Abstract

This paper contains further work by the Fund staff on trade issues and developments following the pattern of the surveys prepared in 1978 and 1981, mainly focusing on commercial policies of the major trading nations. It also includes a discussion of agricultural protection and issues relating to international trade in agricultural products.

Selected References

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Appendix I International Framework for the Conduct of Agricultural Trade

The multilateral rules governing world trade recognize certain differences between trade in primary products and other products. These differences are to be found, to some extent, in the provisions of the General Agreement on Tariffs and Trade (GATT) and, to a larger extent, in the manner in which these rules have been interpreted and applied.

Main Provisions of the GATT

Articles I and II of the General Agreement, which are central to the contractual obligations of GATT members, do not distinguish between agriculture and other sectors. Article I requires contracting parties to apply most-favored-nation treatment with respect to each other in the customs duties and charges levied and in the customs valuation procedures and other formalities applied to trade. Article II obliges contracting parties to levy import duties at rates not in excess of those specified in each country’s schedule of concessions. In successive trade negotiations, these “bound” rates have been lowered, and the proportion of tariff lines included in the schedules of concessions has been increased. In agriculture, however, trade liberalization has lagged behind other sectors. Consequently, the proportion of tariff lines that are GATT-bound is smaller for the agricultural sector than for other sectors. For example, according to preliminary estimates of the GATT Secretariat, post-MTN (Multilateral Trade Negotiations) tariffs for ten major trading nations combined showed that some 66 per cent of tariff lines, representing 81 per cent of most-favored-nation imports, were bound in the agricultural sector, compared with 92 per cent of tariff lines and 96 per cent of imports in industry (excluding petroleum).

In some other GATT provisions, the text of the General Agreement makes specific reference to agriculture. The practical significance of the “exceptions” for agriculture is difficult to assess, because it is not always known to what extent countries base their agricultural trade policy or practice on these GATT provisions. Even so, the differences are illustrative of the consideration given to agricultural trade issues by the framers of the GATT.

One instance of an explicit difference in rules for agriculture is found in GATT Article XI, which places a general ban on quantitative import restrictions and prohibitions. However, there are three specific exceptions that may relate to agriculture: (1) temporary export restrictions applied to prevent or relieve food shortages; (2) import or export restrictions necessary to apply standards for the classification, grading, or marketing of commodities; and (3) import restrictions on an agricultural or fisheries product aimed at removing temporary surpluses or restricting the production or marketing of a like domestic product. Among the major trading nations, Canada applies import restrictions on several agricultural products (dairy products, chicken, and eggs) under the latter provision.

Article XVI of the General Agreement, which regulates domestic and export subsidies, also contains a special rule for agriculture, whose effect is to dilute international discipline in the use of export subsidies in the agricultural sector. Under Article XVI:4, export subsidies on products other than primary products are prohibited. Article XVI:3 governs the use of export subsidies for primary products. Governments are only obliged to “seek to avoid” export subsidies on agriculture; and if they apply them, they should avoid doing so in a manner that would give them “more than an equitable share of world export trade” in the product concerned. Under the Code on Subsidies and Countervailing Duties formulated during the MTN, this provision is reaffirmed, and “more than an equitable share of world export trade” is defined somewhat more precisely.

Article XVI also attempts to regulate the use of domestic or production subsidies. Although these are not prohibited, either for agricultural or industrial products, a contracting party is required to notify the GATT of any subsidy and to consult with other contracting parties when so requested. The Code on Subsidies and Countervailing Duties spells out the provisions on subsidies, and in particular suggests that code signatories should weigh their “possible adverse effects on trade.” It is debatable, however, whether the code provisions involve a significant strengthening of international discipline on subsidies other than export subsidies.

Finally, Article XX of the General Agreement contains some “general exceptions” to all other GATT provisions. Included in the exceptions are measures taken or restrictions applied as a result of “obligations under any intergovernmental commodity agreement” that conforms to criteria accepted by the GATT. Article XX is nonetheless subject to the most-favored-nation rule.

Agricultural Trade Policies and Problems

Perhaps of greater significance than the specific provisions of the GATT and the MTN codes and their applicability to agriculture has been the lack of progress toward significant reforms in the protectionist policies of major trading nations. This has had the effect of establishing precedents that perpetuate restrictive trade policies in the agricultural sector and allow countries to formulate domestic agricultural policies without giving sufficient weight to their possible adverse international repercussions.

Historically, a major development that seriously affected perceptions about rights and obligations of GATT members in agriculture was the approval, in 1955, of a waiver for the United States, authorizing it to apply trade restrictions to a wide range of agricultural products. Most current U.S. restrictions in agriculture discussed in Section IV of this paper, except meat, are covered by the 1955 waiver. The request for the waiver arose from the inclusion, in 1951, of language in U.S. legislation that in effect established the precedence of U.S. law over GATT obligations.77 When it became clear that the U.S. Executive would be obliged to carry out the intent of this legislation regardless of whether the waiver was granted, the only way open to safeguard the legal principles of the GATT was for the other contracting parties to agree to the waiver, which has been in application ever since.78 The U.S. waiver has come under continual criticism during the course of the annual reviews conducted in the GATT over the past 27 years.

Another unresolved issue has been the extensive use of the variable import levy as an instrument of agricultural protection. Although the variable import levy operates as a tax on imports, it differs from the tariff in that its height always adjusts to ensure that lower-cost imports cannot compete with domestic production. The GATT permits a contracting party to impose tariff duties of any level on products not included in the list of items “bound” in its schedule of concessions. Accordingly, a foreign supplier of a product subject to a variable import levy can never be confident of maintaining or increasing his share of that market by underselling domestic producers. Moreover, since the levy is not fixed, it is difficult to negotiate its reduction or elimination.

Another critical problem in the agricultural sector concerns “residual” import restrictions, which usually take the form of quantitative restrictions. These are restrictions that do not have any justification under GATT rules.79 They tend to be used more extensively in the agricultural sector than in other sectors. GATT negotiations typically involve the exchange of “concessions” among contracting parties. As long as the trade liberalization actions being requested by a country of its trading partners involve the lowering of a tariff or the raising or elimination of an import quota from a known and multilaterally accepted level, the mutuality of the concessions exchanged between countries can be assessed at least approximately. However, because residual restrictions are by definition illegal under the GATT, in the negotiating context a country is generally unwilling to “pay” for securing removal of a trading partner’s illegal quota or practice by lowering its own legitimate trade restriction. As a result, the reduction of residual restrictions has been impeded by the issue of whether compensation should be sought or granted for reduction or elimination of an unjustified action.80 Attempts in the GATT to prepare inventories of residual restrictions date from at least 1960 and have met with only limited success.81 For similar reasons, past proposals to introduce multilateral formulas to phase out quantitative import restrictions, whether legal or illegal, have not received the general support of GATT members. The increased frequency with which “voluntary” export restraints have been used in recent years suggests that liberalization of these bilateral arrangements may well face some of the same difficulties as those encountered by trade negotiators with residual import restrictions.

Notwithstanding the difficulties of dealing meaningfully with trade restrictions in the agricultural sector, efforts to study agricultural trade problems and develop workable methods of attenuating the specific adverse effects of national policies on world agricultural markets have been continuing since the 1950s. In 1961, Committee II of the GATT adopted a report on agricultural protectionism, identifying the main instruments used to protect domestic agricultural sectors and the effects of the nontariff measures employed on world trade. It concluded that (1) “non-tariff devices have seriously affected international trade” in the agricultural products examined; (2) “the level of protection and resultant increased production in the traditional importing countries . . . place a heavy burden of adjustment on exporting countries;” and (3) “to the extent that income or price support has resulted in an expansion of relatively less efficient production and in a limitation of consumption, this has contributed to impairment of trade and to inefficiency in resource utilization. . . .”82 The Committee also concluded that “a moderation of agricultural protection in both importing and exporting countries is desirable.” It considered that “a moderation of agricultural protection, through its effects on production and consumption, would have a substantial percentage effect on the volume of international trade; by imposing some restraint on protected production in countries where national resources tied in agriculture can be more effectively re-allocated, it would improve resource utilization throughout the world.”

Recent Developments

In the two decades that have elapsed since this Committee II report was published, there have been numerous changes in the regimes governing agricultural trade. However, despite repeated attempts, progress toward liberalization has been slow. Agricultural issues resurfaced strongly during the Kennedy Round of Multilateral Trade Negotiations in 1964–67. The European Community originally offered to identify and bind for three years the existing level of overall support for farm products. For grains, the total level of support was to include unified prices at a level approximately halfway between the higher German prices and the lower French prices. In addition to binding the level of domestic support, the Community proposed to establish a set of international reference prices for basic farm commodities; the difference between the domestic and reference prices would be used to determine the level of import levies and, where appropriate, export subsidies. The offers were rejected by the other negotiating countries partly because the proposals contained no commitment on access to the Community market and allowed the variable import levy to continue to operate unimpeded.83 The Kennedy Round resulted in some tariff cuts in agricultural products subject to fixed tariff protection.

The 1973 GATT ministerial declaration that launched the Tokyo Round of Multilateral Trade Negotiations included in its objectives:

as regards agriculture, an approach to negotiations which, while in line with the general objectives of the negotiations, should take account of the special characteristics and problems in this sector.84

However, the lack of precision in the language of the Tokyo Declaration reflected fundamental differences in approach between the United States and the European Community. The United States wanted the negotiations to lead to the liberalization of agricultural trade and increased access to foreign markets for products of which they were efficient producers, while the Community sought the stabilization of agricultural trade through commodity arrangements, a sufficiently high income level for its farmers, and the preservation of an effective Common Agricultural Policy.85 As a result, there were significant divergences of approach between them on the handling of agricultural trade issues. As already noted, the MTN led to international arrangements on dairy products and bovine meat. Although these arrangements have generally been seen as having contributed to a degree of stability in the international markets for the two products, it is evident that they are aimed primarily at stabilizing the markets in the context of existing domestic agricultural support policies and programs, rather than at bringing about a liberalization of agricultural trade per se.

At the ministerial meeting of the Organization for Economic Cooperation and Development (OECD) in May 1982, Ministers considered an OECD paper entitled Problems of Agricultural Trade, and unanimously endorsed its conclusions. A main finding of the OECD study is that the degree of protection afforded to agriculture is often greater than is necessary to achieve the desired objectives; accordingly, reduced protection may entail smaller modifications to the agriculture of the countries concerned than is often supposed. The study notes that “the implementation of the desirable marginal adjustments in domestic policies can best take place if such moves are planned and coordinated within a concerted multilateral approach aimed at achieving a balanced reduction in protectionism and a liberalization of trade.” It concludes that “whatever approaches are applied, the aim should be to integrate agricultural trade more fully with the open multilateral trading system to which all OECD countries subscribe.”86

Agricultural trade issues have also been examined recently in the GATT Consultative Group of Eighteen. While a decision on the specific work program to be pursued in the GATT following the November 1982 GATT ministerial meeting has not been reached, it is likely that agricultural trade issues will be included on the agenda of that meeting. When the objective of agricultural trade liberalization is agreed, specific decisions in certain key areas will determine the pace and method of possible future negotiations. Apart from decisions concerning notification and examination of national agricultural policies and improvement of conditions of market access, a key area of discussion may be distortions to competition in agricultural trade—that is, direct and indirect export subsidization.

77
In 1951, the U.S. Congress amended Section 22 of the U.S. Agricultural Adjustment Act to include the following provision:

“No trade agreement or other international agreement heretofore or hereafter entered into by the United States shall be applied in a manner inconsistent with the requirements of this section.”

78

John H. Jackson, World Trade and the Law of GATT: A Legal Analysis of the General Agreement on Tariffs and Trade (Indianapolis: Bobbs-Merrill, 1969), pp. 733–37.

79

Ibid., pp. 313 and 710.

80

GATT, The Tokyo Round of Multilateral Trade Negotiations (Geneva, April 1979), p. 49.

81

The interim and final reports of a GATT panel on the adequacy of the notifications of residual restrictions are reproduced in GATT, Basic Instruments and Selected Documents: Eleventh Supplement (Geneva, March 1963), pp. 206–13.

82

GATT, Basic Instruments and Selected Documents: Tenth Supplement (Geneva, March 1962), pp. 135–14.

83

See Commission of the European Communities, The Agricultural Situation in the Community: 1981 Report (Brussels, 1982), p. 52; and Ernest H. Preeg, Traders and Diplomats: An Analysis of the Kennedy Round of Negotiations Under the General Agreement on Tariffs and Trade (Washington: Brookings Institution, 1970), pp. 146–50.

84

GATT, GATT Activities in 1973 (Geneva, 1974), p. 7.

85

GATT, The Tokyo Round of Multilateral Trade Negotiations (Geneva, April 1979).

86

OECD, Problems of Agricultural Trade (Paris, 1982), p. 132.

Appendix II GATT Classifications

Classification of Countries and Regions

Following the definitions used in the GATT publication, International Trade, 1980/81, the trading world is divided into:

  1. Industrial countries

    United States, Canada, Japan, European Community member countries, EFTA member countries, Gibraltar, Greece, Malta, Spain, Turkey, and Yugoslavia;

  2. Oil exporting developing countries 87

    Algeria, Ecuador, Gabon, Indonesia, Islamic Republic of Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela;

  3. Non-oil exporting developing countries 88

    All developing countries except oil exporting developing countries;

  4. Eastern trading countries

    Albania, Bulgaria, Czechoslovakia, German Democratic Republic, Hungary, Poland, Romania, U.S.S.R., China, Mongolia, North Korea, and Viet Nam;

  5. Nonindustrial countries

    Australia, New Zealand, and South Africa.

For certain commodities, such as shipbuilding and steel, industrial countries are defined to include all members of the Organization for Economic Cooperation and Development.

For the discussion on agricultural trade, the definitions in the Food and Agriculture Organization publication, FAO Commodity Review and Outlook: 1981–82 are used, and the trading world is divided into:

  1. Developed countries

    Industrial and nonindustrial countries under the GATT definition, Eastern Europe, and the U.S.S.R.;

  2. Developing countries

    Oil exporting and non-oil exporting developing countries under the GATT definition, and Asian centrally planned economies;

  3. State trading countries 89

    U.S.S.R. and Eastern European countries.

Classification of Commodities

  1. Semimanufactures

    Chemicals and other semimanufactures;

  2. Engineering goods

    Machinery for specialized industries, office and telecommunications equipment, road motor vehicles, other machinery and transport equipment, and household appliances;

  3. Agricultural commodities

    Food, beverages, agricultural material, and other agricultural products, excluding fishery and forestry products;

  4. Tropical zone agricultural products

    Agricultural products produced mostly in tropical zone countries;

  5. Temperate zone agricultural products

    Agricultural products produced mostly in temperate zone countries;

  6. Competing zone agricultural products

    Agricultural products produced both in tropical and temperate zone countries;

  7. Total trade

    Includes the categories “not included elsewhere” and “not classified according to kind.”

Intra-Community Trade

Unless otherwise specified, trade data include intra-Community trade.

Import Penetration

Import penetration is defined as the ratio of imports to apparent consumption (i.e., production plus imports minus exports). Import penetration by developing countries’ markets of manufactures is defined in nominal terms; otherwise it is calculated in volume terms.

The following symbols have been used throughout this paper:

  • … to indicate that data are not available;

  • — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

  • – between years or months (e.g., 1979–81 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

  • / between years (e.g., 1980/81) to indicate a crop or fiscal (financial) year.

  • “Billion” means a thousand million.

  • Minor discrepancies between constituent figures and totals are due to rounding.

87

Also referred to in GATT terminology and in this paper as “traditional” oil exporting developing countries.

88

Includes the “new” oil exporting developing countries: Bahamas, Bahrain, Brunei, Egypt, Mexico, the Netherlands Antilles, Oman, the Syrian Arab Republic, Trinidad and Tobago, and the Virgin Islands.

89

If not identified separately, they are included in the category of developed countries.

Appendix III Statistical Tables

Table 1.

Production, Commodity, and Regional Composition of World Trade, 1963 and 1973–81

(In billions of U.S. dollars and per cent)

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Sources: GATT, International Trade, 1969, 1977/78, and 1980/81; and GATT, Press Release, March 23, 1982.

Estimates.

For regional classifications, see Appendix II.

Table 2.

Regional Composition of World Trade in Manufactures, 1973 and 1976–80

(In per cent)

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Source: GATT, International Trade, 1977/78, 1978/79, 1979/80, and 1980/81.

Includes Australia, New Zealand, and South Africa.

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Table 3.

Non-Oil Exporting Developing Countries: Composition of Trade and Share in World Trade, 1973–80

(In per cent and billions of U.S. dollars)

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Source: GATT, International Trade, 1977/78, 1978/79, 1979/80, and 1980/81.

Provisional figures.

Table 4.

Industrial Countries: Share of Imports in the Apparent Consumption of Manufactured Goods, 1970–801

(In per cent)

article image
Source: Data provided by the World Bank.

Excludes jewelry.

Preliminary data subject to revision.

Average annual rate of growth estimated by an ordinary-least-square regression.

Includes oil exporting developing countries.

Table 5.

India: Trade Measures Affecting Exports1

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Source: Data supplied by Indian authorities.

As of January 1, 1982.

Table 6.

Korea: Trade Measures Affecting Exports1

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Source: Data supplied by the Korean authorities.

As of January 1, 1982.

Belgium, the Netherlands, and Luxembourg.

Table 7.

Malaysia: Trade Measures Affecting Exports1

article image
Source: Data supplied by the Malaysian authorities.

As of December 31, 1981.

Table 8.

Philippines: Trade Measures Affecting Exports1

article image
article image
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Source: Data supplied by the Philippine authorities.

As of December 31, 1981.

Not otherwise provided for.