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:
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 two sessions). -> Uruguay Round
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 references and make sure you understand these).
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:
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:
The major elements fall into four areas:
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 runs out in 2003 for the Blue Box measures - especially the EU's compensation (area and headage payments), and, as we shall see, the US Transition payments under the FAIR act of 1995. Early in 2004, we can expect these payments to 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 | ÒGreen BoxÓ 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 Òblue boxÓ 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 remain on the agenda for further reform or reduction in future rounds or alternative negotiations. 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.
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.
There is a commitment to freer and fairer trade, and thus to world market
signals and incentives enshrined in the URAA and strongly echoed and amplified
in the recent OECD ministerial resolutions.
"Ministers stressed that agro-food policies should seek to strengthen the intrinsic complimentarities between the shared goals, thereby allowing agriculture to manifest its multifunctional character in a transparent, targeted and efficient manner. The challenge in pursuing the shared goals is to use a range of well-targeted policy measures and approaches which can ensure that the growing concerns regarding food safety, food security, environmental protection and the viability of rural areas are met in ways that maximise benefits, are most cost-efficient, and avoid distortion of production and trade." (OECD News Release, SG/COM/NEWS (98) 22, 6.3.98. See, also, OECD Discussion Papers: Agricultural Policy: the need for further reform; Agricultural Policy Reform: Stocktaking of achievements; prepared for the Ministerial Committee, March 5/6th., 1998.)
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 round will eventually agree to substantial strengthening
of these commitments, the continued payment of production-related Ôcompensation
payments is bound to come under substantial pressure in the Millennium
Round. Expiry of the peace clause may well trigger challenge and countervail
in the absence of clear reform of these "blue box" measures. As the House
of Commons Select Committee (June 1998) said (and as has been accepted
by the UK Government): "We would much prefer to see the EU entering the
next WTO Round sharing the moral high ground with the USA and the Cairns
Group countries, and we have serious doubts as to whether the CAP reform
proposals will allow the EU to do more than establish a base-camp in the
moral foothills." (para 30).
Read Agricultural Policy Reform after the Uruguay Round (attached pdf file - which was also referred to in the last session) on the implications for policy design and the policy process. This paper (chapter) also defines and discusses the notion of trade distortion and its relationship to measurements of producers subsidy equivalents, which underlies much of the discussion on the future course of agricultural policy developments and WTO negotiations, and the requirements for full decoupling.
Read Harvey, Chapter 17 of Ritson & Harvey (eds.) for further implications for the future.
See WTO Web Site for details of current activities and documentation on its roles, responsibilities and activities.