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«PATRICK A. MESSERLIN 1/ August 2002 INTRODUCTION WTO negotiations in agriculture have embarked on a wild roller-coaster. In accordance with Article ...»

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/There are two tariff estimates because PSEs and CSEs do not take into account the same domestic Table 2 confirms how little things have changed since the URAA. PSE-based NPCs and CSE-based NPCs have declined in most OECD countries (with the exception of Mexico, Poland and Turkey for which they have increased) but they clearly remain at a prohibitive level in the case of all the “protectionist” OECD countries (Hungary and the Czech Republic will join the club if the current EC farm policy is not reformed) and in some “middle-of-the-road” countries. In sum, the URAA may have eliminated “redundant” protection, but it did not start to really constrain protection.

Table 2 provides two more crucial pieces of information for the Doha negotiations. First is the decline of the PSEs (now expressed in thousands of U.S. dollars, instead of percentages of the world prices as above) per farmers. It shows that the average producer support per farmer has increased considerably in almost every OECD country–except once again in the two free traders Australia and New Zealand (and in Switzerland because it started at an incredibly high level in this country).6/ For instance, the EC average producer support per farmer has increased by 50 percent since the URAA reference period–reaching a level equivalent to the French legal minimum wage. In sum, the remaining farmers in OECD countries are subsidized at an increasingly amazingly high level—because their number is decreasing more rapidly than the level of support granted to them. Newspapers and public debates largely ignore this crucial evolution which could trigger second thoughts among taxpayers willing or accepting to pay more on farm issues.

The second key piece of information from Table 2 is that the still high level of “traditional” (tariffs and subsidies) farm protection has not prevented the intensive use of the “new” instruments of protection introduced by the URAA. Special safeguard measures (be they volume- or price-based) allowed by the URAA have been used quite frequently, and the fill rates of the tariff-quotas introduced by the URAA in order to get a minimal opening of the farm markets are often low (and declining). Table 2 suggests a correlation–the more protectionist a country is, the more frequently it is using safeguards–which is very similar to what can be observed for developing countries between remaining tariff protection and the use of antidumping measures in manufacturing.

In sum, Doha negotiators are facing the worst combination of two worlds. The old protection (measured by the PSE- or CSE-based NPCs) is still there, the new instruments of protection are already used intensively, the first opening of the markets by tariff-quotas has been minimized, and last but not least, the average support per farmer has increased since 1995. Meanwhile, farmers and public opinion in most OECD prices. PSE-based NPCs measure the ratio between the average price received by farmers (at farm gate level), including payments based on output, and the border price (at farm gate level), whereas CSE-based NPCs measure the ratio between the average price paid by consumers and the border price (both at farm gate level).

/In order to take into account the fact that many people in the farm business are working on a parttime basis, the number of farmers is expressed in “full time farmer equivalents.” Producer supports per farmer should not be compared between countries because they reflect countries’ farm pattern (size, geography, etc.) and the pattern of the farm goods produced (however, OECD countries are characterized by a relatively stable product composition over the examined period).

countries have been convinced–first by the trade officials’ speeches in the immediate Marrakesh aftermath, then by the anti-globalization leaders’ speeches–that the URAA liberalized agriculture. As a result, they are convinced that any negative evolution in agriculture (from price decreases to food safety issues) is associated to liberalization, instead of entrenched protection.7/

SECTION 2. DRIVING FORCES BEHIND FARM PROTECTION IN THE 2000S

The forces behind current farm protection are driven by key incentives, and they use instruments to satisfy these motives. Modifying motives is unlikely in the short run (i.e., during the Doha negotiations) so that shifting instruments remains probably the only doable objective. However, it is useful to have a sense of the motives, if only because they are often used for justifying trade barriers in the public opinion.

Looking at both motives and instruments suggests two important lessons. First, negotiators should resist the temptation to liberalize the least protected farm goods under the Doha Round, and to leave the most protected products for future Rounds. Such an “early harvest” approach would magnify distortions in domestic and world output and trade, while keeping intact the main source of the costs of protection. Second, trade negotiators and governments have one robust argument for selling reforms to farmers–a key point since consumers’ and taxpayers’ support to freer trade is not guaranteed. It is that the current instruments of protection are highly inefficient: only 25 to 30 percent of public transfers to farmers ends up in farm incomes– the rest are dissipated into higher prices of land and other inputs, and into pure waste of resources.





For obvious reasons, this section focuses on the two “elephants”–the U.S. and the EC. In fact, a better expression would be the two “dinosaurs.” It will capture the fact that both countries still rely on farm policies largely designed in the 1930s (to the extent that the EC farm policy is derived from the French farm policy).

The section concludes by examining the recent moves of the two dinosaurs in domestic and WTO farm matters.

1. Motives for support: the trap of the “early harvest” approach Table 3 lists the various motives behind current farm protection for four key products (grains and oilseeds, milk and sugar) in the U.S. and EC, as perceived by outside observers [Abare, 2001]. Motives are defined in terms of the existing situation and of policy direction. The four major motives listed can be ranked by decreasing potential in terms of supporting protection: from a high protectionist potential (maintain current farm life style) to medium-high (preferential access granted to certain trading partners, such as Central European countries for the EC) to medium-low (environment) to potentially pro-free trade mercantilism à la /Interestingly, there are efforts by some farmers’ leaders to provide a more accurate picture of the reality. For instance, a study by Chambre R gionale d’Agriculture de Normandie [2001] clearly shows that until late 2000, the Uruguay Round has had no impact on Norman farmers.

GATT (expand market access abroad). Grades of 1, 2 and 3 have been given to each motive for reflecting their estimated importance (with simple averages calculated by product).

Despite its crudeness, Table 3 suggests several interesting lessons. In grains and oilseeds, the situation in the U.S. and in the EC differ only for the fourth motive (potentially pro-free trade mercantilism) which is stronger in the U.S. than in the EC. Concerning policy direction, the U.S. looks more stable than the EC. The latter is perceived under the two increasing influences to provide preferential access and to link support to the environment–both are easy preys for protectionist forces–and are under the decreasing desire to expand market access abroad. In milk and sugar, there is no difference between the existing situation and the policy direction in the two countries, except for a rise of environmental concerns in the U.S.

Table 3 suggests noticeable differences between the two groups of products in terms of potential liberalization. Grains and oilseeds seem “easier” to liberalize than milk and sugar. This observation is important for the design of negotiations. It suggests that there is no such thing as “agriculture,” but that there are “agricultures” with some agricultural sectors potentially more easily liberalized than others. Well known for industrial activities, such an observation is rarely applied to agriculture. In fact, farmers and public opinion tend to conceive agriculture as one activity which will be liberalized (or not) across-the-board.

Table 4 documents this point in more detail by ranking PSE-based NPCs by increasing value in order to define the “hard core” of farm protection.8/ This ranking provides two lessons. First, increases of PSEbased NPCs during the last fifteen years have been the largest for certain farm products which were not subjected to a high level of protection in the mid-1980s. In other words, protection declined or was stable for some of the most protected products in the mid-1980s (while remaining prohibitive), whereas it has increased for the other farm products which are thus progressively “contaminated” by highly protectionist trade policies (as illustrated by olive oil or fruits and vegetables in the EC case). There are thus dynamic forces aiming to narrow the protection gap between the most and least protected “agricultures.” Second, the observed gaps of PSE-based NPCs among farm products remain substantial enough to define a “hard core” of highly protected farm products which will be particularly difficult to liberalize under the auspices of the Doha Round.9/ Taking the PSE-based NPCs for all the farm products as the borderline between the farm products relatively easy to liberalize and those relatively difficult to liberalize suggests that the “hard core” protected farm products are milk, sugar, rice, and beef. In all these products, developing /Some NPCs are very high (several hundreds of percent) because domestic and world prices may react very strongly, making computations difficult and unstable. But it remains that such high NPCs reflect huge trade barriers (for instance, trade bans related to the “mad cow” disease in Europe).

/Hard core products may be observed in all OECD countries, or only in certain OECD members (as shown in Table 4 by the variances of PSE-based NPCs by product). A high variance among PSE-based NPCs for a hard core product would suggest more complex deals, with the most protected OECD countries balancing trade concessions in these products with those available in industrial goods or services.

countries have comparative advantages, underlying how much OECD protection is harmful to developing countries. (OECD data do not properly cover fruits and vegetables and cotton for which OECD protection can be also very high, and in which comparative advantages of developing countries are substantial.) The existence of agricultures with such different levels of protection may induce trade negotiators to liberalize the least protected farm products under the Doha Round, leaving the liberalization of the hard core of farm protection for future WTO Rounds. Such an “early harvest” approach would be very costly because it will keep intact the highest trade barriers which are the main source of the domestic costs of protection. For instance, the costs of protection for European consumers amount to 15 billion of euros in five highly protected farm sectors, compared to 23 billions of euros in fourteen highly protected industrial sectors [Messerlin 2001].

But, an early harvest will also be a trap for farmers. As it will magnify the differences between the least and most protected products, all the farmers will be induced to grow the most protected crops and animals– amplifying the distortions in domestic and world production and trade, and making any future adjustment even more costly for them.

By contrast, trade negotiations aiming at favoring as much as possible an “uniform farm tariff” policy (the same tariffs on all farm products) would allow a welfare-enhancing reallocation of farm resources. It would begin to reveal the comparative advantages of each OECD country in farm production, and of course, it would do the same for developing countries (see the related discussion on the Development Box, in section 3). The trade-off that trade negotiators will achieve between an uniform protection policy (economically the best) and an “early harvest” approach (politically the easiest) will be the most critical issue of the Doha Round. It has already surfaced in the differences between the proposals for liberalization tabled by the U.S.



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