The worldwide liberalization of agricultural trade intended by last year's Uruguay Round agreement may not be as great as expected
Agricultural protection could continue---and may even increase---under the Uruguay Round agreement. Indeed, the pact could end up being a step backward in agricultural trade. The extent of intended liberalization was eroded in the negotiations, according to a recent World Bank paper.*
The trade agreement was to achieve more open and fair trading in agricultural commodities by reducing export subsidies, tariffs and nontariff barriers, and domestic supports. The agreement did result in significant reform of the rules for agricultural trade, with some of the most important changes being tariffication (the conversion of nontariff barriers to bound tariffs), binding of all tariffs (commitments to the maximum tariff that can be applied at the border), bans on new export subsidies, and bindings on existing export subsidies. But the liberalization will be significantly less than previously expected.
Thus, the aim of the Uruguay Round---to reverse protectionism and remove trade distortionsÑrisks not being achieved in practice, at least not until further reductions are agreed to in future rounds of negotiations. The major exception is in Japan and high-income Asia, where protection for major commodities will be significantly reduced.
The Uruguay agreement fell short of the intended liberalization in large part because of the way countries carried out tariffication. Countries subject to tariffication under the agreement were to set initial base tariffs---to be applied in the first year of the agreement's implementation---so that the resulting protection would be equivalent to the nominal protection in the base period, 1986Ð88. The new bound tariffs, along with tariffs that had been bound in earlier rounds of negotiations, would then be reduced over the following six years for industrial countries and 10 years for developing countries.
But tariffication in the OECD countries resulted in little or no liberalization for major agricultural commodities (see figure). In part, this was because the base period chosen for establishing tariff bindings featured some of the highest border protection in recent decades. Tariff equivalents based on this period would therefore result in higher protection than if they had been based on any other representative period. But in addition, most OECD countries set new base tariffs that reflect even higher protection than the level provided by the nontariff barriers in the base period, suggesting excessive tariffication. In many countries the newly set tariffs remain so high that they effectively prohibit trade.
The extent of excessive tariffication varied widely among countries and commodities. It was most common for "sensitive" commodities, such as grains, sugar, and dairy products. Among the industrial countries, it was most extensive in the European Union and the countries of the European Free Trade Association. Only Japan offered base tariff equivalents significantly lower than the nominal protection it enjoyed in the base period---except for rice, on which it obtained a special arrangement delaying tariffication.
For developing countries, the Uruguay Round provided the opportunity to increase integration into the international trading system. Several developing countries in East Asia, Latin America, and the Middle East reduced protection in some products and chose to lock in earlier unilateral reforms for others. But for most commodities liberalization will be modest at best. Most developing countries chose to bind their tariffs at a maximum level or to reduce already bound rates to levels still significantly higher than currently applied rates, retaining the flexibility to raise tariffs from present levels. The high bound tariffs also may allow countries to apply variable tariffs below the binding, undermining the goal to stabilize and improve the security of market access.
Moreover, the Round left many of the worst distortions in developing countries outside its scope---such as import subsidies, export taxes, state trading monopolies, and domestic policies that implicitly tax agriculture. The failure to rein in such distortions weakened or eliminated the effects of lower tariffs.
Thus, although the Round appears to have achieved new transparency in import protection through tariffication, this came at the cost of reduced liberalization in most countries. Overall, tariffication is unlikely to have a significant effect on trade flows and prices in the next several years. The high tariff protection in agriculture, combined with exemptions of important domestic support measures, will continue to limit access to major markets.
So, much needs to be done in future rounds of multilateral trade negotiations to achieve more substantial and real reductions in agricultural protection.
Agricultural tariff equivalents still in the stratosphere
* For more details, see Merlinda D. Ingco, "Agricultural Trade Liberalization in the Uruguay Round: One Step Forward, One Step Back?" prepared for the conference on the Uruguay Round and the Developing Economies, World Bank, Washington, DC, January 26-27, 1995.
