AoA Issues Series: Agriculture in the Uruguay Round
Mary Anne Normile and Mark Simone
USDA, Economic Research Service
Despite the achievements of the Uruguay Round
Agreement on Agriculture (AoA) of the World Trade Organization (WTO),
distortions affecting agricultural markets and trade persist. Unfinished
business from the Uruguay Round, continued distortions, and new
issues make the case that the reform process should continue. Negotiations
to continue the agricultural reform process, agreed as part of the
AoA, got underway in early 2000.
The AoA represents a fundamental change in the way
agriculture is treated under the rules governing trade among WTO
member countries. Under the Agreement, countries agreed to reduce
substantially agricultural support and protection in the areas of
market access, domestic support, and export subsidies. In addition,
the Agreement on the Application of Sanitary and Phytosanitary Measures
(SPS) established rules to prevent countries from using arbitrary
and unjustifiable health and environmental regulations as disguised
barriers to trade in agricultural products. The Technical Barriers
to Trade Agreement covers legally binding technical requirements
relating to SPS measures, such as product content requirements,
processing methods, and packaging.
Prior to the Uruguay Round, GATT rules on trade in agricultural
products were largely ineffective. A number of loopholes and exceptions
to GATT rules for agricultural goods, in effect, exempted them from
most of the disciplines applying to manufactured goods. For example,
many countries applied on agricultural goods export subsidies, import
quotas, and other nontariff barriers (NTB) generally prohibited
under the GATT. Although distortions beyond tariffs had significant
and often larger effects on agricultural trade, earlier negotiating
rounds of the GATT concentrated on reducing tariffs. Of equal concern,
many border measures were imposed to support domestic agricultural
policies. It was clear that domestic policies would have to be disciplined
to achieve effective liberalization of agricultural trade. As a
result, agricultural trade was not treated in multilateral negotiations
in a truly comprehensive way until the Uruguay Round.
The result of the failure to fully include agriculture under GATT
disciplines was a highly distorted world market for agricultural
goods. Prior to the AoA, many countries
- maintained high support levels, some at high costs to their
national treasuries, which led to overproduction and stock accumulation
or dumping of surpluses and provoked numerous trade disputes;
- used export subsidies to dispose of surplus production, which
contributed to weakness in world market prices for agricultural
goods and made it difficult for low-cost producers to compete
in export markets;
- levied high tariffs and instituted a wide range of nontariff
barriers, including import quotas, prohibitions, and licensing
requirements, which inhibited trade in agricultural goods and
limited transmission of world market prices to domestic markets,
which allowed these countries, in effect, to export domestic market
variability; and
- exempted domestic markets from adjustments, and increased the
adjustments required of market-oriented agricultural economies
elsewhere in the world.
What the AoA Did
Under the AoA, countries pursued comprehensive liberalization of agricultural
trade by agreeing to numerical targets for cutting subsidies and protection.
Countries made specific reform commitments in the areas of market
access, export subsidies, and domestic support.
Market access. In the AoA, countries agreed to open
markets by
- prohibiting nontariff barriers
(including quantitative import restrictions, variable import levies,
discretionary import licensing, and voluntary export restraints),
- converting existing nontariff barriers to tariffs, and
- reducing tariffs.
Countries were obligated to provide a minimum level of import opportunities
for products that were previously protected by nontariff barriers
by establishing tariff-rate quotas (TRQ).
TRQ's set a relatively low tariff on imports up to the minimum access
level, while additional imports face much higher protection. The
guidelines established a minimum access level at 3 percent of domestic
consumption initially, expanding to 5 percent by the end of the
6-year implementation period (1995-2000).
Export subsidies. AoA signatory countries also agreed
to reduce expenditures on export subsidies as well as the quantity
of agricultural products exported with subsidies, and agreed to
prohibit the introduction of new export subsidies for agricultural
products.
Domestic support. Domestic support reductions were
realized through commitments to reduce an Aggregate
Measure of Support (AMS), a numerical measure of the value of
all trade-distorting domestic policies. There were certain exceptions.
The intention was to allow governments to support their agricultural
sectors and rural economies so long as the measures employed were
non- or minimally trade distorting. Policies not subject to reduction,
called "green box" programs,
include research, inspection, income stabilization, natural disaster
relief, and other programs like crop insurance, environmental programs,
and rural assistance, which could have an effect on production and
trade.
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Table 1—AoA required reductions
|
|
Developed
Countries
(1995-2000) |
Developing
Countries
(1995-2005) |
Tariffs
Average cut for all agricultural products
Minimum cut per product
(base period 1986-88) |
36%
15%
|
24%
10% |
Domestic support
Total agriculture support cut
(base period 1986-88) |
20% |
13% |
Export subsidies
Value of subsidies
Subsidized quantities
(base period 1986-90) |
36%
21% |
24%
14% |
| Source: WTO |
The Agreement on Sanitary and Phytosanitary Measures (SPS)
A separate agreement in the Uruguay Round, the SPS Agreement
was also an important development for liberalizing agricultural
trade. The objective of the SPS Agreement is to reduce the trade
distortions caused by measures to protect food safety and animal
and plant health. Under the Agreement, SPS measures must be applied
only to the extent necessary to protect human, animal, or plant
life and must be based both on scientific principles and an assessment
of the risks posed to health. They may not discriminate unjustifiably
between countries where the same conditions prevail or be applied
in a way that makes them a disguised barrier to trade. The Agreement
encourages countries to base their SPS measures on existing international
standards and to recognize other countries' standards, as long as
they achieve the same degree of protection.
Expanding Trade Benefits the United States
The United States has benefited from the increased
agricultural trade that resulted from the market-opening effects
of the AoA and other trade agreements and from income growth in
major markets. U.S. agricultural exports have risen from pre-Uruguay
Round (1992-94) levels of $43 billion per annum on average, to $48
billion in 1999. U.S. exports peaked at $60 billion in 1996. The
value of agricultural exports has fallen since the 1996 peak from
- lower prices for many agricultural commodities,
- the effects of the Asian financial crisis
on important markets for U.S. agricultural exports, and
- the decline in the exchange-rate competitiveness
of U.S. agricultural exports. Agricultural exports have, however,
remained above pre-Uruguay Round levels.
The United States has much to gain from further reform
of the world agricultural trading system. Because of its resource
endowments and technological advances, the United States has perenially
been the world's leading exporter of agricultural products. An expanding
export market is necessary for the health of the farm sector. As productivity
improvements continue to increase U.S. farm output much faster than
U.S. domestic demand increases, increases in exports are essential
to the health of U.S. agriculture and farm incomes. The overall U.S.
economy will also gain from greater liberalization of agricultural
trade as higher imports benefit consumers through greater variety
and lower food prices and food processors' input costs are reduced.
Despite progress, challenges remain for new negotiations.
The Uruguay Round has produced many positive results:
- tariffs are being reduced for many agricultural products,
- export subsidies on agricultural products are subject to meaningful
disciplines for the first time,
- domestic policies that affect production and trade of agricultural
products are more transparent, and
- the dispute settlement procedure has been used effectively to
bring many countries' policies into compliance with new disciplines.
Despite the achievements of the Uruguay Round in reforming agricultural
policy and liberalizing agricultural trade, distortions affecting
agricultural trade still persist. WTO members failed at Seattle
to launch a comprehensive round of multilateral trade negotiations,
but negotiations on agriculture are proceeding as prescribed by
the AoA. A number of issues relating to agricultural trade remain
to be discussed during these negotiations or in a comprehensive
round covering multiple sectors and negotiating areas. Unfinished
business includes more liberalized market access and further reductions
in both domestic support and export subsidies.
Agricultural protection levels are still high. The average
nonagricultural worldwide tariff is 4 percent, while the average
agricultural tariff of industrial countries is 45 percent, and tariffs
on some agricultural products exceed 300 percent. Tariffication,
conversion of nontariff barriers to tariffs, permitted countries
significant latitude in establishing equivalent tariffs. The guidelines
for tariff reductions allowed countries to average their required
tariff reductions across all agricultural products. The result was
very high initial tariffs for some commodities, which undermined
the significance of subsequent tariff reductions. While lower tariffs
would facilitate increased trade, alternative means for reducing
agricultural tariffs (e.g., using different tariff-reducing formulas)
may have different impacts on agricultural trade.
Tariff-rate quotas often impair market access. Administration
of the TRQ's established to meet minimum and current access requirements
presents the same issues regarding the fairness of access as do
all quotas. Countries have considerable flexibility in allocating
quantities they accept at lower, in-quota tariff levels. TRQ's may
lock in preferential access to traditional trading partners and
limit access by other WTO member countries. Some countries allocate
import licenses to domestic producers who have no incentive to import
or implement other unfair import licensing procedures. Expanding
TRQ levels or reducing high over-quota tariffs would further open
markets, and new rules could reduce or eliminate unfair practices
associated with administering TRQ's.
Some commodities have remained largely outside the reform process.
The markets for dairy products and sugar remain highly protected
in most countries, as are peanuts (United States), poultry (Canada),
and rice (Japan and Korea).
Nontariff barriers persist. Although nontariff barriers
were eliminated in principle, the market effects of many nontariff
barriers continue largely unchanged in practice. For example, while
quotas are generally prohibited, TRQ's will have the effect of quotas
in many markets until TRQ's have been considerably liberalized.
Also, as traditional import barriers are reduced or eliminated,
technical barriers, such as requirements regarding labeling, size,
quality, and inspection requirements, comprise nontariff barriers
that have a significant impact on trade.
Export subsidies continue to distort world agricultural markets.
After the period of high world market prices during 1995-97, when
the use of export subsidies declined for some commodities, export
subsidies have risen. Also, rules regarding the use of export credit,
food aid, and other forms of marketing assistance for exports remain
unresolved.
Domestic support disciplines have little effect in most countries.
The reductions in trade-distorting domestic support have been easily
met by most countries. These commitments only applied to aggregate
domestic support rather than support to individual commodities,
thus permitting high support levels to continue for the more sensitive
commodities. In addition, payments to producers under production-limiting
direct payment programs were excluded from discipline under the
so-called "blue box" provisions. These provisions exempted
EU payments to grain, oilseed, and some livestock producers and
the pre-1996 Farm Act U.S. deficiency payments from reduction commitments.
The criteria for determining which domestic policies should be excluded
from disciplines because they are minimally trade distorting needs
further examination, particularly as many countries have shifted
support from disciplined to exempt, or green box, programs. The
need for the blue box exemption could also be examined, and more
research is needed to understand the distortions and international
spillovers from different types of direct payments.
Other Papers in This AoA Issues Series:
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