SOUTH'S EXPORTS FACE SUBSTANTIAL BARRIERS

12:36 PM Oct 18, 1996

SOUTH'S EXPORTS FACE SUBSTANTIAL BARRIERS
by Abdelaziz Megzari*

Geneva Oct (TWN) -- The Uruguay Round Agreement on Agriculture (URAA) has brought agriculture sector under comprehensive, multilateral disciplines for the first time, established an agreed standard base for future reductions, and put a limit on escalating costs of domestic support and export subsidies distorting international market for agricultural products.

However, for several reasons, the degree of liberalization of trade in agricultural products actually achieved under the Round will be much lower than indicated than by the mandatory 36% average reduction and the mandatory 15% minimum reduction.

For major products subject to tariffication, the way calculations were made for the base period, and the effect of exchange rate changes with regard to specific duties, will most likely result in ad valorem tariff equivalents by year 2000 that will provide a level of protection approximately equal to the one that prevailed in 1994.

Even after mandatory reductions, normal tariff levels for many major products will remain prohibitive.

The way individual countries implemented the mandatory tariff reductions was to generally apply the largest percentage reductions to the lowest tariffs (with total elimination or 100% reduction for lowest tariffs) so as to be able to apply the 15% minimum to the highest tariffs protecting their 'sensitive' products.

Thus, although the average of reductions of each tariff rate has met the 36% mandatory level, the overall average tariff level in agriculture sector was reduced by significantly less than this mandatory 36% in the major markets: in the EU from 26.2% to 17.7% (32.4% reduction), in Japan from 52.3% to 40.2% (23.1% reduction), and in the US from 11.3% to 7.9% (30.1% reduction).

The dynamic commodity sectors exhibiting highest export growth rates during the past two decades and offering best prospects for future continue to be relatively highly protected in the major developed countries -- e.g. fishery products, fruits and vegetables, including tropical fruits, cut flowers, tobacco, wine etc. And within these sectors the most sensitive products continue to face high tariff peaks.

The average level of protection applied to agricultural products, after the implementation of the URA, in each of the three major markets (17.7% in the EU, 40.2% in Japan and 7.9% in the US) will continue to be much above the average post-Uruguay Round rate in developed countries for all industrial products (3.8%).

In terms of the tariffication of all non-tariff barriers, the base period of 1986-88 chosen for calculation had the lowest world prices for agricultural products for several decades. This led to the difference between internally supported prices and world prices being the largest. The tariffs calculated thus were higher than if a more recent period had been selected.

Thus for many commodities, the tariffication resulted in tariffs so high, sometimes exceeding 200-300 percent of world price, that they remain rather prohibitive. For e.g. after full implementation of the URAA:

* in Japan 260% for durum wheat, 213% for barley, 208% for sugar and 419% for butter;

* in the EU 114% for durum wheat, 98% for rice, 147% for sugar, 103% for bovine meat, 114% for meat of sheep and lamb, 124% for butter, 74% for olive oil, 56% for fresh tomatoes and 169% for bananas; and

* in the USA, 123% for sugar, 82% for butter and 148% for groundnuts.

While the URAA provided for minimum market access commitments, and the GATT secretariat has estimated these (in its 1994 report), most of the increases relate to temperate zone products, and in most cases to a minor percentage increase of world exports, often this is below one percent -- the exceptions being for eggs, rice, some dairy products and meat.

Although the minimum access commitments were to be on an MFN basis, countries were allowed to count special arrangements as part of their minimum access commitments and allocate their minimum access quotas to individual exporting countries having special arrangements with them. It is entirely that the quantities allowed under the minimum access quotas may not actually be imported, particularly in case of quotas allowed for certain commodities by countries that are themselves low-cost producers and net exporters of these commodities.

If a formula aiming at tariff harmonization, similar to the Swiss formula for industrial tariff reductions in the Tokyo Round had been adopted, the outcome would have been different -- since the higher the tariff, the higher the percentage reduction required.

Under this, the overall average tariff level would have been reduced by 60% instead of 32% in the EU, by 77% instead of 23% in Japan, and by 65% instead of 30% in the US. The exceptional tariff peaks would have been ironed out, sometimes also resulting in a significant reduction of tariff escalation.

Such an approach could be usefully kept in mind for future negotiations.

The GATT secretariat's calculations (1994 December) of the final tariff average weighted by imports from all sources, with the final tariff average for imports from developing countries showed that in respect of industrial products, the final post-Uruguay tariff average weighted by imports from developing countries was reduced by significantly less than that weighted by imports from all sources.

In the case of tropical fruits (products of particular export interest to the developing countries), although the value of world exports of tropical fruits -- whether fresh, canned, dehydrated or dried or in juice form -- accounted for only 11% of the total value of exports of temperate zone fruits in early 1990s ($2.5 billion for former against $22.5 billion for latter), the final results of the UR did not meet the expectations of the Uruguay Round -- despite the negotiating principles and priorities outlined in the Punta del Este Declaration and the priorities set out in the 1989 mid-term review in respect of tropical fruits and nuts.

Tariffs will continue to be a significant barrier -- particularly on major tropical fruits. While tariff escalation will be reduced, but will remain substantial.

Thus, while existing tariffs on unprocessed forms of most of the less traded tropical fruits (for e.g. guavas, mangoes and mangosteen, papayas, lychees, passion fruit, starfruit, jackfruit and tamarind) were eliminated in the EU, for the most traded ones tariffs were only reduced from 9.0 to 5.8 percent for fresh pineapples, from 11,0 to 8.8 percent for kiwis, from 8.0 to 4.0-5.1 for avocados, and from 16 to 12.8 percent for limes.

Moreover, all processed forms of all tropical fruits faced tariffs in the EU, although level of those tariffs were significantly reduced, often by half. The rate of duty on canned pineapples was reduced from 23.1 to 19.1 percent, and for pineapple juice from 19.7 to 15.8 percent.

In Japan, tariffs were reduced by half for several fresh fruits (from 10 to 5 percent for durians, rabutan, passionfruit, lychees and starfruit, from 6 to 3 percent for avocados, guavas, and mangoes and mangosteen, and from 4 to 2 percent for papayas). But they were reduced by only 15% for fresh pineapples (from 20 to 17) and by 20% for kiwis (from 8 to 6.4 percent). The rates of duty were reduced on average for canned pineapples from 62.0 to 32.6 percent, and for pineapple juice from 38.0 to 24.4 percent.

In the USA, the 8.5 percent tariff on kiwis will be eliminated, the tariff on papayas will be reduced from 8.5 to 5.4 percent, while the specific tariffs on remaining fresh tropical fruit will be reduced by 15 to 20 percent (including pineapples, avocados, guavas, mangoes and mangosteen). The specific rates of duty were reduced by 36.4% for canned pineapples and by 20% for pineapple juice.

In respect of reduction in export subsidies, Members were to include in their schedules commitments relating to ceilings both for quantity of subsidized exports and for budgetary outlays on these on a product specific basis. By year 2000, the developed countries were to reduce the quantity of subsidized exports from a 1986-90 base period by 21% and budgetary outlay by 36% (for developing countries 14 and 24 percent respectively), and all export subsidies must meet required reductions based on 1986-90 level of subsidies, only the developed have the option to escape the front-loading reductions. This has resulted in several cases in levels of subsidies in the first years of implementation higher than those of 1986-90.

Looking to the future, there are very substantial areas where international commodity trade liberalization efforts need to be pursued. This is particularly so for trade-distorting subsidies to domestic production and exports to the agricultural sector and tariff peaks and tariff escalation for semi-processed and processed commodities of actual or potential export interest to developing countries.

There is also need to work towards harmonization of national tariff schedules and simplify of tariffs. Attention should be paid in the future negotiations to replacement of specific duties by ad valorem duties which are more transparent and whose effect is much more predictable - since they are not influenced by exchange rate variations.

Attention should also be devoted to abolition of very low tariffs -- which create unnecessary formalities and costly bureaucratic procedures for those who face them as well as for those beneficiaries of preferential duty free access. The cost for the latter of meeting rules of origin requirements is often higher than the benefits derived from the preferential duty free access offered by a one to two percent tariff.

There are a number of other access issues not addressed in the Uruguay Round -- in particular private barriers to trade stemming from restrictive business practices, lack of access to technology on reasonable terms for developing countries, escalation for exporting developing countries of freight rates and market costs with the degree of processing before export, as well as excessive brand advertising.

(* Mr. Meghzari is a senior UNCTAD official in the Commodities division, and the above is based on a paper presented by him, in his personal capacity, at the TWN seminar on the WTO and Developing Countries)