Lecture 20.
Implementation of the Uruguay Round Agreement on Agriculture

What we want to learn about this topic

• what problems and issues have arisen in implementing the Uruguay Round Agreement on Agriculture? - these issues partly suggest the agenda for the current round of agricultural trade negotiations.
• what were the implications of the UR AoA for the EU's CAP? What modifications, if any, were required?

Short introduction to the issues

The legal framework

• Each country submitted its Schedule of Commitments at the time it ratified the Marrakesh WTO Agreement which set out how it proposed to implement the new disciplines. For example, Schedules contain each country's proposed tariff bindings, tariff rate quotas implementing the minimum market access commitments, export subsidy ceilings and domestic support ceilings. Each country also reports the level of supports it provides to producers under Green Box provisions even though these are not disciplined.
• Implementation issues are considered by a new WTO Committee on Agriculture which meets every six months. Summary reports of its proceedings are published on the WTO website.
• If a country feels that another WTO Member's policies breach the AoA rules, it can make a complaint under the WTO's new Dispute Settlement Understanding (DSU). The first step under the procedure is for the parties concerned to attempt to resolve their differences bilaterally. If this fails, the complainant can seek the establishment of a Dispute Settlement Panel (which consists of three independent experts) to adjudicate on its case. Under the new DSU, a Panel report must be accepted by the WTO Council unless there is a unanimous decision to reject it. To safeguard the rights of the defending party, it can appeal a Panel's findings to the Appellate Body (a sort of Supreme Court) which can uphold or overturn parts of the Panel's argumentation and/or findings. Where the defendant loses a case, it is required to bring its legislation and policies into line with WTO rules within a specified period. If it fails to do so, it is liable to punitive sanctions by the complainant who has the right to raise tariffs on imports of goods from the defendent up to the value of the lost market opportunities. Important agricultural disputes include the US-EU disputes over bananas and hormone-treated beef (the latter raised issues under the SPS Agreement rather than the Agreement on Agriculture).

Market access issues

• The extent of actual tariff cuts was very limited because cuts were made from base levels that were particularly high because of the choice of base years (1986-88), through exaggeration of the actual levels of protection provided by non-tariff barriers in the base period ('dirty tariffication'), through the use of the simple unweighted average formula, and through the use of 'ceiling bindings' by developing countries.
• Tariff rates on agricultural commodities thus remain very high and average tariffs range between 35 and 50 per cent for most commodity groups. In addition, tariff peaks on individual commodities of 200-300 per cent are not unusual in agricultural trade.
• Many agricultural tariffs are specific or mixed tariffs (rather than ad valorem tariffs) which are very non-transparent in that it is not easy to estimate the actual amount of protection they provide as it varies with the level of world prices.
• The amount of new market access created by the minimum access provisions remained very limited as many countries allocated their tariff rate quotas (TRQs) to countries which already enjoyed access under particular preferential access agreements, and due to the possibility of aggregating tariff quotas across commodity groups. The administration of TRQs has also been a cause for concern, and fill rates have averaged only 60 per cent.
• Countries which have engaged in tariffication were permitted to make use of a Special Safeguard Clause which could allow them to re-introduce duties on agricultural imports if imports grow at a rate likely to disrupt domestic market. To date, this instrument has been rarely used.

Export subsidy issues

• Subsidised export volumes over the transition period were increased by practices such as permitting a more favourable choice of base year from which to start making cuts in order to avoid front-loading, and by permitted carryover of unused 'allowances' in one year into later years.
• Trading practices such as the use of 'single desk' sellers (marketing boards with a state monopoly to export commodities) as well as export credits were left unregulated, leading to the suspicion that they could be used to implicitly cross-subsidise exports.

Domestic supports

• The creation of the Blue Box to protect production-limited payments allowed the continuation of substantial coupled direct support to farmers in the EU and US without discipline. (The US subsequently decoupled its payments to farmers in its 1995 Freedom to Farm Act, but more recently its huge payments of emergency aid to farmers is arguably coupled to the (low) level of market prices prevailing).
• De minimis and the wide definition of exempt payments in the Green Box also permitted significant payments to farmers to continue of which some, arguably, are trade-distorting.

Trade impacts of the UR AoA

• Advocates of agricultural trade liberalisation argued that it would help to raise the level of world market prices and also make them more stable. In practice, there is little evidence that either has happened. The limited amount of actual reduction in protection means that the world market price effects are also limited. High world prices in 1995-96, especially for grains, had little to do with the UR and prices fell significantly in more recent years.
• Neither have world prices been noticeably more stable. This is because countries often apply actual tariffs below their tariff bindings, so giving them the possibility to continue to adjust tariff and export subsidy levels to stabilise domestic prices in the face of world market price fluctuations.

EU implementation of its WTO commitments

The EU made creative use of the flexibilities allowed under the URAA to minimise its impact as described above. Other specific EU examples include:

• In its calculation of the tariff equivalent on wheat, it used a hypothetical price 10% above the intervention price for the internal price, rather than basing it on actual market prices which were often in that period below intervention prices. To obtain an artificially low external price, it based its calculation on Argentine rather than US fob prices and injected a generous quality adjustment so that the price taken was even lower than that used in the setting of variable levies. Consequently, the base tariff equivalent was set at 160%. Similar tactics were used to set a butter tariff of 314% and a beef tariff of 237%.
• Essential features of the variable levy regime were retained for cereals, including rice, and fruits and vegetables. The Blair House II agreement between the US and the EU in December 1993 included an agreement that the duty-paid price of cereals would not exceed 155% of the corresponding intervention price. Otherwise, the application of tariff equivalents based on conditions in the 1986-88 period would have excluded imports altogether. The EU continues to apply levies equal to the shortfall of observed world prices from these maximum duty-paid prices. The revised EU system for fruit and vegetables also retains the core elements of the previous restrictive 'reference price' system.
• The safeguard provision was abused by setting trigger prices well above the world prices used in the calculation of tariffication. For example, in setting its tariff equivalent for butter, the EU used an 1986-88 average world price of ECU 943 per tonne. However, when setting the trigger price which would allow it to apply additional safeguard levels, it used the higher price of ECU 2483 per tonne paid to New Zealand for butter imported under a tariff rate quota. A similar exercise was done for sugar, where the price used for tariffication was set at ECU 193 per tonne but the safeguard trigger price was set at the price paid to ACP countries for preferential sugar imports of ECU 531 per tonne.

Implications for the EU's CAP

• Protection of the MacSharry compensation payments by the Blue Box meant that the EU had no difficulty in meeting its AMS commitments. If the Blue Box were to be discontinued in the next round of negotiations, this conclusion would have to be reassessed.
• The limits on the volume of subsidised exports are now a major constraint on EU production. It means that, apart from a few export sales at world market prices such as wheat, some cheeses and some pigmeat, EU production is now limited to the size of the EU domestic market plus the (fixed) limit on subsidised exports. As a result, the EU is rapidly losing market share of the rapidly growing world food market. This has been a particular constraint on exports of so-called non-Annex 2 products (i.e. processed foods which contain ingredients such as sugar or dairy products which entitle them to an export subsidy).
• The reduction in market support prices for grains and beef under the MacSharry/Agenda 2000 reforms meant that the requirement to reduce tariffs on imports of these commodities would not lead to world market supplies undercutting domestic supplies on the EU market. However, for commodities such as sugar and some dairy products, where the EU price support levels have not been reduced, lower tariffs on imports could lead to increased competition from world market supplies in the future.

Reading suggestions

Implementation of the UR AoA

Tangermann, S., 2001. Has the Uruguay Round Agreement on Agriculture Worked Well?, Working Paper #01-1, International Agricultural Trade Research Consortium. (download)
(reviews the outcome of the UR AoA and whether countries have lived up to their commitments).

Tangermann, S., 2003. Agricultural Policies in OECD Countries 10 Years after the Uruguay Round: How Much Progress?, Paper to International Conference Agricultural policy reform and the WTO: where are we heading? Capri (Italy), June 23-26, 2003.

Supplementary reading

OECD, 2001. The Uruguay Round Agreement on Agriculture: An Evaluation of its Implementation in OECD Countries, Paris, OECD. ARTS 382.4 P1
(the Executive Summary and Table of Contents can be viewed online)

Ingco, M., 1995. Agricultural trade liberalization in the Uruguay Round : one step forward, one step back? World Bank Policy Research Paper No. 1500, World Bank.

Hathaway, D. and Ingco, M., 1996. Agricultural liberalization and the Uruguay Round, in Martin, W. and Winters, A. eds., The Uruguay Round and the Developing Countries, Cambridge, Cambridge University Press, ARTS 382.91 N62
(well-known paper which documents the limited impact on market access of the UR AoA)

Adjusting the EU CAP to the WTO commitments

*Swinbank, A., 1999, CAP reform and the WTO: compatibility and developments, European Review of Agric. Economics, 26, 3:389-407.

*Tangermann, S., 1999. Europe's agricultural policies and the Millennium Round. The World Economy 22, 1 (Dec), 1155-78.

Supplementary reading

Swinbank, A., 1996, Capping the CAP? Implementation of the Uruguay Round Agreement by the European Union. Food Policy 21: 393-407.

Swinbank, A., 1997, The New CAP, in in Ritson, C. and Harvey, D., eds., The Common Agricultural Policy, 2^nd edition, CAB International.
(detailed review of functioning of the new CAP mechanisms, also taking into account the changes introduced by compliance with the Uruguay Round)

Swinbank, A., 1999, EU agriculture, Agenda 2000 and the WTO commitments, The World Economy 22:41-54.