The Uruguay Round Agreement on Agriculture (URAA)
imposed stringent limits on member countries’ export subsi-
dies. The mandatory reductions have been of great concern
to the European Union (EU), because it depends on export
subsidies to export many of its agricultural commodities
under their Common Agricultural Policy (CAP). Whether
the EU meets its commitments, and how it meets them, is of
interest because the United States, which competes in many
of the same markets as the EU. Only data for the first year
of the implementation period is available. However, these
data can provide some insight as to where the EU is having
a difficult time meeting the commitments, and where the
reductions have not been a problem.
Over the past 2 years, world prices have been high for many
commodities that the EU has typically relied on subsidies to
export. As a result, subsidies have declined, and in certain
cases, the EU has even imposed export taxes. These events
were completely unforseen at the time the URAA was being
negotiated. If world prices fall, meeting commitments for
these goods may become more difficult in the future.
Uruguay Round Agreement on Agriculture
The URAA includes limits on export subsidies. Export subsi-
dies allow countries to export goods on the world market at a
price lower than in their domestic markets. This lowers world
prices and distorts markets by altering trade patterns and com-
petitiveness between producers. Other exporters face more
competition, because export subsidies drive down the prices
of their goods. Countries that can afford to subsidize exports
can take markets away from efficient, low cost producers.
However, importing countries benefit from export subsidies
by being able to purchase more of a good at a lower price.
Historically the EU has relied on subsidies to export grain.
Grain prices in the EU were maintained above world levels
primarily through government intervention purchases and
protection from imports. This typically generated more grain
than demanded in the EU. To make EU g