The US plan was highly aggressive and market oriented. Dubbed the “Zero Option”, it called for the complete elimination of farmer programs, described as “all forms of support which distort trade” within ten years . Export subsidies, which were considered by US negotiators to be the most trade distorting, were to be reduced by 90% in five years. In addition, no commodity or support program would be exempt from reform. However, programs, such as decoupled payments, which were not tied to output and thus were arguably not trade distorting, would remain untouched. In launching the Zero Option, US officials believed that American farmers would accept the subsidy reductions because foreign farmers would be subjected to the same pains at the same time. US farmers, however, preferred to avoid rather than share pain, and feared that any GATT reform would impose costs upon them. GATT negotiations came on the heels of two major failed attempts by the Reagan administration, in 1981 and 1985, to get Congress to reduce the levels of support for US farmers. Reagan administration officials viewed the GATT negotiations as an opportunity to use international negotiations to achieve domestic reform. Farmers had defeated these retrenchment efforts at home, so the Reagan administration sought to attempt to retrench agriculture in the context of international trade, which could potentially undercut the power of the American farmers.The EC flatly rejected the US proposal calling the plan “unrealistic”. It was, at its core, a thinly veiled attack on the CAP, a policy with which the US was becoming increasingly frustrated. The EC countered with a more modest proposal where reductions in support levels would occur only after measures were adopted to stabilize world prices. In the first stage,growing hydroponically the most seriously imbalanced markets, cereals, sugars, and dairy products, would be stabilized.
In what is likely not a coincidence, these commodities were also those in which the EC had massive surpluses. In the second stage, commodity supports would be reduced gradually by up to 30% over a period of ten years, with reductions calculated using 1986 as the base year. Overall, compared to the US, the EC fundamentally sought to maintain the agricultural status quo. Japan’s position was largely defensive and was grounded in a desire to make as few concessions as possible in negotiations . Of fundamental importance was to prevent or delay tariffication to the extent possible, specifically for rice, which is a hallowed product in Japan. Indeed, Japanese negotiators were willing to permit imports and increased tariffication in all other agricultural commodities so long as rice remained exempt from tariffication and import rules. Japan’s existing agricultural policy and support system allowed them to support their farmers through a system of high prices made possible by a system of tariffs and isolation from the international market . By resisting tariffication, or gaining exemptions for the most important sectors, namely rice, Japan could avoid the situation that the EU found itself in, where domestic policy had to be reformed to make a final agreement possible. Japan’s objectives were shaped primarily by the special position of rice producers and also by the overall high level of protection of agriculture. In addition to a desire to avoid a ban on agricultural import quotas, the Japanese position emphasized the importance of “non-economic” objectives of food farm policy, including “food security, rural employment, and environmental protection” . In regards to the two major policy positions, that of the US and the EC, the Japanese supported the EC and flatly rejected the US position as impractical . After observing the EC and Japanese negotiators’ vehement rejection of the Zero Option proposal, the US farm lobby, including numerous commodity groups, realized they could use this opposition to their own benefit. Knowing that the EC and Japan would never accept the Zero Option, US farm lobbies began to support the plan in hopes that it would deadlock the negotiations. If the negotiations remained at an impasse, then American farmers would also continue to benefit from the subsidies, tariff barriers, and general support programs that the “Zero Option” plan sought to eliminate.
Many US farm lobbies were quite aggressive, insisting that “they could accept nothing less than the Zero Option”, that “half measures would not do— no agreement was better than a bad agreement” and that the Zero Option was “the only way to guarantee a level playing field against their subsidized foreign competitors” . The US farmers’ manipulation of the Zero Option extended into the GATT Mid-Term Review , which took place in 1988. US farm groups, led by the highly subsidized sugar and dairy sectors, successfully lobbied Secretary of Agriculture Richard Lyng to “force Yeutter to stick to the Zero Option in Montreal” resulting in a stalemate at the MTR . Yeutter had, in the months leading up to the Uruguay Round’s MTR, expressed a willingness to accept partial reforms. In order to best protect their policy preferences, however, the American farmers pressured the US government to hold the line on a policy they knew would never be accepted by Europe. Like their European counterparts, American farmers rely on the power of their sophisticated organizations to advance and defend their policy preferences.Negotiations also floundered because the EC and Japan were losing interest in reform. In the case of the EC, the need for agricultural policy reform to bring spending costs under control was achieved when the EC reached an agreement in 1988 on two measures that brought about temporary budget relief: a stabilizer for cereal subsidies and a 25% increase in Community revenue. In Japan, it was electoral politics, not reform, that dampened the desire to negotiate. After a series of political scandals, the LDP lost control of the upper house of the Diet, and with it, the desire for agricultural policy reform. In order to position itself for the 1990 elections, the LDP promised farmers that, “not one single grain of foreign rice would be permitted to enter the Japanese market” . Yet again, close ties to politicians and a general belief in the electoral importance of farmers allowed agricultural interests to sway the position of their governments. Ultimately, the GATT Midterm Review meeting failed to produce a draft text on agriculture. The failures of the MTR extended beyond agriculture, as the Cairns Group “refused to approve the draft texts of any of the other fourteen negotiating groups…until there was a text on agriculture” . The lack of progress on agriculture was blocking any kind of trade agreement from being reached. The contracting parties agreed to adjourn the talks until 1989 and left the task of resolving the impasse on agriculture to GATT Director General Arthur Dunkel . Dunkle attempted to jump start the negotiations by circulating a draft final act, better known as the Dunkle Draft,growing strawberries hydroponically which provided a broad negotiating framework.
An opening was created for the negotiations to move forward after the EC completed the MacSharry Reform of the CAP. Three main aspects of this reform helped bring the CAP in line with GATT objectives and thus increased room for a negotiated agreement between the US and the EC. First, cereal prices were reduced and controls were placed on surpluses, which implied a reduction in EC cereals exports, indirectly addressing the US concerns over EC export subsidies. Second, lowering Europe’s own cereals prices made EC cereals more competitive with imported duty-free foods. As a result, the need for market rebalancing was no longer a sticking point for the EC in negotiations over market access. Finally, the transition from production subsides to partially decoupled direct income supports gave the EC and US a new basis upon which to discuss domestic support policies. The negotiations resumed with the US and EC agricultural representatives engaged in a series of bilateral negotiations at Blair House in Washington, resulting in an agreement on the agriculture portion of the GATT UR, called the Blair House Accord. There were two major components to the Blair House Accord that facilitated an agreement. First, the “blue box” was added to the GATT’s subsidy stoplight system44 as a category for domestic support. Essentially, this category served to exempt the US deficiency payments and CAP area and head age payments from reduction commitments, which they would have been subject to without the creation of the new “blue box” category. The second important addition was the inclusion of a peace clause, which exempted support schemes that complied with the agreement from dispute settlement actions. After the intense negotiations within the EC over the Blair House Accord, the Commission, under the guise of seeking “clarification” on the Accord, received further concessions from the US. While the majority of the concessions were minor, there were two noteworthy concessions. First, it was agreed that when implementing export subsidy reductions countries could base those reductions on the level in any year between 1986-1992. This modification removed front-loaded reductions in those commodities that had high base levels in 1986. Essentially, the agreement allowed the EC and the US to continue to subsidize a much large number products during the implementation period. The second modification related to tariffication rates. In exchange for accepting higher minimum import levels, select countries could delay tariffication of specific products.
This modification was negotiated specifically for Japan45 to allow it to delay tariffication of rice. This concession was vitally important to Japan, which took a defensive position throughout the negotiations, resisting tariffication at every turn, and only agreeing to a system that guaranteed special treatment for rice, “a sacrosanct product in Japanese agricultural politics” . In addition to a full exemption for rice at the time, Japan was also permitted a slower tariff transition process for non-rice products. For example, Japan was permitted wide use of tariff rate quotas , which allow more control over the amount of foreign goods that may enter the market. Products governed by the TRQ system included starches, dairy products, and legumes. Delaying or preventing tariffication was the main focus of Japan’s efforts because it was the tariff system that allowed Japan to continue to support its farmers with high prices. Because Japan was successful in extracting this concession, it avoided having to make domestic reforms to its agricultural policy. However, the defensive position of Japan with its single minded focus on the issue of tariffs made it difficult for Japan to “extract the kind of compromises from other countries that it sought in other areas” . Overall, the US granted the EC more than the mere “clarification” it claimed it was requesting. These concessions by the US were likely motivated by the fact that it wanted to conclude the negotiations before the Congressional Fast Track Authority expired in 1993 . For agreeing to the revised Accord, France was able to extract additional concessions within the EU, including an agreement that no further land would be taken out of production to meet GATT requirements. In the end, the major goals of the GATT UR for agriculture were either defeated entirely or so watered down that farmers felt little to no effect . Most significantly, direct payments, even if not fully decoupled, were exempt from reduction or even challenges under GATT rules. Indeed, the rules were essentially constructed in order to define the EC payment system as permissible. Ultimately, the EC traded CAP reforms it had already made, designed to safeguard European farmers’ bottom lines and to protect the operation of the CAP itself from foreign meddling, to the US for an agreement on agriculture in the GATT. As is often the case in CAP reform, farmers were not subjected to cuts; rather their support payments were directed to them through different or new channels. The fact remains, whether the negotiations take place at the EU or at the GATT, about trade policy or about agricultural policy, it is incredibly difficult to actually impose cuts on farmers.Beyond issues of agricultural in trade negotiations and in the domestic politics of countries , the theoretical ideas in this dissertation can speak to scholars and policymakers working on a range of issues. This information is particularly relevant for scholars studying inertial or difficult to reform institutions, such as the EU.