International Trade: Impact of the Uruguay Round Agreement on the Export
Enhancement Program (Briefing Report, 08/05/94, GAO/GGD-94-180BR).
Seven years of negotiations culminated recently in the "Uruguay Round"
of the General Agreement on Tariffs and Trade, whose signatories agreed
to discipline the use of trade-distorting practice, such as tariffs and
subsidies. GAO concludes that the proposed Uruguay Round trade
agreements would require that the United States reduce its agricultural
export subsidies beginning in 1995, raising questions about whether the
goals and objectives of the Export Enhancement Program--which is
designed to pressure U.S. agricultural competitors--need to be revised.
Specifically, this report identifies the (1) likely impact of the
Uruguay Round on U.S. agricultural export programs and (2) proposals by
industry participants and interest groups that Congress could consider
for changing the Export Enhancement Program and other agricultural trade
programs run by the Agriculture Department's Foreign Agricultural
Service.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-94-180BR
TITLE: International Trade: Impact of the Uruguay Round Agreement
on the Export Enhancement Program
DATE: 08/05/94
SUBJECT: International trade
International trade restriction
Foreign trade policies
Foreign trade agreements
International economic relations
Export regulation
Subsidies
Commodity marketing
Sales promotion
Economic analysis
IDENTIFIER: USDA Export Enhancement Program
USDA Sunflowerseed Oil Assistance Program
USDA Cottonseed Oil Assistance Program
USDA Dairy Export Incentive Program
CCC Direct Sales Program
USDA Market Promotion Program
FAS Cooperator Market Development Program
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Cover
================================================================ COVER
Briefing Report to the Honorable
Thomas A. Daschle, U.S. Senate
August 1994
INTERNATIONAL TRADE - IMPACT OF
THE URUGUAY ROUND AGREEMENT ON THE
EXPORT ENHANCEMENT PROGRAM
GAO/GGD-94-180BR
Uruguay Round's Impact on EEP
Abbreviations
=============================================================== ABBREV
CCC - Commodity Credit Corporation
COAP - Cottonseed Oil Assistance Program
DEIP - Dairy Export Incentive Program
EU - European Union
EEP - Export Enhancement Program
FAS - Foreign Agricultural Service
GATT - General Agreement on Tariffs and Trade
GSM - General Sales Manager
M.E. - milk equivalents
MPP - Market Promotion Program
NAWG - National Association of Wheat Growers
OECD - Organization for Economic Cooperation and Development
SOAP - Sunflowerseed Oil Assistance Program
USDA - U.S. Department of Agriculture
WPI - World Perspectives, Inc.
Letter
=============================================================== LETTER
B-257783
August 5, 1994
The Honorable Thomas A. Daschle
United States Senate
Dear Senator Daschle:
Seven years of negotiations culminated recently in the Uruguay Round
of the General Agreement on Tariffs and Trade (GATT), whose
signatories agreed, among other things, to discipline the use of
trade-distorting practices, such as tariffs and subsidies. You asked
us to provide information on the likely impact of the Uruguay Round
agreement on U.S. agricultural export programs--primarily, the U.S.
Department of Agriculture's (USDA) Export Enhancement Program (EEP).
Specifically, our objectives were to identify (1) the likely impact
the Uruguay Round agreement would have on U.S. agricultural export
programs and (2) the proposals by industry participants and interest
groups that the Congress could consider for making legislative
changes to EEP and other agricultural trade programs managed by
USDA's Foreign Agricultural Service (FAS).
We provided a briefing to you on July 19, 1994. This report
summarizes the substance of that briefing.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
The Uruguay Round agreement, if implemented, would require the United
States to reduce its agricultural export subsidies, starting in 1995.
The required reductions in subsidized exports--36 percent in
budgetary outlays and 21 percent in commodity quantities--would be
phased in during a 6-year period and would affect several U.S.
agricultural export programs, the largest of which is EEP. The
reductions would be based on the average budgetary outlays and
quantities subsidized during the 1986-90 base years on a
commodity-specific basis. Because subsidies for specific commodities
have fluctuated since 1990, some commodities would be harder hit--in
relation to current levels--than others.
While the Uruguay Round Agreement would not directly restrict USDA's
export credit, food aid, or market promotion and development
programs, it established guidelines for food aid and market promotion
to ensure these programs would not be used to circumvent export
subsidy reductions.
In discussions with agricultural interest groups, we identified two
specific proposed alternatives to the current EEP program. The World
Perspectives, Inc. (WPI),\1 and the National Association of Wheat
Growers' (NAWG) proposals differ on the extent of suggested changes
to the current EEP program. Both proposals recommend that EEP be
expanded to more markets and not just targeted to countries to which
the European Union (EU)\2 has subsidized exports. In addition to the
two proposals, the Congress is considering legislation proposed by
the dairy industry that would establish a marketing board, a concept
that other commodity groups are also considering.
In addition, the EEP exporters we contacted made several suggestions
on how to improve the current EEP program. Some suggestions dealt
with expanding or eliminating the targeting aspect of EEP, while
others were intended to make the program more flexible for exporters
and buyers. Some of the suggestions called for fundamental change in
U.S. agricultural trade policies and the programs designed to
implement those policies. However, there was no clear consensus
among the exporters we contacted about the continued need for the
program or its ideal structure if the Uruguay Round agreement were to
be implemented.
FAS is currently preparing a position paper on the implications of
the Uruguay Round agreement for EEP. FAS expects to complete the
position paper within 2 to 3 months. The position paper will then be
used by the National Economic Council to review EEP in light of the
Uruguay Round agreement.
The Uruguay Round agreement, if implemented, raises questions as to
whether the goals and objectives of EEP need to be revised.
Currently, EEP is designed to maintain pressure on our competitors,
primarily the European Union, to negotiate agricultural reform.
While the Uruguay Round agreement did not eliminate the use of
subsidies, the agreement limited the extent to which subsidies can be
used. Any consideration of the merits of alternative proposals or
significant changes to EEP need to be evaluated against the role and
purpose of the program.
--------------------
\1 World Perspectives, Inc., is a Washington, D.C.-based agricultural
and trade policy consulting firm.
\2 The European Union was formerly known as the European Community.
It consists of 12 member countries: Belgium, France, Germany, Italy,
Luxembourg, the Netherlands, Denmark, Ireland, the United Kingdom,
Greece, Spain, and Portugal.
BACKGROUND
------------------------------------------------------------ Letter :2
The United States has been the largest exporter of agricultural
commodities over the past 3 decades. During the early and mid-1980s,
however, the United States began to lose some of its share of the
world market, partly due to other countries' subsidies of their
agricultural exports. The United States then implemented a number of
programs, the largest of which is EEP, designed to counter the export
subsidy practices of other countries and to maintain and expand U.S.
agricultural exports. The major objectives of EEP are to (1)
challenge unfair foreign trade practices, such as the use of
subsidies; (2) expand U.S. agricultural exports; and (3) encourage
other countries exporting agricultural commodities to undertake
serious negotiations on agricultural trade problems.
The Uruguay Round of GATT began in 1986 and concluded on December 15,
1993. The ensuing agreement, signed in Marrakesh, Morocco, on April
15, 1994, sought to liberalize world trade by (1) reducing trade
barriers such as tariffs and subsidies; (2) improving GATT as a legal
framework; (3) enhancing GATT as an institution, by strengthening the
dispute settlement function; and (4) introducing measures to open
markets in sectors where GATT disciplines were weak or nonexistent,
such as agriculture.
Before the Uruguay Round Agreement can take effect for the United
States, the Congress must pass implementing legislation. The Uruguay
Round agreement is scheduled to go into effect in July 1995.
However, the Director General of GATT is trying to move the effective
date up to January 1995.
The Uruguay Round Agreement on agriculture is the beginning of a
multilateral process to substantially reduce export subsidies and
other activities that distort agricultural trade. To meet this
long-term goal, the agreement provides that member nations shall meet
in 1999 to review the impact of the Uruguay Round and to negotiate
further reductions in export subsidies and other trade-distorting
practices.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3
To identify the likely impact the Uruguay Round agreement would have
on U.S. agricultural export programs, we reviewed the final text of
the agreement, known as the "Final Act," along with associated
documents and country schedules. We also reviewed summaries,
studies, and analyses of the agreement prepared by USDA, export
organizations, and U.S. foreign trade analysts. The identification
of USDA programs affected and unaffected by the export subsidy
requirements of the Uruguay Round agreement was based upon USDA's
analysis. It does not reflect our independent legal analysis of the
Uruguay Round agreement. We did not verify the accuracy of data
obtained from FAS showing the impact of the agreement on a
commodity-specific basis. We held discussions with USDA staff who
had been involved with the negotiations, as well as with other trade
experts not affiliated with USDA.
To identify options that could be considered for making legislative
changes to EEP, we reviewed EEP's legislative and regulatory
histories to determine the goals and objectives of the program. In
addition, we held discussions with 17 agricultural interest groups,
including industry associations, commodity groups, consultants, and
others to identify options for legislative changes to EEP. We also
contacted 13 EEP exporters to obtain their perspectives and
suggestions. The exporters were selected to obtain a mix of large
and smaller participants in the EEP wheat, wheat flour, and vegetable
oil programs. The 13 exporters we contacted received over 60 percent
of the subsidies awarded under EEP for those commodities from May
1985 to May 1994. Because we judgmentally selected the exporters,
their responses were not necessarily representative of all EEP
exporters. Due to time constraints, we obtained the information on
the EU's export subsidy system from USDA's Foreign Agricultural
Service.
We did our work from May 1994 to July 1994 in accordance with
generally accepted government auditing standards.
URUGUAY ROUND AGREEMENT
REQUIREMENTS
------------------------------------------------------------ Letter :4
The Uruguay Round agreement, if implemented, would directly affect a
number of U.S. agricultural export programs. According to FAS, the
following USDA programs would be subject to the subsidy reduction
requirements of the Uruguay Round agreement: EEP, the Sunflowerseed
Oil Assistance Program (SOAP), the Cottonseed Oil Assistance Program
(COAP), the Dairy Export Incentive Program (DEIP), and the Commodity
Credit Corporation's (CCC) Direct Sales Program.\3 USDA's export
credit programs, such as the General Sales Manager (GSM) 102 and 103
programs, would not be restricted by the Uruguay Round agreement.
However, the member countries committed to working toward achieving
internationally agreed-upon disciplines governing export credit
programs. There would not be required reductions in food aid
programs, such as Public Law 480, titles I-III or Food for Progress.
However, the Uruguay Round agreement established conditions that food
aid programs would be required to meet in order not to be considered
an export subsidy. Market promotion and development programs, such
as the Market Promotion Program and the Cooperator Program, would
remain unaffected by the Uruguay Round agreement, unless expenditures
are linked to specific sales or export performance (see app. I for
further information on programs and subsidy reduction effects).
Some commodities would experience greater export subsidy reductions
than others from current funding levels, because reductions would be
based on average subsidy levels for 1986-90. The impact would thus
be heaviest on those commodities whose subsidies have increased since
the base years. For example, the U.S. export budgetary outlays for
wheat/wheat flour and vegetable oils would have to be reduced by 57
percent ($482 million) and 77 percent ($47 million), respectively,
from the 1991-92 levels by the year 2000. Other commodities that
would experience significant reductions from current funding levels
include rice, eggs, and dairy products (see app. II for further
information on commodity-specific effects of the agreement).
--------------------
\3 Under the Direct Sales Program, CCC can sell surplus CCC-owned
commodities in export markets at prices lower than acquisition costs.
The quantity and kind of CCC commodities available determine the
level of export sales each year.
INDUSTRY AND INTEREST GROUPS'
PROPOSED ALTERNATIVES AND
SUGGESTED CHANGES TO THE
CURRENT EEP
------------------------------------------------------------ Letter :5
Two organizations, World Perspectives, Inc., and the National
Association of Wheat Growers, proposed specific alternatives to the
existing EEP program. Both proposals would expand EEP to more export
markets instead of continuing its current approach of targeting
countries to which the EU has subsidized exports. The WPI proposal
would also establish a number of other operational changes to EEP
designed to make the program more flexible for exporters and buyers
while maximizing exports with available program funds. The NAWG
proposal calls for the redirection of unspent EEP funds to other USDA
export programs, such as food aid programs. Both proposals fell into
the category of programs that would be subject to the reduction
requirements of the Uruguay Round agreement on the use of export
subsidies (see app. III for further information on these proposals).
While not an alternative proposal to EEP, a "self-help" program
proposed by the dairy industry would use a marketing board to augment
USDA's export marketing activities.\4 The proposal would augment
rather than replace USDA-subsidized exports under DEIP. It is
unclear whether such a program would fall under the Uruguay Round
agreement's subsidy restrictions. Other commodity groups have
expressed an interest in using marketing boards to augment EEP
program activities.
The exporters we contacted expressed varying opinions on whether
changes should be made to the current EEP, assuming the Uruguay Round
agreement is implemented. Many of the suggestions made were intended
to improve the flexibility of the program for exporters and buyers.
For example, exporters want to be able to make changes that are
mutually agreed upon by the exporter and buyer, such as changes in
the shipping port or product specifications, without having to obtain
FAS' approval. Some exporters cited the EU's agricultural export
program as an example of a more flexible export subsidy program.
Other exporters suggested more fundamental changes in the program,
such as using EEP funds for foreign market development rather than
solely for export subsidies. The exporters were divided in their
support for the WPI and NAWG proposals (see apps. IV and V for
further information on the exporter's suggested improvements to EEP
and the EU's agricultural export program).
We were unable to evaluate the alternative proposals and suggestions
made by the exporters due to the lack of criteria concerning the role
and purpose of EEP in a post-Uruguay Round agreement environment.
For example, if the program is primarily a trade policy tool designed
to encourage competitors such as the EU to negotiate further
reductions in the use of subsidies, the targeting aspect of EEP could
remain an important feature of the program. However, if the program
is primarily intended to increase U.S. agricultural exports, the
elimination of the targeting aspect of the program could be
appropriate.
FAS officials said that EEP's objectives and its relationship to U.S.
agricultural trade policy should be discussed before making
significant operational changes in the program. They said that they
were assessing the WPI and NAWG proposals as well as considering
other options to the current EEP. They expected the position paper
that they were developing to serve as the basis for continued
discussions within the administration and the Congress about the
implications of the Uruguay Round agreement on the future of EEP.
--------------------
\4 Marketing boards are quasi-government agencies that control the
sale and export of commodities using a pooling mechanism.
AGENCY COMMENTS
------------------------------------------------------------ Letter :6
We did not obtain written agency comments on this report. However,
we discussed the contents of this report with FAS officials on June
27, 1994, including the General Sales Manager and the Director of the
Commodity Credit Corporation's Operations Division, and incorporated
their comments where appropriate. FAS officials generally agreed
with the contents of the report and with our observation regarding
the need to assess the goals and objectives of EEP in a post-Uruguay
round environment before considering alternative proposals or making
significant changes to the program.
---------------------------------------------------------- Letter :6.1
As agreed with you, unless you announce the contents of this briefing
report earlier, we plan no further distribution of this report until
14 days from its issue date. At that time, we will send copies to
the Secretary of Agriculture and other interested parties. Copies
will be made available to others on request.
The major contributors to this briefing report are listed in appendix
VI. Please contact me at (202) 512-4812 if you have any questions
concerning this report.
Sincerely yours,
Allan I. Mendelowitz, Managing Director
International Trade, Finance, and
Competitiveness
REQUIRED REDUCTIONS IN U.S.
EXPORT SUBSIDIES
=========================================================== Appendix I
Figure I.1: Required Reductions in U.S. Export
Subsidies
The Uruguay Round agreement of the General Agreement on Tariffs and
Trade (GATT), signed in April 1994, would require the United States
to reduce its budget outlays for export subsidies by 36 percent and
its quantities of commodities receiving export subsidies by 21
percent. The export subsidy percentage reductions would be applied
to the base period, which would be the average level of export
subsidies from 1986 through 1990. Member nations would not be
allowed to take inflation into account for budget outlay reductions.
GATT member nations would be required to reduce export subsidies in
equal increments on an annual basis from 1995 through the year
2000.\1 The annual percentage reductions would be 6 percent and 3.5
percent, respectively, for export subsidy budget outlays and
quantities, if members began their annual reductions from the base
period average. However, in cases where members' export subsidies
were greater in 1991 through 1992 relative to the base period, they
would be allowed, under some conditions,\2 to use the 1991 through
1992 average subsidy levels as a starting point for their export
subsidy reductions.
Figure I.2: Subsidized Vegetable Oil Exports
Permitted with Different Starting Points
\a Years refer to base period starting points.
Source: GAO analysis of U.S. Department of Agriculture (USDA) data.
Figure I.2 illustrates what the difference in subsidized vegetable
oil exports would be by using 1991 through 1992 as a starting point
for reducing subsidized exports, rather than using the 1986-90 base
period as a starting point. The darker-shaded bars in figure I.2
would be the maximum level of subsidized vegetable oil exports
permitted if the base period were used as a starting point. However,
since subsidized vegetable oil exports were greater in 1991 through
1992 (see table II.1) than during the base period, the Uruguay Round
agreement would allow the United States to begin subsidy reductions
from the 1991 through 1992 levels. The lighter-shaded bars in figure
I.2 would be the additional subsidized vegetable oil exports allowed
by using the 1991 through 1992 levels as a starting point.
Regardless of what starting point is used to reduce export subsidies,
by the year 2000 the permitted subsidized vegetable oil exports would
have to be reduced to the same level, which is determined relative to
the 1986-90 base period. This amount is shown by the dark-shaded bar
for the year 2000 in figure I.2.
Figure I.3: USDA Export Subsidy Programs Subject to
Reductions
--------------------
\1 Developing countries have the flexibility to apply lower rates of
reduction over a period of up to 10 years.
\2 The conditions that dictate whether member nations may begin
annual export subsidy levels from 1991 through 1992 levels are
contained in a GATT document entitled "Modalities for the
Establishment of Specific Binding Commitments under the Reform
Programme" ("modalities"), GATT Secretariat (Geneva, Switzerland:
Dec. 20, 1993).
USDA EXPORT SUBSIDY PROGRAMS
SUBJECT TO REDUCTIONS
--------------------------------------------------------- Appendix I:1
The Uruguay Round agreement would affect specific types of subsidy
programs for agricultural commodities. The following subsidies would
be subject to reduction under the Uruguay Round agreement:
direct subsidies, including payments-in-kind to firms, industries,
producers, and cooperatives or to a marketing board contingent
on export performance;
sale or disposal for export by governments or their agencies of
noncommercial stocks of agricultural products at a price lower
than the domestic price for a like product;
payments on the export of an agricultural product financed by
virtue of governmental action, including payments financed by
levies imposed on the agricultural product;
subsidies to reduce the cost of marketing exports (other than
widely available export promotion and advisory servi- ces)
including handling, upgrading, and other processing costs, and
the costs of international transport and freight;
internal transport and freight charges on export shipments provided
by governments, on terms more favorable than for domestic
shipments; and
subsidies on agricultural products contingent on their
incorporation in exported products.
According to officials from USDA's Foreign Agricultural Service
(FAS), which administers the programs, EEP, SOAP, COAP, DEIP, and CCC
direct sales would be subject to reduction under the Uruguay Round
agreement. The EEP is by far the largest of these programs in terms
of budget outlays. According to USDA's 1995 budget document, the
following amounts were spent for subsidy payments on these programs
during fiscal year 1993: $967.3 million on EEP; $32.1 million on
SOAP and COAP;\3 and $161.8 million on DEIP.
No figures were available for CCC direct sales during fiscal year
1993 from USDA's 1995 budget document.
According to FAS officials, the previously mentioned USDA export
programs, and the commodities covered by them, are reported in the
aggregate in the country schedules. (See app. II for a description
of "country schedules.") USDA would be responsible for working out
the details on reducing the expenditure levels and quantities for
these programs to ensure that the United States complied with the
export subsidy reduction requirements of the Uruguay Round agreement.
Figure I.4: USDA Export Programs Not Affected by
the Agreement
--------------------
\3 The administration has proposed eliminating these programs and
using EEP for vegetable oils.
USDA EXPORT PROGRAMS NOT
AFFECTED BY THE AGREEMENT
--------------------------------------------------------- Appendix I:2
According to FAS officials, the USDA programs for export credit, food
aid, and market promotion, including the Market Promotion Program,
would not be subject to reductions under the Uruguay Round agreement.
However, the agreement has guidelines for food aid and market
promotion to ensure that these programs would not be used to
circumvent export subsidy reductions. Specifically, the agreement
established the following guidelines for food aid to ensure that
member nations would not try to avoid the export subsidy reductions:
International food aid should not be tied directly or indirectly to
commercial exports of agricultural products.
International food aid should be carried out in accordance with the
Food and Agricultural Organization's\4 "Principles of Surplus
Disposal and Consultative Obligations."
International food aid should be granted to the extent possible in
full grant form.
According to FAS officials, USDA's Food Aid programs--Public Law 480
titles I, II, and III; Food for Progress; and Section 416 of the
Agricultural Act of 1949 (P.L. 439, as amended)--meet the stated
guidelines.
The Uruguay Round agreement also has guidelines for the use of market
promotion programs. According to FAS officials, market promotion,
including the Market Promotion Program, would be allowable as long as
it was not used to reduce the cost of exporting the agricultural
product.
In addition to guidelines for food aid and market promotion, the
Uruguay Round agreement calls for member nations to meet to develop
guidelines for export credits. The agreement states that member
nations would work toward developing guidelines to govern the
provision of export credits, export credit guarantees, and insurance
programs. According to FAS officials, the Organization for Economic
Cooperation and Development (OECD)\5 formed a group that will meet in
December to begin discussions on agricultural export credit
guidelines. FAS officials told us that OECD was chosen as the forum
because the organization has developed export credit guidelines for
industrial products.
--------------------
\4 The Food and Agricultural Organization is a body within the United
Nations to help members deal with agricultural trade issues.
\5 OECD was established in December 1960 by the United States,
Canada, and some European nations to study and discuss trade and
related matters. Members include the United States, Canada, the
European Union, the European Free Trade Association (Austria,
Finland, Iceland, Norway, Sweden, and Switzerland), Australia, New
Zealand, Japan, and Turkey.
IMPACT OF THE URUGUAY ROUND EXPORT
SUBSIDY REDUCTIONS ON A
COMMODITY-SPECIFIC BASIS
========================================================== Appendix II
Table II.1
U.S. Country Schedules--Quantity
Commitments Under the Uruguay Round
(Metric tons in thousands)
Governme
Comm Base nt
odit (1986- 1991- programs
y 90) 92 1995 1996 1997 1998 1999 2000 affected
---- -------- ------ ------ ------ ------ ------ ------ ------ --------
Whea 18,382 21,382 20,238 19,095 17,952 16,809 15,665 14,522 EEP
t/
whe
at
flo
ur
Coar 1,975 N.R. 1,906 1,837 1,768 1,699 1,630 1,561 EEP
se
gra
ins
Rice 49 318 272 225 178 132 85 39 EEP
Vege 179 677 588 498 409 320 231 141 EEP,
tab SOAP,
le COAP
oil
s
Butt 27 47 43 39 34 30 25 21 Direct
er/ sales,
but DEIP
ter
oil
Skim 86 116 108 100 92 84 76 68 Direct
milk sales,
pow DEIP
der
Chee 4 4 4 4 4 3 3 3 Direct
se sales,
DEIP
Othe 0.04 15 12 10 7 5 3 0.03 DEIP
r
mil
k
pro
duc
ts
Bovi 22 N.R. 21 21 20 19 18 18 Direct
ne sales
mea
t
Pigm 0.5 N.R. 0.5 0.5 0.4 0.4 0.4 0.4 Direct
eat sales
Poul 35 N.R. 34 33 32 30 29 28 EEP
try
mea
t
Live 13,955 N.R. 13,467 12,978 12,490 12,000 11,513 11,024 EEP
dai
ry
cat
tle
(he
ad)
Eggs 8,759 34,930 30,262 25,593 20,925 16,256 11,588 6,920 EEP
(th
ous
and
doz
en)
--------------------------------------------------------------------------------
Legend
N.R.Not reported. Values were not reported for 1991 through 1992
because these values were less than the values for the base period
(1986-1990).
Source: USDA/FAS.
The export subsidy commitments that result from the Uruguay Round
agreement are documented in tables known as "country schedules." The
country schedules show permitted levels of export subsidy quantities
and budget outlays for eligible commodity groups on an annual basis
from 1995 to the year 2000 (see tables II.1 and II.2). The country
schedules were subject to scrutiny by GATT members and approved by
the GATT Secretariat. The country schedules for the United States
become legally binding under the Uruguay Round agreement if the
Congress passes
Table II.2
U.S. Country Schedules--Budget Outlay
Commitments Under the Uruguay Round
(Dollars in millions)
Governme
Base nt
Commod (1986- 1991- programs
ity 90) 92 1995 1996 1997 1998 1999 2000 affected
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Wheat/ $568.5 $845.8 $765.5 $685.2 $604.8 $524.5 $444.2 $363.8 EEP
wheat
flour
Coarse 72.1 N.R. 67.7 63.4 59.1 54.8 50.4 46.1 EEP
grains
Rice 3.7 18.4 15.7 13.0 10.4 7.7 5.0 2.4 EEP
Vegeta 22.0 60.7 53.0 45.2 37.4 29.6 21.9 14.1 EEP,
ble SOAP,
oils COAP
Butter 47.7 N.R. 44.8 41.9 39.1 36.2 33.4 30.5 Direct
/ sales,
butte DEIP
roil
Skim 128.8 N.R. 121.1 113.4 105.7 97.9 90.2 82.5 Direct
milk sales,
powde DEIP
r
Cheese 5.7 N.R. 5.3 5.0 4.7 4.3 4.0 3.6 Direct
sales,
DEIP
Other 0.03 17.2 14.4 11.5 8.6 5.8 2.9 0.021 DEIP
milk
produ
cts
Bovine 35.7 N.R. 33.5 31.4 29.2 27.1 25.0 22.8 Direct
meat sales
Pigmea 0.8 N.R. .7 0.7 0.6 0.6 0.5 0.5 Direct
t sales
Poultr 22.7 N.R. 21.4 20.0 18.6 17.3 15.9 14.6 EEP
y
meat
Live 18.6 N.R. 17.5 16.3 15.2 14.1 13.0 11.9 EEP
dairy
cattl
e
Eggs 2.5 8.8 7.6 6.4 5.2 4.0 2.8 1.6 EEP
================================================================================
Total $929 -- $1,168 1,053 $939 $824 $709 $594
--------------------------------------------------------------------------------
Legend
N.R.-- Not reported. Values were not reported for 1991 through 1992
because these values were less than the values for the base period
(1986-1990).
-- Could not be summed because some commodities did not report
values for 1991 through 1992. However, the sum of the higher
permitted starting points on a commodity specific basis equalled $1.3
billion.
Source: USDA/FAS.
implementing legislation for the Uruguay Round and the President
signs it into law.
The Uruguay Round agreement would prohibit member nations from
introducing or reintroducing export subsidies for products that were
not subsidized during the base period. Therefore, any commodities
not included in these tables could not be subsidized. According to
USDA officials, some commodities in the tables are not expected to be
exported under USDA export subsidy programs. These commodities were
included in the tables solely to retain their eligibility for export
subsidies under the Uruguay Round agreement. For example, USDA
officials indicated that they had no intention of exporting live
dairy cattle under any export subsidy program.
Figure II.1: Maximum Permitted Subsidized Exports
of Wheat Under the Uruguay Round Agreement, 1995-2000
\a 1986 through 1990.
Source: GAO analysis of USDA data.
The export subsidy reductions under the Uruguay Round agreement would
affect those commodities that were more heavily subsidized during
1991-92 than during the base period. Figures II.1 and II.2 show the
Uruguay Round quantity reduction commitments for wheat and rice.
Wheat would face a reduction of 32 percent (6.9 million metric tons)
from 1991 through 1992 levels. Rice would face a greater 88-percent
reduction (279,000 metric tons) from 1991 through 1992 levels.
Figure II.2: Maximum Permitted Subsidized Exports
of Rice Under the Uruguay Round Agreement, 1995-2000
\a 1986 through 1990.
Source: GAO analysis of USDA data.
Table II.3
Commodities With the Greatest Volume
Reduction in Permitted Subsidized
Exports
(Metric tons in thousands)
Subsidy
permitted
in final
Starting year of Percentage
point for implementa Reduction reduction
reductions tion from 1991- from 1991-
Commodity 1991-92 (2000) 92 levels 92 levels
------------ ---------- ---------- ---------- ----------
Other milk 15 0.03 14.97 99.8%
products
Rice 318 39.00 279.00 87.7
Eggs 34,930 6,920.00 28,010 80.2
(thousand
dozen)
Vegetable 677 141.00 536.00 79.2
oils
Wheat/wheat 21,382 14,522.00 6,860.00 32.1
flour
Butter/ 47 21.00 26.00 55.3
butteroil
Skim milk 116 68.00 48.00 41.4
powder
------------------------------------------------------------
Source: GAO analysis of USDA/FAS data.
Tables II.3 and II.4 show the commodities that would face the largest
percentage reductions from the 1991-92 averages. Table II.3
indicates that the dairy industry would face substantial percentage
reductions in the quantities of permitted subsidized exports under
the Uruguay Round agreement. For example, the export subsidies for
other milk products (powdered milk with greater than 1.5-percent fat)
would be reduced almost 100 percent.
Table II.4
Commodities With the Greatest Dollar
Reductions in Permitted Subsidized
Exports
(Dollars in millions)
Subsidy
permitted
in final
Starting year of Percentage
point for implementa Reduction reduction
reductions tion from 1991- from 1991-
Commodity 1991-92 (2000) 92 levels 92 levels
------------ ---------- ---------- ---------- ----------
Other milk $17.20 $0.02 $17.18 99.9%
products
Rice 18.40 2.40 16.00 87.1
Eggs 8.80 1.60 7.20 81.8
(thousand
dozen)
Vegetable 60.70 14.10 46.60 76.8
oils
Wheat/wheat 845.80 363.80 482.00 57.0
flour
------------------------------------------------------------
Source: Analysis of USDA/FAS data.
Table II.4 shows that wheat and vegetable oils would be subject to
large reductions in USDA export subsidy expenditures. Wheat
expenditures would be reduced by $482 million from 1991-92 averages,
while vegetable oils would face almost $47 million in expenditure
reductions over the same time frame.
ORGANIZATIONS PROPOSING CHANGES TO
SUBSIDY PROGRAMS
========================================================= Appendix III
Figure III.1: Organizations Proposing Changes to
Subsidy Programs
The two major proposals or alternatives to the current EEP program
that we identified were from World Perspectives, Inc., (WPI) and the
National Association of Wheat Growers (NAWG). WPI and NAWG developed
their proposals to address the impact the Uruguay Round agreement, if
implemented, would have on EEP funding levels. Both proposals would
open EEP to more export markets instead of limiting EEP's targeting
to those countries where the EU has subsidized exports. The WPI
proposal would also establish a number of other operational changes
to EEP designed to make the program more flexible for exporters and
buyers. The NAWG proposal calls for the redirection of unspent EEP
funds to other USDA export programs. These alternative proposals
were identified during our discussions with U.S. agriculture
interest groups.
We also obtained information on the dairy industry's self-help
proposal. It illustrates a different option to current direct
subsidy programs, such as EEP and DEIP, by emphasizing the use of
marketing boards.
Figure III.2: World Perspectives, Inc.'s, Proposal
WORLD PERSPECTIVES, INC.'S,
PROPOSAL
------------------------------------------------------- Appendix III:1
World Perspectives, Inc., an agriculture and trade policy consulting
firm located in Washington, D.C., has devised what it believes is a
flexible, competitive subsidy system to maximize U.S. agricultural
exports in world markets.\1 According to WPI, a competitive subsidy
system would have the least distorting trade effect, reduce per-unit
subsidies, increase the trade leverage of subsidies available, and
allocate the subsidies according to real market conditions.
The WPI proposal does not present a completely detailed export
subsidy system, but rather an outline for a plan to meet three U.S.
policy objectives: to maximize U.S. agriculture exports, to improve
EEP's cost-effectiveness, and to minimize commercial trade
distortions. To meet these objectives, the WPI plan would be
structured to
eliminate the targeted allocation of subsidies by maximizing the
number of countries that would be eligible to buy subsidized
U.S. agricultural products;
establish a competitive bidding process that would export the
greatest volume of eligible agricultural commodities for the
lowest subsidy amount;
give exporters the flexibility to determine the timing,
positioning, and destination market for export; and
require sufficient financial performance guarantees from exporters
and provide appropriate penalties for nonperformance.
Under the WPI proposal, USDA would retain administrative control of
EEP to ensure consistency with annual GATT obligations to reduce
export subsidies.
Figure III.3: National Association of Wheat
Growers' Proposal
--------------------
\1 Carol L. Brookins and Robert W. Kohlmeyer, "A WPI Alternative
EEP Proposal," World Perspectives: AG Review, A Report From
Washington (Washington, D.C.: Feb. 1994), pp. 22-4.
NATIONAL ASSOCIATION OF WHEAT
GROWERS' PROPOSAL
------------------------------------------------------- Appendix III:2
The National Association of Wheat Growers has proposed amendments to
EEP for inclusion in GATT implementing legislation. NAWG believes
that the legislative authority for EEP should be revamped to reflect
broader market development and export expansion objectives. NAWG
also wants EEP to be funded at the maximum levels permitted by the
Uruguay Round reduction schedule.
According to NAWG, EEP should be redefined to focus on foreign market
development and export expansion objectives. One of EEP's major
objectives has been to challenge unfair foreign trade practices.\2
NAWG believes that removing the unfair trade criteria would open EEP
to all foreign markets, eliminate targeting, and streamline EEP
operations.
NAWG also believes that EEP funding should be made available to the
full extent permitted by GATT. NAWG suggests that the amount of
budgetary outlays that would not be obligated due to quantity
limitations under the Uruguay Round should be redirected to
international food assistance programs.
The NAWG proposal is supported by a number of other commodity groups,
including the American Soybean Association, the National Barley
Growers Association, the National Cotton Council, the U.S. Rice
Producers, and the Rice Millers Association.
Figure III.4: Dairy Industry's "Self-Help" Proposal
--------------------
\2 EEP initiatives must have the potential to further the U.S. trade
policy strategy of opposing competitors' subsidies and other unfair
trade practices by displacing other countries' subsidized exports in
targeted countries. Targeted countries are those where U.S. sales
have been nonexistent, displaced, reduced, or threatened because of
competition from subsidized exports.
DAIRY INDUSTRY'S "SELF-HELP"
PROPOSAL
------------------------------------------------------- Appendix III:3
The Congress is considering legislation, the Dairy Producer Market
Stabilization and Export Development Act of 1994 (H.R. 2664, as
amended, 103rd Cong.), that would establish a dairy self-help
program. A key feature of the bill would be the establishment of a
Dairy Market Development Board. The board would consist of dairy
producers and processors who would assist USDA with the disposal of a
portion of surplus dairy products in export markets. The board would
also penalize producers when surpluses are excessive. The program is
intended to augment the current DEIP and extend the dairy price
support program rather than replace them. The bill calls for the
extension of authority for these programs through the year 2000. The
bill passed the Livestock, Dairy, and Poultry Subcommittee of the
House Agriculture Committee on June 8, 1994, and was reported to the
full House Agriculture Committee.
The initial version of the legislation was amended to address
concerns over compatibility with the Uruguay Round agreement
requirements. According to FAS, it is still uncertain whether the
current dairy self-help proposal and marketing boards in general
would or would not be subject to the export subsidy reduction
requirements contained in the Uruguay Round agreement.
Figure III.5: Proposed Dairy Market Development
Board
PROPOSED DAIRY MARKET
DEVELOPMENT BOARD
------------------------------------------------------- Appendix III:4
The proposed Dairy Market Development Board would operate under a
contract with the Secretary of Agriculture to coordinate and
facilitate the export of dairy products under a blend pricing (class
IV) system.\3 The board would only engage in the removal of dairy
products\4 once government purchases of dairy products exceeds 5
billion pounds, in milk equivalents (M.E.) each year.
According to FAS, if the board is unable to export the surplus
products it purchases, USDA would remain the purchaser of last
resort. If government purchases of surplus dairy products are
expected to be above 7 billion pounds M.E., USDA would assess only
those producers who are responsible for surplus production.
Currently, all dairy farmers are assessed the full cost of making
purchases over that level. The bill would target those producers who
increase their monthly milk production above the level of production
in the same month of the previous year. The bill would exempt from
the assessment any producer who increases production as a result of
increased efficiency due to modernization of his or her facility. It
would also allow for a refund of the assessment if actual purchases
fall short of 7 billion pounds M.E.
The Dairy Market Development Board would also be responsible for
coordinating dairy industry efforts to expand export market
opportunities for U.S. dairy products by facilitating export sales
of those products. The board would pool dairy revenues on a
nationwide basis to pay for the cost of board purchasing and export
marketing activities. In order to do this, the board would authorize
a class IV pricing pool. The pool would indirectly assess producers
through a reduction in the price of surplus milk to be shared equally
by all producers. The board would also be responsible for assuring
that export sales under the plan would not replace existing export
sales of U.S. dairy products under DEIP.
--------------------
\3 The blend pricing (class IV) system is used to establish a fair
and equitable blend price for milk used in commercially exported
dairy products. A blend price is a weighted average price of the
different classes (usages) of milk.
\4 Dairy products represented on the board are cheese, fluid milk,
butter, nonfat dry milk, whole milk powder, yogurt, and frozen dairy
products.
EXPORTER SUGGESTIONS ON HOW TO
IMPROVE EEP
========================================================== Appendix IV
Figure IV.1: Exporter Suggestions on How to Improve
EEP
Trade consultants and exporter associations have raised questions
about the need for and desired structure of EEP in a post-Uruguay
Round agreement environment. These questions centered on the
effectiveness of the current program in meeting its program
objectives of (1) increasing U.S. agricultural exports and (2)
functioning as a trade policy tool to get U.S. competitors to
negotiate reductions of their export subsidies. To obtain different
viewpoints on these questions as well as to discuss possible changes
that could be made to improve this program, we contacted 13
judgmentally selected EEP exporters. We selected the exporters to
include a mix of large and smaller exporters receiving EEP bonuses
for wheat, wheat flour, and vegetable oil. The 13 exporters received
over 75 percent of wheat, 60 percent of wheat flour, and 70 percent
of vegetable oil subsidies (bonuses) awarded under EEP from May 1985
to May 1994.
During our conversations with the exporters, we asked for their views
on the need for and the purpose of the program in a post-Uruguay
Round environment. In addition, we obtained their positions
regarding the WPI and NAWG proposed alternatives to EEP. We also
asked for any suggestions they might have to improve EEP, assuming
that the Uruguay Round agreement is implemented.
Figure IV.2: Exporter Views on Role of EEP, Given
Uruguay Round Agreement
EXPORTER VIEWS ON ROLE OF EEP,
GIVEN URUGUAY ROUND AGREEMENT
-------------------------------------------------------- Appendix IV:1
Many of the exporters that we contacted said that EEP would still be
necessary in a post-Uruguay Round agreement environment.
Specifically, 10 of the 13 exporters we contacted cited the continued
need for a subsidy program like EEP. They explained that EEP was
still necessary to counter the subsidy or unfair trade practices of
U.S. competitors, and the European Union in particular.\1 However,
two of the exporters we contacted said that EEP would no longer be
needed since competition from subsidized exports would be greatly
reduced under the Uruguay Round agreement. In addition, they
questioned the effectiveness of EEP in countering the EU's subsidy
practices and the program's current lack of focus on high-value
agricultural commodities such as wheat flour and barley malt.
Those exporters that felt that EEP would still be needed pointed out
that the Uruguay Round agreement did not eliminate the use of
subsidies, but instead would legitimize their use. As a result, they
said that EEP would be necessary to keep the price of U.S.
agricultural commodities competitive with those from subsidizing
nations. In addition, they said that if the long-term goal of the
United States in multilateral negotiations is to eliminate all export
subsidies, programs such as EEP would be necessary to create pressure
on the EU to negotiate further reductions.
Two of the exporters we contacted said that EEP should be eliminated.
They questioned whether the benefits of the program would outweigh
the costs. In addition, they said that they did not see evidence
that EEP has been effective in increasing U.S. agricultural exports
or expanding U.S. agricultural markets. They said that EEP has not
maintained pace with the world agricultural marketplace shift from a
bulk commodity orientation to one favoring high-value agricultural
products and commodities.\2
Figure IV.3: Exporter Support for WPI and NAWG
Proposals
--------------------
\1 One of the 13 exporters did not clearly support or oppose the
continued existence of EEP if the Uruguay Round agreement were
implemented.
\2 Bulk commodities include wheat, feedgrains, and rice. High-value
products include processed commodities (e.g., wheat flour, barley
malt, and vegetable oils) and unprocessed products that are
intrinsically higher in value (e.g., table eggs, frozen poultry, and
nuts).
EXPORTER SUPPORT FOR WPI AND
NAWG PROPOSALS
-------------------------------------------------------- Appendix IV:2
There was divided support on the part of exporters we contacted for
the WPI and NAWG proposals discussed in appendix III. Of the 13
exporters contacted regarding the WPI proposal, 5 supported the
proposal, 5 were against the proposal, 2 had mixed positions, and 1
had no position. Regarding the NAWG proposal, 4 supported the
proposal, 7 were against the proposal, and 2 had no position. The
largest EEP exporters were generally against the WPI and NAWG
proposals, and the smaller exporters more likely to support the two
proposals.
Exporters supporting the alternative proposals indicated that the
proposals would allow exporters and buyers significantly more
flexibility than the current program. In particular, they supported
the elimination of the targeting aspect of the current EEP and
allowing the program to be used in a greater number of markets.
Some of those that were against the WPI and NAWG proposals said the
targeting aspect of EEP would continue to be necessary if the program
is intended to encourage the EU to undertake negotiations for further
subsidy reductions. One exporter who was against the alternative
proposals said that the elimination of the targeting feature of the
program would result in adverse effects on nonsubsidizing countries
such as Canada and Argentina, because exporters would be free to use
the EEP subsidy in markets in which the only competition was from
nonsubsidizing countries.
Figure IV.4: Exporter Recommendations to Improve
EEP
EXPORTER RECOMMENDATIONS TO
IMPROVE EEP
-------------------------------------------------------- Appendix IV:3
The exporters that we contacted had a number of suggestions about how
EEP could be improved. Many of the exporters said that EEP could be
improved by making it more flexible and responsive to the commercial
realities of the export marketplace. They explained that frequently
it is necessary to change the shipping periods, ports, or commodity
specifications of the initial contract agreement. Even when those
changes are mutually consented to by the exporter and buyer,
currently EEP requires FAS to approve the contract modifications. In
addition, FAS sometimes changes the subsidy amount as a result of the
modifications. Exporters also said that the EEP process for awarding
subsidies is extremely frustrating for buyers since the exporters can
only negotiate a tentative contract that is frequently rejected by
FAS. As a result, the exporters said that buyers will do business
with someone else who can make a firm contract commitment without
involving a third party.
Other suggestions for improving the EEP program were to
modify EEP to more closely resemble the EU's export subsidy
program, which allows more flexibility regarding the timing,
location, and ability to make contract modifications than EEP;
eliminate or streamline the interagency approval process so that
exporters can react more quickly to changing marketplace
demands;
focus the program more strategically to emphasize emerging markets,
such as those in South America, and high-value commodities, such
as wheat flour and barley malt; and
publicly announce a maximum bonus amount and award subsidies based
on the lowest bonus bid.
Two of the exporters said that rather than concentrate on improving
EEP, the United States should rethink its agricultural trade policies
and then focus on structuring the programs necessary to meet its
trade policy objectives. For example, instead of having a subsidy
program, the United States may want to use program funds to develop
and implement market development strategies that would increase world
demand for high-value commodities. This goal might be achieved by
providing investment incentives to other countries to purchase
agricultural processing equipment, thereby creating more demand for
U.S. agricultural commodities. In addition, the United States could
make creative use of the export credit program to stimulate greater
demand for U.S. agricultural commodities.
EUROPEAN UNION'S EXPORT SUBSIDY
SYSTEM
=========================================================== Appendix V
Figure V.1: European Union's Export Subsidy System
The central feature of the EU grain regime is a price structure that
keeps EU domestic prices above world market prices. The regime works
primarily through a system of variable import levies and export
subsidies. The variable import levies keep imports from undercutting
the EU domestic prices. And, the export subsidies enable EU exports
to be priced low enough to be sold in markets outside the EU.
Under the basic EU grain regime, the EU producer has three main
options in marketing grain: (1) use or store the grain on the farm,
(2) sell the grain to intervention agencies\1 at a guaranteed floor
price, or (3) sell the grain on the domestic market at the prevailing
EU market price.
Exporters of wheat in the EU can export either grain purchased from
intervention stocks or from the open market. In either case, several
different types of subsidies are available to lower the price of the
EU grain to world market prices so that an export sale can be made.
Figure V.2: EU Intervention Stock Sales
--------------------
\1 An intervention agency is a EU government agency that purchases
surplus grain from producers at a guaranteed minimum price. This
surplus grain is called "intervention stocks."
EU INTERVENTION STOCK SALES
--------------------------------------------------------- Appendix V:1
Grain purchased from intervention stocks is awarded on the basis of
competitive bidding in which the bids are won by the bidders offering
the highest prices. In addition, under certain circumstances\2 fixed
subsidies are available to exporters of intervention grain stocks
going to specific destinations.
Figure V.3: EU Free Market Export Subsidies
--------------------
\2 The EU offers exporters a Common Right Restitution, which is a
fixed subsidy. These subsidies are available only for specified
quantities to specific destinations within a defined time period.
These fixed subsidies are available for both intervention stocks and
open market grain purchases.
EU FREE MARKET EXPORT SUBSIDIES
--------------------------------------------------------- Appendix V:2
Exports of free market grain need to be subsidized in order to
compete in world markets. Access to variable subsidies is made
available through a competitive bidding process in which subsides for
exports are awarded to bidders who make the lowest subsidy requests.
In addition, under certain circumstances fixed subsidies may also be
available to specific destinations.
Figure V.4: Flexibility in EU Export Subsidy System
FLEXIBILITY IN EU EXPORT
SUBSIDY SYSTEM
--------------------------------------------------------- Appendix V:3
The EU system offers considerable flexibility to the exporter. The
exporter has leeway to export to any country within eight specified
geographic zones during a time period of up to 5 months. The
exporters are not required to have a specific sales contract in order
to bid on intervention stocks or to get export subsidies.
Furthermore, a winning bidder may sell the right to make a subsidized
export to one other party. In addition, a winning bidder may allow
the right to make a subsidized export lapse; however, a performance
bond will then be forfeited. In addition to these variable
subsidies, there are also, under certain circumstances, subsidized
export rights that may be good for as long as 2 years.
In contrast, EEP is a targeted export program that ties the subsidy
to a specific country and time frame. Countries and commodities must
first be approved under an interagency process before EEP subsidies
can be awarded. Exporters must negotiate a specific sales contract
with a buyer before they can bid on an EEP subsidy. FAS reserves the
right to change or revoke the subsidy award if changes are made from
the original contract specifications. Unlike the EU export subsidy
system, exporters obtaining the rights to an EEP subsidy cannot sell
or transfer the subsidy award to another exporter. Like the EU
export subsidy system, exporters must maintain a performance bond to,
among other things, guard against nonperformance of the subsidized
export.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI
GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C.
Phillip J. Thomas, Assistant Director
Laura C. Filipescu, Evaluator
Susan S. Westin, Senior Economist
Rona H. Mendelsohn, Evaluator (Communications Analyst)
SAN FRANCISCO REGIONAL OFFICE
Kane A. Wong, Assistant Director
Harry Medina, Evaluator-in-Charge
Jose R. Pe�a, Evaluator
PHILADELPHIA REGIONAL OFFICE
Douglas W. Sanner, Evaluator