International Agricultural Trade Policy. Will Martin World Bank April 28, 2003

Transcription

1 International Agricultural Trade Policy Will Martin World Bank April 28,

2 Agricultural Trade Policies What determines national ag trade policy? What happens without international rules? How might international trade rules help? 2

3 What determines national agricultural trade policies? Power of special interests? Tax revenues, or avoiding budget costs? Food security? Price stabilization? Employment creation? Multi-functionality? 3

4 Interest Group Explanation Predicts that sectors able to get assistance will be Relatively small Easily organized Eg Industries that are regionally concentrated and organized around a processing factory Dairy, sugar, frequently cotton, are highly protected in many countries All of agriculture in high-income countries? 4

5 Interest groups: poor countries Urban consumers are a small group, easy to organize, and influential Food is a large share of urban budgets Farmers are a very large share of the population and hard to organize Farmers primarily subsistence Result: Urban bias & agric taxation 5

6 Interest groups: As incomes grow Urban population becomes bigger and harder to organize Food becomes a smaller share of urban budgets consumers care less about price Farm numbers decline-- easier to organize Farmers become more commercial and interested in food prices Export mix shifts to manufactures/services Result: rising agricultural protection 6

7 Example: Japan Rice 7

8 Why such high protection? Small number of farmers Commercially oriented Large number of high-income consumers Rice a small budget item Import competing so little budget cost Major problems for efficient exporters 8

9 Example: Europe Large, high-income urban population Small number, commercial farmers Institutional problems agriculture ministers set prices. Increased so much: Europe exporter Enough budget to pay export subsidies But under pressure with expansion to Central Europe 9

10 Food Security Food security is vitally important But national food self-sufficiency neither necessary nor sufficient for food security Amartya Sen s Poverty and Famines Real food security is about reducing poverty Raising food prices through protection reduces food security for many poor people 10

11 Price stabilization Need to examine carefully Many stabilization policies are a device to tax or protect farmers African commodity boards? European Variable Levies Is price stabilization is a good thing? May reduce income May even destabilize income Better to deal with income instability & improve capital markets 11

12 Employment argument Protection doesn t help or hinder Protection to one sector is a tax on other sectors especially export sectors who can t pass on their higher costs Protecting one part of agriculture typically raises the costs of other agric sectors Employment depends on labor market institutions 12

13 Multi-functionality Argue that agriculture produces environmental goods, rural communities But this argument is used to support subsidies that intensify agriculture dump fertilizer into mountain streams, plough up hedgerows If want scenic amenities, better to target these directly 13

14 Need international agreements At the domestic level the exporters who bear the costs of protection don t fight strongly End result is high protection in some sectors Our protection damages other countries, their protection damages us World agricultural prices depressed 14

15 International negotiations change the set of interests Our exporters want access to other markets Their exporters want access to our markets Result can be a reduction in costly protection overcoming failure in the domestic policy processes of each country 15

16 Agricultural negotiations Weak international rules pre Uruguay Round Individual countries frequently try to offset low international prices But this is very costly All countries need good global rules US tried to go it alone with supply controls Concluded in the mid 1980s that it couldn t Cairns group formed an effective coalition Uruguay Round agreement a start 16

17 Uruguay Round Agreement on Agriculture Market Access 100 percent tariffication Average tariff cuts 36 or 24 percent Tariff rate quotas to give opportunities Export subsidies cut 36 or 24% Domestic support cut 20 or 14% 17

18 What Happened? Tariff cuts Choice of base Dirty tariffication, use of specific tariffs Required 36% average cut not cut in the average 99% cut in a 1% tariff +1% cut in a 100% tariff= 50% average cut but only 1% reduction in the average tariff!!! Domestic support- many exceptions Important restraints on export subsidies 18

19 EU Wheat: Two Steps Up & One Step Down UR Base UR Final 19

20 Mexico Wheat: One step up & One Down UR Base UR Final 20

21 Final tariff bindings Wheat Dairy Meat EU USA Maghreb Mexico

22 Doha Development Agenda Proposals for reform focus on the three pillars Market access, domestic support, export subsidies Also takes into account special concerns of developing countries 22

23 Harbinson Draft 60% average cut in tariffs over 90% Minimum cut of 45% 50% average cut in tariffs 15 to 90% Minimum cut of 35% 40% average cut in tariffs under 15% Minimum cut of 25% Smaller % cuts required in developing countries. No cuts required in LDCs Duty/quota free access to LDCs 23

24 Other Market Access Provisions Tariff Rate Quotas to be expanded to 10% of consumption Administration of TRQs to be improved Developing countries allowed to declare SP products with a 10% average cut and a minimum cut of 5% Special safeguard abolished for developed countries-- introduced for developing countries 24

25 Export subsidies Export subsidies to be phased out over six years in the industrial countries over 10 years in developing Export credits to be disciplined 25

26 Domestic Support Green box (nondistorting) measures to be continued Reduce amber box (distorting) measures by 60% over 5 years Reduce industrial country de minimis to 2.5% Maintain developing country at 10% Additional flexibility for developing countries to pay subsidies 26

27 State of Play Sharp disagreement between agricultural exporters (eg US, Cairns Group) and the high agricultural protection countries (EU, Japan, Norway, Switzerland) Developing countries divided exporters; tariff preference recipients; net importers Serious risk that desire to maintain subsidies in rich countries will destroy the entire negotiations 27

28 Conclusions Narrow interest group pressures create enormous agricultural trade distortions in the absence of international negotiations Typically protect rich-country agriculture and tax farmers in poor countries Negotiations provide perhaps the only opportunity to resolve this problem but a difficult challenge 28