House of Commons - Agriculture

Select Committee on Agriculture Sixth Report

II. BACKGROUND TO SEATTLE

9. The WTO came into being on 1 January 1995. Its origins lie in the attempt after the Second World War to create an International Trade Organisation under the auspices of the United Nations. Opposition from Congress prevented the United States from ratifying the treaty which would have launched the ITO but even before the failure of this ambition became evident, 23 countries had opened negotiations aimed at reducing and binding customs tariffs. They reached agreement on 45,000 tariff concessions representing $10 billion or one-fifth of the world's trade and in January 1948 these concessions, bolstered by some of the trade rules of the draft ITO Charter, formed what was expected to be a provisional arrangement, known as the General Agreement on Tariffs and Trade (GATT). Since its launch, the scope of the GATT has been extended through a series of eight multilateral negotiations, or "trade rounds". The last of these was launched in Uruguay in September 1986 and was formally closed with a treaty signed in Marrakesh in April 1994. 125 countries took part in the negotiations, which covered most of the world's trade. The Uruguay Round brought many new sectors into the GATT disciplines and also created a new permanent international organisation in the form of the WTO. Today the WTO has 136 members, with more applications in the pipeline, including that of China which will represent a significant addition to the WTO membership and scope. Current WTO agreements cover goods, services and intellectual property and share five common principles - that trading systems should be without discrimination, freer, predictable, more competitive and more beneficial for less developed countries.[6] As a backstop to ensure that the rules are respected, the WTO system provides a disputes settlement mechanism, by which panels approved by the WTO members are set up to resolve difficulties between trading partners.

The WTO and agriculture

10. The Uruguay Round Agreement (URA) contains a specific Agreement on Agriculture as one of its key provisions. Before Uruguay, trade in agricultural products was not comprehensively covered by GATT rules and its inclusion in the Uruguay Round was one of the main stumbling blocks which prevented the round reaching a conclusion by the target date of 1990. The Agreement on Agriculture reached in Marrakesh aimed "to establish a fair and market-oriented agricultural trading system."[7] It set out a programme to be implemented over six years from 1 January 1995 to December 2000 (ten years from 1995 for developing countries), involving reductions in domestic support, improvements in market access (i.e. import opportunities) and cuts in export subsidies. These are summarised in the table below.

Table 1: Numerical targets for cutting subsidies and protection (URA)

	Developed countries 6 years: 1995-2000	Developing countries 10 years: 1995-2004
Tariffs
average cut for all agricultural products	- 36%	- 24%
minimum cut per product	- 15%	- 10%
Domestic support
total AMS* cuts for sector (base period: 1986-88)	- 20%	- 13%
Exports
value of subsidies	- 36%	- 24%
subsidized quantities (base period: 1986-90)	- 21%	- 14%

Source: Introduction to the WTO, p. 17. *AMS=Aggregate Measure of Support (see text below).

It should be noted that the reductions in export subsidies are measured both in value and in quantity. Other market access measures in addition to the tariff cuts shown included the immediate conversion of all non-tariff barriers into tariff equivalents (a process known as "tariffication"); a commitment to maintain existing import quotas equivalent to the 1986-88 average; a system of tariff-quotas where imports are low in relation to consumption, with lower rates for specified quantities and higher for quantities in excess of the quota; special safeguard duties in certain circumstances; and an entry price agreement for cereals and rice.[8] On domestic support, the reduction is measured against the Aggregate Measure of Support (AMS) which includes market price support and direct payments linked to production. The reduction commitments must be considered limited in view of the very high levels of agricultural support in the 1980s and the rather modest percentages in Table 1, particularly when very high (often prohibitive) tariff rates are taken into account. Excluded from the global reduction commitment are measures within the so-called blue and green boxes.[9] A "peace clause" exempts certain domestic support measures below the level decided in 1992 from challenge by other WTO members until the end of 2003. This appears to set a deadline for reappraisal of the Agreement as a whole. In fact, Article XX of the Agreement also contains an explicit commitment to continue the reform process in agriculture by new negotiations beginning in December 1999, a year before the implementation period was to be completed (see box 1).

Box 1: Article XX of the WTO Agreement on Agriculture

Continuation of the Reform Process
  Recognising that the long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process, Members agree that negotiations for continuing the process will be initiated one year before the end of the implementation period, taking into account:

  (a)  the experience to that date from implementing the reduction commitments;
  (b)  the effects of the reduction commitments on world trade in agriculture;
  (c)  non-trade concerns, special and differential treatment to developing country Members, and the objective to establish a fair and market-oriented agricultural trading system, and the other objectives and concerns mentioned in the preamble to this Agreement; and
  (d)  what further commitments are necessary to achieve the above mentioned long-term objectives.

11. A second agreement reached during the Uruguay Round which affects agriculture is the Agreement on Sanitary and Phytosanitary Measures (the SPS Agreement). This sets out the basic rules on food safety and animal and plant health standards, under which member countries are allowed to set their own standards provided that regulations are based on science and do not discriminate between countries where identical or similar conditions prevail. It stipulates that members should use international standards where these have been set, for example by the FAO/WHO Codex Alimentarius Commission on food, but may also "set higher standards based on appropriate assessment of risks so long as the approach is consistent, not arbitrary."[10] Also of relevance to agriculture, not least because its remit extends to labelling, is the Agreement on Technical Barriers to Trade (the TBT Agreement).

Need for a new WTO Round

12. Article XX of the 1994 Agreement on Agriculture makes it clear that this was intended to be only a first step in the process of trade liberalisation in this sector, leaving agriculture, in the words of one witness to our inquiry (Martin Wolf of the Financial Times), "the most important unfinished business of the last round".[11] The commitment to continue the reform of trade in agriculture, and in some other areas, by the beginning of 2000 meant that new negotiations would have to take place in these mandated sectors at this time, but other pressures contributed to the view that a new Round was needed which would go further than the agenda set out in the URA. For example, new issues have arisen since Marrakesh which are not covered by the current WTO agreements but which affect trade and have public resonance. These include genetically modified foods, environmental issues, labelling, animal welfare and labour standards. Other ideas include ways to help least-developed countries, and a look at how the Uruguay Round results are being implemented. Such questions can only be dealt with in a wider set of WTO negotiations and work programmes or even a new 'Millennium Round'. The US agreed to host a launch of the Article XX and similar negotiations, where trade rules could be reviewed and a work programme could be set up to examine other important issues. This Ministerial meeting took place at Seattle between 30 November and 3 December 1999.

Negotiating parties and positions

13. Before Seattle, a great deal of work was undertaken officially and non-officially by the various members of the WTO and other interested parties to establish their positions. Although the Seattle ministerial meeting was intended as only the start of the negotiations, the agenda decided then would determine what could be, and conversely could not be, discussed in the course of the rest of the talks. The membership of the WTO divides itself into mainly informal groupings, according to national interests and particular issues. The most powerful members - the EU, US, Japan and Canada - together form the Quad, which has traditionally been regarded as the forum in which most strategic questions are decided, although the bilateral EU/US relation is by far the most important. Canada is also a member of the Cairns Group, the next most significant grouping on agricultural issues.[12]

The UK position

14. The UK is a member of the WTO in its own right but, through its membership of the European Union, it is represented in negotiations by the European Commission. The UK Government helps to formulate the EU stance through the Council of Ministers which issues a mandate to the Commission for this purpose. In relation to agriculture, MAFF issued a consultation paper on 29 July 1999 which set out "the context for the negotiations, the main agricultural issues, [and] other issues relevant to agriculture".[13] The document noted that "The WTO negotiations will be important for UK and world agriculture, the food industry and consumers" and that the UK Government would "need to play an active part in helping to formulate the EU's negotiating position to ensure that the UK interests are safeguarded and promoted, including the interests of UK exporters to third country markets."[14] In November 1999 MAFF told us that the Government was "continuing to develop its approach to the more specific issues likely to feature in the negotiations", on which the consultation exercise had been based.[15] Overall, the Government's position was that it "supports further liberalisation of agricultural trade in order to support sustainable development and economic growth worldwide, as well as to improve opportunities for our own exporters".[16] Within the EU, the Government promised to argue for "a flexible approach", taking account of both "offensive" and "defensive" interests and "the wider economic, environmental and development benefits of trade liberalisation across the board",[17] and for further reform of the CAP.[18]

The EU position

15. The EU's position on agriculture had to make the best of the rejection of the modest Agenda 2000 proposals at Berlin. Despite this, it was unanimously agreed by the Agriculture Council on 27 September 1999. It confirmed that "the decisions adopted [at Berlin] regarding the reform of the CAP within the framework of Agenda 2000 constitute essential elements of the European Union's position for the future multilateral trade negotiations at the WTO",[19] thus warning other parties that full-scale renegotiation of the CAP was not on the table. It also set out the EU's objectives in the talks, including the lowering of trade barriers in agriculture, the renewal of the peace clause, improvements in market opportunities for exporters, further reductions in export subsidies, the continuation of the blue and green boxes and an "appropriate balance" between trade and non-trade issues such as "environmental protection, safety and quality of food and animal welfare".[20] Animal welfare was explicitly linked to the concept of 'multifunctionality' which the Agriculture Council introduced in the very first sentence of its conclusions. The "European model of agriculture" is seen to be multifunctional in that agriculture does more than merely produce food: it also preserves the countryside and rural communities, contributes to the economy and has an important part to play in environmental protection.[21] The Council wished this concept to be recognised in the context of the WTO as a legitimate non-trade concern.

16. During the course of our inquiry, the EU's position before Seattle and the role it plays in trade negotiations were criticised on several fronts. First, there is a contradiction between the EU's tenacious protection for agriculture and its support for free trade in general. Professor Swinbank pointed out that "From an intellectual perspective ... it is not very convincing for the EU to be arguing special cases in agriculture and saying it wants free trade in other sectors of the economy".[22] A memorandum prepared by the Farmers World Network, Farmers Link and the Agricultural Christian Fellowship suggested that the EU's demand "to be able to export its supported production with as little hindrance as possible" would invite "scrutiny of all its support measures";[23] while the RSPB argued that the "failure of Agenda 2000 significantly to switch EU domestic support away from production linked subsidies towards environmental and social measures leaves the EU in a difficult negotiating position as it enters world trade talks".[24]

17. The reference in the Agriculture Council's conclusions to animal welfare also caused some consternation among the EU's negotiating partners. The Council, with provisos as to "the nature of possible solutions" and "the need to ensure equal conditions of competition between European Union and third country producers", expressed the view that "international acknowledgement of animal welfare rules must be one of the key points of the negotiating brief for the WTO Millennium Round."[25] The strength of feeling on this issue in parts of the EU is not echoed elsewhere. In the US we were told that animal welfare was "not on the radar screen" as far as the public were concerned. In other parts of the world, the EU's insistence on high living standards for farm animals is seen as a deliberately protectionist device against exports from developing countries and as showing a greater concern for the welfare of European animals than for the people of developing countries.

18. Finally, concerns were expressed by some witnesses that the EU "could be severely weakened by internal disagreements between the Member States."[26] These may become clearer as the negotiations progress and the need for compromise becomes evident but for now unity is being preserved. The Minister pointed to the progress made by the European Commission in getting the text agreed by the Agriculture Council endorsed by the General Affairs Council in October 1999, thus providing a mandate for the EU's stance.[27] She described the outcome as "a good statement of our aims and objectives and yet at the same time [containing] sufficient flexibility to approach a complex series of negotiations".[28] Ms Quin also detected that within the EU "more countries [are] interested now in agricultural reform than was the case in the past", partly as a result of the WTO but also because of EU enlargement and budgetary constraints.[29] Her belief that the Commission were effective negotiators was backed by an outside observer, Martin Wolf, who described the EC as "the most professional body of negotiators dealing within the system".[30] He extended this praise to the EU in general, which he regarded as "an extremely effective player", responsible for creating "the structure of the modern trading system."[31] The criticism of the EU as having difficulty in presenting a common position is merely a commentary on its constitution and could be applied to virtually any international negotiations in which it engages. Despite this, the EU has a very strong record of success as an international player in trade issues.

The US position

19. The other "main player" identified by Mr Wolf as one whose role would prove "decisive" in the outcome of the negotiations was the US.[32] Charlene Barshefsky, US Trade Representative, speaking before a Senate Committee in March 2000, defined the US's fundamental principles for agricultural trade reform in the talks as to eliminate agricultural export subsidies; to lower tariff rates and bind (i.e. limit) them; substantially to reduce trade-distorting domestic supports and strengthen rules that ensure all production-related support is subject to discipline, while preserving criteria-based "green box" policies; to improve access for US exports under tariff rate quotas; to strengthen disciplines on the operation of state trading enterprises; and to address disciplines to ensure trade in agricultural biotechnology products is based on transparent, predictable and timely processes.[33] Traditionally, the US has been seen as the champion of free trade and the reduction in subsidies under the Federal Agricultural Improvement and Reform Act 1996 (the FAIR Act, also known as the Freedom to Farm Act) appeared to allow them to claim the high ground on this issue, but recent difficulties in the agricultural sector have led to significant emergency aid packages to farmers from the Government. $5.9 billion was provided in 1998-99 and a further $8.7 billion in 1999-2000. Additional funding worth $7 billion has been announced for this year. US officials dismissed this as representing no more than a 'balancing item' in the total amount of Federal Government expenditure. Payments made under the FAIR Act qualify as green box measures as they are based on historical production but the US has yet to declare the latest payments to the WTO. A major disagreement with the EU is the high level of US spending on food stamps (some $35 billion, almost half of the total United States Department of Agriculture budget, goes on domestic food and nutrition programmes). The EU believes that this money should be treated as subsidies to US farmers, whilst the US argues that it is given directly to consumers who can choose to buy imported foodstuffs rather than home-grown products and that subsidies to feed the poor and needy and support good nutrition are more sensible than subsidies to agri-business.

The Cairns Group position

20. The Cairns Group consists of 19 countries: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Columbia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand and Uruguay. Its membership therefore covers the range of developed and developing countries and in Canada includes one of the four largest members of the WTO. The Cairns Group is not a formal body like the EU and each of its members belongs to the WTO as an individual country. However, the members work closely together. To assist us in understanding the Cairns Group position, we held discussions in Geneva with representatives from Argentina and Thailand and also received a memorandum from the New Zealand Government. The latter told us that it "would like to see the elimination of all agricultural export subsidies which distort production and investment and reduce growth".[34] It was "fully committed to significant liberalisation of international agricultural trade at the next WTO Round".[35] Not all the Cairns Group members are as radical as New Zealand and Australia, with Canada singled out by the US for its continuing support for state trading enterprises. Martin Wolf predicted that "the major players in the Cairns Group will continue to push for liberalisation in the areas that concern them but the honest truth is that they are not particularly potent countries. If the EU decides to ignore them, they can be ignored."[36] From our own observations, the US takes a similar attitude towards the Group.

The Japanese position

21. Japan is a major economic power and, with its high population and limited land area, is a major importer of agricultural products. The difference in agricultural production levels would seem to rule out common cause with the EU but in fact Japan's position on agriculture is very close to the European view. The five major points of Japan's proposals for the WTO before Seattle were: (i) the importance of the multifunctionality of agriculture; (ii) the importance of food security; (iii) impartiality between importing and exporting countries; (iv) special consideration for developing countries; and (v) response to new challenges, such as GMOs.[37] This strong support for multifunctionality, represented in Japan's negotiating document in pictorial form, could prove invaluable to the EU in the course of the negotiations. Japan, South Korea, Switzerland and Norway form the quartet most protective of the agricultural status quo.

Other groupings - the developing countries

22. There are other, more fluid groupings of WTO members based around particular issues, for example the Friends of Multifunctionality or Friends of the Dispute Settlement Procedure. For the sake of the agriculture negotiations, however, the most important remaining 'bloc' is the developing countries. The interests of these countries naturally vary depending upon the state of the agricultural sector and their status as importing or exporting nations. Some of the larger players in trade in agricultural products are already represented in the Cairns Group. For some of the others, agriculture in itself is not an important concern in the context of the WTO, although food security may be. The EU and UK of course have traditional links with many of the developing countries, particularly in Africa and the Caribbean, which are reflected in trading policies such as the Lomé Convention or wider connections such as the Commonwealth. Later in the Report we discuss measures by which developing countries may be assisted to become more effective in representing their own interests in the forum of the WTO. We note also the forthcoming Report from the International Development Select Committee on After Seattle - The World Trade Organisation and Developing Countries which will examine this subject in greater depth than we are able to do here.

The Seattle Ministerial

23. When Ministers from all the WTO member countries began to assemble in Seattle in November 1999, 7it was expected that after a period of intense negotiation and hard bargaining at official level, they would agree on the launch of a Millennium Round of talks. That, after all, was why their presence, rather than merely that of their Ambassadors to the WTO in Geneva, was required. Instead, the talks ended among scenes of disorder and rancour both inside and outside the negotiating chambers and the launch of a new round was put off indefinitely. The blame for this fiasco has been variously allocated. The US, for example, as expressed for instance by Jim Murphy, Assistant US Trade Representative for Agriculture, believed the EU to be at fault, with the European Commission deliberately adopting an overambitious agenda in order to gain time on the agricultural front. One witness in the UK even mischievously suggested that "I have taken it for granted that many in the EU would be very far from upset if the round failed or never started and I assume that the negotiating position taken by the EU in Seattle was designed to ensure that result".[38] It is certainly true that the EU's desire for a broad-based round was somewhat at odds with the US's support for a narrow round concentrating on market access, the Cairns Group's luke-warm acceptance of a broader round if necessary and the fear of many smaller countries of any round at all.

24. However, other commentators blamed the US administration for the debacle at Seattle. President Clinton's demand that labour market conditions should be a factor in trade talks was a radical departure - under election year pressure - from the formula which had held up to then of confining the WTO to trade issues and dealing with matters like the environment and labour in parallel fora. Equally, it is reasonable to question if negotiations in which the chairman is also a major player (perhaps the major player) are well structured. The WTO itself, with a demeaning and destructive argument over the choice of Secretary-General behind it and an unsatisfactory compromise ahead of it, must bear its share of responsibility for inadequate spade-work. Ms Quin maintained that it was too simplistic to blame the EU alone or any other country for the failure to launch the Millennium Round[39] and that the climate in which the Ministers met was not conducive to a positive outcome.[40]

25. Ms Quin also made the point that "quite a large amount of progress had been made [at Seattle] in terms of an agenda for agriculture".[41] Agriculture was a major obstacle to progress during the Uruguay Round but on this occasion agreement was almost reached on "a text elaborating the parameters of the agriculture negotiations".[42] MAFF cautioned that the text had not been agreed "when the meeting was suspended and it might well have been subject to further amendment before all parties could accept it." Nevertheless, the Ministry presented it as "indicative of the sort of agriculture text that would have been agreed if there had been wider agreement on a new Round at Seattle".[43] From the EU's point of view, the important concessions were that the aim of the negotiations is to "continue" rather than "complete" the process of fundamental reform of trade in agriculture (thus retaining some agricultural support) and that the concepts embodied by multifunctionality are clearly admissible in the specified legitimate non-trade concerns (see box 2).

Box 2: WTO Ministerial Meeting
Final Text on Agriculture (not agreed)

Conclusion on the Seattle Ministerial

26. Professor Swinbank regarded "the failure to launch a new round in Seattle [as] a disaster".[44] If this were to be the end of the story we might agree with him but we take comfort from the observation that this failure is not unprecedented, for, as Mr Wolf reminded us, "the meeting that was supposed to end the Uruguay Round in 1990 was a total catastrophe, the ministerial meeting of 1982 was an even bigger catastrophe and at all these stages people assumed that the system was doomed".[45] There is at least some room for optimism. The Minister summarised the situation by acknowledging that "although Seattle was a severe disappointment and certainly placed a severe obstacle in the way of the discussions leading to free trade, nonetheless I do not think it is an insuperable obstacle."[46] We agree. Negotiations could not have taken real shape before the installation of a new US President in any case. As far as agriculture is concerned, we believe that Seattle will ultimately prove to be a hitch rather than a catastrophe. Moreover, it is possible to see some good coming out of Seattle in that it has forced the WTO organisation and its leading members to pay more attention to the needs of developing countries, so that they can have their own voice and acquire the competence to participate with confidence in a large organisation like the WTO, and also to the task of recognising that in the internet age and with the multinational lobby the case for free trade needs restating and demonstrating. We return later to how the WTO can meet these challenges.

6 Introduction to the WTO, p. 5. Back

7 URAA, Introduction, para 2. Back

8 Introduction to the WTO, p. 5; Ev. pp. 73-4, para 10. Back

9 See paras 29-32 below and the Glossary for an explanation of the blue and green boxes. Back

10 Introduction to the WTO, p. 19. Back

11 Q 67. Back

12 See para 20 below for a list of Cairns Group members. Back

13 Covering letter issued with World Trade Organisation Negotiations on Agriculture: A Consultation Document, 29 July 1999. Back

14 MAFF Consultation Document, para 4.1. Back

15 Ev. p. 76, para 32. Back

16 Ev. p. 76, para 30. Back

17 Ev. p. 76, para 32. Back