Evaluating effects of world trade agreements on agriculture

Context

The concept of sustainability is referred to only tangentially in the existing WTO agenda.

The Uruguay Round Agreement on Agriculture (URAA) established rules relating to international trade in agriculture, covering market access, export subsidies, and domestic agricultural policy. The URAA required non-tariff barriers to agricultural imports to be tariffed and bound, farm production and export subsidies to be reduced, and aggregate domestic support for the agricultural sector also to be reduced. Different requirements apply to developed countries, developing countries and least developed countries which influence the extent of the changes required, the time period over which they are to be achieved, and the degree of discretion in their implementation.

There are exemptions from certain URAA agriculture provisions covered by the so-called 'green' and 'blue' boxes. These relate to a range of general government services and certain 'decoupled' forms of income support, structural adjustment assistance and direct payments to producers under environmental and regional assistance programmes. Also, payments under certain other policies relating to production-limiting programmes, and encouragement of agricultural and rural development in developing countries need not be included in the total domestic support reduction commitments.

The URAA specified percentage reductions in agricultural support to be achieved by certain dates (6 years in the case of developed countries; 10 years in the case of developing countries, except in the case of the least developed countries which are largely exempted from these requirements).

The economic consequences of implementation of the URAA for developing countries depend upon how the URAA changes these countries' opportunities to export (e.g. through increased market access) and their supply capabilities in responding to these, and also their opportunities to import (e.g. due to reduced subsidies on imports) and their domestic production responses to these. A great diversity in economic impacts is expected, depending on the extent to which the country concerned is a significant exporter or importer of agricultural products and on the elasticity of its supply and demand functions, as well as on the specifics of the changes in its own tariffs, subsidies etc relative to its trading partners.

Article 20 of the WTO Agriculture Agreement conditions the long term objective of substantial, progressive reductions in support and protection, resulting in fundamental reform, by other concerns, notably the experience and effects of implementing reduction commitments agreed in 1994, special and differential treatment of developing countries, the objective to establish a fair and market-oriented agricultural trading system, and non trade concerns.

Implementation

A number of studies conclude that the overall bound tariff rate for agriculture remains high in a number of OECD countries and in the more advanced developing countries. Agricultural tariff rates average above 40 per cent, with tariff peaks on particular commodities. There has been a scheduled reduction in expenditure on export subsidies and on the quantity of exports that can benefit from subsidies, but issues such as single-desk selling agencies, export restraints through quantitative controls (TRQs) and 'unused' export subsidy allowances, mean that export subsidies continue to act as a trade restraint. This evidence suggests that there could be important differences between the existing situation and the situation assuming full URAA implementation.

The European Union Common Agricultural Policy (CAP) had a number of negative economic and environmental consequences. During the 1990s these consequences have been tackled, resulting in some reduction or containment of these adverse effects. However, they have not been eliminated and, as a bi-product of the adjustment process, some extra social costs have fallen on the farming and rural communities within the EU.

The potential economic benefits for the least developed countries are significant and positive. These would be concentrated in agricultural production and processed agricultural products but could support increased export earnings, increased rural incomes and increased employment (in processing). The rise in incomes, and the potential for gains in rural and urban areas, implies a positive social impact. In principle, free market access could contribute to a pro-poor growth strategy in the least developed countries, although it would be necessary to put in place other measures to increase the ability of producers to avail of enhanced market access. The complementary policies required would include improved access to agricultural inputs, improved incentives for producers and support for marketing, distribution and transport. As the effects will be on agricultural production, significant environmental impacts are possible but these need not be adverse. If improved market access increases the profitability of agriculture, producers will be encouraged to invest and adopt sustainable methods to ensure their income stream.

Claim

The full implementation of the URAA will produce negative economic, social and environmental consequences for each of the URAA country groupings, although there are "gainer" and "loser" countries (and communities within countries). Negative economic, social and environmental consequences are of particular concern in developing and least developed countries which are under stress and lack the economic, social and environmental safety nets and regulatory systems to address these.

Complete liberalization offers the prospect of overall economic welfare gains in a state of long term general equilibrium. However, the short and medium term economic impacts during the transition period of adjustment are less certain, particularly among developing and least developed countries. There is likely to be considerable variation between 'gaining' and 'losing' countries and between 'gaining' and 'losing' regions and socio-economic groups within these countries.

Sustainable agricultural production techniques such as integrated and organic farming provide a series of related services to community and environment which could be severely prejudiced by wholesale trade liberalization and the imposition of the large-scale production methods of the mega-trade giants of the USA and Europe.

Unfettered liberalization is unsustainable and a social and environmental multilateral framework must be agreed to reinterpret or adapt a host of WTO regulations that are at odds with sustainable development. The core problem is that, under the current system, import duties can only be differentiated by direct goods and services and not by their means of production – sustainable or otherwise. Therefore, a range of environmental policy measures in the agricultural sector, such as the consideration of product life-cycles, the internalization of external costs and a coupling of trade liberalization with ecological obligations are proposed by the authors. In addition, they argue that unsustainable economic short-termism must be curbed and the use of the stick of trade sanctions and the carrot of financial benefits for good environmental performance be permitted to promote sustainable agricultural practices.