Introduction  back to top

Up to 1995, GATT rules were largely ineffective in disciplining agricultural trade. In particular, export subsidies came to dominate many areas of world agricultural trade, while the disciplines on import restrictions were often flouted. The 1986–1994 Uruguay Round went a long way towards changing all that.

The trade is now firmly within the multilateral trading system. The Agriculture Agreement, together with individual countries’ commitments to reduce export subsidies, domestic support and import barriers on agricultural products make up a comprehensive programme for reforming agricultural trade.

The reform programme struck a balance between agricultural trade liberalization and governments’ desire to pursue legitimate agricultural policy goals, including non-trade concerns (see below). The reform brought all agricultural products (as listed in the agreement) under multilateral disciplines, including “tariff bindings” — WTO members have bound themselves to maximum tariffs on nearly all agricultural products, while many industrial tariffs remain unbound.

WTO members also agreed (Article 20 of the Agriculture Agreement) to reopen negotiations in agriculture at the end of this year in order to continue the reform programme.

In the run up to the Seattle ministerial and the new negotiations, the following issues are among those that have been raised.
 

Continuing reductions: the objective  back to top

Further substantial reductions in tariffs, domestic support and export subsidies can be expected to be the main focus of the negotiations. In addition, some countries say an important objective of the new negotiations should be to bring agricultural trade under the same rules and disciplines as trade in other goods. Some others, mainly developed countries, reject the idea for a number of reasons (for example, see “non-trade concerns and multifunctionality”, below).
 

Market access: tariffs and tariff quotas  back to top

Nowadays, all agricultural products are protected only by tariffs. All non-tariff barriers had to be eliminated or converted to tariffs as a result of the Uruguay Round (the conversion is known as “tariffication”). In some cases, the calculated equivalent tariff was too high to allow any real opportunity for imports. So a system of tariff-rate quotas was created to maintain existing import access levels, and to provide minimum access opportunities. This means lower tariffs within the quotas, and higher rates for quantities outside the quotas.

The discussion since the Uruguay Round has focused broadly on two issues: the high levels of tariffs outside the quotas (with some countries pressing for larger cuts on the higher tariffs), and the quotas themselves — their size and the way they have been administered.

Quota administration is a technical subject, but it has a real impact on trade — on whether a product exported from one country can gain access to the market of another country at the lower, within-quota tariff.

Methods used for giving exporters access to quotas include first-come, first-served allocations, import licensing according to historical shares and other criteria, administering through state trading enterprise, bilateral agreements, and auctioning. Exporters are sometimes concerned that their ability to take advantage of tariff quotas can be handicapped because of the way the quotas are administered.

Each method has advantages and disadvantages, and many WTO members acknowledge that it can be difficult to say conclusively whether one method is better than another. Several countries want the negotiations to deal with tariff quotas: to replace them with low tariffs, to increase their size, or to sort out what they consider to be restricting and non-transparent allocation methods.
 

Market access: special agricultural safeguards  back to top

Safeguards are contingency restrictions on imports taken temporarily to deal with special circumstances such as a surge in imports. They normally come under the Safeguards Agreement, but the Agriculture Agreement has special provisions (Article 5) on safeguards.

The special safeguards provisions for agriculture differ from normal safeguards (see details in “Trading into the Future”, pages 31–32). In agriculture, unlike with normal safeguards:

• higher safeguards duties can be triggered automatically when import volumes rise above a certain level, or if prices fall below a certain level; and
• it is not necessary to demonstrate that serious injury is being caused to the domestic industry.

The special agricultural safeguard can only be used on products that were tariffied, but not on imports within the tariff quotas, and only if the government reserved the right to do so in its schedule of commitments on agriculture.

Proposals for the negotiations range from continuing with the provision in its current form, to its abolition, or its revision to prevent its use on products from developing countries. However, the right to use the special agricultural safeguard would lapse if there is no agreement in the negotiations after Seattle to continue the “reform process” initiated in the Uruguay Round.
 

Domestic support  back to top

In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. be reduced), red (forbidden). In agriculture, things are, as usual, more complicated. The Agriculture Agreement has no red box, but there is a blue box for certain types of subsidies, and exemptions for developing countries (sometimes called an “S&D box”).

The ‘amber box’

For agriculture, all subsidies and other domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box. The total value of these measures must be reduced.

The ‘green box’

In order to qualify for the “green box”, a subsidy must not distort trade, or at most cause minimal distortion. They have to be government-funded (not by charging consumers higher prices) and must not involve price support. They tend to be programmes that are not directed at particular products, and include direct income supports for farmers that are not related to (are "decoupled" from) production. “Green box” subsidies are therefore allowed without limits, provided they comply with relevant criteria (for details, see Article 6 and Annex 2 of the Agriculture Agreement).

Some countries say they would like to review the domestic subsidies listed in the green box because they believe that some of these, in certain circumstances, could have an influence on production or prices. Some others, including some major players advocating general agricultural trade liberalization, have said that the green box should not be changed because it is already satisfactory.

The ‘blue box’

The blue box is an exemption from the general rule that all subsidies linked to production must be reduced or kept within defined minimal (“de minimis”) levels. It covers payments directly linked to acreage or animal numbers, but under schemes which also limit production by imposing production quotas or requiring farmers to set aside part of their land. Countries using these subsidies say they distort trade less than alternative amber box subsidies.

At the moment, the blue box is a permanent provision of the agreement. Some countries want it scrapped because the payments are only partly decoupled from production. Others say it is an important tool for supporting and reforming agriculture, and for achieving certain “non-trade” objectives.

Some countries are proposing the total elimination of export subsidies. Others reject the idea. In addition, some countries would like to examine the rules to prevent governments getting around (“circumventing”) their commitments — including the use of state trading enterprises and subsidized export credits.
 

Developing countries  back to top

Developing countries reflect a range of interests in the debate on agriculture, and the distinctions are not always clear.

Most members of the Cairns Group — which favours much greater liberalization in agricultural trade — are developing countries. But like most WTO members, the Cairns Group would also like to see developing countries given “special and differential” treatment to take account of their needs.

Some countries say WTO arrangements should be more flexible so that developing countries can support and protect their agricultural and rural development and ensure the livelihoods of their large agrarian populations.

They argue, for example, that subsidies and protection are needed to ensure food security, to support small scale farming, to make up for a lack of capital, or to prevent the rural poor from migrating into already over-congested cities.

At the same time, some developing countries make a clear distinction between their needs and what they consider to be the desire of much richer countries to spend large amounts subsidizing agriculture at the expense of poorer countries.

Many developing countries complain that their exports still face high tariffs and other barriers in developed countries’ markets and that their attempts to develop processing industries are hampered by tariff escalation (higher import duties on processed products compared to raw materials). They want to see substantial cuts in these barriers.

WTO statistics show that developing countries as a whole have seen a significant increase in agricultural exports. Agricultural trade rose globally by nearly $100bn between 1993 and 1998. Of this, developing countries’ exports rose by around $47bn — from $120bn to $167bn in the period. Their share of world agricultural exports increased from 40.1% to 42.4%. But within the group, some individual developing countries have seen their agricultural trade balance worsen — their imports have risen faster than their exports.

Decision on net-food importing developing countries  back to top

A number of developing countries which depend on imports for their food supply are also concerned about possible rises in world food prices as a result of reductions in richer countries’ subsidies. Although they accepted that higher prices can benefit farmers and increase domestic production, they feel that their concerns about food imports need to be addressed more effectively.

The WTO agreements include a Decision on the Possible Negative Effects of the Reform Programme on Least-Developed and Net-Food Importing Developing Countries. As a result of this decision the Food Aid Convention was recently renegotiated and concluded in July 1999 in the International Grains Council. The WTO Committee on Agriculture also regularly reviews actions within the framework of the decision, in such areas as technical and financial assistance provided to least-developed and net-food importing countries to assist in improving their agricultural productivity and infrastructure.
 

‘Non-trade’ concerns and ‘multifunctionality’:
agriculture can serve many purposes  back to top

The Agriculture Agreement includes provisions for important “non-trade” concerns such as food security, the environment, structural adjustment (which can include rural development) and so on.

Most countries accept that agriculture is not only about producing food and fibre but also has other functions, including these non-trade objectives — although some dislike the buzzword “multifunctionality”. The question debated in the WTO is whether "trade-distorting" subsidies, or subsidies outside the “green box”, are needed in order to help agriculture perform its many roles.

Some countries say all the objectives can and should be achieved more effectively through “green box” subsidies which are targeted directly at these objectives. Examples include direct payments to producers, structural adjustment assistance, environmental programmes, and regional assistance programmes which do not stimulate agricultural production or affect prices. These countries say the onus is on the proponents of non-trade concerns and “multifunctionality” to show that the existing provisions, which were the subject of lengthy negotiations in the Uruguay Round, are inadequate for dealing with these concerns in targeted, non-trade distorting ways.

Other countries say the non-trade concerns are closely linked to production. They believe subsidies based on, or related to, production are needed for these purposes. For example, rice fields have to be promoted in order to prevent soil erosion, they say. A number of countries have produced studies to support their arguments, and these studies have also been debated.

Many exporting developing countries say multifunctionality is a form of special and differential treatment for rich countries. Several even argue that any economic activity — industry, services and so on — is equally multifunctional, and therefore if the WTO is to address this issue, it has to do so in all areas of the negotiations, not only agriculture. Some others say agriculture is special.
 

The peace clause  back to top

Article 13 (“due restraint”) of the Agriculture Agreement protects countries using subsidies which comply with the agreement from being challenged under other WTO agreements. Without this "peace clause", countries would have greater freedom to take action against each others’ subsidies, under the Subsidies and Countervailing Measures Agreement and other provisions. The peace clause is due to expire at the end of 2003.

Some countries want it extended so that they can enjoy some degree of “legal security”, ensuring that they will not be challenged so long as they comply with their commitments under the Agriculture Agreement.

Others want it to lapse as part of their overall objective to see agriculture brought under general WTO disciplines, although they might be prepared to consider an extension, depending on what is agreed in other parts of the agriculture negotiation.
 

Fisheries and forestry  back to top

The Agriculture Agreement does not include fishery and forestry products. Some WTO members would like to see specific disciplines negotiated for these products and have tabled proposals for Seattle.

In particular there are proposals for dealing with fisheries subsidies (both for fishing fleets and for fish farming) and their impact on fish stocks and the environment. The proposed rules and disciplines for forestry products would include the promotion of resource conservation and management, other environmental concerns, and disciplines on market access and export restrictions on logs.

The proposals would almost certainly not come under the Agriculture Agreement.
 

Article 20 and beyond  back to top

Article 20 of the Agriculture Agreement says WTO members have to negotiate to continue the reform programme for agriculture.

Members generally accept that this should result in better market conditions, lower production distorting subsidies and reductions in export subsidies. However, there is no agreement about the depth of these reforms (how deep the cuts in subsidies and tariffs should go, and how far the quotas should be widened) or on how issues like some non-trade concerns should be addressed.

The forthcoming negotiations will be difficult but they will also contribute to further liberalization of agricultural trade. This will benefit those countries which can compete on quality and price rather than on the size of their subsidies. This is particularly the case for many developing countries whose economies depend on an increasingly diverse range of primary and processed agricultural products.

> Continue to Part 2, some agricultural trade statistics