Seminar Paper, 2011, 26 Pages
Therefore, both sides, namely the developed countries´ view and developing countries´ view, are treated to deliver a balanced picture. Extent and gravity of agricultural tariffs and subsidies are explained in chapter 5. In chapter 6 the results of two major studies are presented to get an impression how much benefits are at stake for negotiation partners. In the last chapter I make some concluding remarks and try to give a future outlook how the fiasco of trade negotiation might be resolved.
Grimwade (1996, pp. 194-204) distinguishes between two types of protectionist measures, those at the border and those behind the border. Protectionist measures at a country´s border are the most obvious way of distorting activities in international trade. The first category of border measure is tariffs. When a tariff is imposed on a certain product it is getting more expensive for importers to purchase the specific product from abroad. In terms of agriculture farmers in particular countries are protected from foreign competition by those tariffs. Thus, prices of agricultural goods on the domestic market are supposed to rise (Neumair, 2008, p. 48).
More important than tariffs are nontariff barriers. Such measures are even more protectionist as they do not increase import prices but totally or partially ban a product from a certain market. For example import quotas are such a quantitative trade distortion. A second type of nontariff barriers are variable import levies. The EU has been using it in case of cereals in their Common Agricultural Policy. An imported cereal is subject to a certain amount of tariff which adjusts the import price to the domestic price. The country imposing import levies exports instability to the rest of the world (Sampson & Snape, 1980, p. 1029). Furthermore, other types of import restriction such as health and sanitary requirements and state trading organizations have influence on imports. Finally, there are export incentives which are paid in the amount of the difference between world market price and the country´s internal price (Grimwade, 1996, p. 197). A low level of export subsidies for agricultural products in 1995-1996 reflects high world prices (relative to domestic prices). During a few months of this period, prices were so high that the EU imposed export taxes on goods traditionally benefiting from export subsidization (Hoekman & Messerlin, 2006, p. 200).
Another thing is deficiency payments. This method was operated by the UK before they joined the EC in 1973. Therefore, we will not go into detail here. More important non-border measures are output quotas. Because of surplus production of many agricultural goods there were spent large amounts of money for export subsidies. This led to the implementation of output quotas for example on milk. A certain price was guaranteed for a certain amount of milk. What was produced beyond that amount could only be sold to a significantly lower price. Now, different types of agricultural protectionist measures have been presented und examples of special cases were given. In the next step it is the aim to examine which of all those measures should be abolished after the Uruguay Round.
There have been seven rounds before the Uruguay Round, but all of them dramatically failed to reach substantial progress in terms of agricultural liberalization. While trade in industrial goods has been progressively liberalized, trade in agricultural goods still was subject to many trade barriers and protectionist measures (Grimwade, 1996, p. 192). This should change in the Uruguay Round which started in 1986 in Punta del Este, Uruguay. It lasted till 1994 when it was concluded in Marrakech, Morocco. A major success of this round was the establishment of the WTO as an organization. The United States was the chief sponsor of ambitious negotiations on agriculture as they were highly competitive as a producer of a wide range of agricultural products. The Cairns Group 1 had nearly the same interests as the US. In contrast,
1 The Cairns Group is an interest group of 19 exporters of farm products such as Brazil, Argentina and Chile.
the EU wanted to defend its common agricultural policy (CAP) by keeping cheap producers out of the market (Croome, 1999). After seven years of being torn between pressures to protect agriculture at home and open up their markets for international trade officials signed off the Uruguay Round Agreement on Agriculture (URAA). This agreement includes three pillars which will be further examined in the next paragraphs (Balaam, 2004, p. 169). The URAA stipulated the implementation of disciplines in each of the three pillars over six years for developed countries (1995-2000) and ten years for developing countries (1995-2004).
Export subsidies are a huge problem and a major source of distortion in agricultural trade. By granting export subsidies a country is able to offer a specific product at a lower price on the world market than that prevailing in its domestic market. Furthermore, export subsidies depress world prices, particularly if the exporting country accounts for a significant share of world trade (OECD, 2001). Therefore, export subsidies were a major provision of the URAA. According to the URAA they had to be cut from a 1986-1990 base period by 36 per cent and by 21 per cent for each product in terms of volume. However, there is a certain amount of flexibility for some products (European Parliament, 2000).
Least developed countries (LDC) were supposed to cut export subsidies by 24 and 14 per cent respectively over a ten year period (Balaam, 2004, p. 170). For the US and the Cairns Group that outcome must have been very unsatisfactory as they both sought the complete liberalization of trade in agriculture. Particularly the US was concerned about export subsidies (Hoekman & Kostecki, 2002, p. 215). Export subsidies as nontariff barriers had to be converted in tariff equivalents to be quantified and then to be cut equally to tariffs.
On market access it was also agreed to convert nontariff barriers (NTBs) into tariffs and to be reduced by 36 per cent on average or at least 15 per cent for each product in a five year transition period (1995-2000) for developed countries and by 24 per cent for developing countries (Ghazalian & Cardwell, 2010, p. 333). All agricultural tariffs are bound. This conversion of nontariff barriers was called tariffication. The tariff bindings that were implemented by many countries were much higher than the actual tariff equivalents of NTB. Many countries, developed and developing countries, bound their tariffs on agricultural
imports 50 to 150 per cent higher than the actual tariff equivalent of NTB was. That means there had been no improvement in agricultural protection since the early 1980s due to this “dirty” tariffication (Hoekman & Kostecki, 2002, p. 217).
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