The GATT Agreement and Domestic Support
Article 6 of Part A of the Uruguay Round Agreement on Agriculture sets out the provisions for exceptions to the agreed domestic support commitments (GATT 1993, pp6-7). Domestic support commitments are Schedules of Commitments that countries will have to supply to GATT. The exceptions are policies that have minimum distorting effects on trade and production. These policies must conform to two criteria: support shall be provided through a publicly-funded government programme, and shall not have the effect of providing price support to producers (Annex 2, GATT 1991,
Domestic subsidies in the agriculture sector are to be reduced by 20 percent over six years. Calculations are to be based on the Aggregate Method of Support (AMS) method, which takes all products globally. There is no requirement to take specific commitments policy by policy. As negotiated by MacSharry, the basic AMS calculation is to be assessed on the base period 1986-88, and expressed in monetary terms for each product, and credit is given for reduction in support achieved since 1986. The AMS figure represents the average difference in the base period between the internal administered price and a world reference price , multiplied by the volume of production in the reference period (Agra Europe 1993, p12).
Para 5 of Article 6, establishes that direct payments under production-limiting programmes will not be subject to the commitment to reduce domestic support. This was not in the draft final act. The commitment is conditional on a) such payments being based on a fixed area and yields, b) payments being made on 85 percent or less of the base level of production, and c) livestock payments being made on a fixed number of head. The exemption from the reduction commitment for such direct payments is to be reflected in the exclusion of the value of those payments in a Member's calculation of its Total AMS (GATT 1993, p7).
Thus the MacSharry concessions are enshrined in the main text and not the annex to the agreement. Annex 2 (the green box) sets out the details of the programmes that are to be exempted. Under government service programmes, the provisions include research expenditure, pest and disease control, training services, extension and advisory services, inspection services, marketing and promotion services, infrastructural services, public stockholding for food security purposes, and domestic food aid. These services are characterised by public good properties and are generally for the benefit of the rural community as a whole. They should not include any direct payments to producers. Food security and food aid purchases should be made at current market prices and made completely transparent.
Special criteria are developed for direct payments to producers. Decoupled income support should have clear rules of eligibility and payments should not be related to, or based on, the type or volume of production (or livestock units), or to prices, domestic or international, applying to any product, or to factors of production employed. This is the main welfare criterion.
For income insurance and income safety-net programmes, eligibility must be determined by an income loss of only income derived from agriculture which exceeds 30 per cent of average gross income as defined. Compensation will be for 70 per cent of the producer's income loss. Income will be the sole criterion. Combined with disaster relief, total compensation shall be less than 100 per cent of the total producer loss,
For relief from natural disasters, eligibility shall be determined by a formal recognition by government authorities that a disaster has occurred, and shall be determined by a production loss exceeding 30 per cent of the agreed average for the affected area. Payments will only be made on losses due to the disaster, and will not compensate for more than the total cost of such losses.
For structural adjustment assistance, eligibility shall be determined by clearly defined criteria in programmes to facilitate the retirement of persons engaged in marketable agricultural production, and shall be conditional upon the total and permanent retirement of the recipients.
For structural assistance through resource retirement programmes, eligibility will be determined by reference to clearly defined criteria in programmes designed to remove land or other resources, including livestock, from marketable production, retirement of land shall be for a minimum of three years, no alternative production will be allowed, and payments will not be related to any production or price criteria.
For structural adjustment through investment aids, eligibility payments shall be designed by reference to clearly-defined criteria in government programmes designed to assist the financial or physical restructuring of a producer's operations in response to objectively demonstrated structural disadvantages. The amount of payments shall not be based on production or price levels(other than the base period), shall be for a fixed period, and will not in any way designate the agricultural products to be produced.
For payments under regional assistance programmes, eligibility shall be limited to producers in disadvantaged regions of a defined administrative identity. The amount of payments shall not be related to production or price levels, but shall generally be available to all producers in the defined region. Payments to production factors shall be paid at a degressive rate above a threshold level of each factor, and the payments shall be limited to the extra costs or loss of income involved in undertaking agricultural production in the prescribed area (GATT 1991, pp 14-19).
The Implications of the Agreement
The GATT process provides for participating countries to make market access commitments to the GATT for attachment to the protocol. The Articles specify that domestic support policies for which exemption from the reduction commitments is claimed must meet the fundamental requirement that they have minimal trade distortion effects or effects on production. The above discussion shows that many government services to agriculture have been put in the 'green box' (no environmental implications intended apparently), including R&D. Some of these are production enhancing especially research and pest and disease control. Others like infrastructural services of electricity reticulation, transport, and water supply are to be restricted to capital works on an off-farm basis. Some direct payments survive, especially in the area of income support, safety net programmes and disaster relief. Here the rules specify complete disassociation of payments from production and prices except for establishing income in any base period.
The suggested rules place considerable onus on countries to re-examine their domestic support programmes for agriculture. The thrust is clearly away from and targeted measures. Countries would have to examine their motives for giving such assistance. Priorities would need to be clarified for maintenance of the rural landscape, for the welfare of those who have to change and for those who will stay behind, food security and all the rest. It is plausible that income support will have to increase in some countries as previous policies may have disguised the problems of the disadvantaged, the hopelessly uneconomic, and the remote. New programmes may be needed.
F or the BC the above arrangements were never an issue once it was established that the 'compensatory' payments set up under CAP reform would be exempted from the reduction commitment (Agra Europe 1993, p12). The various reforms in CAP market regimes since 1988 mean that the Community's Total AMS was already more than 20 percent below the reference figure for 1986-88 The impact of further CAP reform - notably the substantial cut in cereals support prices - will ensure that the AMS stays well below its target level throughout the six year period envisaged (ibid).
Article 6, para 5(a) specifies the fixed payment criteria adopted. These criteria are designed to ensure that the direct aids (per hectare and headage payments) adopted under CAP reform should not be subject to any commitment to reduce internal support. In concrete terms, this means that the value of these aids will be excluded, each year, from the calculation of the AMS, provided that such aids are granted within the framework of production-limiting programmes. In Agra Europe's view, this decision is essentially political as the payments do not, strictly speaking, meet the criteria for exempted subsidy programmes laid down in the main GATT agreement (Annex 2).
Other provisions provide for different conditions for developing countries. Article 6 para 2, specifies that investment and input subsidies for low income producers in developing country contracting parties will be exempt from domestic support reduction commitments. This provision would include domestic support to encourage diversion from illicit narcotic crops.
Finally there is provision for exemption from the AMS calculation for any Member where product or non-product related support is less than 5 percent of total value of production in each category (i.e. they may total 10 percent). For developing country Members, the de minimus percentage will be 10 percent in each category.
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