Policy paper calls for reduced agricultural tariffs by World Trade Organization members

November 07, 2001

University Park, Pa. --Greater equity in world trade, particularly agriculture, can be achieved through reduced protectionism, says a paper co-edited by Penn State economist and released for the Nov. 9-13 World Trade Organization's Ministerial Conference in Doha, Qatar.

Commissioned Paper #18, titled "Agriculture in the WTO: The Current WTO Agricultural Negotiations: Options for Progress," was edited by Dr. David Blandford, Penn State professor of agricultural economics; Praveen Dixit, an economist with the Economist Research Service of the U.S. Department of Agriculture; and Dr. Timothy E. Josling, professor of food research at Stanford University and senior fellow with the Center for European Studies, Institute for International Studies.

Agricultural tariffs, particularly in regard to dairy products and sugar, are high. Agricultural tariffs average more than 40 percent worldwide, compared to 4 percent for manufactured goods, says Blandford, chair of Penn State's department of agricultural economics and rural sociology. In Commissioned Paper #18, Blandford, Dixit and Josling advocate the ultimate abolition of export subsidies worldwide. They also recommend that WTO member nations curtail other forms of domestic support, particularly those subsidies that encourage farmers to produce more than market prices would justify.

"Tariff cuts should be based on a formula that reduces high tariffs as well as lowering the average tariff towards that for non-farm products," Blandford says. "Tariff rate quotas, which allow limited quantities of imports at lower tariffs, should be expanded, and their allocation made more transparent, so that suppliers can gain easier access to markets. Also, improved notification of food aid flows may be needed, but care should be taken that the volume of aid does not decline below the quantities needed by poor countries." As an example of protectionist trade policy, Blandford cites export subsidies, commonly practiced in the European Union. In this case, an agricultural product sold in Europe for $1.00 might be sold overseas for 90 cents, with the government making up the difference. This practice undercuts foreign competitors and creates trade distortions.

"Between 1995 and 1998, WTO members spent over $27 billion (U.S.) subsidizing exports," notes the Penn State agricultural economist. "Global expenditures on export products have been greatest for dairy products, accounting for 34 percent of all export subsidy expenditures during that period.

"The paper shows how we can reinforce the rules for agricultural trade formulated during the Uruguay Round of negotiations under the General Agreement on Tariffs and Trade (GATT) that were concluded in 1994," says Blandford.

These rules, known collectively as the Agreement on Agriculture (URAA), sought to limit or prohibit policies by which individual governments subsidize their agricultural sectors and thereby distort competition. However, enforcement of these rules has proved difficult, since the countries most likely to maintain protectionist policies are the economic superpowers.

The United States, the European Union and Japan together account for 90 percent of total domestic support for agriculture in the member nations of the Organization for Economic Cooperation and Development (OECD), the group of major developed nations. Agriculture remains one of the most knotty and divisive issues faced by WTO negotiators, according to Blandford.

"There are other issues that will need to be addressed such as the operation of state trading organizations (trading companies that have import or export monopolies), in order to insure a level playing field," Blandford notes.

Future reforms of world trade policy for agriculture have to show balance in several respects, says Blandford. Above all, the results should meet the aspirations of both developed and developing nations. Second, improvements have to weigh the interests of importing and exporting countries. Third, a balance must be maintained among commodities as well as between agriculture and other areas. "This final element would be easier to achieve if the agricultural talks were part of a comprehensive round of trade negotiations launched at the meeting in Doha," Blandford adds.
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The WTO, headquartered in Geneva, Switzerland, was established during the Uruguay Round of the GATT negotiations and has a current membership of 142 nations.

In the paper, Blandford, Dixit and Josling synthesized findings from four papers prepared earlier for a conference held in Washington, D.C. by the International Agricultural Trade Research Consortium (IATRC), chaired by Blandford.

Penn State

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