European Review of Agricultural Economics Vol 26 (3) (1999) pp.

371388

Implementation of the WTO Agreement on

Agriculture and developments for the next
round of negotiations
Tim Josling
Stanford University, Stanford, USA

Stefan Tangermann
University of Gottingen, Gottingen, Germany
Received April 1999

Summary
The Uruguay Round Agreement on Agriculture has fundamentally changed the rules
for international agricultural trade, and established quantitative constraints for agricultural policies of all WTO members. Although countries have tried to escape the new
disciplines here and there, overall there has been substantial compliance, and implementation of the Agreement has proceeded smoothly. The next round of WTO negotiations
on agriculture, to be launched in 1999, will have to clarify and strengthen some of the
rules agreed during the Uruguay Round, but should mainly be devoted to negotiating
further signicant reductions. In addition, other issues that have emerged as contentious
in the area of agricultural trade, and that will aect the next Round, will be discussed.
Keywords: Uruguay Round Agreement on Agriculture, trade commitments, implementation, Millennium Round of WTO negotiations on agriculture
JEL Classication: F13, Q17

1. Introduction
The Uruguay Round Agreement on Agriculture (URAA) set new rules for
world trade in agricultural goods and initiated a modest reduction in protection. The signatories to that agreement have now in the main implemented
these rules and begun a process of slow liberalisation. But the Agreement
also mandated new talks starting before the end of 1999 to continue the process of reform and liberalisation. It is therefore an appropriate time to review
what changes the URAA has made to agricultural trade policy and to see how
the agenda might develop for the future negotiations. In this paper, we discuss
the implementation of the URAA in the major trading countries, and then go
on to consider important elements of the agenda for the next round of agricultural negotiations in the WTO, some of which relate to new issues not
contemplated when the URAA was signed.
# Oxford University Press and Foundation for the European Review of Agricultural Economics 1999

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Tim Josling and Stefan Tangermann

The URAA established its new regime for agricultural trade under the now
familiar three headings of market access, export competition and domestic
support.1 Protection was to be made more transparent by converting nontari import barriers to taris. Some assurance of continued market access,
coupled with new minimum access where no imports existed, was provided
in the form of Tari Rate Quotas (TRQs). New and existing taris were to
be bound and reduced, on average by 36 per cent over a 6-year implementation period.2 Export subsidies were capped both in terms of expenditure and
volume of subsidised exports: the allowed expenditure was to fall by 36 per
cent, and the volume by 21 per cent. No new export subsidies were to be introduced. Transfers to producers through domestic support programmes were
also limited and had to be reduced by 20 per cent. As this was aggregated
over all products, the constraint on any one particular commodity was
slight. In addition, a set of criteria for minimally distorting subsidies was
agreed (the green box): conforming with these criteria exempted policy transfers from the reduction commitments.3 The three-part categorisation of the
new rules gives a convenient structure for reviewing the main changes resulting from the implementation of the URAA in the major trading countries.

2. Implementation of the Uruguay Round Agreement

on Agriculture
The impact of the URAA on agricultural policies and on world markets
depends on its implementation by the major countries. The situation is
described in Table 1, which illustrates the range of impacts that the URAA
has had on policies in selected trading countries. The remainder of this section
describes some of these changes.4
2.1. Implementation of the market access provisions
The push for tarication was in no small part aimed at the market access
regulations used by the European Union (EU). The EU has therefore had
to make signicant changes to implement the terms of the Agreement. Nevertheless, the policy changes were kept to a minimum by various devices that
have preserved much of the functionality of the CAP. The cereals market,
for example, is still protected by a variant of the variable levy, and the new
import regime for fruits and vegetables acts much as the previous system of
reference prices (Grethe and Tangermann, 1999).
1

The Sanitary and Phytosanitary (SPS) Measures Agreement was technically separate from the URAA
but has strong connections, as will be discussed later. Detailed accounts of the URAA have been
given by Josling et al. (1996) and Swinbank and Tanner (1997).

Developing countries were granted a longer period and a smaller percentage reduction.

The USA and the EU agreed during the negotiations on a `blue box' category of policies, which,
although not production-neutral, are coupled with supply reduction instruments. A `peace
clause' protects policies conforming with the URAA from certain kinds of challenge under the
WTO. The Peace Clause lasts until 2003.

More details on the implementation of the Agreement by country are given by IATRC (1997).

Table 1. Impact of Uruguay Round Agreement on policies in major trading partners

US

Canada

JapanSouth Korea

South America

Conversion of
variable levies to
taris, but maximum
duty-paid price for
cereals, entry price for
fruits and vegetables

Elimination of
Section 22
quantitative
restrictions on
imports

Conversion of
import quotas on
supply managed
commodities to
taris

Tarication delayed
for rice; additional
minimum access
commitments agreed

Tarication
Tarication achieved
occurred before UR with little diculty
Agreement

Export competition Export subsidy

constraints binding
for several
commodities

EEP programme
constrained by
commitments

Transport subsidy
removed; export
board (wheat) not
aected

No subsidies

Few export
subsidies

Few export subsidies;

export boards not
aected

Domestic support

Deciency
Most policies moved No constraint from
payments sheltered to green box
AMS
in blue box; AMS
constraint not
binding; FAIR Act
may remove need
for blue box

Most policies
claimed to be green
box; no scope for
introduction of
price policies

Reforms removed most

price policies

Market access

MacSharry payments
sheltered from
reduction by blue
box; AMS constraint
not binding

AustraliaNew Zealand

Implementation of the WTO Agreement on Agriculture

EU

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Tim Josling and Stefan Tangermann

Not only have the mechanisms determining market access changed little,
the ease of access has improved only marginally. TRQs exist for a number
of products but mainly reect `current access' (i.e. the bilateral agreements
that the EU already had with a number of overseas countries). In those
cases where new `minimum access' quotas have been opened up, they have
not so far always been lled. The above-quota taris are often prohibitive,
as were the threshold prices that they replaced, and true liberalisation of
market access awaits the next round of trade negotiations. In some cases,
market access actually declined as a result of tarication, particularly
where levies were previously tied to domestic cereal prices. For example,
CAP reform had already reduced import levies on pigmeat below the tari
equivalent in the WTO base period.
Market access provisions in the Uruguay Round did not lead to a dramatic
opening up of the US market for agricultural goods. For many products,
trade barriers were low before the Round, and for `sensitive' items, such as
dairy products and sugar, liberalisation was modest. Conversion of nontari barriers to taris took place in several sectors, notably in beef, where
`voluntary export restraints' had been used to bolster the domestic market
over parts of the cattle cycle, and in dairy, where non-tari import barriers
had been widely used to control milk product markets. The respective
TRQs appear not always to have been lled in the rst three years of operation, though sugar imports have exceeded the quotas. Above-quota taris
remain high for a number of sensitive goods. This makes action on these
commodities a natural focus for the next round of negotiations.
Implementation of the Agreement had one impact that was signicant in
terms of import access to the US. The notorious Section 22 of the Agricultural
Adjustment Act, which gave the President a mandate to use quantitative
controls whenever imports threatened domestic support programmes, was
removed. This in turn eliminated the need for the waiver from GATT rules,
which had been in eect since 1956. The importance of this is symbolic: it indicates that even the US has agreed to allow the operation of international trade
under agreed rules to impinge upon domestic programmes.
In Canada, the market access provisions had a more marked impact. The
non-tari import barriers that have bolstered the domestic market in the
supply-managed commodities (poultry, eggs and milk) were converted into
bound taris as a direct result of the URAA. This change would probably
not have been possible without pressure from the Round. The new taris
are, however, very high (in some cases over 300 per cent), and access depends
on TRQs that carry a much lower rate of duty. Thus, for Canada, a key issue
for the future is the extent to which the TRQs will be expanded in further
negotiations. Strong resistance can be expected from the provincial marketing
boards that run the supply management programmes.
Japan has implemented its obligations with precision if not enthusiasm.
Here, too, the improvement in market access has been modest. In part, this
reects the nature of the domestic food processing and distribution system,
which is still more tightly controlled than in most other OECD countries.

Implementation of the WTO Agreement on Agriculture

375

The way in which the access agreements have been administered demonstrates
this problem. Market access diers between those commodities where the
private sector is the importer and where state trading is still practised. In
the latter case, high taris faced by private traders exist alongside lower
mark-ups for the state enterprise. The private sector, therefore, still has an
incentive to purchase from the state importer, thus maintaining eective control over the market. Import arrangements for pork are complicated by a
device designed to reproduce some of the stabilisation of the previously
used dierential tari, which operated like a variable levy.
Of all the agricultural policy changes resulting from the Round, none had
more domestic opposition than the opening up of the domestic Japanese
market to imported rice, through a minimum import commitment rather
than tarication (one of the rare exceptions to universal tarication). However, the consumer has yet to benet fully from lower prices. Little imported
rice reaches the domestic market, and some nds its way into stockpiles or
processing uses. The increased private involvement in the marketing of
domestic rice under the new law of 1995 has not yet spread to the sale of
imported rice. But there is the widespread belief that tarication (at a high
level of tari, of course) would have been even more protective. As a result,
the Japanese government has recently notied the WTO that it intends to
move to (rather high) taris on rice imports.
South Korea has also made eorts to apply the Uruguay Round Agreement
scrupulously. Access has improved for certain products, in line with a gradual
liberalising trend over the past few years. In fact, actual import quotas for
some commodities have exceeded the required levels. However, rice has
been spared tarication for a period of 10 years, and instead South Korea
has agreed to import a minimum quantity. State trading agencies still dominate the import of agricultural products in South Korea, and the TRQs that
were agreed along with tarication are essentially administered by these
agencies. In fact, the agencies themselves benet nancially from the prots
(quota rents) from importing, and use those funds to nance rural projects.
In other cases, domestic producer associations have been allocated the
import TRQs, illustrating once again the need to clarify the allocation
mechanisms that would be acceptable to all WTO members.
The South American countries had almost without exception embarked on
drastic reform of agricultural trade policies in advance of the Uruguay Round
Agreement. This made its implementation relatively easy for these countries.
Quantitative trade restrictions had been removed in almost all countries in
the region as a part of economic reforms. Price support policies had been
abandoned in many countries and reduced in others. The tari schedules submitted to the WTO by these countries for agricultural products reect this
open position. All taris are now bound, and the rates at which they have
been xed are often less than in other regions.
Among those countries most keen on the inclusion of agriculture in the
Uruguay Round were two exporters of temperate zone commodities, Australia and New Zealand, that felt negatively aected by the subsidies of the EU

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Tim Josling and Stefan Tangermann

and the US. This translated into leadership of the Cairns Group, which
included a number of Asian and Latin American developing countries as
well as Canada. Implementation of the URAA posed few diculties for
Australia and New Zealand. The domestic policy reforms of the mid-1980s
had removed many of the trade-distorting domestic subsidies, in particular
for the livestock sector. Import restrictions had been largely converted to
taris, and the rates tend to be below those bound under the Agreement.
Australia had to make a few more changes to implement the Agreement.
Non-tari barriers on sugar imports were converted to taris, as were those
for some dairy products.
2.2. Implementation of export competition provisions
With respect to the constraints on export subsidies, the picture has been very
dierent. It was always known that the constraints on export subsidies negotiated in the Round were likely to be the most binding: that is why the agreement on such constraints was so dicult to achieve. This has proved to be the
case, in particular for the EU. For a number of products, most notably cheese,
the export subsidy constraints have already dictated domestic policy decisions
and will do so even more as time goes on (Tangermann, 1999). However, high
world prices `rescued' wheat exports from the constraints of the WTO schedule, as the need for export subsidies temporarily waned in 1995 and 1996.
Export subsidy programmes in the US were also subject to the cuts agreed
in the Round. However, the rise in world prices since the base period of the
Agreement, and more particularly the high prices in 1995 and 1996, have
meant that export subsidies for cereals naturally declined. In fact, the Congressional appropriation for subsidies has actually decreased substantially
in recent years, and the Export Enhancement Program (EEP) is unlikely
to be used to its full authorised extent in the near future. This is despite the
rhetoric, which still regards export subsidies as necessary tools of commercial
policy for maintaining market shares and preventing the EU and other exporters from undercutting US sales abroad. The dip in prices in 1998 caused some
rethinking of US policy, but the `bail-out' package given to farmers in that
year was mostly in the form of additional direct payments.
In Canada, the long-running transport subsidies that gave Canadian grain
an advantage on world markets were nally terminated. This change had long
been debated domestically, but pressure from the Uruguay Round limits
on export subsidies was eective in nally forcing the issue. On the other
hand, a new form of export assistance was developed in the case of dairy products. A lower-priced `export' class of milk was designated by the marketing
authorities for use in exported products.
Neither South Korea nor Japan have relied signicantly on export subsidies, and therefore are not faced with the problem of implementing these
constraints. Similarly, not many Latin American countries declared that
they had export subsidy programmes and therefore those countries are
highly restricted in what they can do in this area in the future. Export subsidies were rarely used in New Zealand. In Australia, the export subsidy on

Implementation of the WTO Agreement on Agriculture

377

dairy products was modied to be more consistent with WTO rules, though
the new export rebate scheme may itself come under scrutiny at some stage.
The operation of the Australian Wheat Board has also been modied, to
give private traders more scope in the internal market, though Australian
grain exports are still handled through the Board.
2.3. Implementation of the domestic support commitments
The domestic support commitments have not had a major impact on the policies of the major trading countries. In the EU, the impact has been almost
imperceptible. The deal secured at Blair House placed the MacSharry compensation payments in the `blue box', reserved for payments linked to
supply control programmes. This meant that they do not count toward the
level of support that needs to be reduced (and are sheltered from most
WTO challenges unless support is increased), and ensured that the EU
stayed well within its aggregate measure of support (AMS) constraint. One
issue for the next Round will be whether the EU can change its method of
allocating the compensation payments so as not to need the blue box at all.
As expected, the Uruguay Round Agreement has had little direct impact on
US domestic support programmes such as the deciency payments scheme for
cereals. That was ensured by the Blair House deal, which allowed the US to
shelter its direct payments in the `blue box'. Even without this, it is unlikely
that the level of payments would have violated the AMS limits, which are
based on a period of higher subsidies. However, even the very weak restraints
of the `blue box' are likely to have been made redundant for the US by the
substantial changes in domestic policy embodied in the new Farm Bill of
1996. This bill, the FAIR Act, removed the acreage-set aside conditions for
receiving direct payments for cereals. Though there is still some incentive to
remain in agriculture, this change essentially decouples payments from
output levels. It therefore can be assumed a priori to be a green box policy,
leaving the EU virtually alone in sheltering its direct payments from challenge
under the GATT by means of the `blue box'.5
Canada has had a long history of experimentation with decoupled payments
for farmers, used to stabilise incomes from production of various crops, or net
income from farming activities. As a result, Canada has been able to adapt
domestic policy to meet the green box requirements. The AMS constraint
has therefore not been an issue. By contrast, both Japan and South Korea
have had to adjust domestic support programmes to comply with AMS constraints, by reducing agricultural spending or lowering administered prices.
In Japan, this has caused few problems as administered prices were in any
case lower than in the base period. South Korea, however, has found it
more dicult to live with the constraint on domestic support. Both countries
have reoriented their spending towards improving productivity through land

A contrary view of the FAIR Act payments and the green box is given by Harvey (1998). The issue has
not yet been put to the test.

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Tim Josling and Stefan Tangermann

consolidation, market development and research activities, so as to reduce the

need for price support and border protection.
The South American countries, along with Australia and New Zealand, are
in the interesting position of having little scope for using price-related subsidies in the future. In Latin America, the restraints are unlikely to be severe, as
developing countries can use a wider variety of programmes within the scope
of the green box. However, if they wished to reverse their move toward more
liberal policies, by not having declared price-related (amber box) policies in
the WTO schedules, countries will nd it more dicult to implement such
policies in the future.

3. Issues for the next round of WTO negotiations on

agriculture
One of the most potentially important aspects of the agreement reached on
agriculture in the Uruguay Round was the resolve to continue the reform process in agriculture in the future, through negotiations to be initiated in 1999.
This next round of negotiations can usefully start from the new disciplines
agreed in the Uruguay Round and improve them by strengthening the rules
and making further reductions. The experience made in monitoring implementation of the Agreement by the WTO Committee on Agriculture forms
the backdrop for the consideration of changes in the Agreement that might
be suggested for the next round of negotiations.6 In this paper, we can only
briey touch upon the many issues to be included in the negotiations.7
3.1. Improvements in market access
In the area of market access, another round of tari reductions is urgently
needed, to squeeze the `water' out of current bindings. The rate of reduction
may need to be set at least as high as that agreed in the Uruguay Round. It
might be useful in this regard to dene reductions again relative to the base
taris agreed in the Uruguay Round. Otherwise the basis from which reductions are made `thins out' over time. If another reduction of 36 per cent could
be agreed for the next Round, then only 28 per cent of the base period taris
would remain in place. Although a long way from free trade, it would bring
agriculture much closer to the open markets that are becoming the rule for
manufactured goods.
However, the average height of the taris is only one aspect of the problem.
Many tari peaks remain and tari dispersion in many cases is even more pronounced than it was at the beginning of the implementation period (Tangermann, 1996). In the next Round, higher taris may have to be reduced by more
than lower ones, through use of a reduction formula such as the so-called
6

The Committee has also been involved in the discussion of the agenda for the next round, through
a device called Analysis and Information Exchange. A sub-group of the Committee meets at the
time of the full committee meetings and discusses `non-papers' on particular topics.

A more extensive discussion of issues for the next round of agricultural negotiations is given by
Chapter 9 of Josling et al. (1996), Chapter 11 of IATRC (1997), Tangermann (1997) and Josling (1998).

Implementation of the WTO Agreement on Agriculture

379

Swiss formula used in the Tokyo Round. An interesting variation on this

theme may be an approach by which countries are allowed to choose between
(i) a at rate reduction of all taris, and (ii) a formula cut that yields an agreed
somewhat smaller average reduction of taris but attenuates tari dispersion.
The highest taris are usually on a few `sensitive' products. Signicant tari
restrictions on imports of sugar, cotton, rice, peanuts and dairy products tend
to exclude even the most ecient foreign suppliers from these markets. The
big question for the future is whether countries will be willing to move
towards freer trade in such areas by oering signicant `concessions' on sensitive products. Dairy products and sugar are likely to be at the heart of the
next Round. Although the US made some progress in the FAIR Act towards
further reducing price supports for dairy products, the sugar programme has
so far survived all attempts in Congress at radical surgery. The EU will also
have trouble reducing dairy and sugar protection without undermining
domestic support policies. The willingness of the US and the EU to put
these sectors on the international bargaining table has yet to be tested.
A most urgent area for the negotiations is the future of the tari rate
quotas.8 The TRQs, intended to open up previously closed markets, have
become a major problem in agricultural markets. They have created a new
wave of governmental interference with agricultural trade through licensing
procedures and provided a playground for rent-seeking traders, who in
turn have acquired an incentive to lobby for the continuation of high
above-quota taris. The question is how to prevent the TRQs from interfering
more than necessary with the competitive development of trade.
The negotiations will probably focus on developing a more uniform system
for the administration of the TRQs, or at least eliminating some obvious
absurdities in current procedures for allocating licences under TRQ. For
example, allocation of TRQ to domestic producers of the same product or
of closely related products should denitely be banned. One issue is whether
to allow TRQs to be auctioned, as has been suggested in some academic
circles.9 This would seem an economically sensible solution to the problem
of the capture of rents and would counteract incentives for keeping the
system in place. But this is also a reason why exporters in particular are
likely to resist such a move, at least in those cases where TRQ licences are
now allocated to exporters. The capture by the government of the rent
through the auction process in eect turns the TRQ into a quasi-tari,
whose size is determined through the auction process. Thus there could be
considerable resistance to auctioning TRQs.10 However, most TRQs are
8

A critical look at the allocation of TRQs and other aspects of the implementation has been given by
Ingco and Hathaway (1996).

Tangermann (1997) explores the arguments in favour of auctioning the TRQs. The issue of auctioning quotas was addressed some years ago by Bergsten and colleagues in the context of US import
policy. It is an interesting comment on the lack of economic rationality in trade policyand the
attraction of rents to trading intereststhat such a simple device as auctioning quotas has not
so far caught on with politicians and policy makers (Bergsten et al., 1987).

10 One example of the issue of allocation of TRQs is the complex banana regime of the EU, discussed
briey below.

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Tim Josling and Stefan Tangermann

allocated to domestic companies in the importing countries, and in those cases

auctioning of TRQs would not aect exporters negatively. The best solution
may in the end be to change the TRQ regime such that trade is increasingly
liberalised.
Various approaches could be used to improve the situation in this regard.
For example, for those TRQs that result from minimum access provisions,
quota volumes could be further increased, say to 10 per cent of 19981999
levels of domestic consumption. At the same time, it could be agreed that
the lower within-quota taris must not exceed a given percentage of the
base taris. If within-quota taris are then not reduced any more over
time, the importance of TRQ would gradually fade away as `normal' (i.e.
above-quota) taris are reduced more and more, and thereby the gap between
within-quota and above-quota taris is reduced and nally eliminated.
3.2. Further reductions in export subsidies
On export subsidies, some countries will try to negotiate a complete elimination in the next Round. If that cannot be achieved, then at least the same rate
of reduction in expenditure and quantity as was negotiated in the Uruguay
Round might be agreed. If so, by the end of the second transition period
only 28 per cent of the base-period expenditure would be available to subsidise exports. This constraint would therefore probably overtake the quantity
constraint in importance.
Much eort was made in the URAA to dene export subsidies as precisely
as possible. However, further improvements can be made. In particular, there
are policies that eectively result in cross-subsidisation of exports and that
may not be clearly enough outlawed by the wording of the current Agreement. Two cases in point are production quotas with above-quota output
sold at world market prices, and price pooling arrangements, as practised
by state trading exporters. The Canadian milk price scheme that makes available cheaper milk for use in exporting is likely to be declared illegal under the
WTO. The EU has avoided the temptation to sell above-quota milk on world
markets, though it does so for sugar. Price pooling is at the heart of the
complaints from US wheat growers to the Canadian Wheat Board, and
some resolution is going to have to be found on that issue.
In addition to the overt export subsidies identied in the Uruguay Round,
agricultural exports are often assisted by export credits and credit guarantees.
These are clearly forms of indirect export subsidisation, given to export rms
by governments trying to expand trade. The practice was criticised in the
Uruguay Round, and as part of the Agreement an understanding was reached
that governments should `work towards the development of internationally
agreed disciplines'. Discussions on the subject of export credits in general
have been continuing in the OECD, and it is possible that agricultural
export credits will eventually be brought into conformity with those in
other areas of trade.11 The question of export credits is still a thorn in the
11 Present contentions involve the allowable interest rates and the length of credit terms acceptable
for the sale of agricultural goods.

Implementation of the WTO Agreement on Agriculture

381

esh of several of the smaller exporting countries. There should be no problem in the next round to take the terms of an OECD pact and incorporate
them into the WTO structure.
An issue not considered very important during the Uruguay Round, and
therefore not given much prominence in the negotiations, was that of taxes
on agricultural exports. As it happened, a new wave of extremely high
world market prices for cereals occurred in 1995 not long after implementation of the Agreement began. Some countries, notably the EU, introduced
export taxes to prevent domestic prices from rising along with world
market prices. Such export taxes denitely act against the spirit of bound
tari equivalents. It may have just been an oversight that the counterpart
of tarication was not also agreed in the area of export taxes. The next
round of negotiations is a good opportunity to rectify this.
3.3. More disciplines on domestic support?
Although the domestic support provisions have not had much impact on most
countries' policies, it would be a step backwards to relax the existing constraints. The rate of reduction in domestic support agreed in the next
Round could be at least as high as the rate agreed in the Uruguay Round.
That would leave 60 per cent of the coupled domestic support in place at
the end of the second transition period. It may also be worth trying to
reach agreement on making the domestic support commitments relate to individual products, rather than to aggregate support. The extent to which tighter
denitions of the green box may be necessary will depend on the results of the
monitoring process in the Committee on Agriculture. Of particular interest
may be a discussion on the exact meaning of the requirement that `no production shall be required in order to receive . . . payments'. The next Round may
also be the appropriate occasion to eliminate the blue box. Because of the
almost country-specic nature of this provision, its elimination would
indeed strengthen the multilateral character of the WTO disciplines for agriculture. And if only the EU needs it, there will be pressure for that relic of
Blair House to go.
3.4. Country positions on the issues
Table 2 attempts to highlight the various starting positions that the major
actors are likely to take with respect to the issues mentioned above.
The EU approaches the new round of agricultural trade negotiations in
somewhat of a quandary. On the one hand, many in Europe felt that, in
the Uruguay Round, Europe had exhausted all its energies defending the
CAP from attack. This meant that it had no nerve to develop a positive strategy to pursue changes that it would like to have seen either in trade rules or in
the policies of others. The notion that it had already `reformed' the CAP, with
dairy quotas in 1984 and a budget ceiling in 1988, was not convincing to its
partners. Even after the introduction of the MacSharry reforms in 1992, it
was clear that the EU still required high border protection to preserve its
domestic policy. On the other hand, to go into the next Round in a position

382

Element

Europe

USCanada

JapanSouth Korea

South America

AustraliaNew Zealand

Market access

Modest lowering of
taris, but wary of sector
by sector; regularise
TRQs, but expand
cautiously;
discipline STE importers;
keep safeguards

Lower taris but sector

by sector approach;
regularise TRQ
administration and
expand TRQs;
discipline STE importers;
tighten safeguards

Modest lowering of
taris, but reducing
peaks not favoured;
fewer problems with
TRQ administration; no
increased disciplines on
STE importers;
keep safeguards

Lower taris and lower

tari peaks;
regularise TRQ
administration and
expand TRQs;
discipline STE importers;
tighten safeguards

Lower taris and lower

tari peaks;
regularise TRQ
administration and
expand TRQs;
discipline STE importers;
tighten safeguards

Export competition

Keep export subsidies

when needed for
domestic market clearing
and maintaining market
shares;
constrain export STEs

Reduce export subsidies

with aim of abolition;
export credits subject to
some limits;
impose strict limits on
export STEs

Content to abolish export

subsidies;
no incentive to restrict
export credits;
curb on export
embargoes and taxes

Abolish export subsidies

as soon as possible;
export credits need to be
restricted;
export STEs allowed with
restrained powers

Abolish export subsidies

as soon as possible;
export credits need to be
restricted;
export STEs allowed with
restrained powers

Domestic support

Green box should be

expanded to allow for
environmental payments;
keep blue box

Green box should not be

expanded;
abolish blue box;
AMS constraint not
important

Green box could be

expanded to include
`food security' payments;
blue box not important

Tighten green box;

abolish blue box; AMS
constraint tightened

Tighten green box;

abolish blue box: AMS
constraint tightened

Tim Josling and Stefan Tangermann

Table 2. Summary of possible OECD positions in the next round of agricultural negotiations

Implementation of the WTO Agreement on Agriculture

383

of strength would require further reforms in advance of the talks. This has
been widely rejected by EU farm groups as well as by the French government.
As a result, the likely outcome is a set of modest reforms (known as Agenda
2000), which will most likely have to be supplemented later as the nal WTO
package becomes clear.
On market access, the EU is going to be cool toward any sweeping cuts in
taris. Though an exporter, it still feels under pressure from competing
imports of temperate zone goods. As a result it would like to see Asian markets expand, but cannot move too far from its traditional protection of the
domestic market. A modest across-the-board reduction in taris is likely to
be the preferred outcome. But the EU will be vulnerable regarding its widespread use of specic taris, the use of reference prices for fruits and vegetables, and the high degree of excess protection for cereals aorded by the
bound tari relative to the `maximum duty-paid import price' for cereals
that was agreed in the Uruguay Round. The position of the EU on state
trading is unclear, though as an exporter there should be good reasons for
the EU to side with the other exporters to put additional disciplines on
such agencies.12
On export subsidies the EU position is likely to be that they are essential to
the clearing of markets, at least for the next few years. Whether the EU could
be persuaded to end them in principle is not clear. The Commission would
rather not have to use them as instruments of policy, but it would be unacceptable to lose market share too rapidly in the cereals and dairy markets through
not being able to lower oer prices. Export credits are not used in Europe and
there are no single-desk sellers. The EU is likely to go along with further
constraints on these two activities.
One of the most contentious issues is likely to be the `size' and `composition'
of the green box. For the EU, the green box represents a possible solution to
the conict between satisfying political imperatives to maintain farm incomes
and living within the WTO constraints. Payments, perhaps from national
sources, aimed at recompensing farmers for the `multifunctionality' of European agriculture would be allowed even if not totally consistent with current
denitions of trade-neutral instruments. Whether the EU will argue that the
concept of the green box needs to be changed or merely that additional policy
measures will be allowed into the box is not clear. Moreover, the Commission
is in danger of raising European farmers' expectations that the multifunctionality card can be played to gain more border protectionan idea that would
certainly deadlock the talks from the start. On the blue box, the EU is likely to
defend it in the early stages but can in principle change its own compensation
policies without too much inconvenience (and to domestic advantage) to
make them compatible with the green box, as did the US in the FAIR Act.
Although each country will negotiate separately, the attitude of the US will
undoubtedly inuence the position taken by other North American countries
12 The issue of state trading in agriculture, which cannot be discussed here in detail, is considered by
Josling (1996).

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in the next Round. But what will be the US role in the next round of talks on
agriculture? Will the US be in a position to take the lead in suggesting the path
towards reform? Clearly, the outcome of the debate over fast-track negotiating authority will inuence the answer to this question. Without fast-track
authority, and with a Congress wary about further attempts to liberalise
trade, it is not easy to see a leadership role for the US in the next Round.
But even with fast-track authority, certain hard decisions have to be made.
The US will need to oer some incentives to others to strike a deal on agriculture. In particular, the US will have to grant better access to some of its
own markets that have not so far been opened up to imports. These include
sugar, dairy products, peanuts and citrus fruits. Open markets also imply
transparent health regulations, allowing such imports as poultry into the
domestic market subject to meeting the same conditions as imposed on
domestic supplies. The process of opening up US markets to NAFTA partners has only just begun. The putative date for an agreement on free trade
in the Western Hemisphere is only 7 years away. In addition, the Administration has consistently supported the APEC objective of free trade and investment, and this objective is scheduled to be achieved within 12 years. But
whether the political will is present to support a liberalisation of US markets
is not certain.
The Canadian view on market access is similarly unclear. Canada will resist
too drastic a reduction in tari peaks, as these peaks are particularly high for
Canada. Canada favours, with US support, the notion of `zero-for-zero'
agreements that would accelerate trade liberalisation for particular commodity groups such as oilseeds. This would tend to go against the notion of reducing protection across the board. But the US and Canada are likely to agree
with the Cairns Group on the need to improve the administration of TRQs
and to expand them to increase market access, as well as on the need to
make sure that importing state trading enterprises do not restrict imports.
They will also wish to ensure that the safeguard provisions are not abused.
The US is likely to be somewhat more cautious on the abolition of export subsidies (which Congress regards as a war chest for ghting the EU) or the curbing of export credits, which form a part of foreign policy as well as getting rid
of surpluses. The US would also go along with the Cairns Group view that
export monopolies should be restrained, but Canada would have diculty
agreeing with that position.
The US could dier from the Cairns Group on the issue of domestic subsidies. The US has tended to downplay the signicance of the AMS reductions,
on the assumption that any strict rules would be dicult to enforce. Recent
events in the US have exploited the ambiguities in the AMS measure, as
farmers have been given an additional $6 billion at a time of low prices.13
The US will no doubt be inclined to push for the elimination of the blue
13 It should be pointed out that other countries also compensate farmers for income losses. However,
this has not so far taken the form of higher prices, and thus could come under the heading of direct
income payments. Such largesse may well, however, encourage farmers to stay in production.

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385

box, as the 1996 FAIR Act has arguably put US programmes within the green
box category. On the question of widening the green box, the US is likely to
take the view that the denition should not be broadened to include European
environmental programmes.
The position taken by Japan and South Korea will tend to be dominated by
concerns over food security. The denition of food security, however, remains
contentious. In Japan and South Korea there is a strong tendency to equate
food security with a high degree of self-suciency. At a psychological level
this might be understandable, but it poses a signicant challenge to a global
trade system. The question is where to incorporate concerns about food security. One possibility, borrowing from the European position, is to declare the
provision of food security as one of the `multifunctional' facets of agriculture.
But this raises the question of how to reward such an attribute without harming farmers in exporting countries. Whereas one could argue that environmental contributions may be rewarded without undue trade disruption, it is
not easy to see how one can both promote self-suciency and preserve an
open food system. This is the dilemma that Japan and South Korea will
have to address in the next Round.
One way out of the dilemma is to emphasise the issue of export restraints
and taxes. If a food security package were agreed that Japan and South
Korea recognised as a commitment by the trade system to maintain exports
even at times of domestic shortage, then their concern with self-suciency
would be reduced. But this may require more obligations on access to supplies
than exporters are willing to concede. This is one area where the developing
food importers could really have an impact. A package that combined greater
import access with supply assurances could go some way to defusing the
current tension between exporters and protected importers in international
agricultural markets.
On market access, the Japanese feel vulnerable to proposals for cutting
tari peaks or introducing maximum taris. They are more likely to favour
modest tari cuts, perhaps across the board. They have less objection to
the present administration of TRQs, will be wary about expanding them
too fast, and can be expected to oppose any notion that the TRQs be
linked with imports by private rms. South Korea and Japan are also not
expected to favour further disciplines on state trading importers, at least
not until their own internal distribution systems have been reformed.
The Japanese position on export subsidies has been that they cause market
disruption and should be discontinued. However, Japanese state trading
importers are known to prefer dealing with sole sellers in export markets.
One can expect only lukewarm support for constraining the activities of
single-desk export agencies. South Korea likewise would not normally be a
strong supporter of export subsidies. However, that country has occasionally
wished to subsidise some exports but been unable to do so because of the
WTO commitments. Should export subsidies be allowed to continue, South
Korea could well argue for a reallocation of subsidy `rights' to reect current
market conditions.

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Australia and New Zealand played an important part in the Uruguay

Round discussions on agriculture, in particular through their participation
in the Cairns Group. The Cairns Group will probably also play a key role
in the next Round, perhaps with expanded membership. One function of
the Cairns Group in general, and Australia and New Zealand in particular,
is to keep the pressure on the US and the EU to reach agreement. The
major protagonists are again likely to postpone awkward decisions on agricultural liberalisation until the last moment. The `last moment' in the case
of the next round of agricultural talks may be the expiry of the peace
clause, in 2003. After that, the special protection given to agricultural programmes by that clause could give way to the full rigour of the subsidies
code and the anti-dumping regulations. This should concentrate the minds
of the negotiators, in particular the EU. The role of the Cairns Group in
such a situation could presumably be to block an extension of special protection until an agreement was found on market access and export subsidies.
Australia and New Zealand are likely to be at the forefront of those arguing
for improved market access. This will no doubt include reducing tari peaks,
regularising the administration of TRQs (though they do not at present
appear to favour auctioning them) and imposing a requirement on importing
state traders that at least quotas be lled. The expansion of TRQs could also
be supported by Australia and New Zealand. On export subsidies, the position is clear: along with most members of the Cairns Group they would like
to see such practices disappear. Export credits are also blamed for distorting
markets to the disadvantage of smaller exporters who cannot aord such programmes. On the other hand, there is some ambiguity with respect to the
position of these countries on the issue of single-desk sellers. Exporting
state trading enterprises have been prominent in these countries' agricultural
trade for many years, and they have withstood attacks in the GATT that
accused them of export subsidisation through price discrimination. But the
parastatals are losing their monopoly powers so rapidly that Australia and
New Zealand will probably be able to lead the charge against export monopolies in the next Round without any domestic constraints on their position.
On domestic subsidies, it is clear that Australia and New Zealand will resist
any loosening of the green box criteria and may push for a more restrictive
approach to the AMS.
3.5. Other issues
Inevitably in the world of trade policy, issues arise that have to be dealt with
in whatever negotiating forum is to hand. Thus, the neat agenda laid out
above, extending the URAA and tidying up the loose ends, is unlikely to constitute the totality of issues. First, there are several contentious trade conicts
that will get in the way if not already dealt with, just as the oilseed crisis did
during the Uruguay Round. Into this category falls the banana dispute.
Although it concerns, among other questions, the allocation of TRQs, it is
not essentially an agricultural issue. Moreover, to a large extent the acute
bitterness over the banana conict relates to procedural issues in the new

Implementation of the WTO Agreement on Agriculture

387

WTO rules on dispute settlement, again a generic issue going far beyond
agriculture.14 The chances are good that this conict will be resolved
before, or at the same time as, negotiations are launched in November
1999. If not, the whole timetable could be disrupted. Another such issue,
slightly closer to agriculture, is the beef-hormone dispute. Again one could
imagine a solution, either involving labelling or compensation, within the
next 6 months. It seems hardly likely that this issue, over a decade old, has
much life left in it.
Not so easy to dismiss is the potential conict over genetically modied
organisms (GMOs). This is not yet a true trade dispute. The US is irritated
at the slow process of accreditation of GMOs in Europe. It seems very likely
that some form of moratorium will be announced by some EU member
states if not by the Commission. This would no doubt be challenged by the
US and other countries (Australia, Argentina and Mexico, for instance) that
use GMOs widely. But the grounds for objection are not clear. The SPS Agreement deals with regulations explicitly aimed at threats to health. Regulations
designed to segregate the market into GMO-tolerant and GMO-free segments
may not be health-related, and may just be based on fear of consumer rejection
of GMOs. The supermarkets may take the lead in this, posing even more of a
dilemma for trade policy. So the rst step may be to decide which aspects of
trade rules are threatened by the growth in GMO foods. Then it should be
possible to see whether those rules need strengthening.

4. Conclusions
The next round of trade negotiations is nearly upon us. Countries are beginning to formulate their ideas for the agenda. Much of the outcome of the talks
will depend upon the domestic political constraints and the extent to which
domestic attitudes towards farm policy have evolved in the last few years.
Implementation of the Uruguay Round Agreement has been made easier
by the continuing process of domestic reform. Regional pressures have also
been working in the same direction, to allow more contestability in national
agricultural food markets. Those with potentially competitive agricultural
sectors are looking forward to a new era of openness. The pace of change
will, however, always be restrained by those whose agricultural sectors have
been sheltered from competition and whose competitiveness remains to be
tested. Countries do not have unlimited enthusiasm for further talks on agriculture at this time, but there is a feeling of resignation that further action is
needed at the international level as a framework for the domestic and regional
policy changes that lie ahead. Policy changes continue to be made in many
countries, in part in response to the URAA, but also in anticipation of the
next round of WTO talks. The impact on domestic policies that the new
14 One can generally say that the greater part of the issues dealt with in the many agricultural disputes that have arisen since the Uruguay Round have little to do with the new agricultural rules
and commitments established by the URAA. Experience gained in the disputes since the Uruguay
Round will be an important ingredient in the next round of WTO negotiations, but mainly outside
the realm of the URAA.

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WTO rules for agriculture are now beginning to have is probably the best
indication of their success.

Acknowledgements
The authors are grateful to Jo Swinnen and two anonymous referees for helpful comments on an
earlier draft.

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Corresponding author: Professor Stefan Tangermann, Georg-August-Universitat, Institut

fur Agrarokonomie, Platz der Gottinger Sieben 5, D-37073 Gottingen, Germany.
E-mail: stanger@gwdg.de