TRAINING PROGRAMME FOR

THE GOVERNMENT OF INDONESIA

The Agreement on Agriculture

Jogjakarta, Indonesia26-29 March 2019

AGENDA

I. Why discipline agriculture in the WTO?

II. The scope of the Agreement: what products arecovered?

III. The Three Pillars: export subsidy disciplines, rules onmarket access and domestic support disciplines.

IV. Export subsidies (Articles 3.3, 8, 9 and Nairobi Decision)

V. Market Access (Article 4.2)

VI. Domestic Support Commitments (Articles 6, 7 andAnnex 3)

VII. Measures exempted from the reduction commitments(Article 6.2 and Annex 2)

WHY DISCIPLINE AGRICULTURE?

• Agriculture is one of the few economic sectors which has its ownagreement within the WTO. Other than the broad WTO distinctionbetween goods and services, all other WTO provisions are neutral as tothe economic sector involved. Agreement on Agriculture was one of thekey achievements of the Uruguay Round.

• Before the Agreement on Agriculture trade in agriculture wascharacterised by distortions and impediments to agricultural trade,including import bans, quotas, variable import levies, minimum importprices and non-tariff measures maintained by state trading enterprises.

• Excessive market price support meant expanding domestic productionwhich not only replaced imports completely but resulted in structuralsurpluses. Export subsidies were then used to dump surpluses onto theworld market, depressing world market prices.

WHY DISCIPLINE AGRICULTURE?

• By agreeing to cap and reduce these subsidy levels and importbarriers, developed countries hoped to bring an end to "subsidywars" that were draining their national budgets and driving downworld commodity prices.

• Farmers in developing countries were forced to compete with thetreasuries of the world’s richest countries in export markets and intheir home markets.

• To create a "fair and market-oriented agricultural trading system",ddisciplines were introduced to address the structural distortionsin agricultural trade.

WHY DISCIPLINE AGRICULTURE?

• Agreement on Agriculture seeks to reduce restrictions ontrade in agricultural products by introducing disciplines to:

o reduce subsidized exports;

o increase market access;

o reduce domestic support measures.

➢ These are referred to as the three pillars of theAgreement on Agriculture

THE SCOPE OF THE AGREEMENT: WHAT PRODUCTS ARE COVERED?

• Article 2 of the AoA ("product coverage") provides that "thisAgreement applies to the products listed in Annex 1 to thisagreement".

• Annex 1 ("Product Coverage") captures a full range of agriculturalproducts (products in HS chapters 1 to 24):

o basic agricultural products such as wheat, milk and live animals

o products derived from them such as bread, butter and meat

o processed agricultural products such as chocolate andsausages.

o wines, spirits and tobacco products

o fibres such as cotton, wool and silk,

o raw animal skins destined for leather production.

• Excludes "fish and fish products" and forestry products.

EXPORT SUBSIDIES

• The general rule in the WTO is no export subsidies. Article 3 of the SCMAgreement prohibits all forms of export subsidies "[e]xcept as providedin the Agreement on Agriculture...".

• The AoA "carves out" agricultural subsidies from the general prohibitionin Article 3 of SCM Agreement.

o Unlike the SCM Agreement, the AoA does not require Members toeliminate all their export subsidies (BUT NOTE Nairobi Decision).

o Export subsidies listed in Article 9.1 may be permitted subject toreduction commitments expressed in the form of budgetary andquantity commitments in a WTO Member's Schedule (Article 9).

o Export Subsidies not listed in Article 9.1 are prohibited if theyresult in or threaten to circumvent export subsidy commitments(Article 10).

o All other agricultural export subsidies are prohibited (Article 8).

EXPORT SUBSIDIES

Article 3.3 of the AoA contains obligations relating to both:

▪ Scheduled Agricultural Products ("A Member shall not provide exportsubsidies listed in paragraph 1 of Article 9 in respect of agriculturalproducts … specified in Section II of Part IV of its schedule in excess ofthe budgetary outlay and quantity commitments specified therein").

▪ Unscheduled Agricultural Products ("A Member… shall not providesuch subsidies [i.e. listed in Article 9.1] in respect of any agriculturalproduct not specified in that Section of its Schedule").

Thus

▪ WTO Members can provide agricultural export subsidies listed inArticle 9.1 but only with respect to agricultural products that havebeen scheduled and to the extent of the reduction limits are set out intheir schedules.

▪ Exception for developing countries unscheduled products: Article 9.4.

WHICH WTO MEMBERS MAY

PROVIDE EXPORT SUBSIDIES?

The following 25 Members are entitled to provide agricultural export subsidies(only with respect to specified products and subject to reduction commitments):

During the Uruguay Round the following reduction commitments were agreed:

o Developed-countries: average of 36% by value and 21% by quantity over a six-yearimplementation period.

o Developing countries: average of 24% by value and 14% by volume over a 10-yearperiod.

o LDCs have no reduction commitments. (Article 15)

Australia (5) EU (20) Norway (11) Turkey (44)

Brazil (16) Hungary (16) Panama (1) United States (13)

Bulgaria (44) Iceland (2) Poland (17) Uruguay (3)

Canada (11) Indonesia (1) Romania (13) Venezuela (72)

Colombia (18) Israel (6) Slovak Rep. (17)

Cyprus (9) Mexico (5) S. Africa (62)

Czech Rep. (16) New Zealand (1) Switzerland-Liechtenstein (5)

EXPORT SUBSIDIES

The Doha Ministerial Declaration calls for "reduction of, with a view to phasing out, all forms of export subsidies". As an outcome of the negotiations, Members agree to establish detailed modalities ensuring the parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect by a credible end date. See WT/L/579, para. 17.

TYPES OF EXPORT SUBSIDIES

Article 9.1 lists six types of export subsidies:

(a) the provision by governments or their agencies of direct subsidies ... contingenton export performance;

(b) the sale or disposal for export by governments or their agencies of non-commercial stocks of agricultural products at a price lower than the comparableprice charged for the like product to buyers in the domestic market;

(c) payments on the export of an agricultural product that are financed by virtue ofgovernmental action, whether or not a charge on the public account is involved…;

(d) the provision of subsidies to reduce the costs of marketing exports of agriculturalproducts (other than widely available export promotion and advisory services)including handling, upgrading and other processing costs, and the costs ofinternational transport and freight;

(e) internal transport and freight charges on export shipments, provided ormandated by governments, on terms more favourable than for domesticshipments; and

(f) subsidies on agricultural products contingent on their incorporation in exportedproducts.

ARTICLE 9.4 OF THE AOA

▪ Article 9.4 of the AoA provides:

o "During the implementation period, developing country Members shall not berequired to undertake commitments in respect of the export subsidies listed insubparagraphs (d) and (e) of paragraph 1 above, provided that these are notapplied in a manner that would circumvent reduction commitments."

➢ i.e. developing countries would be able to introduce these types ofsubsidies provided that they had not scheduled the products in Part IV,Section II.

▪ Paragraph 8 of Nairobi Decision on Export Competition extended the durationof Article 9.4 until the end of 2023. It provides:

Developing country Members shall continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture until the end of 2023, i.e. five years after the end-date for elimination of all forms of export subsidies. Least developed countries and net food-importing developing countries listed in G/AG/5/Rev.10 shall continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture until the end of 2030.

ARTICLE 10 OF THE AOA

▪ Article 3 of the AoA is limited to disciplining the exportsubsidies listed in Articles 9.1 of the AoA. What about thetypes of subsidies not listed in Article 9.1?

▪ Article 10.1 of the AoA:

"Export subsidies not listed in paragraph 1 of Article 9 shall not beapplied in a manner which results in, or which threatens to leadto, circumvention of export subsidy commitments; …".

➢ Article 10 refers inter alia to export credits and food aid.

ARTICLE 10 OF THE AOA

▪ In US – FSC the Appellate Body found that the FSC measures atissue, although not export subsidies listed in Article 9.1, wereagricultural export subsidies inconsistent with Article 10.1.

"Members would certainly have 'found a way around', a'way to evade', this prohibition if they could transfer,through tax exemptions, the very same economic resourcesthat they are prohibited from providing in other formsunder Articles 3.3 and 9.1." (para. 150)

EXPORT SUBSIDIES AFTER NAIROBI

▪ In December 2015, Members made the followingcommitments in the Nairobi Decision on Export Competition:

o That developed countries would eliminate their subsidiesimmediately.

o That developing countries would eliminate their exportsubsidies over a staggered period (2018-2022).

o New disciplines under which Members agree not to provideexport credits unless they comply with the requirements ofthe Nairobi Decision.

▪ Some Member's Schedules have already been amended. E.g.Australia and the EU.

MARKET ACCESS

• The core market access obligation is contained in Article 4.2 of theAgreement on Agriculture. Article 4.2 prohibits certain types of bordermeasures.

Article 4.2 provides:

Members shall not maintain, resort to, or revert to any measures of thekind which have been required to be converted into ordinary customsduties1, except as otherwise provided for in Article 5 and Annex 5.

_________________________________________________________

1 These measures include quantitative import restrictions, variable import levies,minimum import prices, discretionary import licensing, non-tariff measuresmaintained through state-trading enterprises, voluntary export restraints, andsimilar border measures other than ordinary customs duties, whether or not themeasures are maintained under country-specific derogations from the provisionsof GATT 1947, but not measures maintained under balance-of-paymentsprovisions or under other general, non-agriculture-specific provisions ofGATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTOAgreement.

DOMESTIC SUPPORT

▪ In WTO non-legal terminology, domestic subsidies foragricultural products are identified by special"boxes":

▪ "Green" meaning permitted because they have no, or minimal,distortive effect on trade; Annex 2 to the Agreement on Agriculture.

▪ "Amber" meaning possibly legal or illegal depending their trade-distortive nature; calculated on the basis of AMS.

▪ "Blue" meaning possibly trade-distorting nature but permitted as themeasures are linked to production limitation programmes.

▪ "Development" box meaning permitted because they encourageagricultural rural development, which is an integral part of thedevelopment programmes of developing countries.

DOMESTIC SUPPORT

Source: “WTO Disciplines on Agricultural Support”,

David Orden, et al., Cambridge Press, 2014.

WHAT TYPES OF MEASURES ARE

INCLUDED IN THE AMBER BOX?

• All domestic support measures which do not correspond to the"Green" and "Blue" boxes, or to other exemptions (e.g.development box), are considered to distort production andtrade, and therefore fall into the "Amber Box" category.

• Therefore, to determine whether a measure falls within theamber box, one must confirm that it is a domestic supportmeasure (i.e. not an export subsidy) and that it does not fallwithin the “Green” or “Blue” boxes, or another exemption (e.g.development box).

WHAT ARE THE OBLIGATIONS WITH

RESPECT TO THE AMBER BOX?

• "Amber Box" support measures are not prohibited but aresubject to reduction commitments.

• This is based on calculation of the current total aggregatemeasurement of support ("AMS").

• AMS - A monetary expression of the size of annual transfersprovided for a specific agricultural product in favour of theproducers of that product, or non-product-specific supportprovided in favour of agricultural producers in general (Annex 3lays down how the AMS is to be calculated.)

• AMS shall include budgetary outlays and revenue foregone.(“budgetary outlay” refers to money spent by governments tosupport a product).

AMS

▪ AMS cannot exceed the commitment levels bound in aMember's schedule.

▪ Part IV of Members' Schedules of Commitments lists its AnnualBound Commitment Levels for each of the years of theimplementation period (which ended in 2000), and the FinalBound Commitment Level for all subsequent years.

▪ Thus, a WTO Member is in compliance with its domesticsupport reduction commitments in any year if its Current TotalAMS does not exceed the corresponding Commitment Level.

▪ Calculation of AMS: domestic support measures plus marketprice support (for the latter, see Annex 3 of the Agreement onAgriculture).

AMS

Under Article 6.3 of the Agreement of Agriculture, WTO Members must ensure that their annual domestic support measures do not exceed their commitment levels specific in part

IV of their schedule of concessions.

AMS

Article 7.2(b) states that "[w]here no Total AMS commitment exists in Part IV of a Member's Schedule, the Member shall not provide support to agricultural

producers in excess of the relevant de minimis level set out in paragraph 4 of Article 6". According to Article 6.4(b), the de minimis level for developing

countries, such as Indonesia, is 10 per cent of the total value of production for a basic agricultural product in question.

MEASURES EXEMPTED FROM AMS

• Pursuant to Article 6 of the Agriculture Agreement, thefollowing measures are not subject to reductioncommitments (i.e. exceptions to amber box):

➢ Green box measures: domestic support that is not trade-distorting (Annex II).

➢ Blue box measures: certain direct payments underproduction limiting programmes (Article 6.5).

➢ De minimis levels support: support not exceeding 5% or 10%of the value of the product or production for developed anddeveloping countries respectively (Article 6.4).

➢ Development programme measures: certain support toencourage agricultural and rural development in developingcountries (S&D) (measures listed in Article 6.2).

Source: http://www.fao.org/3/a-i3819e.pdf

MEASURES EXEMPTED FROM AMS

GREEN BOX

Agriculture Agreement

Paragraph 1, Annex II

1. Domestic support measures for which exemption from the reductioncommitments is claimed shall meet the fundamental requirement that theyhave no, or at most minimal, trade-distorting effects or effects on production.Accordingly, all measures for which exemption is claimed shall conform to thefollowing basic criteria:

(a) the support in question shall be provided through a publicly-fundedgovernment programme (including government revenue foregone) notinvolving transfers from consumers; and,

(a) the support in question shall not have the effect of providing pricesupport to producers;

plus policy-specific criteria and conditions as set out below.

GREEN BOX

Agriculture Agreement: Paragraph 1, Annex II

1. Domestic support measures for which exemption from the reductioncommitments is claimed shall meet the fundamental requirementthat they have no, or at most minimal, trade-distorting effects oreffects on production. Accordingly, all measures for which exemptionis claimed shall conform to the following basic criteria:

(a) the support in question shall be provided through a publicly-funded government programme (including governmentrevenue foregone) not involving transfers from consumers; and,

(a) the support in question shall not have the effect of providingprice support to producers;

plus policy-specific criteria and conditions as set out below.

Fundamental requirement of green box

• Publicly funded gov. programme

• No price support to producers

See additionalcriteria for specific measuresExample: public stockholding

(para. 3, Annex II)

GREEN BOX

▪ Depending on the nature of the particular policy under consideration, thesupport measure must further fulfil policy-specific criteria set out in detail inthe Annex.

▪ Specific programmes mentioned in Annex II that may qualify as “green box”:

1) General services:

• Research programmes

• Pest and disease control

• Training services

• Agricultural extension services

• Marketing and promotion services

• Infrastructural services including electricity reticulation, roads andrail, port facilities, dams and drainage schemes, etc.

GREEN BOX

2) Public stock-holding for food security purposes

3) Domestic food aid

4) Decoupled income support

5) Government financial participation in income insurance and income safety-net schemes

6) Payments for relief from natural disasters

7) Structural adjustment through producer or resource retirement programmes or through investment aids

8) Payments under environmental programmes

9) Payments under regional assistance programmes

ADDITIONAL GREEN BOX PROGRAMMES: 2013 MINISTERIAL CONFERENCE IN BALI

• Land rehabilitation

• Soil conservation and resource management

• Drought management and flood control

• Rural employment programmes

• Issuance of property titles

• Farmer settlement programmes

• In order to promote rural development and poverty alleviation

WT/MIN(13)/37WT/L/912

PUBLIC STOCKHOLDING PROGRAMMES

PUBLIC STOCKHOLDING PROGRAMMES

3. Public stockholding for food security purposes5

Expenditures (or revenue foregone) in relation to the accumulation and holding of stocksof products which form an integral part of a food security programme identified in nationallegislation. This may include government aid to private storage of products as part of sucha programme.

The volume and accumulation of such stocks shall correspond to predetermined targetsrelated solely to food security. The process of stock accumulation and disposal shall befinancially transparent. Food purchases by the government shall be made at currentmarket prices and sales from food security stocks shall be made at no less than the currentdomestic market price for the product and quality in question.

__________________________________________________________________5 For the purposes of paragraph 3 of this Annex, governmental stockholding programmes

for food security purposes in developing countries whose operation is transparent andconducted in accordance with officially published objective criteria or guidelines shall beconsidered to be in conformity with the provisions of this paragraph, includingprogrammes under which stocks of foodstuffs for food security purposes are acquired andreleased at administered prices, provided that the difference between the acquisition priceand the external reference price is accounted for in the AMS.

5&6 For the purposes of paragraphs 3 and 4 of this Annex, the provision of foodstuffs atsubsidized prices with the objective of meeting food requirements of urban and rural poorin developing countries on a regular basis at reasonable prices shall be considered to be inconformity with the provisions of this paragraph.

PUBLIC STOCKHOLDING PROGRAMMES

PUBLIC STOCKHOLDING PROGRAMMES

3. Public stockholding for food security purposes5

Expenditures (or revenue foregone) in relation to the accumulation andholding of stocks of products which form an integral part of a food securityprogramme identified in national legislation. This may include government aidto private storage of products as part of such a programme.

The volume and accumulation of such stocks shall correspond topredetermined targets related solely to food security. The process of stockaccumulation and disposal shall be financially transparent. Food purchases bythe government shall be made at current market prices and sales from foodsecurity stocks shall be made at no less than the current domestic marketprice for the product and quality in question.

________________________________________________________5 For the purposes of paragraph 3 of this Annex, governmental stockholding

programmes for food security purposes in developing countries whoseoperation is transparent and conducted in accordance with officially publishedobjective criteria or guidelines shall be considered to be in conformity with theprovisions of this paragraph, including programmes under which stocks offoodstuffs for food security purposes are acquired and released atadministered prices, provided that the difference between the acquisitionprice and the external reference price is accounted for in the AMS.

5&6 For the purposes of paragraphs 3 and 4 of this Annex, the provision offoodstuffs at subsidized prices with the objective of meeting foodrequirements of urban and rural poor in developing countries on a regularbasis at reasonable prices shall be considered to be in conformity with theprovisions of this paragraph.

Prices for purchases and sales

S&D treatment

Condition:- Difference must be

included in AMS- Reference price of

1986-1988

STOCKHOLDING PROBLEMS

Problems with the requirements for public stockholding under Annex II

• Reference price corresponds to the period 1986-1988. Food priceshave increased since then. Therefore, a gap can easily exist betweenthe acquisition price and the external reference price.

• This gap must be included in the AMS.

• WTO Members with AMS commitments: OK

• WTO Members with no AMS commitments: must stay within deminimis.

STOCKHOLDING SOLUTIONS

• An amendment to the Agreement was proposed, but proved to becontroversial. Compromise was to agree on due restraint.

• Bali 2013 – “Peace clause”

“In the interim, until a permanent solution is found, and provided that the conditionsset out below are met, Members shall refrain from challenging through the WTODispute Settlement Mechanism, compliance of a developing Member with itsobligations under Articles 6.3 and 7.2 (b) of the Agreement on Agriculture (AoA) inrelation to support provided for traditional staple food crops25 in pursuance of publicstockholding programmes for food security purposes existing as of the date of thisDecision, that are consistent with the criteria of paragraph 3, footnote 5, and footnote5&6 of Annex 2 to the AoA when the developing Member complies with the terms ofthis Decision.26 “

These requirements include the notification that the developing Member is exceeding or is at risk of exceeding its AMS or de minimislevels, as well the provision of certain information according to the specific template contained in the Bali Ministerial Decision.

STOCKHOLDING SOLUTIONS

• November 2014

• Interim solution extended; “Members shall not challenge”

• Interim solution remains valid until a permanent solution isfound; target is 2017

• Nairobi 2015

• Note, reaffirm, continue efforts to find a permanentsolution.

BLUE BOX

▪ "Blue Box": Article 6.5 of the Agreement onAgriculture covers any support measure that wouldnormally be in the "Amber Box", but which is placedin the "Blue Box" if the support also requires farmersto limit their production.

▪ Article 6.5 of the Agreement on Agriculture exemptsfrom reduction commitments certain directpayments to farmers which are tied to production-limiting programmes.

BLUE BOX

▪ The following criteria must be fulfilled:

• payments are directly paid out from thegovernment budget to the producers;

• payments are conditional upon some form ofproduction-limiting requirement imposed on therecipient of the support, which include:

o payments based on fixed area and yields, or

o payments made on 85 per cent or less of thebase level of production;

o livestock payments on a fixed number of head.

▪ Historically, only a few Members have used the blue box(most prominently the EU).

DEVELOPMENT BOX

Article 6.2 covers the provision of, for example, fertilizers or seeds to low-income or resource poor producers in developing country Members.