My Course series
Introduce the Agreement on Agriculture and explain what is agricultural trade;
Outline agricultural trade policies under the GATT (prior to the WTO);
Explain the Uruguay Round agriculture negotiations;
Explain the structure of the Agreement on Agriculture;
Describe the product coverage under the Agreement on Agriculture;
Explain the disciplines and commitments in the Agreement on Agriculture;
Outline Implementation under the Agreement on Agriculture;
Describe the role of the Committee on Agriculture;
Explain the relationship of the Agreement on Agriculture to other WTO Agreements.
This Module looks at the specific rules governing trade in agricultural products, a subset of goods. At the end of this Module you should be able to explain:
agricultural trade and multilateral trade policies prior to the WTO and the Uruguay Round agriculture negotiations;
the Agreement on Agriculture that came out of the Uruguay Round – its structure, product coverage, disciplines and commitments, implementation;
the relationship of the Agreement on Agriculture to other WTO Agreements; and
the role of the Committee on Agriculture.
The importance of agriculture and agricultural trade cannot be overemphasized. Trade in agricultural products, for example, aids global food security by ensuring that temporary or protracted food deficits arising from adverse climatic and other conditions can be met from world markets.
In addition, in many countries, agricultural trade is an important part of overall economic activity. It generates income and wealth, creates jobs, plays a major role in domestic agricultural production and export activities, and generates revenue and foreign exchange for governments.
I.B.Agriculture Trade Rules under the GATT
International trade in agriculture products had been subject to the rules of the multilateral trading system since the entry into force of the GATT back in 1947. However, there were several important differences with respect to the rules that applied to agricultural primary products as opposed to industrial products. Furthermore, there were exemptions and exceptions for agriculture trade and for subsidies to producers of agriculture products.
For example, the GATT 1947 allowed Contracting Parties to use some non-tariff measures such as subsidies and import quotas. In addition, many of the Contracting Parties operated so-called "grey area" measures that were not clearly covered by the rules or commitments but were of dubious legality nonetheless.
GATT 1947 also permitted, at least to some extent, the use of (1) non-tariff barriers to imports, such as quantitative restrictions, (2) subsidies to agricultural producers, and (3) export subsidies for primary products. However, there were conditions attached to these flexibilities that often turned out to be quite strict.
Article XI.2(c) of the GATT 1947 permitted the use of quantitative import restrictions on imports of agricultural products. But there were a lot of conditions attached as the import restriction had to be part of a national supply management scheme which imports could undermine. In addition, the exception in Article XI.2(c) was conditional on Contracting Parties maintaining a minimum proportion of imports relative to domestic production. Thus, quantitative import restrictions on imports of agriculture goods were permitted but subject to a list of conditions.
Article XI.2(c) was the subject of a lot of litigation in the GATT. For agriculture, the most important of the cases was Japan – Restrictions on Certain Agriculture Products.1 The Panel effectively showed that the requirements under Article XI.2(c) were quite strict and confirmed the view of some other Members that had sought waivers for sensitive products. The US obtained such a waiver in 1955 for some cotton products, some dairy products, peanuts, syrup and sugar.2 This waiver remained in place until the Uruguay Round was completed and the provisions of the WTO Agreement on Agriculture applied to agricultural products. Switzerland, on the other hand, negotiated an exemption for the agriculture sector in its protocol of accession to the GATT.3
What is a protocol of accession?
States and Customs territories, which became Contracting Parties of the GATT between 1948 and 31 December 1994 had to negotiate the conditions of their accession to the GATT 1994. These conditions and commitments are in protocols of accession, which form an integral part of the GATT 1994. Similarly, WTO Members that joined the organization after its establishment have protocols of accession (see Article XII of the WTO Agreement).
In addition, across the GATT only about one-third of agriculture products had bound tariff rates. Furthermore, many Members used various measures to support exports of agricultural products, to subsidise domestic production and to restrict imports using high tariffs or non-tariff measures.
Notwithstanding the conditions attached to import restrictions under Article XI of GATT, many non-tariff barriers were applied to imports without any effective limits on domestic production and without maintaining minimum import access. In some cases, this was achieved by the use of measures not specifically provided for under Article XI (the General Elimination of Quantitative Restrictions).
In other cases, restrictions were kept pursuant to exceptions and country-specific derogations (such as, grandfather clauses, waivers and protocols of accession). In yet other cases, non-tariff import restrictions were maintained without any apparent justification. Major agricultural products such as cereals, meat, dairy products, sugar and a range of fruits and vegetables faced barriers to trade on a scale uncommon in other merchandise sectors.
What is this reference to "grandfather clause"?
Under a grandfather clause, a rule needs to be applied only to the extent that it is not inconsistent with legislation in effect before the accession to the GATT (for grandfather clause applying to the GATT) or the creation of the WTO for post-Uruguay Round Agreements.
The rules on subsidies to farmers were not clear under the GATT, where Article III.8(b) stated that subsidies to producers were not prohibited by the national treatment obligation. In addition, it was not even clear whether or not price support measures were subsidies.
However, the value of tariff concessions affected by these subsidies was protected by Article XXIII which states that concessions cannot be nullified or impaired, even by measures that comply with the GATT (that is, by non violation nullification or impairment).
The use of Article XXIII in the case EC – Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal Feed4, brought by the US against the EU, highlighted the importance of non-violation nullification or impairment. The EU had bound tariffs on oilseeds at zero and subsequently introduced a subsidy that was paid to processors on condition that they bought EU produced oilseeds. The subsidy was later changed to payments to producers based on the area of oilseeds planted and harvested.
The US claimed, and the Panel agreed, that the subsidy scheme nullified or impaired the benefits it had expected from the zero tariff binding. The case was taken during the Uruguay Round and the results of the dispute were incorporated into the EU's Schedule as limitations on the area of oilseeds planted and some market access concessions to the US and some other countries.
However, disputes under Article XXIII would only be possible in cases where a bound tariff existed at a level that would normally permit trade. If there was no bound tariff, or if it was bound at a level that would effectively prevent any meaningful trade, then a domestic subsidy would be unlikely to nullify or impair the value of a benefit under the GATT.
On export subsidies, while the GATT 1947 prohibited export subsidies on industrial products, Article XVI:3 allowed Members to use them on primary products, provided they were not used to gain more than "an equitable share of world trade". This provision referred to primary products and was taken to include primary agricultural products.
The lack of legal precision meant some Members used export subsidies to dispose of excess production on the world market. This had the effect of depressing world market prices and inducing other countries to do the same.
This provision was adjudicated upon in the case EC – Refunds on Exports of Sugar5 brought by Australia in 1980 against the EU. The Panel found that it could not rule on whether the export refund system used by the EU had led to it having more than an equitable share of world trade. However, the Panel ruled that the system had depressed world prices and had caused serious prejudice to Australia and that the uncertainty the system brought to the market had led to a threat of injury. However, the Panel was not able to quantify the value of the prejudice.