Introduction

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Agricultural trade 

While the volume of world agricultural exports has substantially increased over recent decades, its rate of growth has lagged behind that of manufactures, resulting in a steady decline in agriculture’s share in world merchandise trade. In 1998, agricultural trade accounted for 10.5 per cent of total merchandise trade — when trade in services is taken into account, agriculture’s share in global exports drops to 8.5 per cent. However, with respect to world trade agriculture is still ahead of sectors such as mining products, automotive products, chemicals, textiles and clothing or iron and steel. Among the agricultural goods traded internationally, food products make up almost 80 per cent of the total. The other main category of agricultural products is raw materials. Since the mid-1980s, trade in processed and other high value agricultural products has been expanding much faster than trade in the basic primary products such as cereals.

Agricultural trade remains in many countries an important part of overall economic activity and continues to play a major role in domestic agricultural production and employment. The trading system plays also a fundamentally important role in global food security, for example by ensuring that temporary or protracted food deficits arising from adverse climatic and other conditions can be met from world markets.

 

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Trade policies prior to the WTO

Although agriculture has always been covered by the GATT, prior to the WTO there were several important differences with respect to the rules that applied to agricultural primary products as opposed to industrial products. The GATT 1947 allowed countries to use export subsidies on agricultural primary products whereas export subsidies on industrial products were prohibited. The only conditions were that agricultural export subsidies should not be used to capture more than an “equitable share” of world exports of the product concerned (Article XVI:3 of GATT). The GATT rules also allowed countries to resort to import restrictions (e.g. import quotas) under certain conditions, notably when these restrictions were necessary to enforce measures to effectively limit domestic production (Article XI:2(c) of GATT). This exception was also conditional on the maintenance of a minimum proportion of imports relative to domestic production.

However, in practice many non-tariff border restrictions were applied to imports without any effective counterpart limitations on domestic production and without maintaining minimum import access. In some cases this was achieved through the use of measures not specifically provided for under Article XI. In other cases it reflected exceptions and country-specific derogations such as grandfather clauses, waivers and protocols of accession. In still other cases non-tariff import restrictions were maintained without any apparent justification.

The result of all this was a proliferation of impediments to agricultural trade, including by means of import bans, quotas setting the maximum level of imports, variable import levies, minimum import prices and non-tariff measures maintained by state trading enterprises. Major agricultural products such as cereals, meat, dairy products, sugar and a range of fruits and vegetables have faced barriers to trade on a scale uncommon in other merchandise sectors.

In part, this insulation of domestic markets was the result of measures originally introduced following the collapse of commodity prices in the 1930s Depression. Furthermore, in the aftermath of the Second World War many governments were concerned primarily with increasing domestic agricultural production so as to feed their growing populations. With this objective in mind and in order to maintain a certain balance between the development of rural and urban incomes, many countries, particularly in the developed world, resorted to market price support — farm prices were administratively raised. Import access barriers ensured that domestic production could continue to be sold. In response to these measures and as a result of productivity gains, self-sufficiency rates rapidly increased. In a number of cases, expanding domestic production of certain agricultural products not only replaced imports completely but resulted in structural surpluses. Export subsidies were increasingly used to dump surpluses onto the world market, thus depressing world market prices. On the other hand, this factor, plus the effects of overvalued exchange rates, low food price policies in favour of urban consumers and certain other domestic measures, reduced in a number of developing countries the incentive for farmers to increase or even maintain their agricultural production levels.

 

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Uruguay Round agricultural negotiations 

In the lead-up to the Uruguay Round negotiations, it became increasingly evident that the causes of disarray in world agriculture went beyond import access problems which had been the traditional focus of GATT negotiations. To get to the roots of the problems, disciplines with regard to all measures affecting trade in agriculture, including domestic agricultural policies and the subsidization of agricultural exports, were considered to be essential. Clearer rules for sanitary and phytosanitary measures were also considered to be required, both in their own right and to prevent circumvention of stricter rules on import access through unjustified, protectionist use of food safety as well as animal and plant health measures.

The agricultural negotiations in the Uruguay Round were by no means easy — the broad scope of the negotiations and their political sensitivity necessarily required much time in order to reach an agreement on the new rules, and much technical work was required in order to establish sound means to formalise commitments in policy areas beyond the scope of prior GATT practice. The Agreement on Agriculture and the Agreement on the Application of Sanitary and Phytosanitary Measures were negotiated in parallel, and a Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-developed and Net Food-importing Developing Countries also formed part of the overall outcome.

 

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Introduction to the Agreement on Agriculture 

The Agreement on Agriculture, (the “Agreement”), came into force on 1 January 1995. The preamble to the Agreement recognizes that the agreed long-term objective of the reform process initiated by the Uruguay Round reform programme is to establish a fair and market-oriented agricultural trading system. The reform programme comprises specific commitments to reduce support and protection in the areas of domestic support, export subsidies and market access, and through the establishment of strengthened and more operationally effective GATT rules and disciplines. The Agreement also takes into account non-trade concerns, including food security and the need to protect the environment, and provides special and differential treatment for developing countries, including an improvement in the opportunities and terms of access for agricultural products of particular export interest to these Members.

 

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Relationship with other WTO Agreements 

In principle, all WTO agreements and understandings on trade in goods apply to agriculture, including the GATT 1994 and WTO agreements on such matters as customs valuation, import licensing procedures, pre-shipment inspection, emergency safeguard measures, subsidies and technical barriers to trade. However, where there is any conflict between these agreements and the Agreement on Agriculture, the provisions of the Agreement on Agriculture prevail. The WTO Agreements on Trade in Services and on Trade-Related Aspects of Intellectual Property rights are also applicable to agriculture.

 

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Product coverage

The Agreement defines in its Annex 1 agricultural products by reference to the harmonised system of product classification — the definition covers not only basic agricultural products such as wheat, milk and live animals, but the products derived from them such as bread, butter and meat, as well as all processed agricultural products such as chocolate and sausages. The coverage also includes wines, spirits and tobacco products, fibres such as cotton, wool and silk, and raw animal skins destined for leather production. Fish and fish products are not included, nor are forestry products.

 

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Rules and commitments

The Agreement on Agriculture establishes a number of generally applicable rules with regard to trade-related agricultural measures, primarily in the areas of market access, domestic support and export competition. These rules relate to country-specific commitments to improve market access and reduce trade-distorting subsidies which are contained in the individual country schedules of the WTO Members and constitute an integral part of the GATT.

 

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Implementation period

The implementation period for the country-specific commitments is the six-year period commencing in 1995. However, developing countries have the flexibility to implement their reduction and other specific commitments over a period of up to 10 years. Members had the choice of implementing their concessions and commitments on the basis of calendar, marketing (crop) or fiscal years. A WTO Member’s implementation year for tariff reductions may thus differ from the one applied to export subsidy reductions. For the purpose of the peace clause, the implementation period is the nine-year period commencing in 1995.

 

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Committee on Agriculture 

The Agreement established a Committee on Agriculture. The Committee oversees the implementation of the Agreement on Agriculture and affords Members the opportunity of consulting on any matter relating to the implementation of commitments, including rule-based commitments. For this purpose, the Committee usually meets four times per year. Special meetings can be convened if necessary.

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