The panel’s task was restricted to examining how GATT rules applied to the issue. It was not asked whether the policy was environmentally correct or not. It suggested that the US policy could be made compatible with GATT rules if members agreed on amendments or reached a decision to waive the rules specially for this issue. That way, the members could negotiate the specific issues, and could set limits that would prevent protectionist abuse.
The panel was also asked to judge the US policy of requiring tuna products to be labeled “dolphin-safe” (leaving to consumers the choice of whether or not to buy the product). It concluded that this did not violate GATT rules because it was designed to prevent deceptive advertising practices on all tuna products, whether imported or domestically produced.
P.S. The report was never adopted.
Under the present WTO system, if WTO members (meeting as the Dispute Settlement Body) do not by consensus reject a panel report after 60 days, it is automatically accepted (“adopted”). That was not the case under the old GATT. Mexico decided not to pursue the case and the panel report was never adopted even though some of the “intermediary” countries pressed for its adoption. Mexico and the United States held their own bilateral consultations aimed at reaching agreement outside GATT.
In 1992, the European Union lodged its own complaint. This led to a second panel report circulated to GATT members in mid 1994. The report upheld some of the findings of the first panel and modified others. Although the European Union and other countries pressed for the report to be adopted, the United States told a series of meetings of the GATT Council and the final meeting of GATT Contracting Parties (i.e. members) that it had not had time to complete its studies of the report. There was therefore no consensus to adopt the report, a requirement under the old GATT system. On 1 January 1995, GATT made way for the WTO.
These approximate periods for each stage of a dispute settlement procedure are target figures — the agreement is flexible. In addition, the countries can settle their dispute themselves at any stage. Totals are also approximate.
60 days - Consultations, mediation, etc
45 days - Panel set up and panelists appointment
6 months - Final panel report to parties
3 weeks - Final panel report to WTO members
60 days - Dispute Settlement Body adopts report
(if no appeal)
Total = 1 year (without appeal)
60-90 days - Appeals report
30 days - Dispute Settlement Body adopts appeals report
Total = 1y 3m (with appeal)
| Time(0 = start of case) | Target/ actual period | Date | Action |
| -5 years | 1990 | US Clean Air Act amended | |
| -4 months | September 1994 | US restricts gasoline imports under Clean Air Act | |
| 0 | “60 days” | 23 January 1995 | Venezuela complains to Dispute Settlement Body, asks for consultation with US |
| +1 month | 24 February 1995 | Consultations take place. Fail. | |
| +2 months | 25 March 1995 | Venezuela asks Dispute Settlement Body for a panel | |
| +2½ months | “30 days” | 10 April 1995 | Dispute Settlement Body agrees to appoint panel. US does not block. (Brazil starts complaint, requests consultation with US.) |
| +3 months | 28 April 1995 | Panel appointed. (31 May, panel assigned to Brazilian complaint as well) | |
| +6 months | 9 months (target is 6-9) | 10-12 July and 13-15 July 1995 | Panel meets |
| +11 months | 11 December 1995 | Panel gives interim report to US, Venezuela and Brazil for comment | |
| +1 year | 29 January 1996 | Panel circulates final report to Dispute Settlement Body | |
| +1 year, 1 month | 21 February 1996 | US appeals | |
| +1 year, 3 months | “60 days” | 29 April 1996 | Appellate Body submits report |
| +1 year, 4 months | “30 days” | 20 May 1996 | Dispute Settlement Body adopts panel and appeal reports |
| +1 year, 10½ months | 3 December 1996 | US and Venezuela agree on what US should do (implementation period is 15 months from 20 May) | |
| +1 year, 11½ months | 9 January 1997 | US makes first of monthly reports to Dispute Settlement Body on status of implementation | |
| +2 years, 7 months | 19-20 August 1997 | US signs new regulation (19th). End of agreed implementation period (20th) |
1. Adjudicating vs. negotiating vs. negotiating international trade disputes – pros and cons?
2. How does the WTO dispute settlement procedure work?
3. Explain the concepts of reverse consensus and of cross-retaliation.
4. Who may participate in WTO dispute settlement procedure?
5. Are WTO Panels bound by earlier GATT/WTO decisions?
1. John H. Jackson, The World Trading System: Law and Policy of International Economic Relations (2nd ed., Cambridge, MA: MIT Press, 1997). p. 107-137.
2. Jackson/Davey/Sykes, 327-371.
3. Trading into the Future – WTO, 3rd edition, Revised August 2003
The original GATT1947 did apply to agricultural trade, but it contained loopholes. For example, it allowed countries to use some non-tariff measures such as import quotas, and to subsidize. Agricultural trade became highly distorted, especially with the use of export subsidies which would not normally have been allowed for industrial products. During 1997-2001, for example, the US injected export subsidies worth $78.87 billion. In May 2002, the US enacted another law authorizing massive farm subsidies. Farm subsidies account for more than 46% of the EU budget, spending U$7 billion in export subsidies to support 2% of its population involved in agriculture, accounting for 85% of all exports subsidies in the world. In Japan, the level of support is 65 percent (Switzerland 73% and Norway 69%) of gross farm receipts.
The agricultural negotiations of the Uruguay Round were largely dominated by exchanges between the US and the EU. On the eve of the Uruguay negotiations, the US was the world’s biggest exporter of agricultural products and the second biggest importer. In contrast, the EU was the biggest importer and the second biggest exporter at world level. When the Round began, the two major exporting powers had both reached self-sufficiency because of the effectiveness of the CAP, technological progress and improved productivity, and were trying to conquer the export market. Only with a simultaneous and similar modification of farm policies on both sides of the Atlantic could there be a sharing of the cost of agricultural policy reform. The agricultural negotiations that were initially multilateral in the GATT context rapidly turned into bilateral negotiations between the EU and the US. The agriculture negotiations blocked the rest of the multilateral negotiations. The concessions obtained were in fact no more than an international consolidation of internal reforms.
Reasons for the existence of exceptional arrangements for agriculture.
Governments usually give three reasons for supporting and protecting their farmers, even if this distorts agricultural trade to make sure that enough food is produced to meet the country’s needs
In many countries, support for agriculture is primarily strategic in nature. By encouraging agriculture, a country can guarantee its food supplies against fluctuating harvests and protect its population from famines. Self-sufficiency in agricultural products means a country does not have to depend on supplies from third countries, which could one day turn out to be its enemies. It is particularly significant for the developing countries with chronic shortage of foreign exchange. It is not practical for them to depend on imported staple food, even though it may be cheaper to import, because they may not have adequate foreign exchange to import the food products. Considering the uncertain nature of their foreign exchange availability and also, perhaps, the uncertainty in the supply of food grain even if the necessary foreign exchange were available, several countries would like to develop their own production base for their staple food, rather than depend on imports.
To shield farmers from the effects of the weather and swings in world prices.
The objective of ensuring consumers reasonable prices and protecting producers against fluctuations in the price of agricultural products is often put forward to justify the existence of agricultural policies. One of the main characteristics of the agricultural product market is indeed its wide price variations due to the fact that demand for foodstuffs is constantly rising because of world population growth whereas supply can vary enormously because of fluctuating harvests and weather conditions. Variable customs duties, as are given in EU, can correct any variation in world prices and guarantee a fixed price on the domestic market thus ensure a stable income for producers. Loans to farmers or an insurance mechanism that guarantees producers a minimum income, irrespective of fluctuations in world prices, as is the case in the US, can also achieve this goal.
To preserve rural society.
Many Western democracies remain closely attached to the cultural, social, and historical values that agriculture perpetuates. In the US, people still cherish the image of the pioneer farming families who settled the vast expanses of America. Similarly, the Japanese remain very attached to maintaining national agriculture through which they can preserve their ancestral traditions. In the European Community, the existence of the common agricultural policy (CAP) is nowadays justified by the multifunctional aspect of agriculture. Thus regional planning, safeguarding the rural way of life, animal welfare, environmental protection and food security are financed via support for agriculture.
Several developing countries have a more deep-seated concern. Agriculture in these countries is not so much a matter of commerce; it is intimately interwoven with the pattern of rural life. Many farmers cultivate their land not as a commercial venture, but more as a family tradition. The land has been with their families for generations and they have been cultivating it as they have no other source of income to support their families. Such developing countries fear that their small and marginal household farmers will be in great difficulty when they are called upon to face the challenge of world competition.
To win political support.
This is an inexplicit motivation in granting favorable agricultural policies. In many Western democracies, agricultural interests have a political clout that gives them a decisive influence on the political life of their countries. This is the case in the US where the thinly populated states of the farm belt have as many senators as densely populated states like California, and similarly in Japan or Canada where the political systems also encourage over-representation of rural rather than urban areas. This phenomenon also exists in the EU. In Germany the weight of farming interests in the south of the country was decisive in keeping Chancellor Kohl in power; in France the rural electorate still influences a very large share of the vote although farmers account for only some 5% of the working population.
This cultural and sociological dimension of agricultural support, which is very evident in the urban electorate, coupled with the strong political representation enjoyed by the agricultural electorate in the major Western democracies, helps to understand why, apart from reasons of simple economic logic, the major Western democracies remain firmly attached to maintaining agricultural policies.
But the policies have often been expensive, and they have encouraged gluts leading to export subsidy wars. Countries with less money for subsidies have suffered. In negotiations, some countries have argued that trying to meet any of these objectives is counter-productive. Others have attempted to find ways of meeting the objectives without distorting trade too much.
Overriding feature of the agreement: Where there is any conflict between the Agreement and other WTO agreements, the provisions of the Agreement on Agriculture prevail.
The objective of the Agreement is to establish a fair and market-oriented agricultural trading system, thus improve predictability and security for importing and exporting countries alike.
- market access, i.e., the disciplines on import restraints and import limitations;
- domestic support, i.e., support by government to domestic producers;
- export subsidies, i.e., support by government to exporters.
The agreement does allow governments to support their rural economies, but preferably through policies that cause less distortion to trade. It also allows some flexibility in the way commitments are implemented. Developing countries do not have to cut their subsidies or lower their tariffs as much as developed countries, and they are given extra time to complete their obligations. Special provisions deal with the interests of countries that rely on imports for their food supplies, and the least developed economies. “Peace” provisions within the agreement aim to reduce the likelihood of disputes or challenges on agricultural subsidies over a period of nine years.
The new rule for market access in agricultural products is “tariffs only”. Before the Uruguay Round, some agricultural imports, especially for many temperate zone agricultural products, were restricted by quotas and other non-tariff measures. These have been replaced by tariffs that provide more-or-less equivalent levels of protection — if the previous policy meant domestic prices were 75% higher than world prices, then the new tariff could be around 75%. (Converting the quotas and other types of measures to tariffs in this way was called “tariffication”.) The tariffs on virtually all agricultural products traded internationally are bound in the WTO.
Tariffication formula - tariffication referred to the conversion to an ordinary tariff rate of the full extent of protection given to a product through both tariff and NTBs. The Modalities document prescribed the use of the price gap method to measure tariff equivalents, as follows:
T = (Pd - Pw)/ Pw * 100
Where T = ad valorem tariff equivalent
Pd = domestic price (e.g. wholesale price)
Pw = world reference price (import or export parity price)
Base year - the average of three years, ex.1986, 1987 and 1988.
A Member has to reduce its tariff total every year in equal steps over a prescribed span of time.
Developed Members will, from 1995 to 2000, reduce their tariffs on agricultural products by 36% on average, with a minimum cut of 15% in each tariff line. For developing Members, the cuts are 24 and 10% respectively from 1995 to 2004. Least-developed Members were required to bind all agricultural tariffs, but not to undertake tariff reductions.
In practice, major importers of agricultural products have bound the tariffs at very high levels, assuming very high tariff equivalents for non-tariff measures, thus making the entry of imports almost impossible.
Typical High Tariffs
Canada: butter 360%,
cheese 289%,
eggs 236.3%
EU: beef 213%,
wheat 167.7%,
sheep meat 144%
Japan: wheat products 388.1%,
wheat 352.7%,
barley products 361%
US: sugar 244.4%,
peanuts 173.8%,
milk 82.6%.
These tariffs are so high that even in the final year of the implementation period they would still be very high.
No method or formula for further reduction of the tariffs has been identified as yet for the next round within the formal WTO process - in fact, this itself would be a subject for negotiations. However, reflecting the importance of this matter, this subject has attracted considerable attention from analysts. What follows is a summary of various ideas, albeit all informal, by which tariffs may be reduced. Given that tariff binding is a matter of strategic concern, it is important for countries to be aware of these possible methods and how these would affect their currently bound tariff rates.
Across-the-board linear reduction. A linear reduction formula is simply Tn = (1-r*t)*T0, where Tn and T0 are new and original tariff rates respectively, r is agreed reduction rate and t is the time period for reduction. For example, if r = 0.06 (i.e. 6 percent reduction per year) and t = 6 years, a 100 percent tariff is reduced to 64 percent. This method was applied in the Kennedy Round with the "r*t" set at 50 percent. As a result of some exceptions negotiated subsequently, the final reduction was 35 percent. The approach is both simple and transparent. While tariffs could be cut significantly if the reduction rate is high (e.g. 50 percent compared to 36 percent on average in the Uruguay), another linear cut would still leave many tariff peaks in agriculture left by the Uruguay formula.