In many poor countries, agriculture not only accounts for a large share of gross

domestic product (GDP), but is also the primary source of employment, food and
livelihood for the majority of the population. This is in contrast to the situation in the
world’s two biggest agricultural exporters, the European Union (EU) and the United
States (US), where agriculture employs a tiny percentage of the population and
makes only a small contribution to the economy. Yet it is the EU and US that give
most protection to agriculture, using high tariffs and huge subsidies to
shield their producers from competition.

US and the EU had insisted on exemptions and waivers from GATT to allow them to
continue providing massive subsidies to their agricultural sectors. The resulting
artificial maintenance of high levels of production led to the sale of agricultural
surpluses on the world market at prices below their cost of production, a practice
known as dumping.

These distortions in agricultural trade led to pressure from many countries in the
1980s to
establish multilateral trade rules to create a more fair and market-oriented
agricultural trading
system. The US and EU began showing interest primarily because their domestic
agricultural
subsidy programmes were becoming so expensive as to be unsustainable. Food-
exporting developing countries favoured rules as a means to stabilize and increase
world prices for food exports, hoping that this would provide additional export
earnings to alleviate poverty and to further development goals. Many developing
country markets were already open to cheap and dumped agricultural products from
the US and EC, due to International Monetary Fund (IMF) and World Bank structural
adjustments programmes that required them to liberalize their economies and open
their markets to foreign products. Furthermore, the most powerful set of actors in
favour of an AoA were transnational commodity traders and processors, such as
Cargill and Monsanto. These saw in the prospect of new global rules on agriculture
trade the possibility of accessing new markets, particularly in developing countries,
and thus the prospect of increasing concentration of the market share they already
held.

The Agriculture Agreement: new rules and commitments

In 1995, the year that the WTO was established, the first effective rules governing
international trade in agriculture and food were introduced. Following the Uruguay
Round negotiations, all agricultural products were brought under multilateral trade
rules by the WTO’s Agreement on Agriculture. The Agreement is made up of three
‘pillars’:

• market access — various trade restrictions confronting imports

• domestic support — subsidies and other programmes, including those that

raise or guarantee farmgate prices and farmers’ incomes

• export subsidies and other methods used to make exports artificially competitive.

The agreement does allow governments to support their rural economies, but preferably
through policies that cause less distortion to trade. It also allows some flexibility in the way
commitments are implemented. Developing countries do not have to cut their subsidies or
lower their tariffs as much as developed countries, and they are given extra time to complete
their obligations. Least-developed countries don’t have to do this at all. Special provisions deal
with the interests of countries that rely on imports for their food supplies, and the concerns of
least-developed economies. “Peace” provisions within the agreement aim to reduce the
likelihood of disputes or challenges on agricultural subsidies over a period of nine years, until
the end of 2003.

Market access: ‘tariffs only’, please

The new rule for market access in agricultural products is “tariffs only”. Before the Uruguay
Round, some agricultural imports were restricted by quotas and other nontariff measures.
These have been replaced by tariffs that provide more-or-less equivalent levels of protection
(Converting the quotas and other types of measures to tariffs in this way was called
“tariffication”.) The tariffication package contained more. It ensured that quantities imported
before the agreement took effect could continue to be imported, and it guaranteed that some
new quantities were charged duty rates that were not prohibitive. This was achieved by a
system of “tariff-quotas” — lower tariff rates for specified quantities, higher (sometimes much
higher) rates for quantities that exceed the quota. The newly committed tariffs and tariff
quotas, covering all agricultural products, took effect in 1995. Uruguay Round participants
agreed that developed countries would cut the tariffs (the higher out-of-quota rates in the case
of tariff-quotas) by an average of 36%, in equal steps over six years. Developing countries
would make 24% cuts over 10 years. Several developing countries also used the option of
offering ceiling tariff rates in cases where duties were not “bound” (i.e. committed under GATT
or WTO regulations) before the Uruguay Round. Least-developed countries do not have to cut
their tariffs. (These figures do not actually appear in the Agriculture Agreement. Participants
used them to prepare their schedules — i.e. lists of commitments. It is the commitments listed
in the schedules that are legally binding.) For products whose non-tariff restrictions have been
converted to tariffs, governments are allowed to take special emergency actions (“special
safeguards”) in order to prevent swiftly falling prices or surges in imports from hurting their
farmers. But the agreement specifies when and how those emergency actions can be
introduced (for example, they cannot be used on imports within a tariff-quota). Four countries
used “special treatment” provisions to restrict imports of particularly sensitive products
(mainly rice) during the implementation period (to 2000 for developed countries, to 2004 for
developing nations), but subject to strictly defined conditions, including minimum access for
overseas suppliers. The four were: Japan, Rep. of Korea, and the Philippines for rice; and Israel
for sheepmeat, wholemilk powder and certain cheeses. Japan and Israel have now given up
this right, but Rep. of Korea and the Philippines have extended their special treatment for rice.
A new member, Chinese Taipei, gave special treatment to rice in its first year of membership,
2002.

Numerical targets for agriculture

The reductions in agricultural subsidies and protection agreed in the Uruguay Round.
Only the figures for cutting export subsidies appear in the agreement.
Developed countries
Developing countries
6 years: 10
years:
1995–2000 1995–
2004
Tariffs
average cut for all –36% –
24%
agricultural products
minimum cut per product –15% –10%
Domestic support
total AMS cuts for sector –20% –
13%
(base period: 1986–88)
Exports
value of subsidies –36% –
24%
subsidized quantities
(base period: 1986–90) –21% –
14%
Least-developed countries do not have to make commitments to reduce tariffs or subsidies.
The base level for tariff cuts was the bound rate before 1 January 1995; or,
for unbound tariffs, the actual rate charged in September 1986 when the Uruguay Round began.
The other figures were targets used to calculate countries’ legally-binding
“schedules” of commitments.

Domestic support: some you can, some you can’t

The main complaint about policies which support domestic prices, or subsidize production in
some other way, is that they encourage over-production. This squeezes out imports or leads to
export subsidies and low-priced dumping on world markets. The Agriculture Agreement
distinguishes between support programs that stimulate production directly, and those that are
considered to have no direct effect. Domestic policies that do have a direct effect on
production and trade have to be cut back. WTO members calculated how much support of this
kind they were providing per year for the agricultural sector (using calculations known as “total
aggregate measurement of support” or “Total AMS”) in the base years of 1986–88. Developed
countries agreed to reduce these figures by 20% over six years starting in 1995. Developing
countries agreed to make 13% cuts over 10 years. Least-developed countries do not need to
make any cuts. (This category of domestic support is sometimes called the “amber box”, a
reference to the amber colour of traffic lights, which means “slow down”.) Measures with
minimal impact on trade can be used freely — they are in a “green box” (“green” as in traffic
lights). They include government services such as research, disease control, infrastructure and
food security. They also include payments
made directly to farmers that do not stimulate production, such as certain
forms of direct income support, assistance to help farmers restructure agriculture,
and direct payments under environmental and regional assistance programmes.
Also permitted, are certain direct payments to farmers where the farmers are
required to limit production (sometimes called “blue box” measures), certain government
assistance programmes to encourage agricultural and rural development
in developing countries, and other support on a small scale (“de minimis”) when
compared with the total value of the product or products supported (5% or less in
the case of developed countries and 10% or less for developing countries).

Export subsidies: limits on spending and quantities

The Agriculture Agreement prohibits export subsidies on agricultural products
unless the subsidies are specified in a member’s lists of commitments. Where they
are listed, the agreement requires WTO members to cut both the amount of money
they spend on export subsidies and the quantities of exports that receive subsidies.
Taking averages for 1986–90 as the base level, developed countries agreed to cut the
value of export subsidies by 36% over the six years starting in 1995 (24% over 10 years
for developing countries). Developed countries also agreed to reduce the quantities
of subsidized exports by 21% over the six years (14% over 10 years for developing
countries). Least-developed countries do not need to make any cuts.
During the six-year implementation period, developing countries are allowed under
certain conditions to use subsidies to reduce the costs of marketing and transporting
exports.
INTRODUCTION
The fifth Ministerial Conference held at Cancun collapsed with no concrete declaration being
made. The Cancun conference, actually an extension of Doha’s Development Agenda, was an
opportunity for removing trade barriers and stimulating growth in developed as well as developing
nations. During the November 2001 WTO meet at Doha, the member nations agreed to place
development issues at the forefront of the new round of trade liberalization negotiations at
Cancun. The decision was to focus on development and the removal of global trade barriers as
the best way to promote growth the world over and consequently to foster prosperity in the
developing world. Unfortunately, this remained just words; the transformation into implementation
was not carried out.
The Doha agenda had offered the world a once-in-a generation opportunity to remove barriers to
trade and thereby to stimulate economic growth in developed and developing economies alike.
Therefore there was a need for concerted efforts by all WTO members to invigorate the trade
liberalization process, resulting in the formulation of a more open, peaceful and prosperous world.
This unilateral effort did not materialize and as a result efforts to have open, peaceful and
prosperous world remains a distant dream, especially for developing nations.
At the start of the Cancun meet, the mood appeared to be against the Singapore issues; in
particular, agricultural subsidies and market access. Other than that, on the issue of
nonagricultural
goods, the insistence of developed nations was for zero tariffs and zero quotas on all
goods. There was also a feeling that a deal could be made in this regard at Cancun; otherwise
the Whole Doha round would be imperiled. This has come to pass. Turning the tables on the
developing economies, India made a forceful plea at Cancun that the plight of poor farmers was
directly linked to subsidies given by the industrialized nations to their respective farmers, and that
the answer lay in correcting such distortions in agriculture. It was mentioned that it is only when
developed nations agree to take five steps in the removal of trade distorting subsidies that the
developing nations can take one step forward in the area of market access.
It is an undisputed fact that the existing trading system does not work for millions of people, many
of whom live on less than US $1 a day. Hence, the developing nations need more opportunities to
enable their respective economies to grow and to export their products to developed nations. The
World Bank estimates that, with regard to the benefits possible under the WTO regime, the
elimination of trade barriers could generate an extra $ 250 billion to $ 620 billion in world income,
half of which would be shared by developing nations. The failure of the Cancun meet means a
huge loss of global income with the worst sufferers concentrated in the developing nations.
For the Cancun meet to succeed the developed world in general and the major players (the USA,
and the EU) in particular, were required to contain domestic political difficulties, defuse bilateral
conflicts and to cooperate intensively. But these were the missing links at Cancun. Trade
economists and international lawyers dealing with WTO matters profess the view that the
documents and issues connected with the Cancun meet are so complex that the outcome is
difficult to predict.
At Cancun, trade ministers showed little sign of untangling differences on agriculture and thus
minimizing the chances for a global free trade deal. It was most astonishing and unfortunate that
both developed and developing nations found unacceptable a compromise plan initiated by the
Mexican Foreign Minister and aimed at putting the troubled WTO negotiations back on track to
conclude by 2005. During a closed-door meeting of top trade officials from 146 member nations,
the USA and China called on negotiators to redouble their efforts when it was realized that time
was running out, that rare opportunities would be misserd and that some sacrifice was required.
Despite all the setbacks, however, no one was ready to write off the talks: The ministers want to
find enough common ground to revive hopes of securing a new trade liberalization pact that
would add more than $ 500 billion a year to global income by 2015

Reasons for failure at Cancun

Among the many reasons for the failure of the Vth Ministerial Conference at Cancun are:
1. The high-handed stance of developed countries.
2. The lack of commitment by the industrialized nations to the Singapore issues.
3. An indifference towards developing nations.
4. Inability of the developed economies to accept free cross-border movement of labor.
5. Lack of faith in the policy of give and take.
6. Lack of two vital issues favoring developing nations namely - special and differential treatment
to developing economies and anti-dumping measures.
7. Lack of realization on the part of developing nations of new facts of the world trading system,
when developing nations are moving fast into a preferential trading system.
8. No commitment and belief that a partial trade liberalization is better than none.
9. Ineffective role of the WTO in carrying out the agenda. As the WTO has become a truly
inclusive platform.
10. Indulging of the major players especially, the USA and EU in distortion interventions.
11. Lack of a united stand by developing nations. The developing economies have adopted one
too late.
12. Consolidation of the WTO Process.