Analyzing the Impact of a South Asian Country’s Graduation from LDC Status

On Forms of Agriculture Support

Clinic: Graduate Institute, Fall 2021

Summary of a Confidential Project

After successfully meeting the standards set to graduate from Least Developed Country (LDC) status, a South Asian country sought to understand the implications of this shift under the disciplines of the World Trade Organization (WTO). Specifically, the project’s beneficiary wished to understand the consequences of its graduation on their agricultural support flexibilities.

To analyze the issue, this report examined the current agriculture measures imposed by the South Asian country and juxtaposed them to two WTO Agreements- the Agreement on Agriculture (AoA) and the Agreement on Subsidies and Countervailing Measures (SCM). This paper thus examined the aspects of the current measures affecting its WTO consistency.

Currently, two agricultural support measures are available to fruits and vegetable farmers and traders in this South Asian country— 1.) domestic input subsidies to farmers providing free or subsidized inputs such as seeds and fertilizers, and 2.) export subsidies to exporting traders in the form of a cash incentive (a percentage of revenue value) to financially support trade-related activities such transportation, quality assurance, and storage.

This paper found that the input subsidy measure does not violate the SCM as there is minimal possibility of triggering adverse effects and hence, will likely not be challenged successfully. Further, it is exempt from the country’s computation of the Aggregate Measurement of Support (AMS), as mentioned in the AoA.

Conversely, the export subsidy will be deemed unlawful under both the SCM and AoA, and will thus have to be eliminated upon graduation. Nonetheless, the beneficiary expressed immense interest in keeping this measure. As such, two strategies are presented- 1.) tinkering the specific elements of the measure that make it unlawful, and 2.) presenting other policy alternatives which will likewise support the agriculture sector.

There are two factors affecting the lawfulness of the export subsidy - the local content requirement and the export contingency element. Thus, it is unlawful under the WTO to implement export subsidies that are only available to fruits and vegetables produced locally in the country and to direct subsidies only to those intending to export. As a response, both requirements could be removed and still, de facto, be able to maintain these specifications. In any case, the South Asian country reports not specifically importing to export, and the eligibility could be reframed so as to not solely be directed to exporters. It must be noted, however, that these are not bulletproof strategies rather, these instead make the current measures harder to challenge under the WTO Dispute Settlement Mechanism.

Further, this report also explored the adjustments or alternative agriculture support strategies which can be implemented to then transition as WTO-consistent. There are two sets of options consistent with the AoA. The first set encompasses options included in the computation of the AMS, meaning allowed but subject to limitation at a threshold of 10% value the total agricultural production value. Second, there are options falling inside the ‘Green Box’ category, completely exempt from AMS calculation and hence not strictly limited. Some strategies that the South Asian country could take under the Green Box include addressing education and research domestic support, pest and diseases through compliance with international standards, infrastructure including cold storage, crop insurance programs, public stockholding for food security purposes, and domestic food aid and structural transition programs.

In selecting the best policy option, it is proposed to the beneficiary that primacy be given to subsidies that will likely generate multiplier effects, and hence enhance the welfare of farmers and other stakeholders, sustained through time.