Lecture 24.
The Uruguay Round Agreement on Agriculture

(download powerpoint lecture notes)

What we want to learn about this topic

understand the treatment of agricultural trade in the GATT prior to the Uruguay Round Agreement
review the negotiations leading to the Uruguay Round Agreement on Agriculture
understand the nature of the disciplines on agricultural policy introduced by the Agreement
what problems and issues arise in implementing the Uruguay Round Agreement on Agriculture? - these issues have influenced 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

GATT principles

non-discrimination - countries cannot apply different trade barriers to different countries. Expressed in the principle of most favoured nation 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

Successive rounds of GATT negotiations

Geneva 1947
Annecy 1948
Torquay 1950
Geneva 1956
Dillon 1960-61
Kennedy 1964-67
Tokyo 1973-79
Uruguay 1986-94
Doha 2001-??

Treatment of agriculture under GATT rules

few agricultural tariffs were bound and agriculture remained outside the general tariff-cutting process in GATT negotiations
import quotas prohibited for other sectors were permitted in agricultural trade provided domestic supply controls were in place. The US was even given a waiver to use import controls even without this condition
export subsidies prohibited for other sectors were permitted in agricultural trade provided such subsidies are not applied 'in a manner which results in that contracting party having more than an equitable share of world trade in that product'.
imports of both agricultural and non-agricultural products were limited by so-called 'grey area' measures, i.e. measures not explicitly outlawed by GATT, such as voluntary export restraints
agricultural trade particularly affected by non-tariff barriers implemented to protect food safety or plant or animal health. The Standards Code of the GATT agreed in the Tokyo Round worked fairly well for industrial products, but was not considered as applicable to agricultural products.
result was that there were effectively no restrictions on agricultural policy and world agricultural markets by the mid-1980s were in a state of disarray

The Uruguay Round outcome

The outcome of the negotiations were structured around the three 'pillars' of market access, export subsidies and domestic subsidies. Flanking measures included the Peace Clause as well as special and differential treatment for developing countries. Also relevant to agricultural trade is the Agreement on Sanitary and Phytosanitary Standards (SPS Agreement).

Policy	Developed countries	Developing countries (where different)
Market access	Prohibition on use of non-tariff barriers Conversion of NTBs to bound tariffs no higher than 1986-88 tariff equivalent Average tariff reduction of 36% (minimum 15%) over 6 years Minimum access opportunities of 3% rising to 5% of domestic consumption implemented through Tariff Rate Quotas Special safeguard provisions against import surges	For ordinary tariffs not previously bound, could commit to maximum ('ceiling') tariffs not necessarily related to previous levels Average tariff reductoin of 24% (minimum 10%) oer 10 years Minimum access opportunities of 2% rising to 4% of domestic consumption Least developed countries must bind tariffs but exempt from reduction commitment
Export subsidies	Ban on new export subsidies Existing subsidies to be reduced by 21% in volume and by 36% in expenditure List of export subsidies defined	Existing subsidies to be reduced by 14% in volume and by 24% in expenditure
Domestic support	Policies divided into three groups (i) permitted policies ('Green Box') (ii) other policies to be included in the Aggregate Measure of Support ('Amber box') subject to reduction commitments De minimis provision allows exclusion of product-specific support less than 5% of output value from AMS Total AMS support to be reduced by 20% over 6 years (iii) Decoupled direct payments placed in a 'Blue Box' and also excluded from the AMS	Developing countries allowed to include additional policies, e.g. investment and input subsidies, in the Green Box De minimis provision allows exclusion of product-specific suppot less than 10% of output value from AMS Total AMS support to be reduced by 13.3% over 10 years Least developed countries must bind AMS support level but not required to reduce it
Sanitary and phtyosanitary standards	Reaffirms right of countries to set their own health and safety standards Lays down conditions where countries do not harmonise on international standards
Other aspects	Peace clause WTO Committee on Agriculture formed to oversee Agreement Disputes subject to Dispute Settlement Mechanism Agreement to re-open negotiations before the end of 1999	Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Countries

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 monthly. 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 MFN 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 they vary 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

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 did 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.
Protection of the MacSharry compensation payments by the Blue Box meant that the EU had no difficulty in meeting its AMS commitments.
The limits on the volume of subsidised exports have become 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).

Reading suggestions

WTO Secretariat, 2005. 'Agriculture', in Trading Into the Future: The Introduction to the WTO.
(very brief summary of the main provisions of the Uruguay Round Agreement on Agriculture)

O'Conner, B., 2003, 'Agriculture', Module 3.15 of an online course on dispute settlement organised by UNCTAD.(Read Chapters 1-4).
(this legal analysis reviews the Uruguay Round Agreement on Agriculture and contains useful summary review questions at the end of each section. Don't try to learn all the detail, but it provides a good definition of the various technical terms associated with the Agreement on Agriculture)

Supplementary reading

Rayner, A., Ingersent, K. and Hine, R., 1994, Agriculture in the Uruguay Round: an assessment, Economic Journal 103, Nov, pp. 1513-1527.
(a useful short review of the background to and progress of the negotiations. This article draws on the fuller account by the same authors, see Ingersent, K., Rayner, A. and Hine, R., 1994, Agriculture in the Uruguay Round, London, Macmillan).

Ingersent, K., Rayner, A. and Hine, R., 1995, Ex-post evaluation of the Uruguay Round Agriculture Agreement, World Economy 18, 5, 707-728.

Ingersent, K., Rayner, A. and Hine, R, 1994, Agriculture in the Uruguay Round, London, Macmillan.

Josling, T., Tangermann, S. and Warley, T., 1996, Agriculture and the GATT, New York, St Martin's Press.

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.

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.

Web resources

WTO, Legal Text of the Agreement on Agriculture, available online.

Lecture 24. The Uruguay Round Agreement on Agriculture