PART ONE: THE LAW OF AGRICULTURAL EXPORT SUBSIDIES IN GATT AND THE WTO

I. Historical Background of the Law of Agricultural Export subsidies

         Negotiations in agricultural export subsidies often are characterized by debate over the extent to which subsidies may be used legitimately when they have drastic effects on developing countries. From the beginning of GATT, conflict arose between the U.S., which sought to protect its domestic agriculture, and the less-powerful countries which trusted in a more liberal world trade system. After the emergence of the European Economic Community (EEC or EC)(8), the EC implemented robust protectionist measures that adversely affected the American economy. Subsequently, the U.S., together with the Cairns Group(9), forged with the EC an agreement reflecting a compromise between liberal and protectionist practices.

        Originally, the draftsmen of GATT 1947 did not intend to treat agricultural export subsidies different from non-agricultural export subsidies(10), as provided in Article XVI of the General Agreement on Tariffs and Trade (GATT 1947). In fact, Article XVI, together with other GATT provisions, was supposed to be a short-term measure only lasting until the establishment of the International Trade Organization (ITO)(11), whose Charter provided the subsidy rules promulgated by the U.S. Agricultural Adjustment Act of 1933(12). However, upon recognizing that the ITO Charter had not been sent to Congress for re-approval, the U.S., the most powerful country in GATT, pushed for special rules for export subsidies that fit its agricultural programs(13). New rules for exporting agricultural products were put in place in 1955 amidst ineffective opposition of the less-powerful countries(14).

        Revised Article XVI, derived from part of the ITO Charter, became Section B – Additional Provisions on Export Subsidies. These provisions allow GATT members to use export subsidies for any “primary products” as long as a subsidy is not more than an “equitable share” of world export trade for those products(15).

Apart from the U.S.’s prominent role in enhancing protectionist practices through the revised provisions, the establishment of the EC by the 1957 Treaty of Rome also greatly limited free trade in agriculture(16). After setting up the Common Agricultural Policy (CAP)(17), the EC turned out to be the largest agricultural export subsidizer in the world(18). Its belief that agricultural protectionism could ensure the EC’s economic self-sufficiency was tied to the political power of farm lobbies, who wanted to protect farmers from indeterminate fluctuations of price and weather conditions(19). As a result, cases dealing with agricultural export subsidies have often been raised against the EC since its creation(20) .