ACE2006:  GATT & WTO

The following notes contain some key elements of the evolution of the GATT and agriculture.

What is (was) GATT?

The GENERAL AGREEMENT ON TARIFFS & TRADE: signed in 1947 as part of the international reconstruction following WWII, which also saw the creation of the International Monetary Fund (IMF) as the International "bank" to support national banks; the International Bank for Reconstruction and Development (IBRD) - more popularly known as the World Bank, as a fund for development projects and programmes throughout the world; the United Nations organisation.

GATT consisted of:

GATT History: GATT Principles: GATT and Agriculture: - Agriculture treated as an EXCEPTION from the outset - quotas (A.11), export subsidies (A.16) allowed under special status clauses - Reinforced by 1955 US indefinite waiver on ag., 1956 effective extension of this waiver to EC and CAP - which granted supremacy of domestic farm policies over GATT principles.  Note: "request/offer" and "rules/codes" processes of negotiations mean what they say.  The first consists of each party making offers of what it will do and requests for what it expects other parties to do in terms of reducing barriers to trade.  The second consists of the negotiating parties trying to agree a specific set of codes and rules by which tariffs and other barriers will be defined, and reduced.

But, by 1980s, Special Status of Agriculture was no longer sustainable (make sure you understand why not - the arguments and consequences should be apparent from the previous sessions - if not, ask).  -> Uruguay Round

URUGUAY ROUND (opened with the Punta del Este Declaration, 1986) 

Agriculture treated as central to the round, within a wide ranging and far reaching agenda covering 15 main areas - forced agriculture to confront rest of the economies & allowed for trade-offs between sectors.

The economic grounds for international agreement on agricultural trade have already been dealt with (see previous session notes and make sure you understand these).

The Implications Such arguments raised the questions: How much might producers loose as a consequence of trade liberalisation, and how much are world markets distorted by agricultural trade protection and support? What might liberalised world markets look like?

Producer Subsidy Equivalents (PSEs)

These were estimates (made by the OECD) of the levels of farm support around the world (as represented in the OECD countries), also made by the USDA for other non-OECD countries. The estimates are highly simplified, though technically quite complex, and essentially amount to the total consumer and taxpayer costs of the existing support policies measured against current (distorted) world prices. These PSE estimates proved central to the GATT negotiations as convenient and mostly accepted estimates of the levels of agricultural protection in all its forms.  Since agricultural markets are not simply protected by tariffs, such a common measure of protection proved necessary for the negotiators in the Uruguay Round. It is arguable that the negotiations could not have made any progress without these estimates.

A more complete explanation of PSE estimates and their meanings is provided in the PSE notes attached (as a pdf file)

Uruguay Round Negotiating Groups:

A chronology of the round can be found in the EU Commission briefing note. Suffice it to say that the rournd took longer than any of the previous rounds, perhaps not suprisingly given its scope. Agriculture was a major hold-up, with the US reluctant to give way from its position of major reduction in support systems and the EU equally reluctant to give up its own control over its 'agricultural management' support systems.

The 1994 Uruguay Round Agriculture Agreement (URAA)

The 450 page Final Act, and the all important associated "Country Schedules" containing the specific commitments of each signatory (in line with details specified in a separate transition document under the title Modalities for the Establishment of Specific Binding Commitments) will be the subject of continuing analysis and debate, probably at least until the end of the Agreement in 2001 . However, the major elements appear clear, and there is a strong argument that the fact of the agreement is more important and far-reaching than the specific content. Signatories have now accepted the principles that:
 

Both facts fundamentally alter the socio-political climate surrounding future policy developments around the world.

The major elements fall into four areas:

though the last is technically separate from the Agreement on Agriculture.

In addition, to assist acceptance of the agreement, a "Peace Clause" protects certain "green box" policies from challenge under GATT and exempts other "blue box" policies from all but countervailing duties, provided support does not exceed 1992 levels.  But the Peace Clause ran out in 2003 for the Blue Box measures - especially the EU's compensation (area and headage payments), and the US Transition payments under the FAIR act of 1995.  Such payments might now be succesfuly challenged in the WTO as being trade-distorting.

The structure of the agreement is identified in the following Table (from IATRC, 1994)
 

RULES  LIBERALISATION  SAFEGUARDS,

ACCOMMODATIONS 

& GUARANTEES
MARKET ACCESS Change non-tariff trade measures to tariffs

Establish tariff quotas

Bind all tariffs 

 reduce existing & new tariffs by 36% on average over 6 years

reduce tariffs for each item by at least 15%

 Guaranteed access opportunities to exporters through tariff rate quotas (Min of 5% of domestic markets by end of 6 yrs.)

Special safeguards for importers
EXPORT COMPETITION Defined limits on existing export subsidies

No new export subsidies

 Reduce expenditure by 36% over 6 year

Reduce volume by 21% over 6 years

 Adherence to food aid rules

Negotiate later on export credits
DOMESTIC SUBSIDIES  "Green Box" defined for allowable subsidies Aggregate Measure of Support (including all trade-distorting measures) to be reduced by 20% over 6 years Many LDC subsidies exempted

payments under "blue box" production limiting programmes exempted

This table shows the three major areas of agreement (market access, export competition and domestic subsidies) and the three major actions which have been agreed: the definition of new rules; the agreed general rates of reduction in these measures over the period of the agreement - the specifics of which are detailed in the country schedules; the "wrinkles" (safeguards, accommodations and guarantees) necessary to achieve the final agreement.

Market Access: The conversion of virtually all existing non-tariff barriers and unbound tariffs to bound tariffs, and their subsequent reduction by 36% on a simple average basis, with a minimum of 15% reduction for any tariff line, is a major achievement. In practice, the degree of discretion allowed to each country in their conversion procedures has introduced considerable degree of what the Europeans used to know as "water in the levy". By choosing the appropriate base period prices and definitions of internal prices, countries have been able to set their bound tariffs close to the upper end of the possible scale, exacerbated by the fact that for many commodities (especially in the EU) the base protection rates (internal price less world prices expressed as a percentage of world prices) were historically high. Thus for the EU, the bound rates are 250% or so for sugar, 237% for beef, 341% for butter and between 150% and 170% for grains. However, the EU has agreed to the average 36% reduction for all these commodities, rather than taking advantage of the minimum required reduction in any single line of 15%, reserving a minimum reduction of 20% for "sensitive" products such as fruit and vegetables, skim milk powder, olive oil and wine.

The EU has chosen to define minimum access provisions over relatively large aggregates of commodities, thus allowing for the fact that trade preferences within commodity aggregates can offset those for other products within the same aggregate, though actual access commitments are calculated for each tariff line.

Export Competition: A major achievement of the Round was the agreement to outlaw any new export subsidies, and freeze and reduce existing subsidies. "There can no longer be any doubts as to what (maximum) level of export subsidies a country can grant in agricultural trade" (IATRC, 1994, p10). There is little doubt that this part of the agreement will be the most telling constraint on future development of the CAP. Indeed, the severity of this commitment led to a last minute "frontloading" provision allowing countries to choose a 1991/2 base rather than the general 1986/90 base for the calculation of necessary volume reductions, freeing the EU in particular from the necessity of starting from the historically high stock and export base of 1986 - 90. Subsidised cereal exports have to be reduced by almost 8 million tonnes by 2000, representing a significant share of the total world market. The cut in export subsidies amounts to a substantial saving in EU budget spending of close to ECU 4 billion.

Domestic Support:. The finally agreed reduction in total AMS of 20% is lower than initially offered by the EU in 1990 of 30%. The Blair House Accord ensured that the new area and headage payments under the reformed CAP are to be excluded from this provision. In consequence, the actual policy effect of this commitment is not expected to be significant. In fact, the Commission estimates that by the time the 1992 reforms are fully implemented, the EU support bill as measured by the AMS will be ECU 56 billion, well below the commitment of ECU 61.2 billion. (Note: AMS stands for Aggregate Measure of Support, which is an 'adjusted' PSE type measure which excludes allowable 'green' payments, green box measures, R&D spending, extension service spending and so forth.

However, it is widely recognised that these "MacSharry" (or Agenda 2000) support payments do not really qualify as GATT decoupled, in that they remain coupled to production (crop areas and livestock numbers), and consequently remained on the agenda for further reform or reduction in future rounds or alternative negotiations. The Single Farm Payments may also be technically still coupled, since they are linked to restrictions on what can be done with the land. Similarly, the tariffication and import access provisions of the agreement are not, in practice, expected to lead to significant policy reform pressure within the EU (IATRC, 1994, p 48). Given that the GATT bound import tariff limits are maxima, actual tariffs can be set below these limits, and thus can continue to be set as variable levies within these bounds. Furthermore, the ÒSpecial Safeguard ProvisionÓ, allows additional flexibility in conditions of depressed world prices or import surges.

IMPLICATIONS FOR FUTURE

The URAA marked a fundamental change in the evolution of agricultural policies around the world. The world has now agreed that farm policies are no longer the sovereign rights of nation states but are subject to binding rules and constraints established through international agreement and now policed through an international authority - the World Trade Organisation. Although the actual agreements on support reductions and changes in support instruments under the URAA can be judged to be relatively minor, especially as watered down during the implementation phase, the fact of the agreement itself is critical to future farm policy developments around the world. <>The re-opening of the Uruguay Round Agreement on Agriculture (URAA) is scheduled to begin in 1999, while the "peace clause" (Article 13, "due restraint", suspending the countervail and challenge of domestic farm policies deemed incommensurate with free and fair trade) terminates in 2003. This Article of the URAA is a critical one - it is the one which allows the present EU compenastion payments (and the US Fair payments) to be considered as temporarily non trade distorting (in what is called the blue box) but only for the duration of the peace clause, and not thereafter. In the longer term, it is absolutely clear that any and all payments to support farmers simply as farmers will be required to be fully-decoupled (i.e. completely independent) from production and products to qualify as non trade distorting.

Aside from the doubt as to whether existing EU policy is consistent in the longer term with existing commitments and legal bindings on export subsidies and import tariffs under the URAA, and the near certainty that the Millennium (Doha) round will eventually agree to substantial strengthening of these commitments, the continued payment of production-related compensation payments is coming under substantial pressure in the Doha Round. Expiry of the peace clause may well trigger challenge and countervail in the absence of clear reform of these "blue box" measures.

See WTO Web Site for details of current activities and documentation on its roles, responsibilities and activities.

THE DOHA (DEVELOPMENT) ROUND - launched in November, 2001, with an intended completion date of 2005 (missed completely).  The Doha Development Agenda is intended to pay particular and special attention to the needs of developing countries, in terms of: implementing existing trade rules, negotiating new agreements and rules, and (of course) reducing trade barriers and impediments. See here for full detail on the Agenda. Negotiations are currently 'quasi-suspended' following failure to agree at the Ministerial in July, 2008, though there are continuing "walks in the woods" between member states and WTO directors seeking possible avenues towards an eventual agreement.  Note, succesive Multilateral Trade Negotiations (MTNs) have taken progressively longer to reach agreement - fromn the Dillon Round in 1959 to the Uruguay Rond beginning in 1986, the agreements have taken 3, 4, 6 and 8 years.  On this simple track record, it seems sensible to suppose that Doha will take 10 - 12 years to reach agreement.  The critical points of present disagreement are under the Non Agricultural Market Access (NAMA) and Agriculture headings - where the definition and operation of the Special Safeguard Mechanism for developing countries (allowing them to intervene with border protection on a temporary basis in the case of 'excessive' or 'de-stabilising' world market (price or trade volume) conditions) is the major agricultural sticking point.

For a readable summary of the state of play as of the July 2008 collapse of the Doha negotiations, see Bridges,  and see, also "After the Collapse: Rethinking the Special Safeguard Mechanism for Developing Country Agriculture"  The Unofficial (WTO) briefing on the current (2008) modalities of the Doha agreement on agriculture.

For current (October 2010) state of the negotiations - here.  and Here for the 2011 position.  For a good summary of the present points of agreement and projections of a possible overall agreement, see "Taking Stock of the Doha Round Progress vis-à-vis Developing country's Ambitions"  (GTAP working paper, 2009)

Back to ACE2006 Index

comments and questions to David Harvey