EU Commitments in the Uruguay Round Agreement on Agriculture
The European Union has trade policy commitments relating to agricultural
products that are contained in their commitments under the Uruguay
Round Agreement on Agriculture (URAA). This agreement, signed in
1994, introduced important new disciplines on trade in agricultural
products that have been implemented over the period 1995-2000. World
Trade Organization (WTO) member countries made commitments to
- reduce domestic support to agriculture,
- reduce the use of export subsidies, and
- improve access to their markets.
For information on the Agreement, see the ERS WTO
briefing room on this site.
Domestic Support
Under the URAA, developed member countries agreed to
discipline trade-distorting domestic support to agriculture
(such as market price supports, input subsidies, and direct
payments) by capping such measures at 1986-1988 average
levels and reducing them by 20 percent over the next 6
years. The aggregate measurement of support (AMS) was
developed to quantify trade-distorting support. During
each year of the implementation period, members had to
submit a report on the prior year's AMS, as well as notify
the WTO of any new policies that had been introduced.
A number of elements influence the EU's level of domestic support:
- the difference between EU support prices and the external reference
price (the average world market price during 1986-1988),
- the quantity of EU production eligible for support, and
- the value of the compensatory payments.
The 1992 Common Agriculture Policy (CAP) reform significantly reduced
the gap between the EU and the reference price. Production rose
from the base period, but market price support was much lower because
of the significantly smaller price gap. However, the direct income
support component was higher than in the base period because of
the introduction of compensatory payments.
Policies considered to have little or no trade-distorting effect
were exempt from a WTO member's domestic support reduction commitment.
These "green box" measures include:
- general services (research, extension, inspection, and
pest and disease control) that benefit producers and the rural
community; and
- direct payments to producers that meet specific policy
criteria (generally, all direct payments that cannot be related
to production type, volume, prices, or factors of production
in any year after the base period).
All green box programs must be publicly funded and cannot provide
price support.
The URAA also exempts from reduction those programs that are production
limiting and meet specific criteria. Referred to as "blue box,"
the criteria for these programs are:
- payments based on fixed area or yields,
- payments made on 85 percent or less of the base level of production,
and
- livestock payments made on a fixed number of head.
Examples of blue box policies are U.S. deficiency payments (pre-1966
Farm Act) and the EU's acreage and headage payments. The blue-box
provision was developed primarily as a temporary measure to accommodate
the EU's 1992 CAP reform, which lowered intervention prices and
introduced a system of compensatory payments based on fixed area
and yields for eligible crops (grains, oilseeds, protein crops)
and on a fixed number of head for cattle and sheep and goats. Without
the blue box exemption, these payments would have been subject to
reduction.
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Export Subsidies
The URAA required that countries reduce export subsidy
spending by 36 percent from 1986-90 average levels and
reduce the volume of each commodity exported with subsidies
by 21 percent from the average exported in those years.
Mandatory reductions in export subsidies under the URAA
have been of great concern to the EU countries, which
depend on export subsidies to export many of their agricultural
commodities. Commodity prices supported above world price
levels in the EU have stimulated production, creating
surpluses that could only be exported with subsidies.
Exports of grain, beef, pork, poultry, dairy products,
sugar, wine, and fresh and processed fruits and vegetables
receive export subsidies. According to their official
notifications of export subsidy use to the WTO, the EU
spent an average of $6 billion a year from 1995 to 1998
in subsidizing exports, more than any other country.
The EU's export subsidy constraints required reductions in their
subsidized export levels for wheat, coarse grains, pork, beef, and
cheese. (Subsidized exports of skimmed milk powder and butter were
high in the base period compared with the levels of recent years
and thus no reduction was required.) Because of cuts in support
prices under CAP reform, the per-unit export subsidy for many commodities
was smaller than base period levels. Higher world prices for some
commodities (notably grains) in 1995/96 meant that the EU used less
than 50 percent of the maximum export subsidy value for that year,
but as world grain prices fell in 1997 and 1998, EU subsidy expenditures
for grains increased.
By limiting the quantities the EU can export with subsidies, the
URAA shifted some of the pressure of surplus production from the
world market to the EU internal market. The required reductions
became larger in the later years of the implementation period, requiring
policy adjustments such as higher set-aside rates to reduce exportable
surplus of grains. A series of measures were put in place to address
the beef oversupply situation triggered initially by the BSE ("mad
cow" disease) crisis, and exacerbated by the EU's beef support
system and the ever-tightening export subsidy limits. Limits on
export subsidies were cited as a primary motivation for the
EU's proposed reform of the CAP under the Agenda
2000 program.
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Market Access
The URAA required WTO members to convert nontariff barriers
(NTBs) into equivalent tariffs (a process called tariffication)
and to bind all tariffs. Developed countries were required
to reduce tariffs by an average of 36 percent with a minimum
15 percent for each tariff-line item by 2000. NTBs include
variable levies, import quotas, licensing requirements,
and minimum import prices. The EU used NTBs in addition
to tariffs to favor EU-produced goods over imports. The
EU (and many other countries) converted many of its nontariff
barriers into high tariffs that continue to afford the
EU market protection against imports.
Some tariffs maintain many of the features of the nontariff barriers
they replace. For example, the EU operated a minimum import price
system for fruits and vegetables that prevented imported products
from entering the EU market at world prices. The tariffs for fruits
and vegetables bound under the URAA vary depending on the price
of the import, with lower-priced imports paying a higher price.
This helps maintain the protection of the minimum import price system.
Similarly, the variable levy for grains was replaced. The EU agreed
that the duty-paid import price for most grains (wheat, corn, rye,
barley, and sorghum) would be 155 percent of the intervention price,
but no greater than the bound tariff. The actual tariff applied
can therefore vary, like the previous variable levy, depending on
world prices. The main difference is that it is now capped at the
level of the bound tariff.
Countries were also required to establish current access commitments
to ensure that historical quantities continued to be imported. Minimum
access commitments were created to allow new import opportunities
for products previously covered by a nontariff barrier. Both of
these commitments were administered through the establishment of
tariff rate quotas (TRQs).
Current access TRQs maintained by the EU cover corn and sorghum,
sugar, cheese and butter, beef, and sheepmeat. EU TRQs for sheepmeat
and butter allow increased imports of these products. The EU opened
minimum access quotas for wheat, corn, cheese, pork, beef, poultry,
nonfat dry milk, and eggs.
The combined impact of the EU's current and minimum access TRQs
has been minimal. The current access TRQs only serve to put access
opportunities existing prior to the URAA on a firmer footing. Several
of the minimum access TRQs include amounts agreed to earlier as
compensation for the 1995 EU enlargement (which added Austria, Sweden,
and Finland) and for the GATT oilseeds panel dispute. Amounts above
these quantities will increase EU imports by about US$950 million
by 2000/01, roughly 2 percent of the 1996 EU agricultural import
level. EU imports under preferential trade agreements with Central
and Eastern European countries also count toward fulfilling its
minimum access TRQs. (See also: EU
Market Access Commitments
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References
Glossary
of trade terms
Morath, Todd, WTO
Pressures for Agricultural Policy Change, Europe-International
Agriculture and Trade Report, USDA, ERS, WRS 99-2, October 1999.
Madell, M.L., "Implications of the GATT Agreement for EU Agriculture,"
Europe-International Agriculture and Trade Report, USDA,
ERS, WRS 94-5, September 1994.
TRQs Have Little Impact
on EU Market Access, While CEEs May Benefit, Europe-International
Agriculture and Trade Report, USDA, ERS, WRS 97-5, December
1997.
Leetmaa, S., EU Export
Subsidy Commitments Not Yet Binding, But Future Uncertain,.
Europe-International Agriculture and Trade Report, USDA,
ERS, WRS 97-5, December 1997.
Sheffield, S., S. Leetmaa, and M.L. Madell,
"EU Looks to Boost Competitiveness of Grain Sector, Prepare for Next
WTO Round," Europe-International
Agriculture and Trade Report,
USDA, ERS, WRS 97-5, December 1997, p. 19-22.
Agriculture in the WTO:
International Agriculture and Trade Report, USDA, ERS, WRS 98-4,
December 1998.
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