Law. International Trade Law The Agreement on Agriculture

Transcription

1 Law International Trade Law The Agreement on Agriculture

2 Role Name Affiliation Principal Investigator Dr. Ranbir Singh Vice Chancellor, National Law University, Delhi Co. P.I Prof. (Dr.) G.S. Bajpai Registrar, NLU, Delhi Paper Coordinator Dr. Saloni Khanderia-Yadav National Law University, Delhi Content Writer/Author Prof. A. Jayagovind National Law University, Delhi Content Reviewer Dr. Sheela Rai National Law University, Orissa Language Editor Dr. Saloni Khanderia-Yadav National Law University, Delhi PERSONAL DETAILS DESCRIPTION OF MODULE Items Description of Module Subject Name Law Paper Name International Trade Law Module Name/Title The Agreement on Agriculture Module Id 17 Pre-requisites Agriculture under the GATT The concept of Market access, domestic support, export subsidies and food security Objectives To understand the following: The provisions for trade in agriculture under the GATT, 1947; The significance of the Agreement on Agriculture under the auspices of the WTO. Keywords GATT, Protocol of Provisional Application, Agreement on Agriculture. E-TEXT Topics & Sub-Topics covered Introduction

3 The Agreement on Agriculture Market Access Special Safeguard Measures Domestic Support India and Food Security Bali Solution Export Subsidies Peace Clause Conclusions TEXT Introduction The Agreement on Agriculture (AoA) is the most complicated of all multilateral trade agreements (MTAs), constituting the WTO system. This is because of the context in which it was negotiated. While all other MTAs seek to lay down codes of conduct prospectively for members in their commercial relations with one another, the AoA was worked out as a solution to a raging trade war between the USA and the European Community (EC); and the uneasy compromise between the USA and the EC, arrived at after prolonged negotiation, was imposed upon the rest of the world as a normative order to be followed by every country. In this sense, it was an arrogant exercise of political power over those who were not in a position to resist. The Preamble to the AoA provides, inter alia, that the purpose of the AoA is to establish a fair and market-oriented agricultural trading system. Market-orientation signifies that members should subject themselves to externally imposed discipline. But agriculture is too fundamental to community life for most of the countries to subject themselves to such discipline. This is true for both developed and developing

4 countries; and this fact explains the complexity of the agreement and the difficulty in enforcing it. The GATT, 1947 was applicable to all products: agricultural and industrial. But within a few years, agriculture was taken out of the GATT discipline despite the fact that agricultural products were subject matters of tariff negotiations. Section 22 of the U.S. Agricultural Assistance Act, 1933 enables the U.S. Government to impose restrictions on imports of agricultural goods, whenever such imports hampered certain domestic support programs; and the USA insisted on the inclusion of Article XI: 2(c) to the GATT to ensure the smooth exercise of this power. In 1951, the Netherlands complained to the GATT that the USA had been restricting the importation of dairy products in violation of Article XI:2(c); and the GATT upheld this complaint. Instead of complying with the GATT ruling, the USA sought a waiver under Article XXV : 5 of the GATT with reference to agricultural products in general. Given the predominance of the USA, other members were simply not in a position to reject this demand. The EC used this opportunity to claim exemption for its Common Agricultural Policy. With two important members opting out, agriculture was unceremoniously pushed out of the GATT. As Warley put it: At a time when other exporters were highly agitated about agricultural trade restrictions, the architect of the trading system and the custodian of liberalism was itself giving primacy to national interests and demanding sanction for the use of a barrier which the Agreement had set out to control and eliminate, namely quotas 1. In 1958, the GATT had set up a committee of experts under Prof. Haberler to study the trends in international trade. Among various other matters, the Haberler Report highlighted the high level of agricultural protectionism prevailing in developed countries; and the protectionism made it impossible for developing countries to access the markets of developed countries 2. This situation continues even to this day. The Agreement On Agriculture

5 In 1986, when the Uruguay Round was launched, the USA was the biggest exporter and the second biggest importer of agricultural products. The EC was the biggest importer and the second biggest exporter. These were made possible by the huge agricultural subsidies doled out to farmers; and to meet the high cost of agriculture, they were bent upon prising open the markets of each other and other countries. The Cairns Group of countries which were major agricultural exporters were interested in broadening market access. They were pressurizing the USA and the EC to open their markets. It may be noted that the EC was using all the known devices of import restrictions. The Uruguay Round went on nearly for 8 years, i.e. from 1986 to The main reason for this prolongation was the failure of the USA and the EC to break the deadlock over agriculture. In 1992, in a meeting held at Blair House, Washington, D.C., they finally arrived at some kind of delicately balanced compromise. All those mathematical formulations such as aggregate measurement of support, 30% reduction over 6 years, fixed external reference price etc., should be understood in the specific context of this uneasy and delicate balancing. The disastrous consequence of this episode was that the agreement was forced down the throats of developing countries to whom it was irrelevant. The problem of the USA and the EC was the huge agricultural surplus resulting from reckless subsidization. They were finding it hard to take on the farm lobbies in their own countries. The alternative solution was to dump their products in other countries. The problem for developing countries has always been to increase their agricultural productivity to feed their burgeoning population. The Preamble to the AoA speaks about achieving specific binding commitments in each of the following areas: market access, domestic support and export competition. The actual reduction commitments for a member are spelled out in the provisions of the AoA which must be read along with another document, namely, Modalities for the establishment of Specific Binding Commitments under the Reformed Programme

6 and supplemented by the respective schedules of members. It must be noted that this Modalities was part of the main text under the Dunkel Draft; and for some inexplicable reason, it was taken out of the main Agreement in the final version. Market Access The basic principle of market access commitment was that all members must convert their non-tariff barriers to international trade in agricultural products into tariffs and these tariffs have to be reduced over a period of time according to the formulas spelled out in the Modalities. The process of converting non-tariff barriers into tariffs is known as tariffication. According to footnote 1 of the AoA, non-tariff barriers would include quantitative restrictions, variable import levies, minimum import prices, discretionary import licensing, voluntary export restraints, non-tariff measures maintained through state trading enterprises etc. Annex 3 of the Modalities describes the process of tariffication. Para 2 of Annex 3 of the Modalities provides: The calculation of tariff equivalents, whether expressed as ad valorem or specific rates, shall be made using the actual difference between internal and external prices in a transparent manner using data, data resources and definitions as specified in Annex 2. Data used shall be for the years 1986 to According to Modalities, the developed countries shall reduce their tariffs on an average of 36% over a period of 6 years starting from The corresponding figures for developing countries are 24% over 10 years. If these provisions had honestly been implemented, there would have been considerable liberalization. What actually happened was that developed countries fixed their tariffs at much higher level than what was justified. Secondly, average reduction was interpreted by developed countries to mean that they could pick and choose tariff lines and manipulate figures to achieve 36% over a period of 6 years. In other words, they could reduce tariff on sensitive items by a small percentage and on other items by a larger percentage. Hence what came out at the end of implementation was meager liberalization. The

7 entire process came to be known as dirty tariffication. Most of the developing countries, on the other hand, had a few non-tariff barriers and their tariffs were fixed at low level. The most categorical obligation under the AoA can be found in Article 4.2. It reads: Members shall not maintain, resort to or revert to any measures of the kind which have been required to be converted into ordinary customs duties The above provision means that the tariffication is mandatory; and once the non-tariff barriers are removed, they cannot be reintroduced. Hence the developing countries cannot use even quantitative restrictions. However, India had been using quantitative restrictions for balance of payments reasons under Article XVIII: Section B of the GATT. It could continue them for some more time. Special Safeguard Measures Taking into account the sensitivity of agriculture, the AoA provides for special safeguard measures, different from that provided under the Agreement on Safeguards. According to Article 5.1 of the AoA, two conditions have to be fulfilled to invoke this special safeguard provision: 1. It can be invoked only in respect of tariffied items as per Article 4; and 2. the member concerned must have designated the product in question with the symbol SSG in its Schedule. In brief, it can be invoked only in respect of goods which a member considers as sensitive. The safeguard mechanisms are of two types: (a) based upon the volume of imports, exceeding the trigger level as explained in Article 5; and (b) based on the price at

8 which the imports may enter into the customs territory. A member may invoke either type of measures, but it cannot invoke both the measures at the same time. The volume safeguard measure may remain in force until the end of the year in which it was imposed; and it shall not exceed one-third of the regular tariff. The trigger level is defined in Article 5.4 by reference to market access opportunities. i.e. imports as percentage of domestic consumption for the last three years of available data. Base trigger levels 125%, 110% and 105% are set when the market access opportunities for a product are respectively less than or equal to 10%, between 10% and 30% and higher than 30%. The special safeguard duty may be imposed whenever the imports of a given product exceed the sum of (a) base trigger level multiplied by the average quantity of imports in the three preceding years; and (b) the absolute volume of change in domestic consumption of the product in the most recent year for which the data is available compared with the preceding year. To illustrate the above, suppose the import of rice during previous three years averaged 1000 tons reflecting 10% of domestic consumption, the base trigger level would be 125%. Let us also assume that the domestic consumption has increased by 250 tons in the most recent year. The trigger level for the imposition of additional duty will be: (1000 x 125 )+ 250 = ( 100 ) In other words, if the import in the given year exceeds 1500 tons, the special safeguard duty may be imposed. Such duty can be up to one-third of the regular tariff. Under Article 5.1(b), the additional duty may be imposed based on the difference between import price and average reference price during If the import price falls below the reference price, the additional duty may be imposed as per the sliding scale set out in Article 5.5. If the difference is less than 10% of trigger price, no

9 special safeguard duty may be imposed. As the difference increases, the amount of additional duty also increases as explained in Article 5.5. There is no definition of import price; and Article 5.1(b) only provides that import price will be determined on the basis of c.i.f. import price. What is the exact import of the expression on the basis of? This is explained by the Appellate Body in the EC: Poultry Case as follows: In customary usage in international trade, the c.i.f. import price does not include any taxes, customs duties or other charges that may be imposed on a product by a member upon entry into its customs territory. We think it significant that ordinary customs duties are not mentioned as a component of the relevant import price in the text of Article 5.1 (b). Accordingly, to read the inclusion of customs duties into the definition of c.i.f. import price requires us to read the words into the text of that provision that simply are not there. 5 In brief, on the basis of c.i.f. import price shall be read as c.i.f. import price. This conclusion is further strengthened by Article 5.5 of the AoA which uses only c.i.f. import price for the calculation of additional duty. As was pointed out above, the trigger price is defined as average reference price. The footnote to this provision provides that it (i.e. the reference price) shall, following its initial use, be publicly specified and available to the extent necessary to allow other members to assess the additional duty that may be levied. Fixing the reference price based on the average of price prevailing 1986 and 1988 was the European idea, in the course of Uruguay Round negotiations, intended to fix a firm standard. But this ignores the changes in World market prices and currency values. For this reason, price-based special safeguard measures have rarely been used. Domestic Support

10 Denial of food = denial of livelihood = denial to live. Failure to eradicate poverty = failure to secure farmers rights to livelihood. Public distribution and mid-day meals are corollary to this right. The AoA aims at market-oriented agricultural trading system. It implies that tradedistorting subsidies shall be eliminated, while safeguarding a country s freedom to pursue legitimate objectives through various means which may include those subsidies with zero or minimum trade effects. As de Zeeuw Framework Agreement which provided the basis for AoU, in the course of Uruguay Round negotiations, put it: In turn depends on farmers rights and social security schemes for farmers. A substantial and progressive reduction of internal support to agriculture shall be implemented so as to minimize trade distortion and increase the market orientation of production, while maintaining the possibility for contracting parties to pursue national policy goals affecting agriculture through policies with minimal trade effects. 6 The Formula:

11 The Framework Agreement articulated the concept of Aggregate Measurement of Support (AMS) but it proposed to use 1988 as the base year to calculate the levels of support. 7 And countries were expected to reduce their support to agriculture using 1988 as the base year. All major participating countries, while endorsing the idea of AMS, had their own ideas regarding the base year. The EC suggested 1986 as the base year, while the USA came out with average as the base. During , the agricultural prices were relatively high, and also to determine the reduction commitments which were to begin from 1995, as base was reasonable. Somehow this idea of base period subsequently seeped into several other areas wherein the contemporary world price was relevant as a reference point. We do not know whether such seepage was deliberate or oversight. However, it may be noted that a GATT Secretarial Survey of the offers made by States in response to the Framework Agreement hinted at the dangers of the obsession with technical details ignoring the substantive problems. Among various other things, it highlighted the use of fixed reference points such as 1986, 1988, etc., instead of moving reference price linked to the World prices.

12 Green Box Measures: Measures which require government support and are non trade distorting. Food security and PDS is a Green Box Measure with a caveat of being limited up to 10% for the purpose of calculating the AMS. Other means of support (direct payments) out of purview of the 10% limit. The AoA enumerates four types of agricultural subsidies: 1. Amber Box subsidies: subsidies which distort international trade; and they must be removed or somehow accounted for; e.g. price support. Unlike other subsidies, these subsidies are not specifically enumerated; and they were considered as a residual category in the sense that those subsidies falling outside Green Box and Blue Box subsidies were considered as trade distorting; 2. Blue Box subsidies: income support and production limiting subsidies fall under this category. They are considered as moderately trade distorting; and they could be used with lots of qualifications intended to mitigate trade distortion; 3. Green Box subsidies: subsidies for research, marketing, infrastructural development etc., do not distort international trade; and hence they are allowed without any quantitative limit; 4. Development Box subsidies: subsidies provided under Article 6.2 of the AoA for rural development programs; and they were available only to developing countries.

13 Annex 2 of the AoA contains a detailed list of 13 subsidies which are exempt from reduction commitments. This list includes both Green Box and Blue Box remedies. Para 1 of the AoA lays down the principles with which a subsidy must comply in order to get exemption from reduction commitments. They are: a) the subsidy shall be provided through a publicly-funded government programme (including government revenue foregone) not involving transfers from customers; and b) the subsidy shall not have the effect of providing price support to producers. As for the price support, the WTO holds that it would distort market signals; and hence the producers may be guided by non-market considerations. Annex 2 provides for price support only in one place; and this is the basis on which India s food security programme is challenged. The Aggregate Measurement of Support (AMS) is the key concept of AoA. Article 1(a) defines AMS as the annual level of support, expressed in monetary terms, provided for an agricultural product in favour of the producers or non- productspecific support provided in favour of agricultural products in general. According to Annex 3 of the AoA, AMS consists of all non-exempt payments; and it is to be calculated on product specific basis for such product, receiving any kind of nonexempt payments. The total aggregate measurement of support (TAMS) is the aggregate of all product specific supports plus all non-product specific support. The TAMS, so arrived at, shall be reduced over a period of time as specified in the Modalities. Each developed member is committed to reduce its TAMS by 20% over a period of six years starting from Developing countries shall reduce their TAMS by 13.3% over 10 years starting from The least developed members are exempt from reduction commitments.

14 According to Article 6.4, any product-specific domestic support, in so far as it does not exceed 5% of the total value of production of that particular product shall be exempt from the calculation of TAMS. Similarly, non-product specific support shall be exempt from TAMS, if such support does not exceed 5% of the value of the total production of commodities, covered by the payments for non-product specific support. For a developing country, this de minimis percentage would be 10%. In case, the value of a product-specific support exceeds 5% (or 10% as the case may be) of the value of the total production of that commodity, the entire value of the productspecific support and not the value above 5% or 10% of the total production shall be included in the calculation of TAMS. Para. 1 of Annex 2 provides that only those subsidies which have, no, or at most minimal, trade-distorting effects or effects on production are exempt from reduction commitments. According to an OECD report, trade-distorting effects means interference in free market determination of prices and effects on production means influencing farmers decisions on production. Price support measures, according to the AoA, distort both trade and production decisions. On the other hand, Blue-Box measures, intended to limit the production, are supposed to have minimal effects on trade or production 9. The essential point is that the problems faced by developing and developed countries are quite different from each other. Developing countries want to increase the production, which developed countries are planning to limit the production. Unlike in developed countries, in most developing countries, the farming is carried on by a large number of small land holders who are vulnerable to vagaries of nature and market. In the absence of financial network to reach out to the farmers, the only way to help the farmers is to assure them decent returns to their produce through price support mechanism. On the other hand, the U.S.A. : Upland Cotton Case 10 demonstrated the difficulties involved in defining so-called Blue-Box measures and their abuse. They have absolutely no relevance to developing countries. It is nobody s case that price support measures are perfect; but developing countries must be given freedom to determine the most feasible way to help their farmers. India And Food Security

15 India has been operating price support program for wheat and paddy under which the Government would procure these gains from farmers at minimum support price (MSP). This MSP is fixed by the Ministry of Agriculture on the recommendation by the Commission on Agricultural Costs and Prices (CACP). The CACP fixes MSP in such a way as to cover costs and reasonable returns to farmers. The Food Corporation of India procures and stores these food grains which are sold through fair price shops 11. This was originally designed as a welfare measure to help the weaker sections of the society. But the Government is planning to make it universal. Under these circumstances, the procurement bill is likely to cross 10% de minimis limit of total production. India is worried about this possibility. In the Bali meeting held in December 2013, it argued that the costs incurred in ensuring food security must be exempt from reduction commitments. The relevant legal provisions in this regard are Para. 3 and footnote 5 of Annex 2 of the AoA. Para. 3 provides for public stockholding for food security purposes and the expenditure incurred in this regard would be exempt from reduction commitments. But food purchases and sales must be at the market prices. The intention is to provide for buffer stocks to meet contingencies. Obviously, it is not a welfare measure designed to meet the needs of weaker sections of the society. For this purpose, the footnote 5 provides for an alternative food security scheme. It reads:

16 For the purpose of Para.3 of this Annex, governmental stockholding programmes for food security purposes in developing countries shall be considered to be in conformity with the provisions of this paragraph, including programmes under which stocks of food stuffs for food security purposes are acquired and released at administered prices, provided that the difference between the acquisition price and external reference price is accounted for in the AMS. Indian food security program is covered by the above provision. The problem here is the interpretation of the expression external reference price. The proper way of interpreting this provision in the light of the objective thereof is to equate it with international market price for that product at the time of relevant public procurement. Suppose there is a free market in food grains wherein goods can move freely across national frontiers, the domestic price would have been approximately at the same level as international price. The gap between procurement price and contemporary international market price multiplied by the amount of food grains acquired by the Food Corporation of India should give the figure for domestic support; and if it is more than 10% of total production of that particular food grain, it would be subject to reduction commitments. India would be comfortable with this interpretation even when it universalizes food security program. The above interpretation is subverted by paras. 8 and 9 of Annex 3, describing the method of calculating the Aggregate Measurement of Support. Para. 8 reads: Market price support: market price support shall be calculated using the gap between a fixed external reference price and applied administered price multiplied by the quantity of production eligible to receive the applied administered price. Para. 9 reads:

17 The fixed external reference price shall be based on the years 1986 to In WTO circles, there is an attempt to link footnote 5 of Annex 2 with paras. 8 and 9 of Annex 3 and argue that the expression external reference price occurring at the end of footnote 5 must be interpreted as fixed external reference price as per para. 9 of Annex 3. It is submitted that such an interpretation is wrong textually, contextually and teleologically. To read the word fixed before external reference price is against the textual interpretation. Contextually, footnote 5 provides for a food security programme which is exempt from reduction commitment. Teleologically speaking, if the purpose of finding out the gap between administered price and external reference price is to account for the subsidy, the external reference price should be contemporary international market price. There is no rhyme or reason for bringing in 1986 and 1988 reference price. As was pointed out already, the average of 1986 and 1988 price was relevant only to the determination of obligations of members in the 1990s. The formula: MSP- ERP * Total Quantity of Agricultural produce < 10. Excludes direct payments while calculating AMS. (Annex 2.5) ERP based on the prices prevalent between (base year). Skewed result. The main thrust of G-33 proposal is that the expenditure incurred in providing food security must be exempt from reduction commitments. It is submitted that this is

18 already implicit in para. 3 and footnote 5 of Annex 2 of the AoA. Para.3 is titled as Public Stockholding for Food Ssecurity Purposes. All expenditures incurred in this regard are exempt from reduction commitments. Footnote 5 is a footnote to para. 3; and it envisages an alternative mechanism to ensure food security for weaker sections of the society. In other words, both para. 3 and footnote 5 provide for food security: one in the context of a reasonably affluent society by way of a buffer stock to meet contingencies and another as a welfare measure focusing upon poorer sections who cannot afford market prices. Acquisition of food grans at administered price in the latter case may incidentally work as a price support mechanism; but it cannot deprive its character as a mechanism to ensure food security. And it is clear from paras. 3 and 4 of Annex 2 that all expenditures incurred in connection with food security are exempt payments. Market price support envisaged under Annex 3 should be applied only to those programmes not connected with food security. In India, for example, the MSP programme covers commercial crops such as sugarcane, cotton, tobacco and jute. These products may be important from overall economic point of view; but they cannot be treated as food security programmes. There is another significant difference between footnote 5 of Annex 2 and para. 8 of Annex 3. Footnote 5 only says that the gap between the administered price and the external reference price must be accounted for in the AMS. Its direct meaning is that the gap between the two prices must be multiplied with the quantity of the grains acquired by paying administered price. On the other hand, para. 8 of Annex 3 speaks about the quantity of production eligible to receive the applied administered price. This expression was interpreted in Korea-Beef case. The panel interpreted this provision to mean total eligible production of all producers which is eligible to benefit from market price support even though the proportion of production which is actually purchased by a government agency may be relatively small or even nil 12. This interpretation was upheld by the Appellate Body. 13 The effect of this interpretation is that the gap between the support price and fixed reference price must be multiplied by the entire marketable production. In the context of India, under

19 footnote 5 of Annex 2, the gap must be multiplied by the actual amount procured by the Food Corporation of India; but under para. 8 of Annex 3, the gap has to be multiplied by practically the entire crop of the particular food grain. This could mean that practically any country, providing price support would breach its obligations in no time. Bali Solution It was surprising that very few countries such as Cuba, Venezuela and Bolivia supported India in Bali Round. One reason for this isolation, as was highlighted in foreign media, is that India s burgeoning food stocks have caused anxiety in international circles. Indian media have highlighted the deplorable situation of storage wherein rats feed on them. The Supreme Court, shocked by this report accompanied by pictures, asked the Government why it cannot simply distribute the food grains among the beggars. However, the news, not very much reported in Indian media, is that India has been selling these grains at a lower price in international markets. India took a firm stand in Bali meeting that all expenditures incurred in providing food security must fall under exempt payments; and it refused to accept Trade Facilitation Agreement unless its demand is conceded. Finally, Bali Ministerial Conference suggested a solution, modeled on Peace clause: In the interim, until a permanent solution is found and provided that the conditions set out below are met, Members shall refrain from challenging through the WTO Dispute Settlement Mechanism, compliance of a developing member with its obligations under Articles 6.3 and 7.2 (b) of the Agreement on Agriculture in relation to support provided for traditional stable food crops in pursuance of public stockholding programmes for food security purposes existing as on the date of this Decision that are consistent with paragraph 3, footnote 5

20 and 6 of Annex 2 to the AoA when the developing member complies with the terms of this Decision. 14 Conditions set out below refers to procedural requirements of notification and reporting. The matter of concern however is the freezing of stockholding programs as of the date of the Decision, i.e.7 th December, This could mean that if India acquires and stores more food grains than what was existing on this date, India may not be able to avail itself of the protection provided by this Decision. And given the consensus mode of arriving at decisions in the WTO, it is quite possible that the stalemate will persist. Meanwhile to provide universal food security, the Food Corporation may have to procure more and more food grains. Hence this solution is unsatisfactory from India s point of view. Export Subsidies Article XVI was the only provision in the GATT, 1947 dealing with subsidies. It provided that if subsidies, given by one country, causes serious prejudice to the interests of another, both parties shall consult with each other to explore the possibility of limiting the subsidization. In 1955, Section B was added to Article XVI specifically focusing on tackling the problems caused by export subsidies. However, in Tokyo Round Code on subsidies we find the further elaboration of the concept of subsidies. The issue was discussed in great detail in Uruguay Round; and an elaborate Agreement on Subsidies and Countervailing Measures was adopted. But agricultural subsidies are dealt under the AoA. The AoA lays special emphasis on export subsidies; and achieving specific binding commitments in the area of export competition is one of the three pillars of the AoA. Article 9.1 of the AoA lists six types of export subsidy that are subject to reduction commitments. They are: i) Direct subsidies including payments in kind contingent upon export performance;

21 ii) Sale or disposal for export by governments of non-commercial stocks of agricultural products at a price lower than domestic price for like products; iii) Payments on the export of an agricultural product that are financed by virtue of governmental action; iv) Subsidies to reduce the costs of marketing exports of agricultural products; v) Internal transport and freight charges on export shipments; vi) Subsidies on agricultural products contingent on their incorporation in exported products. Under the Modalities Agreement, over six years implementation period, developed countries are required to reduce their expenditure on export subsidies to a level of 30% below the levels existing in base period and also to reduce the export quantities benefitting from export subsidies by 21%. The developing countries, on the other hand, are required to reduce their subsidies by 24% over a period of 10 years and export quantities benefitting from subsidies by 14%. Least developed countries are exempt from any undertaking. Under Article 10.1 of the AoA, export subsidies, not listed in Article 9.1 shall not be applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments. Peace Clause Article 13 of the AoA, titled as Due Restraint, is generally known as Peace Clause. It is peculiar to the AoA and thereby affirms the temporary character of the AoA. It essentially provides that during the Implementation period, i.e. a period of 9 years,

22 starting from 1995, domestic support measures and export subsidies, which are in compliance with the AoA, shall not be challenged under the GATT 1994 or the Agreement on Subsidies and Countervailing Measures. The implications of Peace Clause have been discussed in a number of WTO cases such as Brazil - Desiccated Cotton, Argentina Footwear and the EC Bananas III, and the USA Upland Cotton. The pronouncement in all these cases can be summed up as follows: The WTO Agreement constitutes an integrated legal system. Therefore, the AoA and another closely related MTA, namely Agreement on Subsidies and Countervailing Measures (ASCM) must be read together. The domestic support and export subsidies under the AoA constitute exceptions to the ASCM for a period of 9 years. Thereafter, all these measures have to comply with the relevant provisions of the ASCM. Strictly speaking, there could have been plethora of challenges to domestic support measures and export subsidies after the expiry of Peace Clause; but such challenges have not been made. It may be noted that under Article 13(b) and (c ), countervailing measures could be initiated against measures covered by the AoA, if there is a determination of injury as per the Part IV of the ASCM. This could mean that ASCM would apply to those measures despite that they are protected by the AoA. The AoA, however, provides that due restraint shall be shown in initiating any such countervailing duty investigations. In practice, members have treated the Peace Clause as if it continues to exist despite the expiry of Implementation Period. Conclusions Agriculture went out of the GATT discipline because of the insistence by the USA duly followed by the EC. It is back as part of the WTO because these countries wanted it to be back to sort out their problems. The various mathematical formulations, found in the AoA, were worked out in the context of U.S. EC economic relations. The tentative nature of the Agreement is both explicit and implicit. It is explicit in Article 20; and implicit in the way the commitments for

23 market access, domestic support and export subsidies were formulated. What would happen after the expiry of 6 years or 10 years from 1995 is not clear. The so-called Peace Clause is supposed to last for 9 years; and from strict legal point of view, after the expiry of Peace Clause, the ASCM would apply to agriculture sector. But member states seem to carry on as if the AoA continues to exist. Market access, domestic support and export subsidies are three pillars of the AoA. In all these areas, members of the WTO had undertaken commitments to be fulfilled over a period of time defined in the Agreement. But in the case of market access and domestic support, though the way the commitments were formulated seemed to give some concessions to developing countries, in practice the developing countries found themselves in the receiving end. According to Article 20, the whole AoA should be reviewed in 2000 i.e. one year before the end of Implementation Period of 6 years. But nothing significant has come out of this review so far. ************