Ag economists urge reduction in agricultural subsidies

UNIVERSITY PARK, Pa. – Greater equity in world trade, particularly agriculture, can be achieved through reduced protectionism, said Penn State ag economist David Blandford.

In a paper commissioned by the World Trade Organization, authors advocate the ultimate abolition of export subsidies worldwide. It was edited by Blandford with USDA economist Praveen Dixit and Timothy E. Josling of Stanford University, a senior fellow with the Center for European Studies.

Tariffs block trade. 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, said Blandford.

The authors 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 toward that for nonfarm products,” Blandford said. “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.”

Subsidizing exports. 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 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,” said Blandford. “Global expenditures on export products have been greatest for dairy products, accounting for 34 percent of all export subsidy expenditures during that period.

The rules for agricultural trade formulated during the Uruguay Round of negotiations under the General Agreement on Tariffs and Trade (GATT) sought to limit or prohibit policies by which individual governments subsidize their agricultural sectors and thereby distort competition.

However, Blandford said, enforcement of these rules has proved difficult, since the countries most likely to maintain protectionist policies are the economic superpowers.

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, 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 ensure a level playing field,” Blandford notes.

Weighty interests. Future reforms of world trade policy for agriculture have to show balance in several respects, said 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.