By Jason Hafemeister, Senior Advisor for Multilateral Trade Negotiations
Foreign Agricultural Service, U.S. Department of Agriculture
Market access for particular commodities continues to be restricted by high tariffs and tariff-rate quotas (TRQs), says Jason Hafemeister. He argues that the administration of TRQ systems in different countries can impede and distort commercial decision-making.
One of the most important accomplishments of the Uruguay Round agreement was bringing agriculture more fully under General Agreement on Tariffs and Trade disciplines. A principal implication of this is that trade in agricultural products can now be restricted only by tariffs -- quotas, discriminatory licensing, and other nontariff measures are forbidden. Also, all agricultural tariffs were "bound" in the World Trade Organization (WTO); tariff rates above binding violate WTO obligations.
While creating a "tariff-only" system for agricultural products is an important advance, too many market access barriers continue to impede international trade of food and fiber products. Market access barriers deny efficient producers the opportunity to compete in other markets and limit the variety and quality of products available to consumers. Reducing and removing these barriers will be an important element of the upcoming WTO negotiations, set to start at the end of this year at the WTO's Third Ministerial Conference in Seattle, Washington.
What Are the Issues?
Eliminating nontariff measures was a necessary first step to removing trade barriers, but many of the tariffs in place are still prohibitively high. For example, while the average tariff assessed by the United States on agricultural products is less than 5 percent (and for industrial products is nearly zero), the average agricultural tariff assessed by WTO members exceeds 50 percent. Moreover, in some cases, market access for a particular product is restricted to a tariff-rate quota (TRQ). Under a TRQ system, import opportunities are established for a specific quantity of imports at a low tariff. All other imports of a product are subject to high tariffs. All tariffs, including in-quota and out-of-quota tariffs, are now bound against increase and subject to further reductions, a situation that will be a top priority in the next round of negotiations.
Where TRQs remain as a transitional step before more open trade is achieved, further reform needs to be undertaken in the upcoming negotiations. In the Uruguay Round, countries generally agreed to open TRQs to allow imports equal to current levels of trade or, where imports had been low, new access opportunities were established. Recent experience also indicates that the administration of the TRQ systems in different countries can impede trade and distort commercial decision-making. It is expected that these elements will be subject to further disciplines in the upcoming negotiations.
Similarly, we need to closely examine the rules for state trading import monopolies in agriculture; use of these state traders may have been justifiable when more restrictions were allowed on farm trade, but in the tariff-only regime, it is difficult to see why a government needs to insert itself between an exporter and an end-user. In line with the general thrust of WTO principles, countries should use the upcoming negotiations to increase responses to market forces competition and transparency where single-desk buyers or other restrictions on the right to import exist.
Although the WTO has moved agriculture to a tariff-only system, in too many cases countries operate variable tariff systems that result in confusing and unpredictable tariff collection. Measures such as reference-price schemes, price-band systems, and variable tariffs operating under a high WTO binding make it hard for businesses to know exactly what tariff they will have to pay when their product arrives at customs. The uncertainty and lack of transparency chills trade and leaves the system open to potential fraud and abuse. In some cases, reference-price systems can disadvantage suppliers of products with particular grades or quality. Countries are likely to investigate the operation of such tariff systems in the upcoming negotiations.
One of the elements of the Uruguay Round agreement was to establish a special agricultural safeguard mechanism to protect particularly sensitive products against a flood of imports or to guard against a sudden drop in the price of imports. The agreement establishes specific criteria for triggering the safeguard mechanism. Countries are expected to review the operation of the safeguard and review whether to continue its use in the upcoming negotiations.
Economic Perspectives
USIA Electronic Journal, Vol. 4, No. 2, May 1999