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In July 1988, the Cairns Group submitted a proposal on agricultural trade liberalization for consideration at the upcoming Mid-Term Review of the General Agreement on Tariffs and Trade (GATT) negotiations.¹ The proposal includes both long-term goals and short-term measures. The long-term goals are consistent with the U.S. objective of complete liberalization of agricultural trade by a specified date, including removing barriers to the free flow of agricultural goods across borders and eliminating all production or consumption subsidies that affect agricultural trade. The short-term measures generally call for an immediate freeze on agricultural production and export subsidies and 10 percent reductions in the aggregate level of support for agriculture in both 1989 and 1990. The analysis provided here deals only with the short-term measures.

The Cairns group proposal does not specify the short-term policy changes that would be required of each country. The Australians have provided an "illustrative" example of types of policy changes that would conform to the Cairns proposal. Required policy changes in the Australian example include:

• Export Subsidies. Export subsidy payments would have to be reduced by at least 10 percent in each of 1989 and 1990.
  
  
• Market Access. Countries would have to ease quantitative import restrictions, or other measures such as the European Community's variable levies that restrict imports, to provide minimum access of 3 percent of domestic consumption. If current imports exceed this level, any restrictions on market access would have to be relaxed by 10 percent in each of 1989 and 1990.
  
  
• Administered Prices. Policy-affected prices, including target prices and nonrecourse loan rates in the United States, would have to be reduced by a minimum of 3 percent in each of 1989 and 1990. This would not apply to crops receiving relatively small levels of aggregate government support.
  
  
• Supply and Acreage Controls. Existing supply control programs could not be relaxed during 1989 and 1990 from current levels.
  
  
• Stock Disposals and Accumulation. Disciplines would be imposed to discourage additional government stock accumulation and to encourage orderly reductions of current stocks.

CBO reviewed the effects on U.S. agriculture and farm program spending of implementing program changes here and abroad that are consistent with these requirements. The analysis, which only covers the 1989 and 1990 crops, concludes that for the most part, program changes for the United States would be relatively small because current law is already moving in the direction favored by the Cairns group. U.S. producers of commodities that are exported--wheat, feed grains, and rice--would probably benefit marginally because program changes in other countries would increase the demand for U.S. crops. U.S. producers of commodities facing import competition--dairy and sugar--would experience marginally lower incomes because relaxing import quotas would pressure domestic prices.

Adopting the short-term measures would cause Commodity Credit Corporation (CCC) spending to drop for programs supporting crops that are exported. Reductions would result more from improved market prices, and hence lower deficiency payments, than from lower target prices. CCC spending for programs supporting sugar and dairy would rise. On net, the Cairns proposal would reduce CCC outlays from CBO baseline levels by an estimated $240 million in 1989, $300 million in 1990, and $485 million in 1991. The estimated outlay change in 1991 reflects 1989 and 1990 crop program cost changes; in this analysis program changes required by the Cairns proposal were not extended beyond the 1990 crops.

The Australian example does not fully specify needed program and policy changes. For the purpose of this analysis, therefore, CBO has assumed that 1987 would be used as the base year for determining required reductions in target prices, loan rates, and the milk price support level. Further, CBO assumed that minimum changes specified in the Australian illustration had to be made in each year--cumulative changes over the period would not suffice. Finally, it was assumed that the United States would not be required to revert to the relatively high levels of acreage reduction programs in place during 1987 and 1988.

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1. The Cairns Group consists of Argentina, Australia, Brazil, Canada, Chile, Colombia, Hungary, Indonesia, Malaysia, New Zealand, Philippines, Thailand, and Uruguay. The Cairns group is made up mostly of exporting nations and represents a sort of "fourth force" in the GATT negotiations, along with the United States, the European Community, and Japan.