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Agreement on Agriculture

Agreement on Agriculture

The Uruguay Round Agreement on Agriculture (URAA) came into effect in 1995 as a part of the Marrakesh Agreement that established the World Trade Organization (WTO). Contained in Annex IA of the Marrakesh Agreement, the URAA both modifies and greatly elaborates on those Articles of the General Agreement on Tariffs and Trade (GATT) that specifically dealtwith agricultural trade by specifying significant constraints on government behavior in this area. The scope of the URAA covers all agricultural products (defined as products in Chapters 1 24 of the Harmonized System of tariff headings, excluding fish and fish products but including cotton, wool, hides, flax, hemp, and a few other products as specified in Annex 1). The agreement, by internal reference, also includes the country schedules that were appended to the WTO Treaty (Articles 3.1, 4.1, and 6.1). These schedules contained maximum permitted levels for export subsidies and for certain types of domestic subsidies, as well as commitments for the reduction of ‘‘bound’’ tariffs (tariff levels that cannot be exceeded without negotiating compensation for effected exporters).
The central elements of the Uruguay Round Agreement on Agriculture are often referred to as the three ‘‘pillars’’ market access, domestic support, and export competition. In all three areas, newrules and reductions in trade barriers form a comprehensive framework for the regulation of measures that restrict trade in agricultural products.
Market access rules include the conversion of all nontariff import barriers (quotas and restrictive licenses) to tariffs (Article 4.2), and a footnote to Article 4.2 specifies some of the nontariffmeasures that are prohibited. Moreover, it was agreed that tariff levels were to be bound and that tariff rate quotas (TRQs, or quantities that canbe imported at a zero or low tariff) were to be established tomaintainmarket access as tariffication (replacement of nontariff barriers with tariffs) took place. These TRQs were to represent ‘‘current access’’ in cases of existing trade or a ‘‘minimum access’’ of 3 percent of domestic consumption (rising to 5 percent over the implementation period) in cases where there were no imports in the base period. Tariffs were to be reduced from the base period (1986 90) by an (unweighted) average of 36 percent, with a minimum cut of 15 percent for each tariff line, over a six-year period (1995 2000). In addition, the agreement established a special safeguard regime that countries could use to counter import surges or price drops inmarkets inwhich they had newly established tariffs (Article 5).
Domestic support was defined to include payments to farmers in addition to the transfers from consumers through border policies. These included deficiency payments, direct income supplements, administrative price systems, and subsidies for agricultural research and government advisory programs for farmers for conservation compliance, and for other programs that benefited farmers directly.These elements of domestic support were put into three categories, which have become known as the Amber Box, the Blue Box, and the Green Box.
Amber Boxmeasures were those tied to output or input prices or to current output levels.Thesewere to be reduced by 20 percent (in aggregate) relative to the base period (1986 90) subject to de minimis amounts that were excluded from the commitment. The Blue Box contained subsidies that were tied to supply control programs: such subsidies were regarded as less obviously output-increasing.Therewas no reduction obligation for Blue Box policies, but such subsidies were restricted to payments based on fixed acreage and yield or paid on a maximum of 85 percent of production (Article 6.5). Green Box subsidies were defined (in Annex 2) as those unrelated to price and output (‘‘decoupled’’), which included research and extension, payments designed to compensate farmers for the cost of compliance with environmental regulations, and domestic food assistance programs. Both the general criteria (that they be provided from public funds and not act as price supports) and the specific criteria for each type of subsidy identified have to be met. Those subsidies that qualified as Green Box payments were not constrained, though they had to be notified by governments to the World Trade Organization Committee on Agriculture.
The domestic support commitments were implemented by means of a calculation of the Total Aggregate Measure of Support (Base AMS) (Article 6) for the base period. This included market price support given by administered prices (calculated by a price gap relative to a reference price), nonexempt direct payments, and other subsidies. Exemptions included theBlue Box andGreen Box subsidies and a de minimis amount of 5 percent of the value of production for non-product-specific subsidies and 5 percent of the value of the output of an individual commodity for product-specific payments. The reduction commitments were applied to the BaseAMS to give the annual commitment levels included in the country schedules, and each year the Current Total AMS is compared to this commitment.
The rules regarding export competition included a prohibition on new export subsidies (Article 8) and a reduction of existing subsidies by both volume and expenditure. A list of export subsidy practices that are covered is given in Article 9.1. Following the agreed modalities, country schedules were drawn up that provided for subsidy reductions relative to the base period of 36 percent by expenditure and 21 percent by quantity subsidized. In addition, rules were made more explicit with regard to food aid (Article 10.4), and countries agreed to negotiate limits on export credit guarantees (government underwriting of sales to purchasers that might lack creditworthiness) (Article 10.2).
To provide for ‘‘special and differential treatment’’ for developing countries, the level of reductions for tariffs and subsidies was set at two-thirds of that of developed countries, and the period of transition was extended from 6 to 10 years (i.e., 1995 2004). Developing countries were also allowed to exempt de minimis subsidies of up to 10 percent of product value for product-specific payments and 10 percent of total agricultural production for nonproduct- specific payments. In addition, certain additional categories of both domestic support (Article 6.2) and export subsidies (Article 9.4) were allowed. In the case of least-developed countries, no reduction commitments were required (Article 15.2). These least-developed countries are defined as the 48 countries eligible for World Bank/International Development Association assistance, and developing country status is self-declared.
In addition to the three pillars, the URAA mandated the formation of an Agricultural Committee (Article 17), charged with the monitoring of adherence to the agreement. Countries were to notify the committee in a timely fashion of their subsidy levels and any new subsidies that were introduced. Notifications have lapsed, however, and some major countries have not notified beyond the year 2001. The Agriculture Committee became the locus for new negotiations on the continuation of trade reform, meeting in special session.
In addition, the Uruguay Round Agreement on Agriculture provided a degree of shelter for domestic programs through a ‘‘Peace Clause’’ (Article 13) that limited the scope for the challenge of agricultural subsidies under the Agreement on Subsidies and Countervailing Measures. The Peace Clause was to operate for a period of three years after the implementation period; it expired in 2003.
A further innovation in the Uruguay Round Agreement on Agriculture was the inclusion of a clause (Article 20) that mandated a continuation of the process of reductions in support and protection. To this end, there were to be new negotiations by the end of the period of transition (in effect, before 2000).Negotiations did indeed start in March 2000, and were incorporated in the Doha Development Agenda (DDA) at the Doha Ministerial in November 2001. The DDA talks were suspended in July 2006 and revived in January 2007.
The need for the development of new rules for agricultural trade in the Uruguay Round reflected both the unsatisfactory nature of the constraints incorporated in the GATT articles and the ‘‘disarray’’ that had characterized thesemarkets for decades.The three General Agreement on Tariffs and Trade articles that had caused the most conflict were Article XI, which prohibits nontariff measures; ArticleXVI(asmodified in1955),which limits export subsidies; and Article XX, which permits the use of trade barriers in support of a range of domestic health and safety measures.
The part of Article XI that was considered unsatisfactory was the clause (Article XI.2(c)(i)) that allowed an exception to the prohibition of nontariff trade barriers in cases where the domestic production of an agricultural product was subject to supply control. Many countries had relied on this clause to restrict imports by quantitative trade barriers when domestic markets were being managed. As it was difficult to monitor the extent to which the domestic supply control was effective, exporters of the products concerned claimed that the import restrictions were in effect the dominant policy rather than just an adjunct to help reinforce the domestic production limits. Examples were quotas on Canadian dairy and poultry imports and those imposed by the United States under Section 22 of the Agricultural Adjustment Act (as amended), which mandated quantitative restrictions on imports of a number of goods when domestic programs were ‘‘materially interfered with’’ by imports.
Another complication related to Article XI was whether a ‘‘variable levy’’ (a tariff that changed frequently depending on the level of import prices, so as to stabilize domestic markets) was an ‘‘ordinary customs duty.’’ If not, then it would have been constrained by Article XI. The European Economic Community (EEC, later the European Union, EU) had built itsCommonAgricultural Policy on such an import policy instrument. So the question as to whether the EEC was acting within the limits of the GATT was continually raised by exporting countries though it was never resolved.
In the case of export subsidies, the problems revolved around the ambiguous nature of Article XVI. Though the original GATT article subjected both primary and manufactured product export subsidies to the same notification and consultation procedures, in 1955 it was agreed to add an explicit prohibition on export subsidies on manufactured goods. Agricultural export subsidieswere constrained only by the obligation not to use such subsidies to capture ‘‘more than an equitable share’’ ofworldmarkets. Successive General Agreement on Tariffs and Trade panels failed to come up with a satisfactory definition of this concept, and agricultural export subsidies in effect escaped any discipline.
The problems that had arisen in the application of Article XX centered on the difficulty posed by the need to distinguish between those measures that were legitimate and effective regulations to protect against disease and those that were largely inspired by the desire to protect the economic interest of domestic producers. The clarification of Article XX was addressed by the Sanitary and Phytosanitary (SPS) Agreement, which was complementary to the URAA. By requiring risk assessment in the case of all health and safety regulations related to trade in plants and animals, the SPS Agreement created a greater degree of accountability. Regulations that are clearly motivated by economic rather than health protection can now be (and have been) challenged in the World Trade Organization.
The Uruguay Round Agreement on Agriculture has rendered the provisions in Article XI regarding supply control moot, as quantitative import restrictions are nowprohibited. Similarly, the variable levy is explicitly included in the list of import barriers that are not allowed. By banning new export subsidies and including existing subsidies in schedules to be reduced, the Uruguay Round Agreement on Agriculture has largely resolved the issue of the ‘‘exception’’ for primary products. And the constraints on domestic support have had the effect of restricting the ability of countries to reproduce by domestic subsidies the protection levels previously granted by reduced tariffs and export subsidies.Thus the rule changes have to a large extent met the need to incorporate agricultural trade in a rules-based trade system.
The impact that the URAA has had on individual countries varies greatly. All countries converted nontariff barriers to tariffs and bound those tariffs with the sole exception of rice quotas in Japan and Korea, which were allowed as temporary exceptions. Developing countries were allowed to declare ‘‘ceiling bindings’’ in place of product-by-product calculations of tariff equivalents, however.These ceiling bindings were commonly set at levels up to 100 percent ormore, and thus had little impact on the actual level of tariffs used and the degree of market access. Tariffication had more impact in developed countries, where the quantitative restrictions were usually associated with sensitive products. In these cases the degree ofmarket opening depended on the size of the TRQ agreed upon and the administration of that quota. Many countries considered the increased trade generated by the market access provisions of the Uruguay Round Agreement on Agriculture disappointing, and this increased the pressure for substantialmarket opening in the Doha Round.
The constraints on export subsidies have generally been successful, in that countries have appeared to stay within their scheduled limits for those subsidies included in their schedules. WTO panels have found (notably in the Canada dairy, U.S. cotton, and EU sugar cases), however, that there have been subsidies that were not included in the schedules, and the panels have declared these to be prohibited. Domestic subsidy constraints have also been generally respected, mainly because domestic policies in developed countries have tended to switch away from Amber Box subsidies. But there is continued concern that such subsidies cause considerable harm to other countries, and this has been confirmed by the panel in the U.S. cotton case.
Agreeing on disciplines on agricultural trade (as well as ending the quota system for textile imports) was amajor step in completing the agenda embodied in the General Agreement on Tariffs and Trade of bringing all sectors in goods trade under the same regime. All agricultural tariffs are now bound, though they remain at a level several times higher than formanufactured goods.Nontariff barriers are no longer used, though TRQs still restrict market access. Though it does not directly mandate the type of policy instruments countries can use, the URAA has in effect provided a template for domestic policymakers: if they use WTO-compatible policies for their farm sectors they will be free from the constraints of the URAA. Export subsidies are still used but in much more restricted ways. The agricultural talks in the DDA have attempted to build on the achievements of the Uruguay Round Agreement on Agriculture. See also agricultural trade negotiations; agriculture; Doha Round; multilateral trade negotiations; tariff rate quotas; Uruguay Round; World Trade Organization
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