Skip to main content
diversification.com
← Back to A Definitions

Agreement on agriculture

What Is the Agreement on Agriculture?

The Agreement on Agriculture (AoA) is an international treaty under the World Trade Organization (WTO) that aims to reform agricultural trade by reducing trade-distorting subsidies, improving market access, and eliminating export subsidies. It falls under the broader category of International Trade Policy and represents a significant step towards bringing agricultural trade under multilateral trade rules. The AoA seeks to establish a fairer and more market-oriented trading system for agricultural products globally. Since its inception, the Agreement on Agriculture has been instrumental in shaping agricultural policies worldwide.

History and Origin

Prior to the AoA, agriculture was largely exempt from the rules governing global trade, leading to significant distortions through various forms of government support and protection. The origins of disciplining agricultural trade date back to discussions in the late 1950s within the General Agreement on Tariffs and Trade (GATT). However, it was not until the Uruguay Round of multilateral trade negotiations, launched in 1986, that agriculture was finally placed on the negotiating agenda38.

Seven years of intense negotiations, often marked by impasses, particularly between the United States and the European Community, eventually led to the "Blair House Accord" in November 1992. The comprehensive agreement, formally ratified in Marrakesh, Morocco, in April 1994, led to the establishment of the WTO on January 1, 1995, and the entry into force of the Agreement on Agriculture36, 37. The long-term objective set forth in the AoA's preamble is "to establish a fair and market-oriented agricultural trading system"35.

Key Takeaways

  • The Agreement on Agriculture is a WTO treaty designed to liberalize global agricultural trade.
  • It operates on three pillars: domestic support, market access, and export subsidies.
  • The AoA classifies domestic subsidies into "boxes" (Amber, Blue, Green) based on their trade-distorting potential.
  • Developed countries and developing countries have different reduction commitments under the agreement.
  • The AoA introduced discipline to a sector previously largely exempt from international trade rules.

Formula and Calculation

While the Agreement on Agriculture does not present a single formula to calculate its overall impact, it incorporates specific calculation methods for measuring and committing to reductions in trade-distorting domestic support. The primary measure used is the Aggregate Measurement of Support (AMS).

The AMS represents the annual level of support (subsidies) provided for an agricultural product, expressed in monetary terms33, 34. It includes both product-specific and non-product-specific support deemed to distort trade.

Developing countries were allowed a "de minimis" level of 10% of the value of agricultural production as exempt from reduction commitments, compared to 5% for developed countries32.

AMS=Total Domestic Support−(Green Box Support+Blue Box Support+De Minimis Exemptions)\text{AMS} = \text{Total Domestic Support} - (\text{Green Box Support} + \text{Blue Box Support} + \text{De Minimis Exemptions})

Where:

  • Total Domestic Support: All financial support provided by a government to its agricultural producers.
  • Green Box Support: Subsidies considered to have minimal or no trade-distorting effects. These are typically government-funded programs that do not involve price support to producers and are often related to research, pest and disease control, environmental protection, or food security reserves31. These are exempt from reduction commitments.
  • Blue Box Support: Subsidies linked to production-limiting programs, such as direct payments based on fixed areas or yields, or fixed numbers of livestock. These are considered less trade-distorting than Amber Box subsidies and are subject to certain conditions.
  • De Minimis Exemptions: A small percentage of product-specific or non-product-specific support that is considered too small to distort trade and is thus exempt from reduction.

Countries are required to calculate their AMS and commit to reducing it from a base period level. For example, developed countries were required to reduce their Amber Box subsidies by 20% over six years, while developing countries had a 13.3% reduction over ten years30.

Interpreting the Agreement on Agriculture

Interpreting the Agreement on Agriculture involves understanding its three pillars: domestic support, market access, and export subsidies.

  1. Domestic Support: This pillar categorizes government support to farmers into "boxes" based on their potential to distort trade. The aim is to reduce trade-distorting support (Amber Box). Green Box measures, considered non-distorting, are allowed without limits, which provides flexibility for governments to support public services in agriculture or provide direct payments to farmers not linked to production.
  2. Market Access: This refers to the reduction of tariff and non-tariff trade barriers on agricultural products. A key feature here was "tariffication," the conversion of all non-tariff barriers (like quotas and variable levies) into tariffs, making them more transparent and easier to negotiate downward28, 29. Developed countries committed to an average tariff reduction of 36% over six years, and developing countries by 24% over ten years.
  3. Export Subsidies: This pillar aimed to reduce or eliminate subsidies given to encourage exports of agricultural products, as these artificially lower prices in global markets and harm producers in non-subsidizing countries27. Developed countries committed to reducing export subsidies by at least 36% by value and 21% by volume over six years, with smaller cuts for developing countries.

The interpretation of the AoA's rules often involves careful examination of how national policies fit into these categories and whether they comply with reduction commitments.

Hypothetical Example

Consider a hypothetical country, "Agraria," a developing nation whose economy relies heavily on rice production. Before the Agreement on Agriculture, Agraria imposed high import quotas on rice to protect its domestic farmers, and it also offered direct price support that encouraged overproduction.

After joining the WTO and committing to the AoA:

  1. Tariffication: Agraria converts its rice import quotas into equivalent tariffs. This makes its trade policy more transparent. Instead of a hard limit on imports, there's now a clear tax.
  2. Tariff Reduction: Agraria commits to reducing its new rice tariffs by 24% over ten years. This gradual reduction allows its farmers time to adjust to increased foreign competition.
  3. Domestic Support Reduction: Agraria must also reduce its trade-distorting price support (Amber Box subsidies) by 13.3% over ten years. To comply, Agraria might shift some of its support to "Green Box" measures, such as investing in agricultural research and development or providing direct income support to low-income farmers that is decoupled from production levels. This encourages more efficient resource allocation within its agricultural sector.

This process would allow for a more market-oriented environment, potentially benefiting consumers through lower prices and more diversified imports, while pushing domestic producers towards greater efficiency and competitiveness in the global market.

Practical Applications

The Agreement on Agriculture has practical applications across various facets of global economics, trade, and development:

  • Global Trade Negotiations: The AoA forms the bedrock for ongoing agricultural trade negotiations within the WTO, such as the Doha Development Agenda. These negotiations continue to seek further trade liberalization in agriculture26.
  • National Agricultural Policy Formulation: Member countries must design their agricultural policies to align with AoA commitments, impacting their domestic support programs, tariff structures, and export strategies. This often involves shifting from price-distorting subsidies to more "decoupled" forms of support.
  • Dispute Settlement: The AoA provides a framework for resolving trade disputes related to agriculture. Countries can challenge policies of other members if they believe they violate AoA rules, leading to rulings that shape future trade practices. An example includes disputes over cotton subsidies25.
  • Market Access for Exporters: By reducing tariffs and eliminating non-tariff barriers, the AoA has theoretically opened up markets, creating opportunities for agricultural exporters, particularly from efficient producing nations24.
  • Food Security and Development: While promoting trade, the AoA also acknowledges non-trade concerns like food security. Provisions for special and differential treatment for developing countries aim to balance trade liberalization with the need to protect vulnerable populations and support rural livelihoods23. The Food and Agriculture Organization (FAO) works to support countries in navigating these implications, especially for net food-importing developing countries22.

Limitations and Criticisms

Despite its aims, the Agreement on Agriculture has faced considerable limitations and criticisms, particularly from developing countries:

  • Uneven Playing Field: Critics argue that the AoA has not created a truly level playing field. Developed countries were allowed to retain substantial levels of trade-distorting domestic support by classifying many of their subsidies as "Green Box" measures, which are exempt from reduction commitments21. This means richer nations can continue to heavily subsidize their farmers, making it difficult for producers in developing countries to compete in international markets19, 20.
  • Impact on Small Farmers: The reduction in tariff protection for small farmers in developing countries, coupled with cheap, subsidized imports from developed countries, has been criticized for negatively impacting farmers' incomes and livelihoods in poorer nations17, 18. This can exacerbate rural poverty and food insecurity16.
  • Tariff Peaks and Escalation: While tariffs were reduced, some "tariff peaks" (very high tariffs on specific products) persist, particularly on processed agricultural goods, which can hinder the export diversification of developing countries.
  • Implementation Challenges: Monitoring compliance with AoA commitments can be challenging due to differences in country-specific conditions and institutional capacities. Transparency and notification of agricultural support measures to the WTO have also been issues15.
  • Negotiation Stalemate: Ongoing negotiations for further reforms of the Agreement on Agriculture, such as those within the Doha Round, have largely stalled, indicating the deep divisions and political sensitivities surrounding agricultural trade13, 14. A critical review of the AoA highlights the ongoing debate and the need for a balanced approach to ensure food security and sustainable agricultural development12.

Agreement on Agriculture vs. Common Agricultural Policy

The Agreement on Agriculture (AoA) and the Common Agricultural Policy (CAP) are both significant frameworks influencing agricultural trade, but they differ fundamentally in their scope and nature.

The Agreement on Agriculture is a multilateral treaty under the World Trade Organization. It sets international rules and commitments for all WTO member countries regarding agricultural subsidies, market access, and export subsidies. Its objective is to liberalize global agricultural trade and reduce trade distortions worldwide. The AoA creates a broad legal framework that all signatory nations must adhere to, with specific reduction commitments for trade-distorting measures.

In contrast, the Common Agricultural Policy (CAP) is the agricultural policy of the European Union (EU). It is an internal policy that governs agricultural production, subsidies, and trade within the EU member states. Established in 1962, the CAP initially aimed to increase agricultural productivity, ensure a fair standard of living for farmers, and stabilize markets within Europe11. While the CAP's instruments and objectives have evolved over time to become more market-oriented and environmentally focused, it primarily dictates how the EU manages its own agricultural sector and provides support to its farmers9, 10.

The key difference lies in their scope: the AoA is an international agreement governing trade among countries, while the CAP is a regional policy governing agriculture within a specific bloc of countries. However, the CAP's provisions and the subsidies it provides to European farmers must comply with the broader international obligations set forth by the Agreement on Agriculture8. Historically, the CAP's export subsidies and domestic support measures were a significant point of contention in WTO agricultural negotiations, as they impacted global markets and the competitiveness of non-EU producers.

FAQs

What are the "three pillars" of the Agreement on Agriculture?

The three pillars of the Agreement on Agriculture are Domestic Support, Market Access, and Export Subsidies. These categories define the main areas where WTO member countries committed to reducing trade-distorting policies and increasing transparency in agricultural trade.

How does the Agreement on Agriculture distinguish between different types of subsidies?

The AoA classifies subsidies into "boxes" based on their potential to distort trade:

  • Amber Box: Trade-distorting subsidies subject to reduction commitments (e.g., price supports, input subsidies).
  • Blue Box: Less trade-distorting subsidies with certain conditions, often production-limiting programs.
  • Green Box: Minimally trade-distorting subsidies, exempt from reduction commitments (e.g., research, environmental programs, food security reserves)7.

Has the Agreement on Agriculture been successful in achieving its goals?

The AoA has had mixed success. It has brought agriculture under multilateral trade discipline for the first time and led to some reductions in tariffs and subsidies, promoting greater trade liberalization6. However, many critics, particularly from developing countries, argue that it has not fully leveled the playing field, as developed countries continue to provide significant domestic support through "Green Box" measures5.

What is "tariffication" under the AoA?

"Tariffication" is the process by which non-tariff trade barriers, such as quotas and import restrictions, were converted into equivalent tariffs. This made protection measures more transparent and theoretically easier to negotiate down in subsequent trade rounds, aiming to improve market access3, 4.

What are the main challenges faced by developing countries under the Agreement on Agriculture?

Developing countries often face challenges due to continued high subsidies in developed countries, which can depress world prices and make their agricultural exports less competitive. They also grapple with limited financial and institutional resources to effectively implement AoA commitments and leverage new trade opportunities for economic growth2. Issues related to food security and protecting small farmers remain significant concerns1.