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International Business

notes Domestic Support: The first pillar of the AoA is “domestic support”. The AoA structures domestic
support (subsidies) into three categories or “boxes”: a Green Box, an Amber Box and a Blue Box.
The Green Box contains fixed payments to producers for environmental programmes, so long as
the payments are “decoupled” from current production levels. The Amber Box contains domestic
subsidies that governments have agreed to reduce but not eliminate. The Blue Box contains
subsidies which can be increased without limit, so long as payments are linked to production-
limiting programmes.
The AoA’s domestic support system currently allows Europe and the USA to spend $380 billion
annually on agricultural subsidies alone. “It is often still argued that subsidies are needed to
protect small farmers but, according to the World Bank, more than half of EU support goes to 1%
of producers while in the US 70% of subsidies go to 10% of producers, mainly agri-businesses”.
The effect of these subsidies is to flood global markets with below-cost commodities, depressing
prices and undercutting producers in poor countries – a practice known as dumping.
Market Access: “Market access” is the second pillar of the AoA, and refers to the reduction of
tariff (or non-tariff) barriers to trade by WTO members. The 1995 AoA required tariff reductions
of:
1. 36% average reduction by developed countries, with a minimum per tariff line reduction
of 15% over five years.
2. 24% average reduction by developing countries with a minimum per tariff line reduction
of 10% over nine years.
Least Developed Countries (LDCs) were exempted from tariff reductions, but either had to
convert non–tariff barriers to tariffs—a process called tariffication—or “bind” their tariffs,
creating a “ceiling” which could not be increased in future.
Export Subsidies: “Export subsidies” is the third pillar of the AoA. The 1995 AoA required
developed countries to reduce export subsidies by at least 35% (by value) or by at least 21% (by
volume) over the five years to 2000.
Criticism: The AoA is criticized for reducing tariff protections for small farmers – a key source of
income for developing countries – while allowing rich countries to continue to pay their farmers
massive subsidies which developing countries cannot afford.

8.1.6 General agreement on trade in services (Gats)

GATS is a set of multilateral rules covering international trade in services. The GATS, for the first
time, extended internationally agreed rules and commitments into the area of international trade
in services.
The GATS has two parts: the framework agreement containing the general rules and disciplines,
and the national “schedules” which list individual countries’ specific commitments on access to
their domestic markets by foreign suppliers
Each WTO member lists, in its national schedule, those services for which it wishes to guarantee
access to foreign suppliers. All commitments apply on a non-discriminatory basis to all other
members unlike the GATT, the GATS gives complete freedom to members to choose which
services to commit for opening up. In addition to the services committed the schedules limit the
degree to which foreign service providers can operate in the market.
Further negotiations for progressive liberalization (mandated negotiations) commenced on Jan 1,
2000 as mandated under GATS.
GATS in Brief: Services mentioned in GATS are supplied neither on a commercial basis nor in
competition with other suppliers such as social security schemes and central banking so also
services in the air transport sector, traffic rights and all services directly related to the exercise of
traffic rights.

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