Farm Policies and World Markets

The following sections are included:

• Contents
• About the Author
• Preface and Acknowledgements
• Introduction

The years 1972-1977 were traumatic for those who had responsibility for food and agricultural policies of industrial nations. Old notions of the problems to be faced had to be discarded; well-established political alliances were shaken by new interests; entrenched policy instruments had to be resharpened in a new cause. It was a period of heightened uncertainty, and the responsibility of decisionmakers was widened to include concern with economic stability on the domestic front and with the security of food supplies to low-income countries abroad. But the experiences of that period should not be seen as an aberration, to be forgotten in more normal times. Indeed those experiences have illuminated many of the problems of the agricultural trading system for the past twenty-five years and put into sharper focus the relationship between domestic farm and food policies and the international market for temperate-zone agricultural products…

The following sections are included:

• PURPOSE OF MEASURING PROTECTION IN AGRICULTURE
• TYPOLOGY OF PROTECTION MEASURES
• EMPIRICAL APPROACHES AND RESULTS
• CONCLUSIONS
• NOTES
• REFERENCES

The following sections are included:

• Introduction
• What Makes a Good Policy Indicator?
• Types of Indicators Available
• The Debate on the Use of Subsidy Equivalents
• A New Approach to Policy Indicators
• Conclusion
• References

The following sections are included:

• Introduction
• Problems in international trade policy
• A 'government intentions' model
• International adjustment mechanisms
• Conclusion
• References
• Résumé
• Zusammenfassung

The following sections are included:

• INTRODUCTION
• LINKAGES AMONG DOMESTIC FARM POLICIES
• IMPLICATIONS FOR NATIONAL POLICY INVESTIGATION
• IMPLICATIONS FOR INTERNATIONAL TRADE RESEARCH
• SUMMARY
• APPENDIX
• ACKNOWLEDGMENTS
• NOTES
• REFERENCES

Food security is greatly influenced by the structure of the distribution system. Although the nature of the underlying structure and the policies that have been suggested to improve it will only change slowly, it seems worthwhile to explore in some detail the reaction of the world wheat market to shocks on the production side, particularly its impact on supply stability in developing countries. The relevance of the issues becomes apparent in periods of scarcity, but the policies need to be operative before such events propel the issue into prominence.

The following sections are included:

• Introduction
• The GATT
• Agriculture in the GATT
• Previous Negotiation Rounds
• Lead-up to the Uruguay Round
• The Uruguay Round
• Impacts of GATT on National Policies
• Notes
• References

The GATT gave special treatment to agriculture by allowing quantitative import restrictions when domestic output was also controlled, and made an exception to the ban on export subsidies by allowing them for primary products, subject to somewhat weak and imprecise conditions. Both were concessions to the operation of domestic farm policies in developed countries, primarily the US and the UK and later Canada and the EU, and full advantage was taken of these legal exceptions. Subsidies in general had been treated leniently in the GATT with merely the obligation to notify if they impacted upon exports. Domestic subsidies for agricultural products had significant impacts on both imports and exports and were seen to be a significant part of the trade problem, but operated under minimal constraints. So the exceptional treatment of agriculture in the GATT had led to a dysfunctional trade regime.

The Uruguay Round faced up to the inchoate conditions on world markets and the deterioration of trade relations that these exclusions allowed. The Agreement on Agriculture (URAA) specifically banned quantitative restrictions on imports, except those introduced to guarantee access and banned new export subsidies, capping and reducing existing expenditures on the programs and the volumes that could be subsidized. Domestic subsidies that were deemed to be most trade-distorting were capped and modestly reduced. The Doha Round would, if completed, eliminate export subsidies, severely limit the ability to provide trade-distorting support, and reduce the bound tariffs by a considerable extent.

The URAA was negotiated at a time when the US and the EU were the main players in the agricultural policy space and it represented a way of disciplining trade to avoid conflicts and reduce protection. Domestic policies were reformed in a way that was consistent with the URAA constraints. If the Doha Round is successful, most of the special provisions for agriculture will no longer be needed. But at that stage the URAA may inadvertently hamper the process of developing trade rules that meet new challenges.

Evidence exists of an emerging new paradigm in U.S. agriculture that emphasizes the ability of the sector to compete both with other sectors in the domestic economy and with overseas competitors. But a rival new paradigm has been gaining significance in Europe that stresses the public-good nature of agriculture and the inability of the sector to earn satisfactory incomes just by providing agricultural commodities. A third paradigm points to the nature of agriculture as increasingly one stage in an integrated supply chain that crosses borders in a global food system. The current WTO talks on agriculture will provide an opportunity for these paradigms to compete for the setting of international trade rules.

The following sections are included:

• INTRODUCTION
• US AND EC TRADE PHILOSOPHIES
• UNDERLYING CAUSES OF AGRICULTURAL TRADE DISPUTES
• CURRENT ISSUES IN AGRICULTURAL TRADE RELATIONS
• EMERGING ISSUES IN US-EC TRADE RELATIONS
• CONCLUSION
• REFERENCES

The following sections are included:

• INTRODUCTION
• FREQUENCY AND OUTCOME OF AGRICULTURAL SUBSIDY DISPUTES
• LESSONS FROM PAST DISPUTES
• PROSPECTS FOR THE FUTURE
• ANNEX: AGRICULTURAL SUBSIDY DISPUTES BETWEEN THE US AND THE EC

Agricultural trade has generated more than its share of disputes in the past fifty years. Lack of a clear structure of rules to constrain government activity in these markets, coupled with the particularly sensitive nature of trade in basic foodstuffs, has been the main cause of this disproportion. New rules agreed in the Uruguay Round provided an improved framework for government policy in this area, and a temporary exemption was given to certain subsidies from challenge in the WTO (the Peace Clause). However, the expiry of the Peace Clause in 2003 and a growing willingness on the part of exporters to challenge domestic farm programs in other countries through action under the Dispute Settlement Understanding has once again stirred the agricultural pot. Now trade disputes are frequently leading to litigation, encouraged by the slow progress in the Doha Round of trade negotiations. In particular, the scope for domestic subsidies, under the Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures, has increasingly become the subject of litigation. Countries may have to further modify their domestic policies so as to reduce their vulnerability to challenge in the WTO.

The establishment of the WTO in 1995 posed a challenge for the conduct of domestic farm policies. Both the levels of support and the instruments used were constrained by the Agreement on Agriculture and other parts of the Uruguay Round Agreement. This chapter explores the experience of the period since 1995 to see to what extent the WTO commitments have shaped domestic farm policies, particularly in the United States and the European Union. This influence can come about either through the negotiated constraints on policy outcomes or through the litigation of complaints by other countries. Notifications of domestic support levels show little direct impact on US farm policy but the outcome of litigation has had some influence on policy choices. In the European Union, the reform of the CAP has been much more influenced by WTO subsidy constraints but somewhat less by litigation.

When the WTO was launched at the conclusion of the Uruguay Round negotiations its members committed to a new set of disciplines for agricultural domestic support, market access and export competition. It was recognized at the time that the domestic support disciplines were rather porous. Their architecture was consistent with the modest objectives that WTO members had collectively agreed to reduce distortions in world markets. What was uncertain at that point was just how the agreed-upon disciplines would interact with subsequent domestic agricultural policy decisions. In particular, it was not known to what extent the new rules and commitments would motivate countries to shift their policies in the less trade-distorting direction envisioned by the Agreement on Agriculture…

Transparency in the multilateral trade system is fundamental. Monitoring the compliance of WTO members with their obligations is an important part of that transparency, and timeliness in the notification of compliance is crucial. In the case of domestic support to agriculture, the notifications of compliance with obligations has been slow and opaque. But another database exists that could both illuminate the extent to which policy instruments are correctly notified and provide a convenient way to ensure timely 'pre-notifications' in the event that delays occur in the future. This note shows how the OECD database can be used, for example, to shed light on the extent to which payments to producers that require production as a matter of eligibility are presently notified to the WTO as having no effect on production. We also demonstrate the feasibility of using OECD data to construct 'pre-notifications' by calculating the (as yet un-notified) domestic support notifications for the EU for the years 2009/10 and 2010/11.