Liberalizing Agriculture

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BOUND FOR GLORY

Agriculture will be the make-or-break issue for the United States, the European Union, and the Group of 20 mainly larger developing countries (G-20) at the World Trade Organization ministerial conference in Hong Kong. On the surface, obstacles to an agreement about agriculture seem insuperable. Two years ago, trade talks at Cancún broke down principally because the G-20 rejected U.S. and EU offers in this area. But a careful examination of the current highly complex agricultural trade regime reveals that prospects for an agreement are not as bleak as they appear. After sorting through and assessing the consequences of the different policy instruments now in use, fears of an impasse look misplaced and the outlines of a successful agreement emerge.

Before the Uruguay Round Agreement on Agriculture (URAA) came into effect on January 1, 1995, international trade in agriculture had remained almost entirely outside of the scope of the General Agreement on Tariffs and Trade (GATT). Over the years, powerful farm lobbies in developed countries had sought and received border protections complemented by price supports and export and output subsidies. Developing countries did not object much. Convinced that development was synonymous with industrialization, they focused on seeking access to the developed countries' markets in industrial products.

Given the highly distorted regime that resulted and the continued influence of farm lobbies in economically powerful countries, the URAA was little more than a step in the right direction toward rationalizing, and then dismantling, the inherited protectionist regime. The agreement was implemented in developed countries from 1995 to 2000 and in developing countries from 1995 to 2005. It required each WTO member to replace all border barriers (tariffs, quotas, and combinations of the two) against the imports of agricultural commodities with an equivalent tariff. The replacement tariff was intended to approximate the protectionist effect of existing tariff and nontariff barriers. (This so-called tariffication process was intended to introduce transparency and to rationalize the protectionist regime.) The resulting tariff was then "bound," meaning that it would henceforth define the maximum legal tariff on the commodity.