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Uruguay Round Agreement on Agriculture

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Uruguay Round Agreement on Agriculture
Hello friends. So, welcome to the class, let us carry on from the last lecture where wehad stopped; we were discussing about the WTO right, the World Trade Organization.As we discussed that the WTO came into existence in 1995, right. So, it was an outcomefrom the GAT which is the General Agreement on Tariff and Trade; and the tariff andtrade agreement actually covered the goods right and not the services, the WTO includedthe services as well.And this was again it was this happened during you know negotiation which happened inthe Uruguay Round right, which was a one of the you know negotiation which happenedfor about seven and half years, and 123 countries were present in that, participated inthat. So, after that you know the WTO came in principle, and the WTO largely looks intothe you know as a dispute settlement and creating trade policies and ensures that thereare no unfair know treatments given to nations, member nations.So, all looking into all this the basically that there are several cases also we haddiscussed in the last class have some of them; for example, how China lodged acomplaint in the WTO against the US and the US lost that case. And in another case,India lost a case to the US right, where the WTO had asked India to stop some of the,you know subsidies and all which was given by the Indian companies and thegovernment was supporting it.So, today will carry on from there and we will talk about the Uruguay Round which wealso had started.(Refer Slide Time: 02:10)So, the there was one thing in the Uruguay Round which was called as the agreement andagriculture; we had started and we discussed why agriculture was taken up as one of theseparate topics. Just because the importance of agriculture being very high and thedeveloping countries and the less developed countries, they depend a lot on theagriculture.And, almost you know the earning capacity that agriculture provides in some of the thesenations is about 4 to 5 times that any other sector could provide, right. So, looking intoall these, there was an agreement on agriculture and this agreement actually was standingon three basic pillars; which we are discussed the market access, domestic support, andexport competition, right.So, market access basically what it says is for example, it talks about the tariffs, youknow tariffication will get into that; reduction commitments, tariff rate quotas, specialsafeguards. And, in when it comes to the domestic support, basically talks about thesubsidies being provided by the member nations, right.So, now, subsidies actually make things uncompetitive. So, in order to have a fair play,the WTO says that tariffs should be reduced; but then it cannot be done instantly, so itgives time for different countries in a different way, for example, for the developingnations it is slightly different and developing nations it is different.And then it also discriminates the kind of subsidies right into three groups; for example,the green, blue and the you know red. So, red although it is not there; but then they saythere is a red box also right, to understand it better.And third pillar is the export competition, where talks about export subsidies and youknow the food aid and credits and everything, right. Some of the developed, lessdeveloped countries, least developed countries who are the WTO members are requiredto make commitments and they are exempted from this. And but, they would have tomake commitment that in all these areas in order to liberalize the agricultural trade, right.(Refer Slide Time: 04:13)So, what is this first pillar let us talk about it; the market access. So, developed anddeveloping countries have to convert all the non-tariff barriers into simple tariffs;because it has been seen that, the non tariff barriers for example, like you know the rulesand regulations, you know voluntary the quotas and all.So, these things are very difficult sometimes to understand and they are they make itvery complicated. So, in order to make it more simpler, trade being to make the trademore simpler; the WTO has asked all the member nations to convert most of these nontariffbarriers into simple tariffs, right.So, which is a process called as tariffication? Tariffication means that all non tariffbarriers such as quotas, variable levies, minimum import prices, discretionary licensing,state trading measures, voluntary restraint agreements etcetera they need to becompletely abolished and just convert them into a equivalent tariff, right. So, but thetariff also cannot be very high.So, it says, all tariff to be bound right that is cannot be increased above a certain limit;this is yes you have to convert into a simple tariff, but they have to be within a certainlimit. The 1995 agreement on agriculture consists of tariffs reduction of for thedeveloped countries to reduce import tariffs by 36 percent.So, that is across the board for all products over a six year period and with a minimum 15percent tariff reduction for any one product at least. And for the developing countries thescheme was slightly different; they have to reduce import tariffs, so import tariffs, so by24 percent, right.So, developed countries have to reduce by 36 percent and import developing countriesby 24 percent; this discrimination is there just because of the stability, the strength of thenation, right. So, developed countries can be are more competitive more, they have moreproductive, so they can go for instant reduction of 36 percent.But developing countries might be it might be difficult for them, so it was done 24percent; so over a ten year period and with 10 percent tariff reduction for any oneproduct, right. The least developed countries were exempt as we had discussed fromtariff reductions; but they either had to convert nontariff barriers to tariffs creating aceiling that could not be increased in future.(Refer Slide Time: 06:38)The second pillar or second part of this agreement was the domestic support. Now whatis domestic support? In fact, we know that every country tries to provide its a you knowagricultural you know members; so the farmers and the different members in the sector;the they provide some kind of subsidy, right.This subsidy is given, for example, in Punjab we give you know free electricity. So, thatis a, you know the government bears that costs right, that is subsidy; some cases we givefree seeds. So, in some cases we give fertilizers.So, these are kinds of subsidies that the government gives and subsidies; there aredifferent arguments, sometimes people feel that subsidies do not make you moreproductive if they rather they make you incompetent, right. Anyway the WTO classifiesthe domestic subsidies into three categories; the amber category, the blue and green. So,these are different colors being given, right.So in fact, the blue is nothing, but a part of the amber only, we will see. In among thesethree it says; only the amber box is subject to reduction. Now let us see what these are.First of all the green box, the green means permitted.Subsidies that are deemed not to distort trade right; for example, if the governmentdirectly gives cash for example, to the farmers. So, that is something that is not going todistort trade right or at least cause minimum distortion or not subject to the WTOreduction commitments. So, this are not coming under any danger category, so they arenot dangerous. So, there is nothing being said about it.The second is the amber; amber means slow, as you have seen the traffic light, right. So,to be reduced; so that means, it is to be reduced. All domestic subsidies that areconsidered to distort production; that means, which makes the foreign products notcompetitive uncompetitive and because the because of the subsidies the domesticagriculture farmers or anybody, they are making more cheaper products.So, to avoid to create this un you know, unfair play right; so the government, the WTOsorry ask to reduce a such kind of you know subsidies you know such kind of products,right. Example is the market price support which the government offers.So, that is a amber comes under amber category and that has to be reduced. One morebox which is the blue as I said; the blue means subsidies that are tied to programs thatlimit production, ok. So, the amber box, it is a amber box with certain conditions, right.Finally, there is a red box which actually does not look in a, is not visible; which meansforbidden, completely forbidden, so nothing, no discussion on that, right.So, the AoA Agreement on Agriculture signed at Uruguay has no actually red box right.But subsidies above the reduction commitment levels in this AMS are often expressed asred box. But things exceeding reduction commitment levels in amber boxer provided,right.For developed countries, a 20 percent reduction in the total AMS right; what is AMS?Aggregate Measurement of Support, right. So, developed countries have been asked for a20 percent reduction in the total agreement measurement of support, aggregatemeasurement of support over six years. And for developing countries it has been a 13percent reduction in total agreement aggregate measurement of support being asked.So, this is what the WTO has asked its member nations to do it, so that the agriculturalsector does not get affected instantly; that means the developing nations do not feel thepressure. But slowly they get into a situation there where everybody comes into a levelplaying field and everybody tries to play under the same rules, so that there is no unfairpractice being done for any one country or any other country, right.(Refer Slide Time: 10:44)The third pillar is the export competition. We says which for example, it talks aboutexport subsidies; the agreement contains provisions regarding members commitment toreduce export subsidies. So, if the government is providing subsidies for export; so this isagainst the WTO guidelines, right. So, it asks the member countries to reduce this exportsubsidies. Developed countries are required to reduce their export subsidy expenditureby 36 percent and volume by 21 percent in 6 years, right.For developing countries it was 24 percent and 14 percent, right. Interestingly many atimes that arguments comes that, it is the developing and the least developed countrieswhere the subsidy and the export subsidies all this these are you know largely there andit is not much with the developed countries; but that is a very very wrong notion.In fact, there have been cases, for example, Japan has been you know always, you knowthere has been a criticism for Japan that it has given very high subsidies for on its for itsfarmers, right. So, maybe because of its problem that they have, that terry in the landwhich is very highly not very fertile and all; but whatever may be the condition, right.So, it is that some other developed countries have been criticized very largely that,although they try to you know reduce the subsidies and try to enter into other markets.But if they look at their own conditions, they too are responsible for providing subsidiesto their own domestic players right; so which is actually expected that the developednations would take the lead and try to make it as fair as possible.(Refer Slide Time: 12:34)India’s commitment, now in this case; as India was maintaining quantitative restrictionsright, due to the balance of payment reasons; it did not have to undertake anycommitments in regard to market access. The only commitment India has undertaken inits bind is its to bind its primary agricultural products at a 100 percent, processed foods at150 percent, and edible oil at 300 percent, right.For agriculture sector, domestic support up to 10 percent of the total value of agriculturalproduce is allowed for developing countries and 5 percent in developed countries, right.In India the product specific support; subsidies on rice, wheat, bajra, jawar, maize,barley, gram is negative in fact, while non product specific support subsidies on powerare all well below 7.52 percent, the permissible level is 10 percent.We had seen in the last slide also right, of agricultural output. So, India under noobligation to is to there is no obligation to reduce domestic support currently extended tothe agriculture sector although. So, this is discussion which always goes on.But India is in a much better position, when it talks, when we are talking about theimplications; so we can see, we are at a much better position. Developing countries arefree to provide certain subsidies right, as a it was already mentioned; subsidizing ofexport marketing costs in order to boost the export, internal and international transportsand freight charges, etcetera.In India what is happening? Exporters of agricultural commodities do not get any directsubsidy; India making use of these subsidies in certain schemes, for example, theAgriculture and Process food products Export Development Authority, Ministry ofCommerce and Industry, Government of India.So, what India is basically, the Indian government has been doing following a very nicepolicy; it has been not giving any direct subsidy as such, but it has been supporting, weare making more you can say creating better infrastructure, better policies, so that thesubsidies are not directly given, but they make the players more competitive byproviding the facilities, right. So, this is what the Indian government has been attemptingto do and it has been largely successful in that also.(Refer Slide Time: 14:59)Now, we will come into the General Agreement on Trade in Services, GATS right,TRIMs and TRIPS. Today we will discuss these three factors also.(Refer Slide Time: 15:04)So, what is the General Agreement on Trade in Services? Something which comes underthe WTO, we are talking with the WTO, right. It is a known fact that trade in services isthe rapidly growing field in the global scenario. So, you can see India has be become asoftware hub today, right.So, many in several things for example, biotechnology, for example, in software andbanking solutions we are doing much better. According to WTO, services constitutedabout 60 percent of the global production and employment. Combined with changingconsumer preferences, such technical and regulatory innovations have enhance thetradability of services and, created a need for multilateral disciplines.The rapid growth and change has prompted the members of the WTO to bring in changesin rules and regulations on trade in services and GATS was introduced in 95. GATS is amultilateral agreement which that was negotiated in the Uruguay Round, right. What isthe basic purpose of it?As stated in Preamble, the GATS is intended to contribute to trade expansion underconditions of transparency and progressive liberalization and as a means of promotingthe economic growth of all trading partners and the development of the developingcountries, ok.(Refer Slide Time: 16:25)So, what services are covered? Let us see, the GATS applies in principle to all servicesectors with two exceptions. What are these two? So, it excludes services supplied in theexercise of governmental authority; these are services that are supplied neither on acommercial basis nor in competition with other suppliers, right.So, what it says? Services supplied in the exercise of governmental authority; sosomething which are not on a commercial basis nor in competition. So, there are nothope to a, they are not falling in that open market mechanism, right. Further on airtransportation services from coverage measures affecting air traffic rights and services,which are directly related to the exercise of, you know this is another.So, air transport and this one; these two are the ones which are exempted right, the twoexceptions basically. The GATS defines that trade in services can be made in four ways;what are they? First cross border supply, consumption abroad, commercial presence, andpresence of natural persons.What does they mean? First one, the cross border supplies defined to cover servicesflows from the territory of one member into the territory of another member; examplebanking or architectural services transmitted via telecommunications or mail, ok. Secondis consumption where it says, for example, refers to situations where a services consumermoves into another members territory to obtain a service; tourism or patient coming fortreatment.Commercial presence implies that a service supplier of one member establishes aterritorial presence, including through ownership or lease of premises in anothermember’s territory right; example, domestic subsidiaries of foreign insurance companiesor hotel chains, ok.And lastly, the presence of natural persons consists of one member entering into theterritory of another to supply a service; example, accountants, doctor’s, teachers,software engineers for example, right. So, this is what the GATS defines that trade inservices can be made in these four ways, ok.(Refer Slide Time: 18:35)The WTO secretariat has divided all services into the following 12 sectors; this 12 sectorare further divided into 161 subsectors. So, list of the sectors are business services andprofessional services; accountancy, advertising, architectural, computer, legal; undercommunication it is audio visual services, postal and courier, express mail services,telecommunications; construction and related services; distribution services.You have education, energy, environmental services, financial services, health and socialservices, tourism, transport; which is subdivided again air transport, land transport,maritime transport, services auxiliary to all modes of transport and movement of naturalpersons, right.(Refer Slide Time: 19:20)What are the basic obligations under the GATS, right? Obligations obtained in the GATSmay be characterized two broad categories or broad groups; one this is very important,we have already I think discussed, but still I would like to go again with this. The mostfavoured nation treatment right and transparency, which is contained with thetransparency; second is specific commitments which talks about the market access andnational treatment.So, the GATS under the; now GATS what it says is that, the general obligation is themost favoured nation treatment. Most favoured nation treatment this concept started withthat, when earlier one country used to give a favour or a most favoured nation treatmentto another nation right, for a particular trade or service.Now, once anybody becomes a member of the WTO; the WTO says that if you give themost favoured nation treatment to anyone, then that treatment also has to be given toothers,. So, that is the first thing. So, that includes that; obviously, leads to a transparencyand there is an you know equality for everyone, right. The second thing is a specificcommitment it wants. What it says? That market access; that means, everybody shouldbe able to access the market.So, but this is where you know sometimes the debate goes that, accessing the market isgenerally for you know personal gains. So, the developed countries right would be in aposition to exploit the market better of another country and they have started getting intonew territories once the markets, their own markets got saturated. So, these are thedebates which I am trying to make, right.So, when their own markets got saturated; for example, if you look at the Japan markettoday, the US market, the UK market for that or any other market, the developedcountries markets, they have already got saturated. So, they are in a mood to look atother markets, right. So, they are trying to access new markets. So, and now they wantcommitments from the developing nation’s right, who are the new members.So; obviously, one can smell some kind of personal gain for this member nations. So, itis not like you know, it is only a Utopian state everybody gains you know it could bepossible; but then there is always a debate that can go on. And where it says that, when aforeign product or a imported item comes into any country right, so that should betreated as equal to a domestic product, right.So, now, that means, if I understand it rightly; the developed nations are the countrieswhich are already doing well and they have attained economies of scale, they haveattained very good knowledge about the production systems, and their human resourceswell developed, skills are well developed. So, these countries now are looking for anopportunity to get into new markets.And now they want that these markets, other markets should trade them their products astheir own domestic products; now that is very interesting. So, at one side this GAT looksvery innocuous; sometimes there is an undercurrent feeling that maybe this developedcountries could exploit the other countries, and that is maybe one of the objectives right,that is always there as a critic for globalization, I can always speak for that, right.(Refer Slide Time: 22:40)So, now what is the most favored nation treatment? It says most favored nation treatmentmeans, treating ones trading partners equally under GATS; if a country allows foreigncompetition in a given sector, equal opportunities in that sector should be given toservice providers from all the WTO members as I just explained. MFN applies to allservices, but some special temporary exemptions have been allowed.This transparency it says under Article III; in order to guarantee transparency,governments must publish all relevant laws and regulations. Inquiry points within theiradministrations should help foreign companies and governments obtain informationabout regulations in any service sector, right. Moreover governments have to notify theWTO of any changes in regulations that apply to the services that come under specificcommitments.Well, in the name of you know guise of transparency, in the guise of most favored nationtreatments; well the exploiting you know, exploitation is highly possible situation, right.(Refer Slide Time: 23:42)Second is the market access, the market access is a negotiated commitment in specifiedsectors; it may be made subject to various types of limitations that are enumerated in thearticle XIV, XVI sorry.For example, limitations may be imposed on the number of service suppliers, serviceoperations or employees in the sector, the value of transactions, the legal form of theservice supplier or the participation of foreign capital. What is the national treatment itsays? Treating one’s own nationals and foreigners equally; in this, in services this meansthat, once a foreign company has been allowed to supply a service in one’s country, thereshould be no discrimination between the foreign the local companies, rightThe key requirement is not to modify in law in fact; the conditions of competition infavor of the members own service industry. Again, the extension of national treatment inany particular sector maybe subject to conditions and qualifications. So, what it says?Each WTO member is required to have a schedule of specific commitments whichidentifies the services for which the member guarantee market access and nationaltreatment and any limitations that may be attached.So, well at one side these are very clear, this is what the WTO tries to do, tries to makethe global globe as one market. But the condition you know, the worrisome factor to itthat is attached to it is that, the countries which are yet to grow you know productivelywhere the skills are less, the you know the markets are not well developed and theinfrastructure is not well developed, in such a condition they would surely grow.In fact, for example, some people make a debate, some people make an argument; thatthe British’s when they came to India they also gave us something. For example, therailways, for example, they constructed bridges and dams; yes we have gained, there isno doubt about it. But then that does not allow any foreign company to exploit anothercountry; rest because of the difference in the knowledge between the two sides, right ok.(Refer Slide Time: 25:51)What are the benefits of services liberalization? Service sector contributes significantlyto exports; now for example, the software, right. An efficient services infrastructureprovides a basis base for economic success; like telecommunication, banking, insurance,transport etcetera. More FDIs are attracted in the countries, which will bring the newskill and technology into the country.Now, the domestic employees can learn the new skills from the MNCs. Faster innovationtakes place in with liberalized services; for example, in these sectors. Greatertransparency and predictability benefit is there for the customers and trade liberalizationservices leads to low cost; so the consumer gains here, right.So, best example in telecommunications you can see in India; for example, at one pointof time the cost of one incoming call and outgoing call was about 16 rupees, right. So, ifyou, there you have to pay for an incoming call to; but today it is almost very very less,right. So, for 3 months you take a package of maybe 300 rupees also or 200 rupees alsois possible.(Refer Slide Time: 26:52)So, in line with the global trends, the service sector in India is growing rapidly. India isdoing well and the contribution of services has increased to 54.3 percent 2018-19 from51.5 percent in 98-99.Share of employment is at 34 percent. India exhibit strong comparative advantage inservice related goods; and especially it is in the IT, BPO, you know and banking andfinancial services. India has permitted 100 percent FDI in IT and telecommunications;services the largest recipient of FDI in India with inflows of 74.94 billion between 2000and 2019, right.Top five exporting developing economies were Asian, comprising China, India,Singapore, Hong Kong and the republic of Korea. They held a world market share ofalmost 15 percent, the same as all other developing economies combined, right.So, this is a small you know table figure which can tell you the exports from thedeveloping economies, exports from the developed economies, right. I think we arerunning short of time. So, what we will do is, we will stop here right and we willcontinue in the next lecture with the others like for the trade related services and traderelated investment measures, right. We will talk on that; so I think this is all for the day.Thank you very much.