The Uruguay Round Agreement on Agriculture

Lecture 19. Economics of Food Markets

Alan Matthews

Topic objectives

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

to be familiar with the alternative approaches to introducing disciplines on agricultural trade proposed by the main UR participants

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

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

WTO general norms (1)

Non-discrimination– Most Favoured Nation (MFN) treatment of like products – (BUT exceptions for free trade arrangements)– National treatment– The products of the territory of any contracting party imported into the

territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.

– (BUT exceptions for government procurement, domestic subsidies) Reciprocity

– the political economy justification for multilateral trade negotiations

WTO general norms (2)

Transparency

– Preference for tariffs rather than other forms of import barriers

– Trade Policy Review Mechanism

Predictability

– Tariffs are bound in Schedules of commitments

Safety valves

– restrictions in the case of serious balance-of-payments difficulties or to support infant industries

– Article XX - general exceptions allowing trade restrictions

– provisions allowing for restrictions against unfair trade

– safeguard provisions against import surges

Art.XX exemptions necessary to protect public morals; necessary to protect human, animal or plant life or health; relating to the importations or exportations of gold or silver; necessary to secure compliance with laws or regulations which are not

inconsistent with the provisions of this Agreement, including thoserelating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices;

relating to the products of prison labour; imposed for the protection of national treasures of artistic, historic or

archaeological value; relating to the conservation of exhaustible natural resources if such measures

are made effective in conjunction with restrictions on domestic production or consumption;

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

Progress of Uruguay Round negotiations The opening negotiating positions

US proposed the ‘zero option’ – all agricultural subsidies and quantitative restrictions be phased out over ten years

EU – wanted to negotiate on commodity by commodity basis (e.g. rebalancing)

the stalled Montreal Mid-Term Review in December 1988 Cairns Group walked away from tentative agreements in other areas because no

serious engagement on agriculture

Geneva Accord – April 1989 : US dropped zero option and agreed negotiations should proceed along three pillars

Heysel meeting December 1990: breakdown because of EU unwillingness to limit export subsidies

Progress of Uruguay Round negotiations

Dunkel ‘draft Final Act’ in end-1991 Covered all aspects of the negotiations First text with quantitative proposals in each of the three pillars

[MacSharry CAP reform May 1992] Blair House I agreement November 1992

Lessened extent of export subsidy cuts, protected EU and US compensation payments under production limiting programmes (‘blue box’) and introduced peace clause

Blair House II agreement December 1993 Made some concessions to EU to mollify France

Geneva Agreement, December 1993 Following which verification process of country schedules

Marrakesh Final Act, April 1994 Single undertaking

Tariffication

Tariffication required countries to convert their existing NTBs into tariff equivalents. These tariff equivalents are established for the base period (1986-1988) and are entered in the Country Schedules as the base rate of tariff.

Developing countries had the choice of offering tariff bindings instead of establishing tariff equivalents.

It discourages future use of NTBs, subject to certain exemptions. These exemptions are defined under the Special Treatment provision that allows countries to claim exemption from tariffication commitments for certain sensitive products.

Tariff reduction For developed countries, an unweighted average of 36

percent, subject to a minimum reduction of 15 percent in each tariff line over a six year implementation period.

For developing countries the commitments are 24 percent and 10 percent respectively, and the implementation period extends to ten years.

For least-developed countries there were no reduction commitments.

Special Safeguards provisions, that enable a country which has used tariffication to apply additional tariffs to certain specified commodities, where import prices are particularly low, or where there is a sudden surge in imports.

Market access commitments

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.

Domestic support commitments

Divided domestic support policies into three types:

Policies deemed to have a substantial impact on the patterns and flow of trade are classified in what is called the 'amber box‘ and are subject to reduction commitments;

policies that are not deemed to have a major effect on production and trade are placed in the 'green box';

policies that fall into neither of these categories, but are, perhaps, somewhere in between, are known as 'blue box' policies.

Disciplining amber box policies All domestic support deemed to have a distortionary effect

on trade is summed and included in a measure called the Aggregate Measure of Support (AMS);

AMS includes– Market price support where support provided by administrative

support prices e.g. intervention (but not if provided by tariff protection alone)

– Calculated on the basis of world reference prices in 1986-88– Coupled direct payments

De minimis exemptions – 5% for product specific and 5% for non-product specific support

Progressive reduction in AMS levels by 20% over 6 years.

The blue box

Direct payments under production-limiting programmes are exempted from AMS reduction if:

such payments are based on fixed area and yields; or

such payments are made on 85 percent or less of the base level of production; or

livestock payments are made on a fixed number of head.

Export subsidy commitments No new export subsidies can be introduced

Developed countries committed to reducing the volume of subsidised exports by 21 percent and the expenditure on subsidies by 36 percent, both over a six-year implementation period (1995-2000).

For export subsidies the base period is generally taken to be the period 1986-1990.

However, an exception to this was negotiated between the US and the EC, under what was called the "front loading" accord, which was part of Blair House II in December 1993, just before the conclusion of the Round.

This allowed that the starting level of export subsidy reduction commitments could be the level of subsidies prevailing in 1991-92, providing that the level of subsidies at this time exceeded those in the base period.

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

Reading

WTO guide to the agriculture agreement

Healy, Pearce and Stockbridge FAO Manual

Ingersent, Rayner and Hine

Swinbank and Tanner

Josling, Tangermann and Warley