The World Trade Organisation (WTO) was established in 1995 and has its headquarters in Geneva, Switzerland. As of January 2002, 144 countries have joined the organisation, accounting for 97 percent of world trade. The General Agreement on Trade and Tariffs (GATT), the predecessor of the World Trade Organisation (WTO), succeeded largely in liberalising trade through the removal of barriers that prohibit the movement of certain commodities across borders. Until 1994 these multilateral trade rules applied predominantly to manufactured goods rather than agricultural products.
The functions of the WTO are to administer trade agreements, provide a forum for negotiations, and handle disputes that arise among member countries. The WTO aims to raise living standards, ensure full employment and increase incomes. As an integral part of the WTO Agreement, the agreement on agriculture (AoA) is meant to promote these aims.
A critical observation in the WTO agreement is the artificial maintenance of high levels of agricultural production through subsidies in the advanced countries led to the sale of agricultural surpluses on the world market at prices below their actual cost of production. This practice, known as dumping, has continued or even increased since the creation of the WTO. The ultimate consequence of dumping falls heavily on producers of similar commodities in developing countries. The poultry and rice industry in Ghana are severely choked by this practice.
Furthermore, the most powerful set of actors in favour of an Agreement on Agriculture (AoA) are the transnational commodity traders and processors. These saw in the prospect of new global rules on agriculture trade the possibility of accessing new markets, particularly in developing countries, and thus the prospect of increasing concentration of the market share they already held.
In the Uruguay Round negotiations, which led to the creation of the WTO, nations agreed in 1994 to create among other things multilateral trade rules for the liberalisation of agricultural goods. These rules are embodied in the WTO’s Agreement on Agriculture (AoA) which came into force, like the other WTO agreements, in 1995.
THE WTO AGREEMENT ON AGRICULTURE
The WTO agreement on agriculture (AoA) has three pillars; namely, market access, domestic support and export subsidies.
Market Access aims to reduce border obstacles to imports of agricultural products, such as taxes and duties – commonly known as tariffs. Furthermore, countries had to abolish restrictions on the quantity of agricultural goods entering their markets. All other barriers that were not tariffs, known as ‘non-tariff barriers’ and including health standards or packaging requirements, had to be converted into tariffs, a process known as “tariffication”. The Special Safeguard (SSG) is a tariff mechanism that provides temporary protection against sudden import surges or falls in world prices. However, only countries that underwent tariffication can apply the SSG. Many countries, particularly developing countries, did not undergo tariffication because they did not have a significant amount of non-tariff barriers.
Domestic Support is the WTO name for the subsidies given by governments to farmers for specific agricultural products, or for agricultural infrastructure and research. Developed countries are the major providers of domestic support for their farmers. The stated objective of the domestic support pillar of the AoA was to reduce the amount of money going into production of farm goods that are subsequently exported, in other words to reduce subsidies that distort the otherwise free trade of agricultural products. The amount of support is measured on the basis of an “Aggregate Measure of Support” (AMS) which is a measure that attempts to calculate all the financial factors that influence a farmer to produce a certain product.
The third pillar in the WTO agreement on agriculture export subsidies. The AoA’s approach to export subsidies is to list the export subsidies that the members of WTO have to reduce, and to ban the introduction of new subsidies. Export subsidies are considered harmful because they directly support exporters, most commonly agribusinesses or transnational commodity traders, enabling them to displace local producers; most commonly small-scale farmers in the countries to which they sell their products.
Further, subsidies in the agreement are classified into three groups depending on their trade-distorting impact and their effect on the amount of production. These are the amber box, the blue box and the green box. This classification helps determine whether or not they need to be reduced and whether action can be taken against them under the WTO dispute settlement mechanism.
The amber box comprises all domestic subsidies – such as market price support which significantly distorts trade and affects the amount of production. They must be reduced, and are open to legal challenge by other WTO Members.
The blue box allows countries unlimited spending on direct payments to farmers if the payments are linked to programmes that limit the amount of production. These are open to challenge by other WTO Members, but are exempt from the obligation to be reduced.
The green box contains support that is assumed to have no effect on production. This includes payments linked to environmental programmes, pest and disease control, infrastructure development and domestic food aid. It also includes direct payments to producers if those payments are not linked to current production. Green box subsidies are not subject to the obligation to be reduced.
IMPLICATIONS OF THE AGREEMENT ON AGRICULTURE (AoA) FOR GHANA
Agriculture is the predominant economic activity in Ghana, employing about 55 percent of the workforce and producing about 45 percent of the GDP. Approximately 70 percent of the rural population depends on agricultural activities as a source of income. The subsistence agriculture sector accounts for 36 percent of agricultural GDP and employs 60 percent of the total workforce. Smallholder farmers, the majority of whom are women on family operated farms, generate about 80 percent of total agricultural production in Ghana. In 2003, 49.4 percent of the female population were employed in the agricultural sector, compared to 51.7 percent of the male population (FAO, 2003). The analysis of the effects of the agreement on agriculture would therefore be largely centred on the huge subsistence agricultural sector of Ghana.
The aims of the WTO include among other things to raise living standards, ensure full employment and increase incomes. As part of the WTO Agreement, the agreement on agriculture is meant to further these aims. Critically analysing the agreement in the context of the Ghanaian economy suggests several reasons why the agreement may not accomplish such aims for Ghana.
First of all, trade liberalization in agriculture is often detrimental to local production and consumption in Ghana. The WTO agreement on agriculture calls for an industrialised and export – oriented agriculture production. However, industrialised and export-oriented production requires access to land, water, technology, infrastructure and capital which most small-scale farmers in Ghana do not have access to or cannot afford. The average farmer in Ghana would therefore not be able to take advantage of any possible opportunities offered by trade liberalisation in agriculture. Transnational commodity traders and processors, predominantly from developed countries, have the means to invest in the production, processing, transporting and trading process giving them a massive advantage over small-scale producers elsewhere.
In addition, local farmers in Ghana suffer from competition in the form of cheap imports from more efficient and highly subsidised producers, typically agribusinesses in rich countries. No matter how they are categorized under the AoA, substantial subsidy payments are still available to farmers and agribusinesses in the developed countries. These domestic and export subsidies lead to over-production with corresponding impacts on world prices and dumping. Dumping refers to the sale of products in third markets at less than the cost of production in the exporting country
Dumping from developed countries occurs, in part, because export subsidies bridge the gap between high domestic prices and lower world prices; and direct payments bridge the gap between higher costs of production and the lower world price. It is generally accepted that currently, practically everything exported from the USA and EU involves some level of dumping. More disheartening in the agreement on agriculture is that whiles governments in developing countries including Ghana reduce their subsidies on agriculture; the developed countries continue to heavily subsidize their agriculture. Dumping has exerted devastating effects on the poultry and rice industries in Ghana. The domestic poultry which supplied 95 percent of Ghana’s poultry requirements in 1992 only provided a dismal 11 percent by 2002, a major consequence of the WTO AoA. Unconfirmed estimates currently put the domestic poultry supply at single-digit figures. A relevant question is “why should chicken, which sells for between four pounds and five pounds in the UK, sell at 1.50 pounds in Ghana, despite freight and handling charges?” Well, the ineffectiveness of the AoA to deal drastically with the dumping syndrome offers no economic hope for the Ghanaian farmer.
The high capital costs of entry into commercial food markets and the importance of infrastructure, which is nonexistent in the more marginal areas from which people will be displaced, means most of the benefits from commercial agriculture will accrue to more prosperous producers. In fact, food trade is of interest primarily to a handful of huge agribusiness companies. Only about 20 percent of food is traded internationally. Thus, giving priority to increasing international trade is no substitute for stimulating a domestically- oriented agricultural sector. Indeed, most food is produced for local consumption (90 percent in developing countries) and only a small proportion is traded internationally, which means that a solely trade-oriented approach as purported by the AoA has little relevance for Ghana. This approach is inimical to the extent that it can increase food insecurity in the country; first, because relying on imported food displaces local production (the case for rice and poultry producers); and second, there is no guarantee that food produced for export to rich countries will be accepted by them. This is based on the fact that access to developed country markets depends on producers being able to meet specific international standards. Many Ghanaian farmers do not have the capacity to meet these standards. Moreover, developed countries demand very high level and complicated food safety, packaging and other standards as a ploy to limit imports from developing countries. Since the agreement came to operation in 1995, Ghanaian agriculture producers are yet to meet such standards in order to gain access to the European and American markets.
Further, the developed countries implement escalating tariff structure which tends to impose higher import tariffs on finished goods than raw materials and intermediate goods from the developing countries. The powers of escalating tariffs tend to frustrate our local producers with regards to the production of manufactured goods for export into such countries. The fact that Ghana’s export structure has not seen any significant change since the implementation of the AoA whiles imports are doubling lends credence to the argument that the agreement is not in favour of the country.
Notwithstanding these devastating effects of the AoA on producers and the supply side of the economy, consumers stand to make some consumption gains. Dumping comes with very low prices, especially in terms of food and clothes for the Ghanaian consumer; though the quality of such goods is usually not guaranteed.
Abena Oduro (2003). The Agriculture Negotiations Modalities: Implications for Ghana.
ActionAid, WTO Agreement on Agriculture, 2003.
Institute of Statistical, Social and Economic Research (ISSER), University of Ghana (2004). The state of the Ghanaian Economy in 2003.
World Trade Organisation (2001). Trade policy review Ghana. Report by the Government.