment but also public health, animal health and plant health. However, these measures
must be applied in the same way to both national and foreign businesses. In other words,
members must not use environmental protection measures as a means of disguising
protectionist policies.
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CHAPTER 2: LITERATURE REVIEW
M. Sankara Reddi, M. Ramesh and M. Chandrayya(2009)
In his opinion WTO is receiving the deepest indulgence of everyone, as it is affecting the
major sectors of Indian economy and agriculture in particular now and more intensively in
the coming years. A major concern growing with the increasing impact of WTO is, as to how
the small and marginal farmers’ who dominate the Indian agriculture, depend heavily on
agriculture for their livelihood, have small marketable surplus and operate under heavy
constraints to be competitive in a subsidized agriculture production and trade regime, could
benefit from WTO. The concern more often swings to the other side that the spreading
tentacle of WTO with reduced tariff regime and increased access to Indian market for the
products from subsidized agriculture could severally damage the agriculture based livelihood
of majority of Indian farmers. The challenge to policy makers is how to protect Indian
agriculture from the impending WTO threat, enhance the competitiveness of Indian farming
and make farming a viable and self sustaining enterprise to improve and ensure livelihood
security of the farmers. A strategy to address this challenge shall necessarily involve re-
orientation and injection of market linked dynamism in Indian agricultural R&D,
strengthening of supportive institutions to serve the resource poor farmers, and steering fast
the change with appropriate policies and trained human ware.
P. Arunachalam(2009)
He starts his articles by calling readers, if you gone through last 17 years of economic dailies
and economic magazines, business dailies and business magazines, even vernacular dailies
and books written and also edited by different authors in Indian and abroad, you could see
that around forty percent of the research articles and papers, editorials, reviews related World
Trade Organization (WTO) and WTO related issues only particularly about agriculture. Why
this particular area attracted this much attention from politicians, bureaucrats, academicians,
business persons, critics in India and abroad? The simple reason is, this is the only
organization at the world level where you could see a clear cut differences exist between
developing countries and developed countries. He argues that the root cause of distortion of
international trade in agriculture has been the massive domestic subsidies given by the
industrialized countries to their agricultural sector over many years. This in turn led to
excessive production and it’s dumping in international markets as well as import restrictions
to keep out developing countries agricultural products from their domestic markets. Hence,
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the starting point for the establishment of a fair agricultural trade regime has to be the
reduction of domestic production subsidies given by industrialized countries, reduction in the
volume of subsidized exports and minimum market access opportunities for agricultural
produces worldwide. . He suggests that India has a uniquely important contribution to make
at this point to restart the Round. This is to show some further flexibility on agriculture. Not
to the extent of opening India’s huge agricultural subsistence economy to global competition.
But by moving where you can to allow other limited but real market access, including in
some difficult commodity areas.
V.Balasubramanian
Discusses the negative and positive benefits of India as WTO member through his paper
“WTO and Indian Agriculture Insight, Implication and imperatives”. He notices some
problems of Indian farmers. Firstly the governments of developed countries spend huge
amounts on agricultural subsidies. This has resulted in the decline of prices of agricultural
commodities in the world market. The policies of the Indian Government have compelled the
farmers of the country to compete with cheaper foreign agricultural commodities when they
have to spend more and more for ever increasing cost of agricultural inputs such as seeds,
fertilizers, pesticides, electricity, etc. Increasing cost of inputs, decline in growth rates and
lower prices of outputs have adversely affected the farmers and it has accelerated the
indebtedness, desperation, destitution and starvation to a vast majority of rural people
particularly the small and marginal farmers and tenant cultivators in India. He says two major
factors are responsible for the present downfall of Indian agriculture. First, the government
has substantially reduced the development expenditure in agriculture sector owing to its
eagerness to reduce the fiscal deficit. Secondly, import liberalization has contributed in a big
way for the reduction in prices of agricultural products. Having failed to get remunerative
prices for their products, many farmers have curtailed their farm operations which in turn
have increased unemployment among the agricultural workers. Thus import liberalization is a
major cause for the existing plight of poor farmers. He analyzing that the crop uncertainties
due to vagaries of nature and perishability of most of the agricultural
commodities make the supply erratic. Hence the alternating shortage and surplus resulting
from bad and good harvests destabilise the prices and earnings for the producers. This has
made our export earnings uncertain and instable. Export earning instability will have an
impact on domestic instability and reduce the efficiency. Hence India’s opening up of
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agriculture to the world trade and increased emphasis on production for exports is therefore
likely to bring economic instability within the country and consequently, instability in the
earnings of producers and their patterns of investment.
Kaliappa Kalirjan and Kanhaiya Singh (2006)
Discussing about issues related to the WTO’s Agreement on Agriculture from India’s point
of view through their paper “India and the WTO's Agreement on Agriculture (A-oA)” . Why
India should work towards the success of the Doha Round is also discussed. They opine that,
India does not have to worry about its subsidy, as it is already below the required line and it
also does not have any domestic support to reckon with. Moreover, the ongoing negotiations
are likely to yield enough flexibility in product choice and tariff selection. Therefore, India
should work towards the success of the Doha round and in the mean time make use of the
opportunity to reform its domestic market to bring in more efficiency. With favorable bound
rates for agriculture onboard, the negotiating framework of India must be different from that
of other developing countries. The situation is highly tenacious for India, particularly in view
of the fact that the developed countries have managed to link agriculture subsidy with the
market access in services and industry.
Anwarul Hoda and Ashok Gulati (2007)
Described about Indian agriculture in Doha Round of WTO point of view, through their book
entitled by “WTO Negotiations on Agriculture and Developing Countries Book Description”.
The World Trade Organization's Doha Round of trade talks has been plagued by a lack of
concrete progress toward establishing a fair and harmonious agricultural trading system.
Because the results of the Doha Round could have far-reaching implications for the trade and
economic prospects of developing countries in the twenty-first century, it is critical for these
countries to fully understand the issues involved in the negotiations agriculture. However,
there has been no authoritative analysis of the rules and modalities on which governments of
developing countries can rely. This book, coauthored by an insider to the trade talks that led
to the establishment of the WTO, fills this gap. It examines the implementation experience
of key members of the WTO, and then traces the developments in the negotiations up to the
recent impasse. In light of these considerations, and on the basis of a case study of India, the
authors propose various elements of a negotiating position and strategy for developing
countries. The authors offer tough but realistic recommendations regarding tariffs, market
access, treatment of sensitive or special products, and other aspects of international trade.
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Joseph A Mc Mahon (2007)
The book entitled “The WTO Agreement on Agriculture” provides an indepth examination of
the substantive provisions and the disputes that have arisen in each of these three areas. The
WTO Agreement on Agriculture subjected agriculture to a set of international rules for the
first time in the history of international trade. Ever since its negotiation, the Agreement has
been at the forefront of the controversy surrounding the purpose and impact of the WTO
itself. The commentary is structured around the three areas of reform initiated by the
Agreement - market access, domestic support and export competition.
In addition, the book situates these provisions against their background in pre-WTO
regulation. It analyzes the operation of the 'Peace clause' and assesses the impact of the
clause's expiration. The commentary concludes by assessing the Agreement's accommodation
of and impact on developing economies, and examining the process of reforming domestic
farm subsidies, one of the dominant issues currently confronting thw WTO.
Munisamy Gopinath (2008),
Wrote a paper about Domestic support in India’s point of view entitled “India: Shadow WTO
Agricultural Domestic Support Notifications”. In this study, he broadly outlined India’s
domestic support (DS) policies and our understanding of their classification and measurement
for the purposes of official notifications. First of all he is describing about Indian agriculture
at the beginning of WTO in 1995. India’s official notifications began in 1995 with green box
support of nearly US$2 billion and limited use of special and differential treatment. The
productspecific aggregate measure of support (AMS) was negative because external reference
prices were larger than minimum support prices. Non-productspecific AMS, by way of
fertilizer, electricity, irrigation, credit, and seed subsidies, accounted for about 7 percent of
the value of agricultural production in 1995. In subsequent notifications, for 1996 and 1997,
several key changes were observed. The first was the transfer of 80 percent of fertilizer,
irrigation, and electricity subsidies from non-product-specific Aggregate Measurement of
Support to special and differential treatment of low-income and resource-poor farmers.
Shadow notifications, based on our understanding of the underlying methods, showed that
green box support had grown to nearly US$8.0 billion in 2005. Non product-specific AMS
accounted for about 1 percent of the annual value of agricultural production for 1998-2005.
With India’s general elections expected in early 2009, the immediate future includes popular
policies such as credit subsidies and significant growth in minimum support prices.
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Nevertheless, non product- specific AMS would not likely exceed the limits proposed in the
Doha Round (that is, 10 percent of value of production) even with popular policies. However,
product-specific AMS would turn positive, especially in cereals, with high growth in support
prices and the appreciation of Rupee as seen in recent years. There is a declining importance
of agriculture as a source of India’s exports since 1995. Except for meat products, none of the
major agricultural exports shows a clear upward or downward trend.
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CHAPTER 3 : AGREEMENT ON AGRICULTURE: MARKET ACCESS
Market access is one of the three main pillars of the AoA – the other two being domestic
support measures and export competition. It deals with rules and commitments related to
import of goods. Its purpose is to expand trade by preventing various non-tariff barriers and
by binding and reducing tariffs. Besides tariffs, other trade policy instruments covered by the
market access pillar include Tariff Rate Quotas (TRQs) and Special Safeguard (SSG) as a
trade remedy measure. In the WTO context, “market access” is about both obligations and
rights14. Nepal’s obligation as a WTO member is to provide market access to other Members
in return for her “right” of access to others’ markets for Nepalese goods on multilaterally
agreed terms. Thus, a balanced analysis of market access provisions would cover both
obligations and rights. The focus of this chapter is on the “obligation” side of this equation,
i.e. on the likely implications of the market access provisions of the AoA on Nepal's
agricultural trade policies and on the Nepalese agriculture. As Nepal does not have any TRQ
commitments, and does not have access to the SSG, the most important instrument for
managing imports is applied tariffs, within the limit set by Nepal's WTO bound rates. Given
that these bound rates are already agreed upon, the key question to be asked is: what would
be the most appropriate structure of the applied tariffs in order to safeguard the interest of the
Nepalese agriculture?
The chapter, organized in four sections, introduces the AoA provisions on market access;
discusses some theoretical and conceptual issues on border protection and tariffs to
understand why and how the WTO membership matters in this area; analyses Nepal’s applied
tariffs on selected major commodity groups drawing upon the experience for recent years and
in relation to the corresponding bound rates; and draws some conclusions.
3.1 AGRICULTURE: MARKET ACCESS
Under the reform programme, members have converted their non-tariff measures to
equivalent bound tariffs. Some additional market access is provided through tariff rate quotas,
and the tariffs are being reduced. Contingency protection is provided through special
safeguards, and transparency works through notifications.
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The conceptual framework
On the market access side, the Uruguay Round resulted in a key systemic change: the switch
from a situation where a myriad of non-tariff measures impeded agricultural trade flows to a
regime of bound tariff-only protection plus reduction commitments. The key aspects of this
fundamental change have been to stimulate investment, production and trade in agriculture by
(i) Making agricultural market access conditions more transparent, predictable and
competitive,
(ii) Establishing or strengthening the link between national and international agricultural
markets, and thus
(iii) Relying more prominently on the market for guiding scarce resources into their most
productive uses both within the agricultural sector and economy-wide.
In many cases, tariffs were the only form of protection for agricultural products before the
Uruguay Round — the Round led to the “binding” in the WTO of a maximum level for these
tariffs. For many other products, however, market access restrictions involved non-tariff
barriers. This was frequently, though not only, the case for major temperate zone agricultural
products. The Uruguay Round negotiations aimed to remove such barriers. For this purpose, a
“tariffication” package was agreed which, amongst other things, provided for the replacement
of agriculture-specific non-tariff measures with a tariff which afforded an equivalent level of
protection. The tariffs resulting from the tariffication process account, on average of the
developed country Members, for around one fifth of the total number of agricultural tariff
lines. For the developing country Members, this share is considerably smaller. Following the
entry into force of the Agreement on Agriculture, there is now a prohibition on agriculture-
specific non-tariff measures, and the tariffs on virtually all agricultural products traded
internationally are bound in the WTO.
Schedule of tariff concessions
Each WTO Member has a “schedule” of tariff concessions covering all agricultural products.
These concessions are an integral part of the results of the Uruguay Round, are formally
annexed to the Marrakesh Protocol [cross-reference] and have become an integral part of the
GATT 1994 [cross-reference]. The schedule sets out for each individual agricultural product,
or, in some cases agricultural products defined more generally, the maximum tariff that can
be applied on imports into the territory of the Member concerned. The tariffs in the schedules
include those that resulted from the tariffication process, which, in many cases, are
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considerably higher than industrial tariffs, reflecting the incidence of agriculture-specific
non-tariff measures prior to the WTO. Many developing countries have bound their
previously unbound tariffs at “ceiling” levels, i.e. at levels higher than the applied rates prior
to the WTO.
Developed country Members have agreed to reduce, over a six-year period beginning in
1995, their tariffs by 36 per cent on average of all agricultural products, with a minimum cut
of 15 per cent for any product. For developing countries, the cuts are 24 and 10 per cent,
respectively, to be implemented over ten years. Those developing country Members which
bound tariffs at ceiling levels did not, in many cases, undertake reduction commitments.
Least-developed country Members were required to bind all agricultural tariffs, but not to
undertake tariff reductions
Tariff quota commitments
As part of the tariffication package, WTO Members were required to maintain, for tariffied
products, current import access opportunities at levels corresponding to those existing during
the 1986-88 base period. Where such “current” access had been less than 5 per cent of
domestic consumption of the product in question in the base period, an (additional) minimum
access opportunity had to be opened on a most-favoured-nation basis. This was to ensure that
in 1995, current and minimum access opportunities combined represented at least 3 per cent
of base-period consumption and are progressively expanded to reach 5 per cent of that
consumption in the year 2000 (developed country Members) or 2004 (developing country
Members), respectively.
The current and minimum access opportunities are generally implemented in the form of
tariff quotas. In case of minimum access, the applicable duty was required to be low or
minimal, low that is either in absolute terms or, at least, in relation to the “normal” ordinary
customs duty that applies to any imports outside the tariff quota. These tariff quotas,
including the applicable tariff rates and any other conditions related to the tariff quotas, are
specified in the schedules of the WTO Members concerned.
While the vast majority of tariff quotas in agriculture have their origin in the Uruguay Round
negotiations, a number of such commitments were the result of accessions to the WTO.
Currently (July 1999), 37 Members have tariff quotas specified in their schedules. In total,
there are 1374 individual tariff quotas. These tariff quotas constitute binding commitments as
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opposed to autonomous tariff quotas which Members may establish at any time, for example,
in order to stabilize the domestic price after a poor harvest.
The prohibition of non-tariff border measures
Article 4.2 of the Agreement on Agriculture prohibits the use of agriculture-specific non-
tariff measures. Such measures include quantitative import restrictions, variable import