Agricultural Trade

Under the Agreement on Agriculture, increased market access for agricultural products includes
• the "tariffication" of all non-tariff border measures - with the exception of those products for which special treatment has been negotiated - and
• a binding of all tariffs on agricultural products.

Overall

The most significant result of the Agriculture Agreement is the change in the form of protection of food markets. For the first time, the members of WTO are required to use only tariff protection and to bind their tariffs against future increase. Consequently, the security of trade in agricultural products will be greater than in industrial products, since 100 per cent of agricultural product tariff lines will be bound.

The agreement to reduce disruptive and unfair export subsidies is also significant and will lead to better conditions on world markets. Cuts to domestic support address the underlying distortions in domestic food markets - particularly in developed countries - more effectively than ever before.

Recent assessments suggest that there have been only small changes in prices for the most traded agricultural products as a direct result of access improvements and cuts in subsidies. Developing country trade may not be greatly affected, therefore, in the short term by the agreement.

In the longer term, however, the Agriculture Agreement opens the prospect of less distorted agricultural markets with fairer returns for developing country producers.

A World Bank staff assessment (Ingco, 1997), showed that the implementation of individual country commitments appeared to focus on managing trade rather than liberalizing trade.There has been limited progress in trade liberalization, based on estimates of pre- and post-Uruguay Round trade distortions and the implementation of market access commitments in 1995-96.

Heavy market access restrictions remain and domestic markets in many developing countries continue to be mostly isolated from world price changes.

The assessment also showed that by early 1997, only a small part of the agreed liberalization had been undertaken. Most developing countries availed themselves of an option which allowed them to declare bound tariffs where non-tariff barriers had been used. This relieved them of the necessity to convert non-tariff barriers to tariffs.

Several developing countries in Latin America and East-Asia bound tariffs at relatively low levels (less than 30 per cent ). Many countries in Africa and South Asia, however, declared very high (over 100-200 per cent ) bound tariffs for agricultural products.

Many of the post-Uruguay Round tariffs in agriculture - resulting from the tariffication process - are very high. Despite reductions during the implementation period, they are expected to remain high in a broad range of countries.

Developing countries were allowed to convert unbound tariffs into “ceiling bindings” unrelated to previous rates of protection. Many countries chose to take advantage of this option and used rates well above those applying previously.

The patterns of tariff commitments for developed and developing countries are broadly similar. Tariff bindings arising from the Round are often higher than the average rates of protection applicable before the Agriculture Agreement came into force.

Overall, the World Bank analysis shows that limited progress in real agricultural trade liberalization is largely a result of

• the choice of the base period (1986-88),
• the adoption of excessively high tariff equivalents (or “dirty” tariffication), and
• the use of very high “ceiling” bindings in developing countries

Tariff cuts and minimum access

Under the Agriculture Agreement average tariff reductions will be

36 per cent over six years in developed countries, and

24 per cent over ten years in developing countries.

The minimum reductions per tariff line will be 15 per cent for developed countries and 10 per cent for developing countries. The reductions in the tariffs of developed countries - which account for about two-thirds of world imports of agricultural products - indicate an average per cent age reduction of 37 per cent .

Participants in the negotiations recognized that the tariffication of existing quotas and other non-tariff restrictions would lead to high initial levels of protection. Current access was therefore secured on terms at least equivalent to those existing before the tariffication process and provided for minimum levels of additional access.

Minimum market access commitments, implemented through tariff quotas on an MFN basis at a low or minimal tariff rate, are required for those products where tariffication took place and imports were less than 5 per cent of domestic consumption because of the existing restrictions.

Assessment of access improvements

The nominal cuts in the 'tariffied' protection by developed countries will cut tariffs by

• above-average amounts on oilseeds, flowers and plants; and
• below-average amounts on sugar and dairy products,
• close to the average for other product categories.

Developed countries will implement a 43 per cent reduction on tariffs for tropical products, which account for one-half of developing country agricultural exports.

Developed economy imports and tariff reductions on agricultural products

Product categories	Value of imports		% age reduction in tariffs
	All sources	Developing economies
All agricultural products	84240	38030	37
Coffee, tea, cocoa, mate	9136	8116	35
Fruits & vegetables	14575	8887	36
Oil seeds, fats & oils	12584	6833	40
Other agricultural products	15585	4233	48
Animals & other products	9596	2690	32
Beverages & spirits	6608	2012	38
Flowers, plants, vegetable materials	1945	1187	48
Tobacco	3086	1135	36
Spices & cereal preparations	2767	1134	35
Sugar	1730	1030	30
Grains	5310	725	39
Dairy products	1317	48	26
Tropical products	24022	18744	43
Tropical beverages	8655	8041	46
Tropical nuts & fruits	4340	3672	37
Certain oilseeds, oils	3443	2546	40
Roots, rice, tobacco	4591	2497	40
Spices, flowers & plants	2992	1987	52

Source: GATT 1994

Export subsidy cuts

Commitments on export competition include a 21 per cent reduction in the amount of subsidized agricultural exports. To illustrate the importance of this commitment, during 1986-90 developed countries, on average, annually subsidized exports of

• 48.2 million tons of wheat
• 19.5 million tons of coarse grains
• 1.8 million tons of sugar
• 1.2 million tons of beef.

Furthermore, total export subsidy expenditure will decline by 36 per cent , from $21.3 billion to $13.7 billion by the end of the transition period.

Selected export subsidy commitments

Source: GATT 1994

Reduced domestic support

Commitments on domestic support to agricultural producers will reduce total outlays - measured in terms of the Aggregate Measurement of Support - by 18 per cent , from $197 billion to $162 billion by the end of the transition period

The reductions apply to a wide range of support policies, but the targets are based on a sector-wide aggregate: the total Aggregate Measure of Support. The aggregation has allowed members to moderate the impact of reductions on the most sensitive sectors by making larger proportionate reductions elsewhere.

Also, there are many exceptions for support programmes which are not direct production incentives or which form part of an adjustment programme.

Most WTO members have readily met their AMS reduction commitments. World Bank and other analysts have expressed doubts, however, that the total of AMS reductions will make major inroads into support programmes in the industrialized countries. This is due mainly to the range of measures which are allowable under the so-called blue box and green box exemptions.

Research by World Bank staff has concluded that measures to reduce domestic support for agriculture may be ineffective for several reasons.

• The focus on aggregate measures allows scope for support on specific commodities whilst meeting AMS reduction commitments.
• Green box exemptions mean that some domestic support measures can continue unchanged.
• AMS are calculated from a base period (1986-88) during which world agricultural prices were comparatively low and domestic support to producers in developed countries was very high.

An OECD survey in 1998 of producer subsidy equivalents in advanced industrial countries concluded that reductions in the rate of assistance to agricultural producers in those countries was driven largely by falls in international prices and, to a much lesser extent, by domestic price reductions.

Analyses by the Global Trade Analysis Project (GTAP) at Purdue University suggest that overall agricultural protection will be reduced by one-fifth or more in advanced and newly industrialized economies. Protection will, however, remain very high compared to the manufacturing sector. In low- and middle-income countries, agriculture will continue to be effectively taxed compared to other sectors of their economies, such as manufacturing.

According to analyses by World Bank staff (Hoekman and Anderson 1999, and Ingco 1997), the Uruguay Round reforms are likely to produce only modest benefits by 2000. They propose that significant improvements in developing countries’ agricultural trade will be dependent upon reductions in market access barriers for agriculture in developed countries and for services in developing countries.

Impact on Food Importing Countries

A joint OECD-World Bank study published in 1993 pointed to increases in the range of 5 per cent in the world prices of certain temperate food products (wheat, coarse grains, meat), which could be expected to have a significant effect on net food importing countries in Sub-Saharan Africa.

Revisions of these studies, however, based on final data on market access, domestic support cuts and new export disciplines have reduced the expected price effects of the Agreements. Although the welfare benefits have been revised downward, so have the potential negative effects on food importing countries.

The situation of individual net food-importers in the future will depend on

• reform in OECD countries
• the uncertain evolution of world food markets in the years ahead, and
• the response of domestic agricultural supplies both to the higher world prices expected to prevail and to domestic reform policies.

Potential problems relating to least-developed and net food-importing developing countries are the subject of the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food Importing Developing Countries.

The Decision recognizes that, as a result of agricultural reform, these countries may experience negative effects with respect to supplies of food imports on reasonable terms and conditions. The Decision sets out objectives for

• the provision of food aid
• the provision of basic foodstuffs in full grant form, and
• aid for agricultural development.

It also refers to the possibility of assistance from the International Monetary Fund and the World Bank with respect to the short-term financing of food imports.

Developing countries that are net-importers of agricultural products, while benefiting in the short-term from the greater availability of food aid, have experienced a decline in the profitability of domestic and foreign investments in their own agricultural sector. This is partly due to subsidized prices in world food markets that reduce the incentive to invest in domestic agricultural production.

The consequences of this reduced investment have included diversion of production resources to other less competitive sectors and delays in the adoption of new technologies. These results could have impaired capacity to pursue adequate policies for the production of food. In this sense, the long-term effect of the reform introduced by the WTO Agreements will certainly be positive for at least a number of net food-importing countries.