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Fact File
The World Trade Organization
When the third ministerial conference of the World Trade Organization (WTO) takes place Nov. 30-Dec. 3, 1999, in Seattle, Washington, agricultural exporters need to pay close attention. The conference launches global negotiations to further open markets, remove trade barriers and reduce trade-distorting policies in agriculture, services and, potentially, other areas. In all, 134 WTO member countries have been invited to join the United States in this new round of global trade negotiations.
In preparation, the United States is working with other WTO members to establish the agenda, scope, content, and timetables for the new negotiations. Several U.S. government agencies, including the U.S. Department of Agriculture (USDA), have been meeting with constituents throughout the country to solicit ideas on the proposals and positions the United States should take. The U.S. Trade Representative’s (USTR) Office has coordinated meetings with the private sector, while USDA and USTR officials have crisscrossed the country to discuss the WTO process and listen to the concerns of farmers, ranchers, and consumers.
What Is the WTO?
The WTO was established on Jan. 1, 1995, after the General Agreement on Tariffs and Trade (GATT) Uruguay Round Agreement was ratified by member governments. Its purpose is to administer agreed-upon rules for trade among member countries. The WTO replaced the GATT as the legal and institutional foundation of the multilateral trading system of member countries. Its role is similar to the GATT, but it puts into action the new trade disciplines adopted during the Uruguay Round.
The WTO is both a code of rules and a forum for countries to
discuss and resolve trade disputes and to continue negotiations
toward expanding world trade opportunities. The WTO includes all
GATT 
provisions for trade in goods, including
the new rules adopted in the Uruguay Round, plus rules governing
trade in services and intellectual property and rules and
procedures governing the settlement of disputes. It functions as
the principal international body concerned with multilateral
negotiations on the reduction of trade barriers and other
measures that distort competition. The WTO also serves as a
platform for countries to raise their concerns about trading
partners’ policies. The basic aim of the WTO is to
liberalize world trade and place it on a secure basis, thereby
contributing to economic growth and development.
Uruguay Round Included Agriculture
Until the GATT Uruguay Round, agricultural trade was exempt from most of the disciplines applied to manufactured goods in seven previous GATT rounds. But in September 1986, when the Uruguay Round was launched in Punta del Este, Uruguay, it was decided that agriculture should be brought more fully under GATT rules to reduce barriers and promote expansion in agricultural trade.
Early in the Uruguay Round
negotiations, the United States proposed that agricultural trade
reform be structured around new rules covering four crucial
areas: market access, export subsidies, internal support policies
and sanitary and phytosanitary measures affecting trade. Specific
commitments in these four areas formed the basis for the final
Uruguay Round Agreement on Agriculture and the Sanitary and
Phytosanitary (SPS) Agreement.
Market access. U.S. objectives for market access were among the most difficult to achieve during the Uruguay Round negotiations. Under the agreement, all products have access in all WTO member markets. All types of nontariff import barriers -- quotas, variable levies, discretionary licensing, outright import bans and other nontariff barriers -- were converted to tariffs that were bound and then reduced 24-36 percent over a five- to 10-year period (depending on the country). It was also agreed to establish tariff-rate quotas so that countries could maintain historical trade levels while creating some new trade opportunities in highly protected markets.
Export subsidies. The costly practice of subsidizing
exports, which in the late 1980s was responsible for so much
trade friction, especially between the United States and European
Union (EU), was finally brought under some control in the Uruguay
Round. Developed countries were required to cut their spending on
export subsidies by 36 percent over six years while also reducing
subsidized export quantities by at least 21 percent on a
commodity-specific basis. Developing countries have until 2005 to
cut spending by 24 percent and subsidized quantities by 14
percent. Export subsidies are defined as direct government or
producer subsidies on exports, transportation and freight
subsidies, marketing subsidies and the sale or disposal of
government stocks below domestic prices.
Internal support. The agreement on internal support recognized for the first time that policies of overproduction or production of specific commodities by individual countries played a major role in distorting world agricultural trade. It defined those policies that seriously distorted trade and those with minimal trade-distorting effects using the traffic-signal colors of amber and green. Amber box policies (symbolizing "caution") are subject to reduced government support, while green box policies (symbolizing "go") entail no reduction requirements or restrictions. Another temporary exemption category called blue box was created to accommodate the EU and the United States and to bring the negotiations to a conclusion.
Amber box policies include price supports, marketing loans, payments based on acreage or number of livestock, input subsidies and certain subsidized loan programs. Green box policies include research, pest and disease control, extension services, inspection, marketing and promotion, crop insurance, natural disaster relief, conservation programs, public stockholding and other government programs related to agriculture. Blue box policies are redefined amber box policies that are related to production-limiting programs, such as payments based on fixed area and fixed yield, fixed number of livestock or no more than 85 percent of the base level of production.
Each country must reduce its amber box policies based on its Aggregate Measurement of Support (AMS), which totals all of a country’s support measures linked to production during the 1986-88 base period. Each country’s total AMS is then capped and reduced. Developed countries must reduce their AMS by 20 percent in equal installments over six years, while developing countries are allowed 10 years to complete a 13-percent reduction.
Sanitary and phytosanitary measures. This separate agreement imposed disciplines on the use of measures to protect human, animal, and plant life and health from foreign pests, diseases, and contaminants. It was designed to curtail import restrictions based on arbitrary and unsubstantiated health and safety concerns. Each country can set its own level of acceptable risk, make its own laws and determine its own health and safety requirements for imports, but these measures must be based on sound science and applied only to the extent necessary to achieve public health or environmental goals.
U.S. Goals for the Next Round
This new round will continue to build on
the agricultural trade reforms begun in the Uruguay Round, while
also creating a world trading system that contributes to global
food security. Further reform constitutes the world’s best
hope for a more open, comprehensive, transparent, and strong
world trading system.
Farmers will gain an incentive to: (a) produce, promote better resource allocation, which has conservation benefits, (b) reward low-cost producers, (c) encourage specialization in efficient agricultural and non-agricultural production and (d) maintain income.
Consumers will benefit from year-round access to a greater variety of less expensive agricultural products. In countries with food shortages, more people will survive.
Food-importing nations will increase their food security since supplier countries will be willing to put more land into production with confidence.
The incentive for technological innovation will be enhanced, resulting in improved seed varieties or production techniques, and expanding the venues where food can be obtained.
The United States has several goals for the upcoming WTO negotiations:
Elimination of export subsidies.
Contrary to widespread belief, export subsidies penalize farmers
by limiting technological and organizational efficiencies. Budget
cutbacks and limited resources make these subsidies even less
tenable.
Reform state trading enterprises (STE’s). We want to look at ways to increase transparency to understand and monitor the impact of STE’s on the world trading system.
Substantially cut -- and where possible eliminate -- tariffs on farm products. Agricultural tariffs worldwide still average about 50 percent, whereas U.S. tariffs are about 5 percent, on average. High tariffs encourage inefficient producers, drive up consumer prices and insulate domestic producers from the international marketplace, resulting in inefficient industries that stanch the free flow of goods and distort trade.
Clarify rules on domestic subsidies. Protective tariffs and unfair export subsidies frequently have their root cause in domestic subsidy regimes. Generous subsidy programs can only be sustained by keeping out the competition and dumping surplus production on world markets. By telling farmers what to produce, these subsidy programs interfere with comparative advantage and farmers’ ability to adjust to the demands of consumers.
At the same time, countries need to be able to encourage development in agriculture and safeguard rural communities. In the GATT Uruguay Round, it was agreed that this support should be allowed when it is non-trade distorting. More work needs to be done in this area, including cuts in existing trade-distorting supports.
Address trade concerns in the emerging area of biotechnology. Since the Uruguay Round, the products of biotechnology have become the focus of increased trade tensions, especially with the European Union, but also to a lesser extent with Japan and developing countries. It remains to be seen whether the SPS and the Technical Barriers to Trade Agreements provide enough guidance to settle the disputes raised by these new products. That is why the upcoming negotiations need to address and clarify this emerging area. We must ensure that trade and regulatory frameworks encourage the development and transmission of these technologies from laboratory to market. Creating a supportive environment for the propagation of yield-enhancing products of biotechnology is critical for meeting the world’s food needs in the new millennium.
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