World Trade Organization: leeping eattle? High hopes for m,ore .liberalized trade were dashed when the Seattle meetings ended without agreement. Here's what was expected and what's happened since.

By Jonathan Coleman and Karl Meilke

he global trading system is in transi­ increase minimum import access, and limit trade negotiations began. The increase in T tion. At the end of World War II, the most trade-distorting domestic suppom. support was possible because many domes­ industrial tariffs averaged about 40 percent. Observers agree that the Uruguay Round tic programs are exempt from World Trade Now they average about 4 percent. The work made progress, but actual liberalization was Organization (WTO) disciplines. started in the 1940s to lower tariffs on indus­ modest. About 60 percent of world dairy Despite URAAs noteworthy start at lib­ trial goods is nearly complete. While it is trade and 40 percent of wheat trade will still eralization, world agriculrural markets not entirely correct to say agriculture was be eligible for export subsidies when the remain characterized by subsidized exports, excluded from trade liberalization, not much URAA is fully implemented in 2001, and a export credits, limited market access for of substance was accomplished until the recent USDA analysis of agricultural tariff imports, intervention in commercial trad­ Uruguay Round of trade negotiations. Agri­ structures found that average ad valorem ing activities, non-tariff barriers, and dis­ cultural trade is now at the point where tariffs are quite low, ranging from 3.8 per­ tortions resulting from domestic support industrial goods trade was 50 years ago - cent in Australia to 9.5 percent in Japan. measures. just starting the process of liberalization. Rates are significantly higher when non-ad The Uruguay Round Agreement on Agri­ valorem tariffs are included in the calcula­ The Seattle Ministerial culture (URAA) became effective on Janu­ tions. Canada's average tariff rate, includ­ In early December 1999, leaders from ary 1, 1995. Parties under the Agreement ing only ad valorem tariffs (762 tariffs) is the 136-nation WTO met in Seattle, Wash­ agreed to reduce export subsidies and tariffs, 4.8 percent, but it jumps to 25.3 percent ington, for the third WTO Ministerial Con­ convert non-tariff border measures to tariffs, (91 7 t~iffs) when all tariffs are included. ference. The purpose of the meeting was to Some over-quota tar­ launch a new round of comprehensive trade iffs in the agricultural negotiations involving the URAA's built-in Table 1 - URAA final bound tariffs, for selected sector are staggering agenda (agriculture and services) as well as commodities and countries, 1998 (Table 1). In terms of other areas such as investments, competi­ United States Canada EU Japan Korea the costs to con­ tion policy, and government procurement ad valorem equivalent (percent) sumers and taxpay­ policy. The meeting was suspended on its ers, the estimate of final day without agreement. Thus, agri­ Wheat 4 77 112 442 22 support going to pro­ cultural negotiations, mandated to begin in Rice 5 1 156 874 5 ducers in Organiza­ January 2000, are based solely on Article Sugar 149 9 219 369 18 tion of Economic 20 of the URAA which requires the liber­ Butter 83 299 136 437 117 Cooperation and De­ alization process to continue toward the Beef 26 26 120 50 40 velopment (OECD) long-term objective of substantial reduc­ Note: Ad valorem equivalent tariffs are calculated from specific countries was $283 tions in supports and protection. Article 20 rates using final bound WTO tariffs, 1998 exchange rates, and billion in 1999, up does not specify how this objective should world reference price data. from $246 billion in be achieved, what disciplines should be Source: Authors' estimates. 1986-88 when the negotiated, what targets should be met, or Uruguay Round of when the negotiations should be completed.

Third Quarter 2000 CHOICES 33 Several explanations tell why the Seattle meeting ended without Glossary agreement. These fall into two Countervailing Duties - When the government of an exporting country btoad areas: 1, policy differences has been found to provide support to its domestic producers that mate­ and 2, the inadequacies ofWTO rially injures producers in an importing co untry, the importing country procedures. Irreconcilable policy can apply a duty on imports of the product up to the amount of the differences among the major par­ domestic subsidy. ticipants were the primary reason for the failed talks. Members of Multifuctionality - A term most often applied to the positive externalities WTO could not agree on wording provided by primary agricultural production. to guide the negotiating on export subsidies. More importantly, nego­ Peace Clause - The Uruguay Round Agreement on Agriculture contains tiators remained far apart on how a time-limited clause, officially known as "Due Restraint," that restricts to deal with non-agricultural top­ the use of countervailing duties to counteract domestic support measures ics. Several issues - such as the lack deemed to conform to the Agreement on Agriculture. of market access, concessions for textiles, and concerns over the Bound Tariffs - The upper limit or the maximum tariff a country can United States favoring WTO impose on imporrs. The tariff actually applied is often lower than the enforcement of labor standards - bound tariff. placed the United States in oppo­ sition to developing countries. Ad valorem equivalent of a specific tariff - In order to compare tariffs across The failure of the Ministerial is commodities and countries, specific tariffs ($Iunit) can be converted to also associated with WTO proce­ their "ad valorem equivalents" by dividing the specific tariff by the unit dures. After the meeting, WTO value of the imported product. Director General, Mike Moore, noted "the organization is running on an outdated culture of making decisions and with Export competition procedures suitable for a much smaller group." The so­ Reformers and status quo countries were unable to called "Green Room" process, which excluded the major­ agree on whether tightening URAA export subsidy dis­ ity of members from discussing issues important to them, ciplines should include complete elimination of the sub­ caused particular concern, especially among developing sidies and, if so, over what time period? Another con­ countries. cern was that export credits, identified as a subsidy by the WTO but not subject to WTO disciplines, could Issues Affecting WTO Ag Negotiations become more widely utilized as export subsidy disciplines Countries at the sessions displayed fundamental dif­ become more restrictive. The EU wanted WTO disci- ferences on how far agri­ plines on export credits, a cultural trade reform should Questions arose over how proposal strongly resisted go. Three broad negotiating by the United States which groups - the reform group, to tighten disciplines on argued that such disciplines those favoring the status domestic programs. should remain under the quo, and the developing OECD. Finally, several countries - carne to Seattle. The reformers (including the import-dependent countries 0apan and others) wanted United States and the Cairns Group) wanted substantial disciplines on export taxes, restrictions, and embargoes. cuts in trade-distorting policies. In contrast, the status quo countries, led by the EU and Japan, generally favored Market access a go-slow approach. Developing countries, making up Members agreed that the new round should increase the vast majority ofWTO members, sought special treat­ market access, but they disagreed on how this goal should ment under any new agreement, as well as additional be attained. There was disagreement over the extent and concessions under the existing agreement. timing of tariff reduction. Low tariff countries argued The failure of the Seattle meeting should not have that the formula for .tariff reductions used in the URAA come as any great surprise. In the months leading up to is unfair, and that other approaches should be explored. the meeting, the WTOs General Council had failed to get There was also discussion of establishing a maximum tar­ agreement on a draft Ministerial Declaration. As a result, iff from which future reductions would be based. one commentator suggested that Ministers arrived in Seattle with "not more than a laundry list of stubbornly Domestic supports irreconcilable proposals." What were the proposals and Questions arose over how to tighten disciplines on why were they irreconcilable? domestic programs. Important among these were: Should

34 CHOICES Third Quarter 2000 the Aggregate Measurement of SuppOrt (AMS) concept Other issues continue? Should omer memods be used to bring greater Controversy has surrounded disciplines omer man discipline to green box and blue box programs (see "Boxed mose spelled out by me URRA. These debates centered In," p. 36)? How much should amber box support be on state trading enterprises (STEs), biotechnology, and cut, and over what period, and using which base period? non-trade issues (multifunctionality) . Should domestic suppOrt STEs are allowed under reductions be aggregated Countries are not WTO rules, but they across commodities, or allegedly use tlleir exclusive changed to a commodiry­ moving much from power and lack of trans­ by-commodity basis? negotiating positions parency to distort trade, Discussions also included engage in unfair trading me support categories . The they took in Seattle. competition, and circum­ Australians argued that vent market access and many green box policies are export subsi dy commit­ not trade-neutral (such as emergency and disaster payments) ments. Interest in STEs is high because several countries and mat meir scope should be narrowed. The EU preferred requesting WTO membership, such as China and Rus­ a wider definition to include payments to producers as com­ sia, use STEs as a vehicle for domestic support programs. pensation for compliance with higher animal welfare Increasing me transparency of STE operations has been standards and me provision of rural amenities. There was advocated, but how to achieve this goal is unclear. Pos­ also little agreement on the blue box, with the Cairns si bilities include forcing cOUlltdes to remove the statutory Group pressing for its elimination, the EU and Japan rights of STEs, requiring STEs to publish price and sales insisting on its continuation, and the United States information, and prohibiting tax revenues from being remaining conspicuously silent on the marrer. Finally, used to support STE operations. mere was little agreement among the major parties over The widespread increase in the production of genet­ whether the Peace Clause should be extended beyond its ically modified (GM) products came after URAA, so no December 31 , 2002 deadline. specific rules governing meir trade were established. The

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Third Quarter 2000 CHOICES 35 Boxed-In

Domestic support categories under the Uruguay Round Agreement on Agriculture (URAA)

"Green B"OX policies permit support payments that are not considered to be trade-distorting and are not sub­ ject to limitations. Conservation programs, research, inspection, domestic food aid, and disas­ ter relief are green box programs.

"Abm er B"OX policies are support payments that are considered to be trade-distorting. They are subject to dis­ ciplines. Commodiry-specific market price supports, direct payments, and input subsidies are amber box policies.

"Bl ue BOX " policies are support payments that are not subject to reduction because they are direct payments under production-limiting programs. To be blue box policies, payments must be made on fixed areas and yields; or 85 percent or less of the base level of production. Livestock payments must be made on a fixed number of head.

reform countries contend that existing agreements ade­ The Road Ahead quately cover GM products. They also favor establish­ Even though these negotiating differences were still ing a WTO biotechnology working group to determine very apparent, the WTO agriculture committee began a whether specific disciplines governing trade in these prod­ new round of talks in late March. At the time, several ucts should be required. However, Europeans advocate a officials indicated that an agreement had been very close in Seattle, but no declaration was signed, so the nego­ policy that allows countries to ban importS of GM prod­ tiators began again in March. How will the negotiations ucts when product risks are uncertain, or when scientific proceed and when can a conclusion be expected? investigation is incomplete. Others see Europes policies Three positive factors can be identified: 1, compromises as a means of closing borders to food imports that can not made in Seattle may be repeated in future negotiations, be proven to have zero risk. 2, the expiration of the Peace Clause on December 31, The status quo countries strongly advocate that the 2002, means that unless a new agreement on agriculture new agreement reflect the "multifunctionality" of agriculture is reached by then, countries could be challenged over and argue that farmers should be compensated for ben­ their trade and domestic policies, and 3, CAP reform eficial spillover goods and services. Farmers in some coun­ beyond Agenda 2000 could reduce the EU's reliance on tries' green box programs compensate producers for some export subsidies and lower support as measured by the AMS, thereby making possible a WTO agreement on non-agricultural goods and services. For example, the agriculture. USDA makes payments to farmers for providing improve­ However, countries are not moving much from nego­ ment to water qualiry. However, other practices, such as tiating positions they took in Seattle. The ED continues for the ethical treatment of animals, are not compen­ to insist that agricultural talks can only take place as part sated. Opponents of multifunctionaliry fear that the con­ of a comprehensive agenda, while the United States cept could be used to justify open-ended support for appears reluctant to give ground, especially in a presi­ domestic producers. dential election year. In addition, forces have emerged in

36 CHOICES Third Quarter 2000 An Update: Trade Negotiations After Seattle

ow, months after Seattle, the prospects for a timely and har­ support levels. The EU is vigorously defending the blue-box N monious end to negotiations seem remote. Negotiations, exemption, arguing that blue box supports are an important tool based on Article 20 of the URAA, started with disagreement for further reform of the CAP. A coalition of 11 developing coun­ between the Cairns Group and EU over who should chair the tries proposes creating a general subsidies box which would be sub­ special trade-negotiating WTO Agricultural Committee. It took ject to discipline. The intent is to argue that green-box programs until May to appoint Peruvian Jorge Voto-Bernales as a candidate are not neutral and drop the distinction between trade-distort­ acceptable to all sides. ing and non trade-distorting supports. At the first Committee meeting in March, negotiators asked for All WTO members seem to favor continuing special treat­ the WTO secretariat to deliver background papers on the main areas ment for developing countries. In addition, developing coun­ of negotiations and agree on a tentative timetable. Countries were tries have proposed creating a food securiry/development box for asked to develop negotiating proposals for discussion at Com­ instruments exempt from disciplines. Under the proposal, devel­ mittee meetings in June, September, and November. Tough nego­ oping countries would be allowed to exempt specified products tiations were scheduled for March, 2001 (after the U.S. Presi­ from disciplines, re-evaluate and adjust tariff levels, increase the dential elections) with possible completion by the end of 2002. de minimus level of domestic supports, and prohibit developed coun­ Several country proposals and position papers were submitted tries from using SSGs. for discussion at the June, 2000 Committee meeting. Positions The differences among members on non-trade concerns remain. on export competition and market access taken by the Cairns The U.S. proposal acknowledges a role of government in agricul­ Group, Canada, and United States represent no fundamental ture but stresses that support should be minimally trade-distort­ change from earlier positions and were no different from those ing. Meanwhile, the EU continues to insist that non-trade concerns taken in Seattle. The countries continue to be at odds over how should be reflected in any new agreement on agriculture. EU has to discipline export credits, over the use of SSGs, over control of also provided position papers covering animal welfare and food STEs, and over the rules on tariff treatment of products developed qualiry. through new technologies. After two Committee meetings, the policy positions of the Country proposals also differed widely on domestic support reformers and of the status quo countries appear to be the same discipline. The United States continues to argue for eliminating as before. Country proposals and position papers already pre­ the blue box, with commodiry supports split into two categories sented indicate that the sides may have grown further apart, espe­ - those exempt from disciplines (with no or minimal trade dis­ cially on how to handle domestic support disciplines. It is early torting effects) and those subject to the discipline. The U.S. also in the process and countries are still staking out their initial pol­ proposes that the AMS be reduced to a specified percentage (say icy positions. Quite clearly, the negotiators have their work cut 10 percent) of the domestic value of agricultural production in our if negotiations are to be completed by the December 31, a base period, thus requiring greater cuts by countries with higher 2002 deadline .•

the United States to oppose agreements that further open • For More Information world markets. The well-publicized demonstrations that Wainio, ]., P. Gibson, and D. Whitley, "Implementation marked the Seattle ministerial may not have affected the of Uruguay Round Tariff Reductions." Agricultural Out­ eventual outcome for WTO, but they did refocus the look, November 1999, pp. 26-30. U.S. trade agenda by forcing politicians to recognize the concept of globalization rather than trade liberalization. OECD, Agricultural Policies in OECD Countries: Moni­ Much must be done to rebuild the confidence that devel­ toring and Evaluation 2000.0 ECD 2000. oping countries have in the WTO and in the entire mul­ tilateral system. "Stark differences remain in approach to Seattle meet­ Although the process of agricultural negotiations con­ tinues, the path to a successful negotiating round will be ing," Feedstuffs, Ocr. 15 , 1999. extremely slow and difficult. Success will depend on the political will to make compromises and the commitment Canadian Agri-Food Trade Research N etwork, 1999. to multilateral negotiation, neither of which are strongly Guide to the Seattle Round of N egotiations. evident in the wake of the Seattle meetings . • http://www.eru.ulaval.ca/catrn.

Third Quarter 2000 CHOICES 37