IMPACT OF THE URUGUAY ROUND AGREEMENTS
OF RELEVANCE TO THE AGRICULTURAL SECTOR:
WINNERS AND LOSERS
I. Introduction
The Uruguay Round was a turning point in the evolution of agricultural policy. For the first time, a large majority of countries agreed a set of principles and disciplines to reduce the trade distortions caused by agricultural policies. This note summarises the main accomplishments of the Agreement on Agriculture (AoA) and the other Uruguay Round Agreements of relevance to agriculture and food security issues, including the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), the Agreement on Technical Barriers to Trade (TBT) and the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and the Decision Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. It identifies areas where further reforms are needed and, after six years of implementation, explores the evidence regarding winners and losers in the reform process.
II. Agreement on Agriculture
The Agreement on Agriculture (AoA) brought national agricultural policies under multilateral rules and disciplines, with the long-term objective of establishing "a fair and market-oriented agricultural trading system ... through substantial progressive reductions in agricultural support and protection." The AoA includes specific binding commitments by WTO members to improve market access and to reduce production- and trade-distorting domestic support and export subsidies.
A basic motivation for the AoA was the need to reduce surplus production caused by rising levels of support and protection in a number of developed countries during the 1980s and early 1990s. This was known as a period of "disarray" in global commodity markets as some of the largest agricultural exporters competed on the basis their governments’ ability to subsidise production and exports while limiting access to their markets for products from lower-cost suppliers. By agreeing to cap and reduce these subsidy levels and import barriers, the developed countries hoped to bring an end to the "subsidy wars" that were draining their national budgets and driving down world commodity prices.
The vast majority of developing countries, on the other hand, entered the Uruguay Round with under-developed agricultural sectors and insufficient resources to raise productivity and output in line with their food needs and production potential. Their farmers were forced to compete with the treasuries of the world’s richest countries in export markets and in their home markets. While consumers in developing countries could be said to "benefit" from the availability of subsidised supplies, the situation was unstable and unsustainable.
Prior to implementation of the AoA most studies of the impact on world markets and trade predicted trade gains for developing country exporters and slightly higher and more stable real world commodity prices. Subsequent analyses based on actual trade developments, however, could not distinguish between the impacts of specific policy changes resulting from the AoA and other factors having an impact on trade, such as macroeconomic shocks, weather-induced supply-side variations, civil strife etc. In this regard, it is important to keep in mind the counter-factual problem: What would have happened to agricultural policies and global markets in the absence of the Agreement?
Policy impact
- Domestic Support to Agriculture
- Commitments for the reduction of domestic supports: The Agreement
categorised domestic support policies according to their potential to distort
production and trade, and capped and reduced measures that were considered
to cause distortions. These are known as the "Amber Box" policies.
- Reformulation of agricultural supports: Many developed countries
changed their agricultural policies in significant ways in anticipation
of and following the implementation of the AoA. For example, the EU, the
United States and Canada have all moved away — in varying degrees — from
market price supports that tend to encourage excess production towards direct
income payments and other measures that are less distorting, although not
necessarily completely production- and trade-neutral. Figure 1 illustrates
the shift to less-distorting "Green Box" supports.
- Imbalances in support limits: The upper limits agreed on domestic
support were based on the actual level of "distorting" support
provided by each country during the 1986-88 base period. For countries that
reported little or no distorting supports, a de minimis level of
support was set as the cap (5 percent of the value of production for developed
countries; 10 percent for developing countries). Because developing countries
provided little in the way of distorting domestic support prior to the Agreement,
they are now prohibited from exceeding the de minimis level. Since
the caps on most developed countries are higher than the de minimis
level, it has created an imbalance in the rules regarding domestic support.
- Domestic support in developed countries remains high despite the
disciplines agreed in the AoA. The latest figures from the WTO show that
the total of Green and Amber box supports in the OECD countries was higher
in 1996 in nominal terms than during the base period. More recent data from
the OECD, shows that total transfers to agriculture in these countries amounted
to US$327 billion in 2000, compared with US$298 billion in 1986-88, and
exceeded the value of world trade in agricultural products.
- Export Subsidies
- Commitments on export subsidies: Subsidy levels were capped and
reduced both in terms of value and volume. Countries that did not subsidise
exports during the base period were prohibited from doing so, except for
certain exceptions agreed for developing countries.
- Export subsidies have been reduced somewhat on several products,
but they remain high, particularly for meat and dairy products as well as
cereals. Export subsidies not only distort competition on global markets
but also destabilise world prices. Countries tend to use subsidies more
when world prices are low, thus further depressing prices, but subsidises
tend to fall when world prices are high, just at the time when importing
countries might be said to "benefit" from subsidised supplies.
- Market access
- Commitments on tariffs: Countries agreed to replace their non-tariff
import barriers with bound tariffs and, in many cases, to reduce these tariffs.
This was an important achievement, because tariffs are more transparent
and predictable than non-tariff barriers, and they allow producers and consumers
to receive and react to world price signals.
- Agricultural tariffs remain high and complex despite these improvements,
especially for temperate-zone products (horticulture, sugar, cereals, dairy
products and meat). There is a high degree of variance in agricultural tariffs
both within and between individual countries, and tariff escalation (higher
tariffs on more processed products, which gives greater protection to the
processing industry of the importing country) still prevails in several
important product chains (e.g. coffee, cocoa, oilseeds, vegetables, fruit
and nuts and hides and skins).
- Tariff rate quotas were created to ease the process of converting
non-tariff measures to tariffs. Countries that chose to use this mechanism
agreed to provide market access at a low or zero tariff for a fixed quantity
of product, while additional quantities could be charged a higher tariff.
While tariff rate quotas have created some new trading opportunities, a
number of implementation issues have arisen. As a result, only about 60-65
percent of the potential trade under tariff rate quotas has actually occurred.
- Special safeguard (SSG) provisions were made available for countries
that converted their non-tariff barriers to tariff-only regimes according
to the procedure known as "tariffication". The SSG allows an importer
to increase tariffs above their bound rate in response to a surge in imports
or a sharp decline in import prices. Most developing countries did not use
the tariffication procedure, choosing instead to follow a simpler procedure
for which the SSG was not made available. Most developed countries, in contrast,
used the tariffication procedure and reserved the right to use the SSG,
typically for temperate zone products such as meat, cereals, fruit and vegetables,
oilseeds and oil products and dairy products.
- Actual protection rates in agriculture are still high and market access
terms have not improved much. Recent statistics show that nominal
protection rates in the OECD countries have declined somewhat but remain
high on the whole. Bound tariffs are also high in many developing countries,
although their applied rates are generally lower. A number of developing
countries have raised their applied tariffs in recent years — within their
bound rates — in an effort to protect domestic producers from the disruptive
effects of very low world market prices.
- Special and differential treatment
- Two basic types of special and differential treatment in favour
of developing countries are embodied in the AoA. The first are transitional
measures that provide longer implementation periods and lower reduction
commitments, for example on tariff cuts. The second provide exemptions for
measures that are normally prohibited, such as export subsidies to cover
the costs of internal freight or input subsidies for low-income resource-poor
farmers.
- Developing countries consider the transitional forms of special
and differential treatment to be inadequate, and have called for more substantive
measures to help them overcome the under-developed nature of their agricultural
sectors.
Trade impact
As noted above, the AoA was expected to generate slightly higher and more stable world prices for agricultural products and to improve the trade prospects of non-subsidising exporters, including many developing countries. Given the relatively small policy changes that have occurred, however, these impacts have been correspondingly small. Furthermore, other market factors have overwhelmed these modest policy changes, making it difficult to see the impacts clearly.
- World market prices: Figure 2 illustrates that prices for basic food
commodities spiked in the mid-1990s. Although the downward trend for dairy
products has been reversed since 1999, the prices of cereals, meat and oilseed
products continue to be depressed at levels that have not been seen for nearly
two decades. These developments are contrary to the ex ante expectations regarding
the impact of AoA, and largely reflect underlying market conditions that have
masked the effects of the implementation of AoA. However, as noted above,
support and protection to agriculture continue at high levels, shielding producers
from world price signals and adding further downward pressure to prices.
- Agricultural export earnings (excluding fishery and forestry products)
increased significantly between 1993 and 1997, for both the developing and
developed countries (Figure 3). Higher world market prices were a major factor
in this growth, particularly in 1995 and 1996, although volumes also increased.
The decline in exports after 1997 was largely due to the economic crisis that
disrupted demand in a number of developing and transition countries that had
been amongst the fastest growing markets for agricultural products in the
mid-1990s. It is difficult to draw clear conclusions about the impact of the
AoA on aggregate commodity markets, but the export market shares of "non-subsidising"
exporters have increased for cereals, milk and beef, for example, suggesting
some rebalancing of the world market has occurred.
- The value of total food imports also rose sharply between 1993 and
1997, but declined thereafter (Figure 4). Comparing the period immediately
before the implementation of the AoA with the period since 1995, food imports
increased 44 percent for developing countries (27 percent for the LDCs among
them) and 21 percent for developed countries. Import bills have declined since
the price spike of the mid-1990s, but appear to have remained on a higher
plateau.
Marrakesh Decision
The Decision on Measures Concerning the Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries which is an integral part of the results of the Uruguay Round was adopted to address the following concern:
"Ministers recognize that during the reform programme leading to greater liberalization of trade in agriculture, least-developed countries and the net-food importing developing countries may experience negative effects in terms of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions, including short-term difficulties in financing normal levels of commercial imports of basic foodstuffs".
To deal with this eventually, the Decision provided for four response mechanisms, i.e., food aid, short-term financing of normal levels of commercial imports, favourable terms on agricultural export credits, and technical and financial assistance to improve agricultural productivity.
To date, the Decision has not been made operationally effective. Implementation has so far been hampered by several factors which include the requirement of undisputed proof of the need for assistance (and whether the need resulted from the reform process under the UR) and the variety of instruments called under the Decision to respond to such needs, without precise specification of the respective responsibilities of all concerned. Thus, LDCs and NFIDCs have so far not obtained any benefit from this Decision, even during the pronounced spike in food prices of 1995/1996.
Winners and losers
As noted above, it is difficult to identify winners and losers because of the relatively small policy changes that have occurred and the variety of market and policy impacts that have affected global commodity prices and trade since the AoA began. The central difficulty lies in understanding what would have happened to policies and trade in the absence of the AoA. Some conclusions can be drawn by looking at the changes implied by the AoA, in isolation from the other factors that have influenced markets.
- There have been only small reductions thus far in the levels of production- and trade-distorting support and protection provided by the OECD countries, and in many cases underlying market factors have obscured the effects of these small policy changes. Nevertheless, the AoA has established a framework for the further reduction in distorting supports and protection to agriculture which would be expected to benefit non-subsidised farmers in developing countries and elsewhere.
- Although the food import bills for LIFDCs rose sharply in the first few years of implementation, along with the spike in commodity prices, they have since declined. The Marrakesh Decision recognized that some countries might be adversely affected by the reform process due to higher food prices and import costs.
- Exporters of temperate-zone products have seen some improvement in market access (particularly through TRQ allocations) and some disciplines on domestic support policies and on export subsidies (particularly, dairy products and beef). However, the gains have been limited.
- Exporters under preferential arrangement have experienced an erosion of the value of these arrangements as general tariffs have come down. This erosion has been small thus far, but this is an issue of concern for the future as further cuts in general tariffs are implemented. On the other hand those countries that did not enjoy preferential access to major markets have seen a modest benefit.
- Some developing countries have experienced import surges (in some cases due to subsidised exports) in various products, which have reportedly damaged their import-competing sectors. Many developing countries have raised tariffs to protect their producers (within their bound rates) in response to the sharp declines in many commodity prices since the peaks of 1995-96. In the absence of alternative appropriate safeguard measures, some countries have found it difficult to live with a tariff-only regime and many are reluctant to accept further cuts in bound tariff rates.
III. SPS and TBT Agreements
The SPS and TBT Agreements confirm the right of WTO members to apply measures necessary to protect human, animal and plant life and health. These include the setting of technical regulations and standards governing quality requirements for food, packaging, marking and labelling, and national zoo and phytosanitary measures to protect animal and plant life and health These Agreements define rules for setting national measures so that they do not unduly restrict traffic and trade. SPS measures must be based on scientific principles and not maintained without sufficient evidence. The SPS and TBT agreements encourage international harmonization through the establishment of international sanitary and phytosanitary standards by, respectively, the Codex Alimentarius, the OIE and the International Plant Protection Convention.
Major challenges faced by many countries, particularly the developing countries and countries with economies in transition, are (1) to meet the sanitary, phytosanitary and technical requirements of importing countries, (2) to provide scientific justification for their own sanitary, phytosanitary and technical measures, and (3) to participate in a meaningful manner in the development and adoption of international standards. The gap in the technical and financial ability of countries to meet such standards is wide.
An additional challenge is faced by these countries when new standards are introduced on risk assessment grounds that are stricter than those currently in place, as the time and resources required to ensure conformity with these standards may be considerable. On the other hand, the risk assessment paradigm applied in the SPS Agreement in particular has had the effect of eliminating out-of-date, ineffective or arbitrary standards that may have provided a false sense of security. The transition to risk-based standard setting has required major changes in legislative, regulatory and administrative practices in most countries all of which have implied significant cost.
Harmonization of phytosanitary measures, through the establishment of International Standards for Phytosanitary Measures (ISPMs), by the IPPC started only recently. A substantial number of concept ISPMs have been adopted but much work remains to be done, in particular on standards specific to individual pests, plants or plant products. FAO and other international and bilateral agencies have provided for phytosanitary capacity building, but much needs to be done to enable countries to participate fully in international trade and traffic.
With some exceptions, disputes under the SPS and TBT Agreements involving food and agricultural products have not involved developing countries as few of them have standards that are stricter than those established by the international standards-setting bodies and therefore have not been challenged by other WTO Members (the main exceptions have been challenges by the US, Canada and Australia against practices in the Republic of Korea over various measures). Few developing countries (or none at all) have used the formal dispute settlement mechanism and the SPS/TBT Agreements to challenge measures applied by importing countries that are believed to be arbitrary or unjustified. On the other hand, developing countries have been active in the SPS and TBT Committees in raising issues of importance to them with the intention of resolving such issues in the informal or consultative processes of the WTO.
The SPS and TBT agreements contain promises of financial and technical assistance for the developing countries. However, translating these promises into concrete action has not yet been achieved. Finally, the level of participation of these countries, in both number and effectiveness, in international standard-setting bodies remains an issue.
IV. TRIPS Agreement
The main aspect of the TRIPS Agreement relevant to agriculture is the requirement to provide protection by intellectual property rights to plant varieties, either by patent or by effective sui generis legislation or a combination of both.
Other related issues, such as the rights of local communities and indigenous peoples over their traditional knowledge and practises, sovereign rights over natural genetic resources, biosafety and food security, which are dealt with by the Convention on Biological Diversity, are, however, not considered in the provisions of the TRIPS Agreement.
Many countries, particularly, the developing countries have been facing two sets of difficulties in this area. On the one hand, many countries lack the scientific capability to innovate as well as the expertise and necessary institutional development to use the IPR system as a tool for development. Although the TRIPS Agreement requires the adoption of legislation incorporating minimum standards, and many countries are in the process of doing so, there are still some, particularly LDCs, which do not yet have appropriate legislation in this area. On the other hand, there is a growing concentration of transnational corporations, particularly in the seed and in biotechnology areas. Access to most protected technologies and products is subject to the terms of licensing agreements dictated by a very small number of enterprises. National expertise is also required to make use of the provisions in TRIPS on compulsory licensing to avoid emergency situations leading to food insecurity, provisions that have been recently successfully used in the medicinal sector, both by South Africa and Canada.
The International Treaty on Plant Genetic Resources for Food and Agriculture was adopted formally in the FAO Conference on 3 November 2001. This is a legally binding instrument which provides for the conservation and sustainable use of PGRFA as well as for the fair and equitable sharing of the benefits arising from their use, in harmony with the Convention on Biological Diversity. It includes a number of issues where cooperation, complementarity and synergy with the WTO in general and TRIPS in particular would be essential. In this regard, the relationship between Article 27.3.b of TRIPS which deals with sui generis intellectual property rights systems for plant varieties and Article 8 of the new International Treaty on Farmers’ Rights is important.
V. Some concluding comments
- Commodity price spikes
Despite the currently depressed levels of most commodity prices, a sudden surge in commodity prices remains a real concern for many net food importing countries due to the cyclical nature of many commodity markets, the likely further draw-down of global stocks and the experience with surging import bills during the cereals price spike of 1995-96. Anticipating that trade liberalisation would create transitional problems for some food-importing developing countries in the form of higher food import bills, compensatory measures were envisaged under the Marrakesh Decision on Measures Concerning the Possible Negative Effects of the Reform Process on the Least-Developed and Net Food-Importing Developing Countries. The lack of response under the Decision during the 1995-96 price spike (in fact food aid declined during that period) has led many developing countries to call for more operationally effective, binding commitments in this area. FAO has recently contributed to the debate regarding options for making the Decision more effective, including modalities for a proposed revolving fund that would assist eligible countries during periods of surging food import bills.
- Depressed commodity prices
With the exception of the temporary price spike in 1995-96, most commodity prices have been at historically low levels in recent years, due primarily to market developments unrelated to the AoA . Depressed world prices — which are partly the result of the support and subsidy policies of OECD countries — create serious problems for farmers of developing countries who must compete in global markets and at home with these low-priced commodities. Since most developing countries now have only simple bound tariffs available to protect their farmers from import surges and/or a sudden fall in import prices, some form of easy-to-apply agricultural safeguard may be necessary for them. In the longer term, depressed commodity prices contribute to the under-investment in the agricultural sectors of developing countries. While consumers have benefited from these low prices, the long run sustainability of production under such conditions is jeopardised. Greater investment is needed to overcome supply-side constraints and to enhance the competitiveness and participation of developing countries in world markets.
- SPS and TBT measures
As traditional market access barriers are lowered, developing countries have expressed concern regarding the potential of SPS and TBT measures to restrict their exports. Their concern is two-fold: first that they lack the technical and financial capacity to fully participate in activities of international standard-setting bodies such as the Codex Alimentarius Commission (CAC) and the International Plant Protection Convention (IPPC), and second that they lack the supply-side capacity to meet the increasingly strict standards being adopted by the industrial countries. In response to both concerns, FAO has undertaken various initiatives to assist developing countries to build capacity and participate more actively in the work of both CAC and IPPC. More specifically, it has proposed the creation of a facility to help the world’s least developed countries improve the safety and quality of their food products. The proposal was made at the third UN Conference on the LDCs. Similar proposals are being considered to assist all developing countries.
- Interlectual property rights
Technical and financial assistance to developing countries is required in the field of IPRs, particularly as they relate to new varieties of plants and to promote access and transfer of technology, including biotechnology, in order to benefit from the obligations imposed by the TRIPS Agreement.