The EU’s WTO agricultural commitments

Both the European Community and its Member States are members of the WTO. The European Commission represents the Member States at the WTO, on the basis of a mandate approved by the EU Council of Ministers.

The EU’s current WTO commitments are based on the 1994 Uruguay Round Agreement on Agriculture (URAA). The URAA established common rules in three areas of agricultural policy: market access, export subsidies and domestic support. These three pillars remain central to the debate on further reform of agricultural trade policies in the ongoing Doha Round negotiations.

Market access commitments

The Agreement on Agriculture required the EU to replace its previous system of variable levies used to protect the domestic market from lower-priced imports by fixed tariffs which are bound, i.e. which cannot be exceeded. These bound tariffs were reduced by 36% on average, with a minimum tariff line cut of 15%. In addition, minimum access had to be granted, for specific groups of commodities, so as to open up at least 5% of total consumption to imports.

Despite these reductions, EU bound tariffs on those agricultural products covered by the Common Agricultural Policy remain high. In some cases, for example sugar, the EU has used the special agricultural safeguard to provide additional protection. Only in a few sectors has there been an increase in imports. However, on the positive side, the excessive margins that existed and which were redundant from the point of view of providing additional protection have been exhausted. Future tariff cuts will lead to real increases in market access.

Tariff rate quotas have been opened so as to reach the minimum access commitments but, in many cases, these obligations were filled by existing imports, in particular those under existing agreements with developing or transition countries, so very limited new market access was created in this way.

Domestic support commitments

The Uruguay Round Agreement on Agriculture classified the various forms of farm support (administrative prices, direct payments, input subsidies, etc.) according to their impact on production:

• All domestic support measures considered to distort production and trade (with some exceptions) fall into the ‘amber box’. These supports are subject to limits – ‘de minimis’ minimal supports of 5% of agricultural production for developed countries are allowed. The reduction commitments are expressed in terms of a “Total Aggregate Measurement of Support” (Total AMS) which includes all supports for specified products together with supports that are not for specific products, in one single figure The ceiling for these trade-distorting payments for the EU-15 is €67 billion, which is now aggregated with the ceiling for the ten new Members which amounts to less than €4 billion.
• No discipline was imposed on support that has minimal effect on the quantities produced, and therefore does no significant effect on other countries, such as environmental payments, social payments, or direct payments not linked to production. These are known as ‘green box’ payments,
• Most of the EU’s direct payments at the time of the Uruguay Round were exempt from any reduction commitment, because they were conditional on production-limiting clauses (set aside obligations for arable land payments, quotas for dairy support). Such payments are classified as ‘blue box’ and are not counted towards the Total Aggregate Measure of Support. With the 2003 CAP reform, these payments were decoupled from production and are now classified by the EU as green box payments, although this classification is disputed by some.

The direct consequence of this domestic support discipline for the EU has been very limited because, due to successive CAP reforms , the EU’s actual Aggregate Measure of Support has been well below its maximum ceiling.

Export subsidies

The EU traditionally has been the biggest user of export subsidies for agricultural products, with subsidies on rice, wine, fruit and vegetables, alcohol, cheese poultry and eggs. The Agreement on Agriculture capped expenditure on export subsidies and required a reduction both in the value of the subsidies (36%) and the quantities (21%) that were subsidised over the 1995-2000 period. This discipline has been the most constraining WTO provision for the CAP, resulting in an immediate drop in export subsidies in 2000 of 50%. Since 2000 the EU has used between 50 and 82 percent of its budgetary commitment and from 65 to 107 percent of its volume commitment, depending on world prices. In recent years, the EU has greatly diminished its export subsidy expenditures, in part reflecting the EU’s transition to direct payment support. In 2004, the European Union accepted the possibility of a full elimination of export subsidies, provided a commitment for all other parties is reached and this provision has carried forward into the Doha Round Negotiations.

Indirect effects

While the EU’s WTO commitments to date have not required any major adjustment to EU agricultural policy, they have undoubtedly influenced the direction of CAP reform. In the late 1990s, the prospect of increasing intervention stocks that could no longer be exported with subsidies played a major role in the decision to lower intervention prices under the Agenda 2000 reform. The discipline on support that is even remotely linked to the quantities produced has shaped an entire new framework for CAP reform. The Agenda 2000 reform introduced a shift from traditional support to production towards payments to environmental or rural development measures, the so-called "second pillar". The 2003 Luxembourg Agreement has shifted farm support towards a "single farm payment" which is no longer linked to the quantities produced or the are harvested, and which should escape reduction commitments. The WTO framework has thus had a considerable influence in shaping the direction of CAP reform.

Links:

Europa Website - Trade Issues: the EU and the WTO
Provides an overview of the evolution of the WTO and its impact on EU trade policy

WTO, Understanding the Agreement on Agriculture
An introduction to the basic concepts behind the Uruguay Round Agreement on Agriculture

Resources:

European Parliament Fact Sheet – External agricultural policy: Agricultural Agreements under the GATT and the WTO, 2005
Provides an overview on EU commitments under WTO agreements and the role of the European Parliament in these agreements