Background for the Agreement

The original GATT1947 did apply to agricultural trade, but it contained loopholes. For example, it allowed countries to use some non-tariff measures such as import quotas, and to subsidize. Agricultural trade became highly distorted, especially with the use of export subsidies which would not normally have been allowed for industrial products. During 1997-2001, for example, the US injected export subsidies worth $78.87 billion. In May 2002, the US enacted another law authorizing massive farm subsidies. Farm subsidies account for more than 46% of the EU budget, spending U$7 billion in export subsidies to support 2% of its population involved in agriculture, accounting for 85% of all exports subsidies in the world. In Japan, the level of support is 65 percent (Switzerland 73% and Norway 69%) of gross farm receipts.

The agricultural negotiations of the Uruguay Round were largely dominated by exchanges between the US and the EU. On the eve of the Uruguay negotiations, the US was the world’s biggest exporter of agricultural products and the second biggest importer. In contrast, the EU was the biggest importer and the second biggest exporter at world level. When the Round began, the two major exporting powers had both reached self-sufficiency because of the effectiveness of the CAP, technological progress and improved productivity, and were trying to conquer the export market. Only with a simultaneous and similar modification of farm policies on both sides of the Atlantic could there be a sharing of the cost of agricultural policy reform. The agricultural negotiations that were initially multilateral in the GATT context rapidly turned into bilateral negotiations between the EU and the US. The agriculture negotiations blocked the rest of the multilateral negotiations. The concessions obtained were in fact no more than an international consolidation of internal reforms.

Reasons for the existence of exceptional arrangements for agriculture.

Governments usually give three reasons for supporting and protecting their farmers, even if this distorts agricultural trade to make sure that enough food is produced to meet the country’s needs

In many countries, support for agriculture is primarily strategic in nature. By encouraging agriculture, a country can guarantee its food supplies against fluctuating harvests and protect its population from famines. Self-sufficiency in agricultural products means a country does not have to depend on supplies from third countries, which could one day turn out to be its enemies. It is particularly significant for the developing countries with chronic shortage of foreign exchange. It is not practical for them to depend on imported staple food, even though it may be cheaper to import, because they may not have adequate foreign exchange to import the food products. Considering the uncertain nature of their foreign exchange availability and also, perhaps, the uncertainty in the supply of food grain even if the necessary foreign exchange were available, several countries would like to develop their own production base for their staple food, rather than depend on imports.

To shield farmers from the effects of the weather and swings in world prices.

The objective of ensuring consumers reasonable prices and protecting producers against fluctuations in the price of agricultural products is often put forward to justify the existence of agricultural policies. One of the main characteristics of the agricultural product market is indeed its wide price variations due to the fact that demand for foodstuffs is constantly rising because of world population growth whereas supply can vary enormously because of fluctuating harvests and weather conditions. Variable customs duties, as are given in EU, can correct any variation in world prices and guarantee a fixed price on the domestic market thus ensure a stable income for producers. Loans to farmers or an insurance mechanism that guarantees producers a minimum income, irrespective of fluctuations in world prices, as is the case in the US, can also achieve this goal.

To preserve rural society.

Many Western democracies remain closely attached to the cultural, social, and historical values that agriculture perpetuates. In the US, people still cherish the image of the pioneer farming families who settled the vast expanses of America. Similarly, the Japanese remain very attached to maintaining national agriculture through which they can preserve their ancestral traditions. In the European Community, the existence of the common agricultural policy (CAP) is nowadays justified by the multifunctional aspect of agriculture. Thus regional planning, safeguarding the rural way of life, animal welfare, environmental protection and food security are financed via support for agriculture.

Several developing countries have a more deep-seated concern. Agriculture in these countries is not so much a matter of commerce; it is intimately interwoven with the pattern of rural life. Many farmers cultivate their land not as a commercial venture, but more as a family tradition. The land has been with their families for generations and they have been cultivating it as they have no other source of income to support their families. Such developing countries fear that their small and marginal household farmers will be in great difficulty when they are called upon to face the challenge of world competition.

To win political support.

This is an inexplicit motivation in granting favorable agricultural policies. In many Western democracies, agricultural interests have a political clout that gives them a decisive influence on the political life of their countries. This is the case in the US where the thinly populated states of the farm belt have as many senators as densely populated states like California, and similarly in Japan or Canada where the political systems also encourage over-representation of rural rather than urban areas. This phenomenon also exists in the EU. In Germany the weight of farming interests in the south of the country was decisive in keeping Chancellor Kohl in power; in France the rural electorate still influences a very large share of the vote although farmers account for only some 5% of the working population.

This cultural and sociological dimension of agricultural support, which is very evident in the urban electorate, coupled with the strong political representation enjoyed by the agricultural electorate in the major Western democracies, helps to understand why, apart from reasons of simple economic logic, the major Western democracies remain firmly attached to maintaining agricultural policies.

But the policies have often been expensive, and they have encouraged gluts leading to export subsidy wars. Countries with less money for subsidies have suffered. In negotiations, some countries have argued that trying to meet any of these objectives is counter-productive. Others have attempted to find ways of meeting the objectives without distorting trade too much.

Overriding feature of the agreement: Where there is any conflict between the Agreement and other WTO agreements, the provisions of the Agreement on Agriculture prevail.

The objective of the Agreement is to establish a fair and market-oriented agricultural trading system, thus improve predictability and security for importing and exporting countries alike.