The Uruguay Round Agreement On Agriculture: An Evaluation

Contact for this paper: Laura Bipes/University of Minnesota/Department of Applied Economics/ 1994 Buford Avenue./ St. Paul, MN 55108 USA. From the start, agriculture played a central role in the Uruguay Round of GATT trade negotiations. The Punta del Este Declaration called for a solution to the problems facing agricultural trade through modified trade rules and an agreement to lower protection levels. It was recognized that such an improvement implied negotiations on the national farm policies as well as just trade policies. The time that it took to reach agreement reflected the political sensitivity and technical complexity of this task. The Agreement embodied in the Final Act of the Uruguay Round breaks new ground for agriculture, and takes a big step towards placing this sector of world trade under rules more consistent with those in operation in other areas. However, the degree of liberalization of markets is modest, and much remains to be done in future rounds of negotiations. The most far-reaching element in the Agreement is a change in the rules regarding market access. With very few exceptions, all participating countries have agreed to convert all existing non-tariff barriers (along with unbound tariffs) into bound duties and not to introduce new non-tariff measures. Negotiations agreed to reduce these new bound tariffs, as well as tariffs already bound earlier, according to Schedules included as a part of the Agreement. "Tariffication" will impose changes in import policies for a number of countries. Canada will replace import quotas for dairy and poultry products with tariffs, initially at a high level. The European Union will replace its variable levy with tariffs, though a maximum duty-paid price for cereals has been negotiated which puts a limit on the tariff charged. Latin American countries have generally engaged in tariffication in recent years in advance of the Uruguay Round Agreement: for these, and other countries their tariffs will now be bound. The US will forgo the use of Section 22 import quotas and the negotiation of voluntary export restraint agreements with beef suppliers, but the impact on these markets is likely to be small. Japan and Korea have been allowed to delay tariffication in the case of rice for the next few years. The Agreement provides in cases of tariffication for "minimum access opportunities", to guard against the impact of high initial tariff rates. This will open up reduced-tariff quotas for a number of products including beef, cereals and fruits and vegetables. The quotas will be expanded to about 5 percent of consumption over the 6 year period. Japan and Korea have agreed to a greater expansion of market access for rice in compensation for the delay in introducing tariffs. The ability of countries to control export subsidies in agricultural markets was one of the main issues under discussion in the negotiation. Under the Agreement, countries accept commitments on reducing expenditure on export subsidies as well on the quantity of subsidized exports. This will limit export subsidies by the EU and other countries, for such products as wheat, dairy products and beef, and should lead to firmer world market prices in these commodities. These quantities are also expressed in the Schedules which form part of the Agreement. Countries have also agreed not to apply export subsidies to commodities not subsidized in the base period. The Agreement also sets rules and commitments for domestic support policies. It defines a set of policies which are deemed to be less trade-distorting than others, and allocates them to a "green box" which is broadly immune to challenge. Other policies not sheltered in this way are subject to reduction through a limit on the total support given by domestic subsidies and administered prices. It was decided that neither the U.S. deficiency payments (under current legislation) nor the new hectarage compensation payments under the reformed Common Agricultural Policy of the EU need to be reduced. It was also agreed that subsidies that conform to the new rules are sheltered from international challenge under the GATT. Developing Countries generally face less stringent commitments, having 10 years rather than six to make the changes, and having to meet only two-thirds of the reduction targets. In addition, development policies are included broadly in the "green box". Along with the provisions on domestic and trade policies in the Agreement, participants also concluded an Agreement on Sanitary and Phytosanitary Measures (SPS Agreement). The goal was to make it easier to distinguish between genuine health and safety issues and disguised protection. The right of countries to set their own safety and health standards is reaffirmed, but with the provision that such standards should be based on scientific justification and that use be made of international standards where possible. The extent to which the Agreement will lead to greater market access, curb export subsidies and modify domestic policies in the next few years can only be determined from a detailed inspection of the Schedule of commitments made by the individual countries. Paradoxically, the immediate impact on national policies is likely in most cases to be small. Many countries have been engaged in a process of reducing government support to agriculture, and making such support more closely targetted to needs, in advance of the outcome of the Round. Policy reforms in the EU, Canada, Sweden, Australia and New Zealand, along with much of Latin America, have been strongly influenced by the negotiations in the Uruguay Round. The Agreement thus takes on the task of supporting and locking-in such reforms, and encouraging them in other countries. In some aspects the Agreement falls short of expectations (or at least initial demands). It does not constitute a major move toward free trade in agricultural products: the cost of changing the rules has been to give up some degree of liberalization. The tariffs which countries will impose in place of non-tariff barriers are in many cases so high that trade will be restricted to the agreed access quantities. Export subsidy programs will continue though at a reduced level. The major pressure to reinstrument farm policies will continue to be from domestic budget constraints. It will take further rounds of negotiations to reduce protection in agricultural markets to a level comparable to that for most manufactured products. However, with the rule changes and the new types of country commitments agreed, a much more promising basis bas been created for future negotiations.