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Unit 15: WTO and Agriculture

productivity agriculture. To these ends, meaningful and effective instruments such as Special Products Notes
and the Special Safeguard Mechanism are important for developing countries, such as India. At the
Hong Kong Ministerial Conference, it has been agreed that Special Products and the Special Safeguard
Mechanism shall be an integral part of the modalities and the outcome of negotiations in agriculture.
Moreover, developing countries shall have the right to self designate an appropriate number of special
products, guided by indicators based on the three fundamental criteria of food security, livelihood
security, and rural development needs. These designated products will attract more flexible treatment.
Developing country members will also have the right to recourse to a special safeguard mechanism
based on import quantity and price triggers, with precise arrangements to be further defined.
Self-Assessment
1. Choose the correct option:
(i) Which of the following is NOT an argument to support free trade?
(a) Free trade leads to efficient allocation of resources.
(b) Free trade limits the influence of special-interest groups.
(c) Free trade is always welfare-improving because those who gain can compensate those
who lose.
(d) Free trade allows firms to exploit economies of scale.
(ii) What is the essence of the “terms-of-trade” argument against free trade?
(a) Terms-of-trade is an important policy tool that is not available if the government commits
to free trade.
(b) A large country can improve its terms-of-trade by imposing tariffs, and the optimal
tariff is positive.
(c) A large country can improve its terms-of-trade by subsidizing exports, and the optimal
export subsidy is positive.
(d) A small country cannot affects its terms-of-trade, so it might as well impose tariffs to
raise government revenues.
(iii) What particular market failure does the “market failure argument” against free trade refer to?
(a) Knowledge and technology spill-overs.
(b) Unemployment.
(c) Environmental externalities.
(d) Any market failure that occurs in the tradable sector.
(iv) The “theory of the second best” states that:
(a) Free trade is only the “second best” policy, after the optimal tariff.
(b) Free trade is only desirable if everything else works properly.
(c) There is always an alternative solution if the first best is not feasible.
(d) Trade intervention is the best policy for dealing with domestic market imperfections.
(v) What is the main reason explaining why agriculture enjoys protective tariffs in the U.S.?
(a) Producers (who gain) are well organized, while consumers (who lose) are not.
(b) The “infant industry” argument.
(c) Environmental and health concerns force the government to restrict non-compliant imports.
(d) Unfair competition from European agriculture.
(e) Low wages in the agriculture sector would fall even further in the absence of protection.
15.2 Summary

• WTO Agreement on Agriculture stipulated that developed countries would reduce their
subsidies by 20 per cent in six years and developing countries by 13 per cent in 10 years. But as

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