II. A brief review of the agreement on agriculture

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The implementation of the Agreement on Agriculture will start in 1995, and the reduction commitments of the developed countries should be completed within six years, i.e. by the year 2000, whereas the commitments of the developing countries should be completed within ten years, i.e. by the year 2004. The least developed countries are not required to make any reductions. The commodities included are most of the products normally considered as part of agriculture (i.e. it excludes fishery and forest products) except that it also excludes rubber, jute, sisal, abaca and coir, which were covered in the normal GATT tariff negotiations on goods.

There are three elements in the commitment on market access: tariffication, tariff reduction and access opportunities. Tariffication means that specific non-tariff barriers (quotas, variable levies, minimum import prices, discretionary licensing, state trading measures, voluntary restraint agreements and similar border measures) need to be abolished and converted into an equivalent tariff. Ordinary tariffs, including those resulting from tariffication, are to be reduced by an average of 36 percent (24 percent by developing countries), with a minimum rate of reduction of 15 percent for each tariff item. Special safeguard provisions allow the imposition of additional duties when there are either import surges or particularly low prices (both compared with 1986-88 levels). Where there are no significant imports, minimum access equal to 3 percent of domestic consumption in 1986-88 will be established for 1995 rising to 5 percent of base year consumption at the end of the implementation period.

For domestic support policies, subject to reduction commitments, the total support given in 1986-88, measured by the Total Aggregate Measure of Support (Total AMS)2, should be reduced by about 20 percent in developed countries (13.3 percent in developing countries). Reduction commitments refer to total levels of support and not to individual commodities. Policies which amount to a small percentage transfer value to producers (less than 5 percent of the value of production for developed countries, less than 10 percent for developing countries) are also excluded under the de minimis rule. Policies which meet certain criteria of decoupled support together with production restraint have been excluded. Policies which have minimal or no effect on production or trade distorting effects (Green Box") are excluded. The list of exempted "Green Box" policies includes such policies as general services to agriculture, food security stocks, domestic food aid, and certain decoupled payments to producers, including direct payments to production-limiting programmes, providing certain conditions are met.

As regards developing countries, which have been given special and differential treatment in the Agreement on Agriculture, purchases for and sales from food security stocks could be at administered prices provided that the subsidy to producers is included in the AMS. As regards domestic food aid, developing countries are allowed untargeted subsidized food distribution to meet requirements of the urban and rural poor on a regular basis. Also excluded for developing countries are investment subsidies that are generally available to agriculture and agricultural input subsidies generally available to poor farmers in these countries. Developing countries were allowed to offer ceiling bindings instead of tariffication.

Perhaps the most important provision is the commitment to reduce export subsidies. The volume of exports benefiting from such subsidies must be reduced by 21 percent and the expenditure on export subsidies by 36 percent. Unlike the reduction commitments in market access and domestic support, reductions in export subsidies will be implemented on a product-specific basis. However, exporters have in certain cases been allowed to maintain a higher level of subsidized exports in the years up to 1999, by availing themselves of a special option (the higher of the subsidized levels of 1991-92 and 1986-90) from which to make reductions to the same final level by the year 2000. The Final Act also has some provisions for prevention of circumvention of export subsidy commitments, including inter alia disciplines on use of export credit and credit guarantees as well as food aid (i.e. food aid should not be tied, it should be carried out in accordance with the FAO Principles of Surplus Disposal, and it should be provided to the extent possible in fully grant form).

Finally, in addition to the special and differential provisions mentioned above, there are special provisions for developing countries contained in the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least -Developed and Net Food Importing Countries. The idea behind the Decision is that agricultural trade liberalization is likely to lead to higher world prices for food while a reduction in export subsidies will also raise the effective price paid by importers. There is also some concern that the volume of food aid, which historically has been closely linked to the level of surplus stocks, could be more limited in future as the surplus stocks are run down. The Decision recognizes these issues and provides for some redress, via food aid, technical assistance to raise agricultural productivity and possibly short term assistance to help in financing normal commercial imports.

The Agreement on Agriculture, although rather comprehensive and going well beyond tariffs and border measures, still represents only a partial liberalization agreement. The quantitative cuts in support to agriculture are relatively small and spread over a number of years. Overall, a large degree of distortion in the world market of agricultural commodities will still remain even after the complete implementation of the reduction commitments. However, the dimensions of the commitments are still impressive. Aggregate domestic support will be cut from US$198 billion to US$162 billion, export subsidies will be cut from US$21.3 billion to US$13.8 billion. Virtually all agricultural tariffs will in future be bound, i.e. ceiling rates have been established, which adds greater security to trade.

The impact on income growth is hard to estimate as considerable liberalization has occurred in the services sector for which at present it is not possible to quantify the effects, The GATT has made a number of estimates ranging from gains of US$109-510 billion3. The World Bank/OECD has estimated gains of around US$213 billion4.

The question of the impetus to world income deriving from the Uruguay Round is of great importance in assessing the impact; for the purposes of this study the World Bank/OECD figure was taken for the main scenario while double this amount was taken for the higher income assumption. However, as the main thrust of this paper is the revised outlook for world agricultural markets in the year 2000, it must be noted that the assumed effect is well below one year's growth in world income.

Before turning to the commodity detail however, a word is in order on some of the methodological assumptions lying behind these projections. In all cases models have been developed which simultaneously determine production, consumption, imports, exports and world prices. All countries are covered. The existing "baseline" projections to the year 2000 are driven by income growth, productivity changes and demographic trends. The prices in each country are linked to world market prices by tariffs and other policy effects and natural forms of protection. For the "Uruguay Round scenario" the reduction in tariffs changes these price linkages. The meddling has been done in terms of the primary commodity (e.g. wheat) so that the tariff changes for the derived products (e.g. wheat flour) have been aggregated into an average wheat-equivalent tariff. It has usually been assumed that tariff changes will reflect changes in the bound, ceiling, tariffs. The reduction in export subsidies has been reflected in an increase in the consumer price of the recipient country in addition to any change in world prices due to trade liberalization. For exporters that use subsidies for all their exports, a maximum has been introduced on the volume of their exports. For those exporters which only subsidize a part of their exports, no such constraint has been modelled but it is still assumed that this will erode part of their competitiveness and hence influence the volume of their exports. Minimum access has been introduced in all cases where the model did not generate a sufficient volume of imports to meet the national commitments. The value of trade has been calculated by multiplying the volume of trade by an estimated world average export unit value for the year 2000, which in turn was projected as the product of the index of world prices and the base year export unit value. Adjustments were made to take into account the decline in export subsidies and to some extent the loss of preferential margins.

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