General Agreement on Tariffs and Trade

Congress is considering legislation to implement the Final Act of the Uruguay Round negotiations. One important issue is the likely impact of the Final Act on U.S. agriculture. In March 1994, the U.S. Department of Agriculture (USDA) issued a report projecting that the Final Act would boost world agricultural trade and benefit U.S. agricultural exports, employment, and farm income. GAO concludes that USDA used a reasonable analytical framework in estimating the Final Act's effect on U.S. agriculture. However, the assumptions it used in forecasting future benefits--specifically the growth in world income, how countries would change their agricultural policies to implement the Final Act, and the response of producers to changing agricultural policies--are subject to substantial uncertainty. Because events could unfold differently than the assumptions in USDA's analysis, the anticipated benefits to U.S. agriculture should be interpreted with caution.

GAO found that: (1) although USDA used a reasonable analytical framework to determine the economic impact of the act on U.S. agriculture, the report's predictions must be interpreted with caution because of the inherent uncertainty in the assumptions USDA used; (2) the least certain assumptions include the projections of economic growth resulting from the Final Act, foreign governments' implementation of the Final Act, and how agricultural producers worldwide will respond to expected changes in agricultural policies; (3) it is difficult to measure the economic gains and future trade flows on which an increase in world income is predicated; (4) USDA could not incorporate every potential policy change in its assumptions; and (5) agricultural producers operate within a complex set of internal and external policies that are subject to change.