The Uruguay Round Agreement on Agriculture

Lecture 24 Economics of Food Markets

Alan Matthews

Lecture objectives

to understand the reasons for the disarray in agricultural trade prior to the Uruguay Round agreement

to know the outcome of the UR Agreement on Agriculture and to be able to critically evaluate its impact

to understand the implications for the EU’s Common Agricultural Policy of the Uruguay Round Agreement

Reading

Short extract from WTO Trading into the Future O’Connor legal analysis

Various books and papers in the supplementary reading list

From GATT to WTO

Bretton Woods institutions intended to be complemented by International Trade Organisation – stillborn in 1946

GATT came into being as an interim arrangement 1947 Successive rounds of GATT negotiations to reduce

tariffs… … culminating in the Uruguay Round which established

the World Trade Organisation 1994

GATT principles non-discrimination - countries cannot apply different trade barriers to

different countries. Expressed in the principle of most favoured nation (MFN) treatment - the most favourable market access offered to any one country must be offered to all others (an important exception is free trade areas and customs unions) (Article I).

national treatment - an imported product, once it has entered the country of import, should be treated as a national product (Article III)

protection by tariffs - protection is not outlawed but should be provided solely by means of tariffs

tariff reduction - over time attempts should be made to reduce tariffs through reciprocal concessions

tariff bindings - any reductions would be bound in GATT and could only be raised against payment of compensation to affected parties, in order to promote security of trade

Structure of the WTO Agreements

General Agreement on Tariffs and Trade (GATT 1994)– Multilateral Trade Agreements, including

• Agreement on Technical Barriers to Trade• Agreement on Agriculture• Agreement on Sanitary and Phytosanitary Standards• Agreement on Textiles and Clothing• Agreements on Subsidies and Anti-Dumping (measures against

unfair trade)– Plurilateral Trade Agreements

General Agreement on Trade and Services (GATS) Trade-Related Aspects of Intellectual Property Rights

Exclusion of agriculture from the GATT Few agricultural tariffs bound, and agriculture remained outside the

tariff-cutting GATT negotiations Quantitative import restrictions, banned for all other commodities,

could be used for agricultural commodities, provided that domestic production of the commodity was subject to certain restrictions (Article XI on import quotas) – 1955 US waiver

Use of agricultural export subsidies was explicitly permitted, conditional on observance of ‘equitable market shares’, but impossible to define (Article XVI on export subsidies)

Grey area measures proliferated, i.e. mechanisms such as variable import quotas, voluntary export restraints and domestic subsidies not explicitly covered by GATT

No disciplines on non-tariff barriers such as import controls for food safety and animal and plant health reasons

Background to the Uruguay Round World agriculture in disarray - growing US-EU tension on

farm subsidies The growing costs of agricultural protectionism Launch of Uruguay Round 1986

"to achieve greater liberalisation of trade in agriculture and bring all measures affecting import access and export competition under strengthened and more operationally effective GATT rules and disciplines"

Significance of the Uruguay Round– the most comprehensive coverage of all negotiating rounds to date – included the participation of more than 100 countries

Players in the Uruguay Round The US : moving away from dependent agriculture

paradigm to a competitive agriculture paradigm, and see access to export markets as the underpinning for this

The EU: anxious to avoid escalating budget cost of farm support and wanting a deal as compatible with the CAP as possible

Cairns Group: consisting of 14 agricultural exporters from both the developed and developing world keen on liberalisation

Other developing countries – concerned about the cost of food imports

Other high-income countries – anxious to avoid liberalisation

Tariff rate quotas

Countries are required to maintain current levels of access, for each individual product, where the current level is based upon the volume of imports during the base period (1986-88).

For commodities subject to tariffication, a minimum access should be established at not less than 3 percent of domestic consumption during the base period. This minimum level is to rise to 5 percent by the year 2000 in the case of developed countries, and by 2004 in the case of developing countries.

Other aspects of the URAA

sanitary and phytosanitary provisions addressed in the SPS Agreement

peace clause special and differential treatment for developing countries among developing countries, concerns that net food-

importing countries would lose out because of terms of trade effects. Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least Developed and Net Food Importing Developing Countries included to meet their concerns.

agreement to reopen negotiations in 2000

Achievements of the URAA Effectiveness of the agriculture agreement in cutting

protection was less impressive than the nominal cuts suggest, because :– tariff cuts took place from base levels that were frequently inflated

through the choice of base year, – through the methods used to measure protection existing prior to

the round (‘dirty tariffication’), – Through use of unweighted average of 36%

– through the use of ‘ceiling’ bindings in developing countries Uneven tariff reduction – many sensitive products still

protected by high tariffs Minimum access commitments counted imports under

existing special arrangements, despite MFN requirement

Achievements of the URAA

Export subsidy commitments binding despite complaints of ‘front-loading’

Domestic support disciplines limited because of agreement on Blue Box

AMS discipline was established at an aggregate level, not on a commodity by commodity basis

But despite the criticisms, the URAA established a framework for further disciplines

The dispute settlement mechanism has been surprisingly effective in allowing countries to challenge policies of other countries

Adjusting CAP to the URAA

What changes were necessary to the CAP mechanisms?

the implementation of tariffication other market access provisions no real effect of AMS provision more active management of export refund system to

stay within subsidised export targets

WTO disciplines were consistent with the MacSharry 1992 reforms

Post-GATT Uruguay RoundCAP mechanisms

export subsidy

world price world price

threshold price

intervention price

target price

Import Internal Export

Volume andvalue cappedand reduced

over time

Domestic supportcapped and

reduced overtime

tariffs fixedand reduced

over time

Some specifics of CAP adaptation to WTO disciplines

Examples of how tariff for wheat was set Variable levy system retained for cereals and fruits and

vegetables (Ab)use of special safeguard provision Removal of domestic support to Blue Box But export subsidy restrictions have had some effect