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Farm Wars The Political Economy of Agriculture and the International Trade Regime

Robert Wolfe School of Policy Studies Queen's University Kingston Canada

tt

First published in Great Britain 1998 by

MACMILLAN PRESS LTD Houndmills. Basingstoke. Hampshire RGll 6XS and London Companies and represenlatives throughout the world

A catalogue record for this book is available from the British Library.

ISBN 978-1-349-39836-2 ISBN 978-0-230-39008-9 (eBook) DOI 10.1057/9780230390089

First published in the United States of America 1998 by ST. MARTIN'S PRESS, INC., Scholarly and Reference Division. 175 Fifth Avenue. New York. N.Y. 10010

ISBN 978-0-312-17700-3

Library of Congress Cataloging·in-Publication Data Wolfe, Robert. 1950-Farm wars: the political economy of agriculture and the inlemational trade regime,' Robert Wolfe. p. cm. Includes bibliographical references (p. ) and index.

I. Produce trade-Govemment policy-Congresses. 2. Agricullure and state-Congresses. 3. Protectionism---Congresses. 4. Uruguay Round (1987-1994) I. Title. HD9000.6.wS37 1997 382'.41--<1c21

© Robert Wolfe 1998

Softcover reprint of the hardcover I st edition 1998 978-0-333-66599-2

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No paragraph of this publication may be reproduced. copied or transmitted save with wrillen permission or in accordance with the provisions of the Copyright. Designs and Patents Act 1988. or under the terms of any licence permining limited copying issued by the Copyright Licensing Agency. 90 Tottenham Court Road. London WI P 9HE.

Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

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10 9 8 7 6 5 4 3 2 I 07 06 05 04 03 02 01 00 99 98

For my parents

I thought we were producing too much food in the EEC - hence the surpluses.

The German nodded significantly. 'Too much food to eat, yes!' I was baffled. 'What else is food for?' I asked him. 'We do not produce food for eating,' he replied. 'Food is a weapon!' I asked if he meant that we fight the Russians with food. He became impatient, and explained that we don't fight the Russians.

They are our friends, our customers. We fight the Americans! 'The CAP gives us great influence over America, you see? Last war, guns. This war, butter.'

'It's better, butter,' I remarked facetiously and laughed a little.

With apologies to the Rt Hon. James Hacker MP (see Lynn and Jay, 1988, p. 35)

Contents

List of Charts viii

List of Figures ix

List of Illustrations x

Acknowledgements xi

Glossary xiv

Chronology xviii

1 Introduction 1

2 The GATT is Not a Free Trade Agreement: The Trade Regime and the Double Movement 10

3 The Double Movement on the Farm: Structural Change and the International Organization of Agriculture 44

4 Governing a Global Trading System: The Uruguay Round as a Single Undertaking 82

5 Opening Up the Green Box: Agriculture in the Final Act of

the Uruguay Round 107

6 The Message in the Green Box 148

Appendix: The Agreement on Agriculture 165

Notes 200

Bibliography 203

Index 000

VII

List of Charts

3.1 Agricultural products as a percentage of world exports 65 3.2 Food exports as a share of total merchandise exports 66 3.3 Food imports as a share of total merchandise imports 66 3.4 Leading exporters of food 68 3.5 Real international food prices, 1900-1987 70 3.6 Real international food prices, 1965-1994 71 3.7 World prices and stocks: wheat 72 3.8 Domestic support for agriculture in OECD countries:

consumer and producer subsidy equivalents 73 3.9 Selected federal transfers to the prairie grain economy,

1970-1987 74 3.10 Employment in agriculture as a percentage of total civilian

employment 75 3.11 Gross value added in agriculture as a percentage of GDP 75

vm

List of Figures

2.1 The conceptual elements of regime theory 28 2.2 Interdependence, conflict, and institutions 38 5.1 PSE classification by type of measure 121

IX

List of Illustrations

Each Time A Dairy Farm Dies, Part Of Canada Dies Too! 8 'Which comes first?' 45 'Hope it rains, Martha' 149

x

Acknowledgements

All accounts are partial, and no story has a single author. This account bears the marks of my own involvement with the Farm War as a Canadian foreign service officer, and it has been influenced by friends and colleagues. My work on agricultural trade began while I was a member of the Permanent Delegation of Canada to the OECD in Paris in the early 1980s, when Howard Wilson asked me to begin speaking for Canada at meetings of the Trade Committee Working Party and the Joint Working Party of the Agriculture and Trade Committees. Those bodies were both implicated in the OECD's 1982 Ministerial work plan on the problems of agricultural trade, giving me a strategic observation post early in the Farm War. In September 1986, just before Punta del Este, I began working in Ottawa as Executive Assistant to Sylvia Ostry, then Canada's Ambassador for Multilateral Trade Negotiations and Prime Minister's Personal Representative, Economic Summit. This assignment gave me a minor role in the early stages of the Uruguay Round, coordinating the preparation of the position Canada was to take on agriculture in the negotiating group in Geneva, the pivotal 1987 OECD Ministerial, the meeting of the Cairns Group held in Canada in

1987, the 1987 Venice Summit, and the 1988 Toronto Summit. Later, I was a member of the Canadian Delegation to the Montreal Ministerial of 1988. Some of the ideas in this book were also shaped by a more recent opportunity provided by Barry Carin to think about the nature of econ­omic diplomacy while assigned to the International Economic Relations Division in Ottawa.

This book also bears the marks of my long transition to academe, being a revision of a doctoral dissertation (Wolfe, 1995). Both are dedicated to my parents, a librarian and a professor, who encouraged their children to value books and scholarship. I owe a debt to my teachers, Professors Bray ton Polka of York University and S. F. Wise of Carleton University, who encouraged me to think historically and write clearly, and Professor Charles Pentland of Queen's University, who valued my practical experi­ence while shaping my thinking about international organization - and remaining endlessly good-humoured as the work slowly proceeded. I am grateful to Professor Timothy Shaw of Dalhousie University for seeing merit in the dissertation and for patiently encouraging its transformation into a book. During the long period these ideas gestated through the

xi

Xll Acknowledgements

dissertation, conference papers and articles, (notably Wolfe, 1996a; 1996b; 1993a; 1993b; and Curtis and Wolfe, 1994), I have learned from the comments and suggestions of Professors Theodore Cohn, Andrew Cooper, Claire Cutler, John Curtis, Jacalyn Duffin, Colin Duncan, Frank Flatters, David Haglund, Virginia Haufler, Eric Helleiner, Richard Higgott, James Keeley, Friedrich Kratochwil, Peter Leslie, Roderick Macdonald, Neil MacFarlane, Hans Mohr, Maureen Molot, Craig Murphy, Robert Paarlberg, Simon Reich, John Ruggie, David Rutenberg, Claire Sjolander, Klaus Stegemann, Susan Strange, Gilbert Winham, Robert Young and Mark Zacher. The usual caveats apply. I also learned a great deal from interviews with officials of national delegations in Geneva and with officials of the GATT and OECD secretariats, who asked to remain anonymous.

Tracy Sletto was an invaluable research assistant in the final stages, notably in preparing the charts. Christine O'Connell of the Department of Foreign Affairs and International Trade cheerfully kept me supplied with documents on the Uruguay Round as it progressed. John Flood of the Department's Library helped with bibliographic searches. Additional research materials were kindly given to me by Professors Albert Chominot, Joseph Klatzman, and T. K. Warley, by Yves Surry of Agriculture Canada, and by Laura Bipes, of the International Agricultural Trade Research Consortium.

Research is costly. I am grateful for the superb libraries at Queen's, and to all those who have funded them. The Social Sciences and Humanities Research Council of Canada supported the early stages of my work with a doctoral fellowship. The Faculty of Graduate Studies and Research of Queen's University provided assistance for conference travel and research trips to the United States. Understanding colleagues in the Department of Foreign Affairs and International Trade funded interviews in Europe and later helped me find time to write. The Centre for International Relations at Queen's provided me with a congenial base for many years. More recently, research support was provided by the School of Policy Studies at Queen's.

I am grateful to Brian Gable for permission to use his cartoon 'Hope it rains, Martha'; to Peter Pickersgill for permission to use his cartoon 'Which comes first'; to the Dairy Farmers of Canada for permission to use 'Each Time A Dairy Farm Dies, Part Of Canada Dies Too!'; and to Cambridge University Press, for permission to use Figure 1.1 'Real international food prices, 1900 to 1987' from Rod Tyers and Kym Anderson (1992) Disarray in World Food Markets: A Quantitative Assessment.

Acknowledgements xiii

My family will be glad that a ceasefire has been declared at last. Jessica and Joshua no doubt agree with their mother that a study of farming that does not discuss cows and, especially, chickens is an odd thing. Jacalyn Duffin delighted in finding grist for my mill, kept pushing me to try to explain international political economy in ordinary English, and ensured the domestic stability without which this study of international relations would not have been possible.

ROBERT WOLFE

Glossary

AAA

Amber Box

AMS

Blair House Accord

Blue Box

Brussels Ministerial

Cairns Group

CAP

Contracting Parties

CTA

Dunkel Text

EU

Agricultural Assistance Act of 1933 (USA)

see Appendix

Aggregate Measure of Support - see Appendix

The 1992 accord (sometimes referred to as BHA) between the EU and the USA resolving a long-running oilseeds dispute and settling certain aspects of the Uruguay Round Agreement on Agriculture (Herlihy, 1993)

see Appendix

December 1990. The failed attempt to end the Round on the schedule set out at Punta

Argentina, Australia, Brazil, Canada, Chile, Columbia, Hungary, Indonesia, Malaysia, New Zealand, Philippines, Thailand, Uruguay (see Higgott and Cooper, 1990) [Note: Fiji was only a member for a short time]

Common Agricultural Policy (EU)

refers to the nations that signed the General Agreement on Tariffs and Trade. When the term is capitalized, it means all Contracting Parties acting jointly

GATT Committee on Trade in Agriculture, created 1982

the draft Final Act of December 1991 (sometimes referred to as the DFA)

European Union (this post-1992 term for the 15-member body is used throughout to refer to all incarnations of the Community, beginning with the original EEC of 1958 with its six members)

xiv

Glossary xv

FAO

Final Act

GATS

GATT

GDP

Green Box

Internal support

ITO

MFN

Minilateral

Food and Agriculture Organization of the United Nations

the Final Act of the Uruguay Round, which includes the agreement creating the WTO, and all the subsidiary agreements and schedules, including the GATT 1994 and the GATS. It was agreed in Geneva in December 1993, and signed by Ministers in Marrakesh, Morocco in April 1994

General Agreement on Trade in Services, created by the Final Act of the Uruguay Round

General Agreement on Tariffs and Trade. GATT refers both to an agreement and to the quasi-organization that preceded the WTO. GATT 1947 refers to the original agreement; GATT 1994 refers to the agreement as modified in the Round (the GATT 1994 governs trade in goods - see GATS)

Gross Domestic Product, the total of the goods and services produced in a country

see Appendix

encompasses any measure which acts to maintain producer prices at levels above those prevailing in international trade; direct payments to producers, including deficiency payments; and input and marketing cost reduction measures available only for agricultural production

the International Trade Organization proposed in the Havana Charter of 1948, which never came into existence

Most-favoured-nation treatment (Article I of the GATT 1994) requiring countries not to discriminate between goods on the basis of their origin or destination

in GATT terms, a limited-membership agreement rather than a multilateral agreement involving all Contracting Parties

XVI Glossary

Modalities

Montreal Ministerial

MTM

National treatment

see Appendix

December 1988. The 'mid-term' review called for at Punta

Ministerial Trade Mandate (OECD, 1982)

obligation under Article III of the GATT 1994 which requires that imports be treated no less favourably than domestically-produced goods once they have passed customs

non-tariff barrier

Organisation for Economic Co-operation and Development

Producer Subsidy Equivalent/Consumer Subsidy Equivalent (OECD, 1987a)

the Ministerial meeting launching the Uruguay Round was held in Punta del Este, Uruguay, in September 1986

Quantitative Restrictions - specific limits on the quantity or value of goods that can be imported (or exported) during a specific time period.

Canada, Japan, USA, EU

the new regime norm established in the Uruguay Round by the General Principle of the Punta Declaration that 'The launching, the conduct and the implementation of the outcome of the negotiations shall be treated as parts of a single undertaking'

Special and Differential Concept allowing 'differential and more favourable' treatment for developing countries -that is, a derogation from other GATT norms -introduced with the 'Enabling Clause' during the Tokyo Round, and found throughout the Final Act. For example, see Article 15 of the Agreement on Agriculture, in the Appendix.

NTB

OECD

PSE/CSE

Punta

QRs

Quad

Single Undertaking

STE State Trading Enterprise

Glossary xvn

Subsidy there are two general types of subsidies: export and domestic. An export subsidy is a benefit conferred on a firm by the government that is contingent on exports. A domestic subsidy is a benefit not directly linked to exports

Tariffication see Appendix

TPRM Trade Policy Review Mechanism, created by the

Uruguay Round

WFP World Food Programme

Uruguay Round Multilateral trade negotiations launched at Punta del Este, Uruguay in September 1986

WTO World Trade Organization, established on 1 January 1995

Source: some of these definitions were taken from WTO documents.

Chronology

Year Food Prices*

1977-79 = 100/

1990=100

Policy/Event

1846

1873

1900 125;

1930

1947

1955

1963-67

1974

early 1980s

1982

150inWWI

125 in late 20s

1933 70 in early 30s

peak at 175

during WWII

prices decline steadily

175

1973-79 100 120

prices collapse

Repeal of the Corn Laws, initiating the brief 'free trade' era

Great Depression begins a long period of market closure

Prices at the end of the nineteenth century

were low in real terms, but much higher than they would be in the 1980s

Smoot-Hawley, the US Tariff Act of 1930, which began as a response to farmers' troubles, initiates a new wave of closure

AAA symbolizes the policy trend in industrial countries towards providing domestic support for farmers

Signature of the GATT

Formal waiver for US policy confirms that agriculture is exempt from some otherwise-applicable GATT disciplines

Kennedy Round in the GATT: though preceded by the Chicken War, little change for agriculture

An unexpected spike in world food prices at a time of apparent global food shortages leads to the convening of the World Food Conference

Tokyo Round: little progress on farm trade; GATT system fragmented by NTB Codes

Onset of the Farm War, manifest in structural conflict and inagriculture-related disputes within the GATT

GATT Ministerial; OECD Ministerial Trade Mandate

xvin

Chronology

Year Food Prices Policy/Event

1977-79 = 100/

1990=100

1986 80 (1985) Punta del Este Conference: launch of the Uruguay

Round as subsidies skyrocket

1988 Montreal Ministerial - the 'mid-term review'

1990 100 Brussels Ministerial, an attempt to end the Round, fails; subsidies falling

1991 Release of the draft Final Act, known as the

Dunkel Text

1992 Blair House Accord

1993 Round concludes in Geneva; subsidies again

rising

1994 Final Act signed in Marrakesh

1995 775 World Trade Organization begins on January 1 *Food prices are indexed to 100 in 1977-79 except for values in italic which are indexed to 100 in 1990. (For a complete GATT chronology, see Hoekman and Kostecki, 1995, pp. 14-17.)