By Philip C. Abbott and Linda M. Young

Export competition emerged as one of the three pillars upon which agricultural trade liberalization was built in the Uruguay Round Agreement on Agriculture (URAA). This pillar not only addresses direct export subsidies, believed to be one of the most distortionary policy instruments applied to agricultural trade, but also institutional relationships under which implicit export subsidies may arise. Food aid, officially supported export credit, and exporting state trading enterprises are key institutions examined in this area. Export taxes, export promotion activities, and certain domestic policy arrangements which may be equivalent to export subsidies are also addressed in World Trade Organization (WTO) Doha Round negotiations, in a variety of venues.

Both country proposals to the WTO for the Doha Round and the Harbison proposal address unfinished business from the URAA. In the area of export competition, the Harbison proposal calls for gradual elimination of export subsidies (over nine years for developed countries) and sets disciplines for officially supported export credit, food aid, and exporting state traders.

Each of the substantive areas in export competition addressed by the Harbison proposal has become largely a one-country issue. The EU utilizes over 90 percent of the remaining direct export subsidies. Nearly all of the measured subsidy component of the many officially supported export credit programs arise from the long-term U.S. GSM programs. Food aid issues focus on U.S. P.L. 480 Title I programs that are given as loans rather than grants, and for which one objective is market development. State trading focuses on U.S. disputes with the Canadian Wheat and Dairy Boards.

While issues may center on single country programs, the WTO must write rules that are applicable to all members. Writing such rules has in the past evidenced some weakness in this approach. Strict rules may eliminate some beneficial institutions or practices. Food aid can help the hungry poor or finance development projects. Export credit can break liquidity constraints and lead to additional imports. State trading remains a popular alternative mechanism to implement domestic agricultural policy. Alternatively, the problem program may innovate slightly to avoid strict rules and continue to pursue its prior farm policy objectives.

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By Lars Brink

This paper examines the commitments taken by the New Members with regard to the WTO Agreement on Agriculture, the extent of agricultural policy reform they have undertaken, their participation in the WTO Committee on Agriculture, and the exceptional provisions proposed regarding the application of reform to some New Members in the negotiations on agriculture under the Doha Development Agenda (DDA). The examination also extends to some of the countries currently in the process of accession.

The purpose is to illustrate how some New Members might be able to use particular dimensions of the New-Member provisions suggested in negotiations, and the possible implications for the effectiveness of New Members’ potential DDA commitments in agriculture in helping to achieve the objectives of the DDA. The key conclusion is that a deferral might need to apply to the implementation of some of the DDA reduction commitments of a few recently acceded Members, where reductions on individual tariff lines or on Total AMS under accession commitments would otherwise overlap in time with the implementation of DDA commitments.

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By David Blandford

The impact of domestic support on trade is likely to become an increasingly important issue in the WTO negotiations on agriculture. Domestic support expenditures are increasing and existing disciplines on forms and levels of support are weak. While a shift from market price support to output subsidies should be less trade distorting, such support may not be minimally distorting as required under the so-called “green-box” criteria. Proposals submitted by WTO members could further expand permissible support measures and weaken disciplines on their use. Clearer policy criteria and stronger disciplines are needed in order to avoid future trade disputes on agricultural support.

The first part of this paper describes how domestic support was treated in the Uruguay Round Agreement on Agriculture (URAA). A simple analytical approach is used to explore how some of the major forms of domestic support can cause trade distortions. The relationship between domestic support policies and trade policies is also discussed. This is followed by an assessment of the impact of the URAA on levels of domestic support, and a review of the proposals made thus far by World Trade Organization (WTO) members on how support should be handled in the current round of agricultural trade negotiations. Issues associated with the payments currently permitted under the URAA are explored, in particular the links between payments and production decisions. Finally, some suggestions are made on how progress can be made in dealing with domestic support in the negotiations.

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By Suchada Langley, Don Blayney, Jim Stout, Agapi Somwaru, Mary Anne Normile, Jim Miller, and Richard Stillman

Dairy industries around the world remain among the most distorted agricultural sectors. Dairy average bound tariffs remain among the highest of all agricultural commodities, and dairy trade is characterized by a large number of megatariffs and tariff-rate quotas (TRQs). Canada, the European Union (EU), and United States have subsidized their dairy product exports. With the highly distorted domestic and international markets, international dairy markets have benefited only modestly from trade liberalization to date.

The World Trade Organization (WTO) Agreement on Agriculture allowed certain WTO members to maintain a system of tariff rate quotas. Countries have converted non-tariff barriers to tariff rate quota systems for dairy products to maintain import access levels and to provide minimum access levels. Under the agreement, many member countries also can subsidize dairy products for exports but they have committed to reduce both subsidized quantities and expenditures. On domestic support, dairy support makes up a large share of aggregate support for all commodities; countries agreed to specific reductions in aggregate support, but left dairy support largely untouched.

This study examines how international dairy markets might respond to trade policy changes. The study results indicate that liberalization of the dairy industry would result in lower supplies, higher world dairy prices and higher value of dairy trade. As expected, non-subsidized exporting countries such as Oceanic and South American countries would benefit from the liberalization, with higher trade and higher value of milk production. Heavily subsidized countries such as the EU, Canada, and the United States would face lower prices. However, Canada would export more, and the U.S. could potentially export more after liberalization. For the U.S., the decline in value of milk production would be small in comparison to the value of the whole dairy industry.

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