Transcript Food & Agricultural Trade Liberalisation

Food & Agricultural Trade
Liberalisation: Can a balance be
found?
Allan N Rae
Director
Centre for Applied Economics and Policy
Studies
Supported by PGSF and C Alma Baker Trust
Negotiations Timetable
• URAA required new negotiations to begin by end
of 1999 - these commenced early 2000.
• In Doha (end-2001) these incorporated into a
wider negotiations agenda: The Doha
Development Agenda
• Timetabled for completion 1 January 2005.
• Modalities to be established by 31 March 2003
• Chair of Agric. Committee submitted draft of
above in Feb. Widespread criticism
• Updated draft in mid-March, but little changed.
• Deadline now extended to September
• Round to be completed by 1 Jan., 2005
Doha Ministerial Statement
• For agriculture, to pursue “substantial
improvements in market access; reductions
of, with a view to phasing out, all forms of
export subsidies; and substantial reductions
in trade-distorting domestic support”
Market Access
Background: Agricultural tariffs
• Despite URAA cuts, all ‘bound’ tariffs for
agricultural & food items average 62%. Highest
are those on tobacco products, dairy, and meats
• Considerable ‘water’ in tariffs, especially
developing countries
• NTBs: ‘Dirty’ tariffication in URAA exaggerated
base levels of protection
• Large dispersion across countries & commodities
• Ad valorem & specific tariffs
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% ad valorem
Averages of Global MFN Bound Tariffs (from ERS)
(average = 62%)
90
80
70
60
50
40
30
20
10
0
Background: Quotas
• URAA required NTBs to be replaced by
equivalent tariffs.
• But in order to provide minimum market access
where little or none had existed, TRQs were
invented
• Out-quota tariffs often so high that these act like
quotas
• In some cases, quotas are under-filled, even when
in-quota tariffs are very low
Pw=import price
To = within-quota tariff
T1 = out-of-quota tariff
D = import demand curve
q1 = the quota quantity
q2 = total imported quantity
Higher tariff paid on q2-q1
What is the quota rent?
D2
P
Pw(1+T1)
D1
D0
Pw(1+To)
q0
q1
q2
Q
Export Competition
Background: Export Subsidies
• URAA’s twin reduction commitment
• Most effective component of URAA?
• Of total expenditure 1995-98, EU accounted
for 89% (USA, 1.5%)
• EU subsidised nearly all its exports of
coarse grains, dairy products and beef
Other export competition issues – in contrast to
export subsidies, these have a Nth American focus
• Export credits: US programmes a focus.
– But US subsidy value only 7% of the commodity value.
– Likely induce only small distortions
• Exporting STEs: Canadian Wheat Board
– Are export subsidies provided?
• Food Aid: US programmes again a focus
– Donations have tended to increase in times of surplus:
surplus disposal?
– In grant form only?
Domestic Support
Background: Domestic Support
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•
•
•
Boxes and categories of instruments
What is ‘decoupled’?
The AMS
Trend from distorting to less-distorting
instruments – US U-turn?
OECD trend is to less output-distorting assistance
measures
US$ millions
250000
200000
150000
100000
50000
0
86/88
1999-2001
Distorting
Less-distorting
Domestic support has increased
substantially in the US
25
20
US$ billion
• Tradedistorting
domestic
support can be
increased if
current
spending is
below the
country’s level
of commitment
15
Commitment
actual
10
5
0
95
96
97
98
99
2000 2001
Domestic support: examples of
exempted policies
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•
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•
•
•
•
•
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Research
Training and extension
Inspection/quarantine
Market information/promotion
Stockholding
Decoupled income support
Natural disaster relief
Structural adjustment assistance
Payments under environmental programmes
%
Category shares in total domestic support: 1999
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
de minimus
Green
Blue
AMS
EU
Japan
USA
Bound vs Applied AMS - 1999
EU major user, but US close to limit
US$ million
80000
70000
60000
50000
40000
30000
AMS Bound
AMS Applied
20000
10000
0
EU
Japan
USA
Non-trade concerns
• EU, Japan, Norway etc argue for
“multifunctionality”
• Argue that agricultural has multiple objectives: eg
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Rural development and rural viability
Environmental protection
Food security
Retain farming practices for tourism
• Seen as public goods – a market system will not
produce them at optimal levels
• Therefore public support is justified
• They are often joint products with food
Can farm payments be fully
decoupled from production &
trade?
• Even ‘decoupled’ payments may impact
production:
– May reduce income variance, and farmers tend to be
risk-averse
– Increase wealth and move farmers to a less riskaversion state
– May relax debt constraints
– May increase on-farm investment
– ..and base periods may be updated
Is there any empirical evidence?
• Limited evidence suggests degree of ‘coupling’
not strong
– Nth American studies have looked at US and Canadian
programmes, and reached above conclusion.
– A World Bank econometric study found elasticity of net
import demand wrt ‘non-exempt support’ = -0.10, and
that for ‘exempt support’ was <0 but not significant
– The GTAP model provides rather similar elasticities
• How much negotiating effort to devote to reducing
such spending, or limiting the green box?
Summary of Selected Proposals: Tariffs
• Cairns Group
– Swiss formula (a=25) from bound rates, over 5 years
– Special treatment for developing countries
• USA
– Swiss formula (a=25) from applied rates, over 5 years
– Tariffs simplified to either ad valorem or specific
• EU
– ‘flexibility’ of the URAA formula, over 6 years
– Special treatment for developing countries
The Swiss Formula
Swiss formula: a=25
25.0
20.0
15.0
t1
• Proposed by Cairns
Group and USA
• Swiss formula:
• t1 = a.t0/(a + t0)
• Maximum tariff
becomes 25%
• Implies very large
tariff reductions in
many cases
10.0
5.0
0.0
0
50
100
150
200
t0
250
300
350
TRQs
• US
– Cut in-quota tariff to zero, and expand quota by 4% per
year, over 5 years
– Quota expansion on MFN basis
• Cairns Group
– Cut in-quota tariff to zero, and expand quota by 20% of
domestic consumption, over 5 years
– Quota expansion on MFN basis
– As for US, special consideration for developing
countries
• EU
– No specific targets, but wants administration enhanced
Export Subsidies
• EU
– Cut spending by average of 45%
– On condition all forms of export subdisation treated ‘on
equal footing’
– Greater reduction for commodities important to
developing countries
• US
– Elimination over 5 years
• Cairns Group
– Eliminate all forms of export subsidisation
– At least 50% cuts in export subsidies in first year
Domestic Support: Amber/Blue Boxes
• EU
– Reduce ‘amber’ box by 55% using the URAA method
– Retain current definitions of domestic support
– Eliminate de minimus exemption for developed
countries
• Cairns Group
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Eliminate on product-specific basis over 5/9 years
50% downpayment in first year
Reduce de minimus exemption for developed countries
Applies to ‘blue’ box
• US
– Reduce total AMS to 5% of 96-98 value of agr.
Production, over 5 years
– Applies to ‘blue’ box
The Harbinson Draft
• Attempt to seek compromise among the
proposals, released February 2003.
• Too ambitious for some, not ambitious
enough for others!
• EU, Japan & others: ‘unbalanced’ between
trade & non-trade concerns
• Revised in March
• What were some of the major features?
Harbinson: Market Access
• Tariffs – reduce by 40%, 50% or 60%, depending
on height of base tariff for developed countries
• For developing countries, reductions are 25%,
30%, 35% and 40%
• Additional flexibilities exist
• Flat 10% cut for developing countries ‘strategic
products’
• Cut made to bound rates
• Special safeguard to be eliminated for developed
countries
Comparison of Tariff Reduction Modalities
250
new tariff (5)
200
URAA
150
Harbinson
100
swiss
50
0
0
100
200
base tariff (%)
300
400
Harbinson: Export Subsidies
• Developed countries: for at least half of
base outlay, eliminate over 5 years. Rest
eliminated over 9 years. (10/12 years for
developing countries)
Harbinson: Domestic Support
• Amber:
– Reduce by 60% over 5 years
– Reduced by 40% over 10 years for developing
– de minimus to be halved over 5 years (maintain
for developing regions)
• Blue: reduce by 50% over 5 years
• Green: maintain, with possible amendments
to provisions for exemption
–
Some Modeling Results @ CAPS
• Global Trade Analysis Project applied general
equilbrium model
• 1997 database has 66 regions & 57 sectors
• Aggregated up to 11 regions & 15 sectors
– These include 8 farm and 4 food processing sectors
• Tariffs from AMAD database
• Export subsidy data from WTO notifications
• Domestic support from OECD/PSE data
Scenarios
• Reflect some major elements of various proposals
• #1 (based on EU proposal)
– Tariff cuts: 36% ~ 24%
– Export subsidy cuts: 45%
– Amber box cuts: 55% ~ zero
• #2 (based on Harbinson draft)
– Tariff cuts: as in Harbinson
– Export subsidy cuts: 100% ~ 50%
– Amber box cuts: 60% ~20%
• #3 (based on US & Cairns proposals)
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–
–
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Tariff cuts: Swiss (a=25) for developed
Cairns proposal for developing countries
Export subsidy cuts: 100%
Amber box cuts: 100% ~ 50%
Simulated changes in global export volumes
15
% change
10
wheat
5
coarse grains
beef/sheepmeat
0
sim #1
-5
-10
sim #2
sim #3
dairy
Simulated changes in global export prices
9
8
% change
7
6
wheat
5
coarse grains
4
beef/sheepmeat
3
dairy
2
1
0
sim#1
sim#2
sim#3
Changes in NZ merchandise trade balance
2500
2000
1500
1000
dairy
US$m
500
beef_sheepmeat
0
-500
-1000
-1500
-2000
-2500
other agr/food
sim #1
sim #2
sim #3
non-agr/food
total merchandise
How might NZ farm production change?
40
% change in output
30
wheat
20
coarse grains
vege_fruit
10
sheep_cattle
other animal prods
0
sim#1
-10
-20
sim#2
sim#3
milk
NON-TRADE CONCERNS:
Changes to domestic subsidies
TRADE CONCERNS:
Changes to tariffs & export
subsidies
WHAT IS A “SOUND BALANCE”?
Cutting tariffs in developed vs developing
regions: impacts on global welfare
30000
25000
US$m
20000
Developed
15000
Developing
10000
5000
0
#1
#2
#3
Cutting tariffs & export subsidies:impacts on global
welfare
40000
35000
30000
US$m
25000
20000
tariffs
15000
export subsidies
10000
5000
0
-5000
#1
#2
#3
Cutting trade barriers & domestic support: impacts on
global welfare
40000
35000
30000
US$m
25000
trade barriers
20000
amber box support
15000
10000
5000
0
#1
#2
#3
7
6
5
tariffs
4
export subsidies
3
amber box
2
1
da
iry
be
ef
/s
he
ep
m
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ai
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co
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se
he
at
0
w
% change in price
Impacts of cuts to tariffs, export subsidies &
amber box support on global export prices in
(scenario #2)
Impacts of cuts to tariffs, export subsidies & amber
box support on global export volumes
(scenario #2)
10
tariffs
5
export subsidies
0
ds
pr
oc
_f
oo
da
iry
ot
he
r
fr
ui
t
gr
ai
be
ns
ef
/s
he
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m
ea
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-10
co
ar
se
-5
ve
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&
he
at
amber box
w
% change in volume
15
Impacts of cuts in tariffs, export subsidies & amber
box on NZ welfare: #2
600
500
US$m
400
300
200
100
0
Developed tariff cuts
Developing : tariff cuts
Export subsidies
Amber box
Impacts of policy reforms on NZ's agr_food net
exports: scenario #2
900
800
700
600
tariffs
400
export subsidies
300
amber box
200
100
t
om
t
cm
oa
p
ct
l
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r
gr
o
m
pr
i
oc l
fo
od
-200
v_
f
-100
ht
0
w
US$m
500
Summary
• Tariff cuts in developed and developing
regions account for nearly all global welfare
gains – impact of former>>latter
• Tariff cuts the most important contributor to
NZ’s welfare gain, especially by developed
regions – both have more impact that cuts to
export subsidies.
• Appropriate to give market access the
highest priority, especially developed
country reforms
• Harbinson does this thru larger cuts to
higher tariffs
• Cuts to the amber box made very little impact on
global welfare, and negligible contribution to NZ
welfare gains.
• But they did contribute to higher international
grains prices
• Tightening domestic support constraints may
make tariff cuts difficult
• Loosening those constraints could ‘buy’ increased
access to developed region markets & lead to
significant gains: reinstrumentation
• Smaller cuts in the AMS & blue box could
appease EU, and also moderate ToT impacts on
food net importers
• Once progress made on trade policies, turn
attention to the (less distorting) domestic support
policies