Download Lecture24_URAA

The Uruguay Round Agreement on
Agriculture
Lecture 24
Economics of Food Markets
Alan Matthews
Lecture objectives
 to understand the reasons for the disarray in
agricultural trade prior to the Uruguay Round
agreement
 to know the outcome of the UR Agreement on
Agriculture and to be able to critically evaluate its
impact
 to understand the implications for the EU’s Common
Agricultural Policy of the Uruguay Round Agreement
Reading
 Short extract from WTO Trading into the Future
 O’Connor legal analysis
 Various books and papers in the supplementary reading list
From GATT to WTO
 Bretton Woods institutions intended to be complemented
by International Trade Organisation – stillborn in 1946
 GATT came into being as an interim arrangement 1947
 Successive rounds of GATT negotiations to reduce
tariffs…
 … culminating in the Uruguay Round which established
the World Trade Organisation 1994
GATT principles
 non-discrimination - countries cannot apply different trade barriers to
different countries. Expressed in the principle of most favoured nation
(MFN) 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
Structure of the WTO Agreements
 General Agreement on Tariffs and Trade (GATT 1994)
– Multilateral Trade Agreements, including
• Agreement on Technical Barriers to Trade
• Agreement on Agriculture
• Agreement on Sanitary and Phytosanitary Standards
• Agreement on Textiles and Clothing
• Agreements on Subsidies and Anti-Dumping (measures
against unfair trade)
– Plurilateral Trade Agreements
 General Agreement on Trade and Services (GATS)
 Trade-Related Aspects of Intellectual Property Rights
Exclusion of agriculture from the GATT
 Few agricultural tariffs bound, and agriculture remained outside the
tariff-cutting GATT negotiations
 Quantitative import restrictions, banned for all other commodities,
could be used for agricultural commodities, provided that domestic
production of the commodity was subject to certain restrictions
(Article XI on import quotas)
– 1955 US waiver
 Use of agricultural export subsidies was explicitly permitted,
conditional on observance of ‘equitable market shares’, but impossible
to define (Article XVI on export subsidies)
 Grey area measures proliferated, i.e. mechanisms such as variable
import quotas, voluntary export restraints and domestic subsidies not
explicitly covered by GATT
 No disciplines on non-tariff barriers such as import controls for food
safety and animal and plant health reasons
Background to the Uruguay Round
 World agriculture in disarray - growing US-EU tension on
farm subsidies
 The growing costs of agricultural protectionism
 Launch of Uruguay Round 1986
"to achieve greater liberalisation of trade in agriculture and
bring all measures affecting import access and export
competition under strengthened and more operationally
effective GATT rules and disciplines"
 Significance of the Uruguay Round
– the most comprehensive coverage of all negotiating rounds to date
– included the participation of more than 100 countries
Players in the Uruguay Round
 The US : moving away from dependent agriculture
paradigm to a competitive agriculture paradigm, and see
access to export markets as the underpinning for this
 The EU: anxious to avoid escalating budget cost of farm
support and wanting a deal as compatible with the CAP as
possible
 Cairns Group: consisting of 14 agricultural exporters from
both the developed and developing world keen on
liberalisation
 Other developing countries – concerned about the cost of
food imports
 Other high-income countries – anxious to avoid
liberalisation
Tariff rate quotas

Countries are required to maintain
current levels of access, for each
individual product, where the
current level is based upon the
volume of imports during the base
period (1986-88).

For commodities subject to
tariffication, a minimum access
should be established at not less
than 3 percent of domestic
consumption during the base
period. This minimum level is to
rise to 5 percent by the year 2000
in the case of developed countries,
and by 2004 in the case of
developing countries.
Other aspects of the URAA
 sanitary and phytosanitary provisions addressed in the SPS
Agreement
 peace clause
 special and differential treatment for developing countries
 among developing countries, concerns that net foodimporting countries would lose out because of terms of trade
effects. Decision on Measures Concerning the Possible
Negative Effects of the Reform Programme on Least
Developed and Net Food Importing Developing Countries
included to meet their concerns.
 agreement to reopen negotiations in 2000
Achievements of the URAA
 Effectiveness of the agriculture agreement in cutting
protection was less impressive than the nominal cuts
suggest, because :
– tariff cuts took place from base levels that were frequently inflated
through the choice of base year,
– through the methods used to measure protection existing prior to
the round (‘dirty tariffication’),
– Through use of unweighted average of 36%
– through the use of ‘ceiling’ bindings in developing countries
 Uneven tariff reduction – many sensitive products still
protected by high tariffs
 Minimum access commitments counted imports under
existing special arrangements, despite MFN requirement
Achievements of the URAA
 Export subsidy commitments binding despite complaints
of ‘front-loading’
 Domestic support disciplines limited because of agreement
on Blue Box
 AMS discipline was established at an aggregate level, not
on a commodity by commodity basis
 But despite the criticisms, the URAA established a
framework for further disciplines
 The dispute settlement mechanism has been surprisingly
effective in allowing countries to challenge policies of
other countries
Adjusting CAP to the URAA
What changes were necessary to the CAP
mechanisms?
 the implementation of tariffication
 other market access provisions
 no real effect of AMS provision
 more active management of export refund system to
stay within subsidised export targets
WTO disciplines were consistent with the
MacSharry 1992 reforms
Post-GATT Uruguay Round
CAP mechanisms
target price
threshold price
intervention price
tariffs fixed
and reduced
over time
export subsidy
Domestic support
capped and
reduced over
time
world price
Import
Volume and
value capped
and reduced
over time
world price
Internal
Export
Some specifics of CAP adaptation to WTO
disciplines
 Examples of how tariff for wheat was set
 Variable levy system retained for cereals and fruits and
vegetables
 (Ab)use of special safeguard provision
 Removal of domestic support to Blue Box
 But export subsidy restrictions have had some effect