3.2.2     Agreement on agriculture and fiscal support
The Agreement on Agriculture (AoA) limits the extent sup­port that governments can provide to their agricultural producers. The aggregate measure of support (AMS) that developing country governments can provide is quite high, at 20% of the value of agricultural production. This does not compel developing countries to reduce their support, which is much less than that allowed. But countries depen­dent on exports of agricultural commodities, like the West African countries that export raw cotton, are pressing for the elimination of developed country (OECD) support to agriculture, as this support depresses world prices and en­ables, say, USA to export its cotton at prices that eliminate or reduce the presence of West African producers from the market. Middle-level developing countries like India are try­ing to get agreements that will maintain their own existing levels of support while reducing the levels allowed to devel­oped countries. There are complex bargaining positions in the negotiations that are currently underway.
     The issue we need to consider is: Is the sovereign right of governments to decide on the AMS curtailed by the AoA? Or, are developing country governments and LDCs in par­ticular, being forced to reduce their levels of support because of WTO agreements?
     The AMS ranges from less than 2% in the case of Ban­gladesh to about 8 to 10% in the case of India and Vietnam. In both cases the AMS is below the permissible WTO limit. What keeps the AMS at the present levels is not the limit set by the WTO, but the fiscal weaknesses of the governments concerned.
     Given that all developing country governments face considerable resource constraints, which in fact restrict the AMS, one needs to ask what is the right balance between price-support or input-subsidy measures and productivity-enhancing investments?  Price support measures in food grains have negative effects on food buyers, who include not only laborers but also small-scale farmers. This is a negative effect of whatever positive merit there might be in price sup­port for farmers.
     On the other hand, investments in infrastructure, in­cluding irrigation and public research and extension will have productivity enhancing effects. Given the admittedly low productivity of many sectors of food production in de­veloping Asia, it is necessary to concentrate on productivity increasing measures. Such productivity increases will pay for the costs of the support.
     Conversely, price support measures can lead to vari­ous distortions, both in product and input markets. For in­stance, subsidies for use of electricity in India have led to overuse of electricity. There is the well-known case of over­use of urea. Further, many of these input supports programs though targeted at protecting farmers, mainly benefit the input-producing enterprises.
     Besides various types of domestic support, there are also explicit export subsidies. They can take various forms, such as low interest loans or longer-term loans, both financed out of public subsidies and other related promotional mea­sures. Export subsidies can also take the form of food aid. Food aid, unlike other export subsidies, is not subject to the Uruguay Round AoA schedule of reductions. Food aid

is often used by developed countries (now even some de­veloping countries like India) to dispose of surpluses. The effects of food aid on the market are similar to that of export subsidies—they depress prices locally and reduce incentives to local producers, where the aid is being distributed. Con­temporary experience (Sharma, 2005) shows that distribu­tion of food aid can reduce local prices and thus serve as a disincentive to local producers to increase production.

3.2.3     Tariff escalation
Tariff escalation refers to the practice of increasing tariffs as commodities progress along the value, moving from raw materials to processed products. Moving up the value chain also means that the country and its producers are less af­fected by price fluctuations, as both intermediate and final product prices tend to fluctuate less than raw material pric­es. But such movement up the value chain is inhibited by the practice of increasing tariffs with stages of processing. For instance, the tariff on oranges is less than the tariff on orange juice. This makes it difficult, if not impossible, to use the developed country markets to make the shift from sell­ing raw materials to selling processed products.
     Tariffs on fresh, i.e., unprocessed fruit and vegetables in developed countries range from 0.9% for fresh fruits in Canada to 9.2% in the EU. For processed fruits the EU tariff rates are above 20%, with many facing tariffs of 50% (Diop and Jaffee, 2006).
     Trade restricting measures can be classified as:
•   Economic: Measures which affect pricing, competition and market entry or exit. For example, Quotas and do­mestic content requirements;
•   Social: Measures that protect public interest like health, safety and environment. For example, quality stan­dards, food safety measures and environmental regula­tions; and
•   Administrative: Measures that are administrative for­malities. For example, customs valuation, classifica­tions and clearance procedures.

The technical barriers to trade (TBT) (Table 3-2) are regu­lations and standards governing the sale of products into national markets which have, as their primary objective, the correction of market inefficiencies stemming from externali­ties associated with production, distribution and consump­tion of these products. These externalities may be regional, national, transnational or global. These barriers include measures that protect public interest such as health, safety, environment and social cohesion. These could be food safe­ty measures, environmental measures or quality standards. Depending on the policy instrument, TBT could be in terms of import bans—total or partial, technical specifications like process, product or packaging standards, or informa­tion remedies like labeling requirements. They could apply either to domestic as well as import products, or only im­ports or some imports. The compliance with these measures could mean either loss of markets or higher costs to the im­porters (Roberts, 1999). A study of technical barriers to US agricultural exports for 1996 showed that they were more concerned with reducing risks in the area of food safety and commercial animal and plant health protection. They