Removal of subsidies and tariffs to boost NZ farm incomes

With most of the attention has been focused on the TPP the 161 countries of the World Trade Organisation had set a deadline of the end of July to agree on a “work programme” to substantially complete the Doha round of global trade talks later this year.

Launched in 2001, the Doha round was to pick up where the Uruguay round of global trade liberalisation left off six years earlier. The deadlock in negotiations is ultimately down to a belief that the EU and the US and the large developing countries of China, Brazil and India have each given up more than its fair share in liberalising agricultural trade and the other side should do more.

Subsidies are still a problem.
Although subsidies have been used sparingly by governments in the past few years as international commodity prices rode high, they were used by the US and the EU during the depths of the global financial crisis in 2009 when prices fell sharply before rebounding. China, in its most recent reporting to the WTO, also indicated it had increased trade-distorting agricultural subsidies to a record $18 billion in 2010.

There is still no rule in the WTO that export subsidies are illegal. The main objective is reforming people’s legal obligations so you have much fairer and open agricultural trading regime. Frustrated with the lack of progress at the WTO many countries have in recent years have looked to bilateral or regional trade talks for gains from trade. These deals have tended to bring about bigger tariff cuts in key trading partners’ markets more quickly than had they waited for consensus to be reached among the 161 countries of the WTO. However as far as the Doha Round is concerned it has broken the momentum of negotiations even though it does offer a more inclusive liberalisation of international trade.

The effect of an intervention price on the income of EU farmers is shown on the graph below. The increase in farmers’ incomes following intervention is shown also: as has been noted, one of the objectives of price support policy is to raise farmers’ incomes. The shaded area EBCFG indicates the increase in the incomes of the suppliers of lamb.

Throughout most of its four decades of existence, the Common Agricultural Policy (CAP) has had a very poor public relations image. It is extremely unpopular among consumers, and on a number of occasions it has all but bankrupted the EU.

CAP Int Price

What is the WTO?
The World Trade Organisation is the rule-maker for trade between nations and the policeman for those rules. Comprising 161 countries, the Geneva-based body is the successor to the General Agreement on Trade and Tariffs (GATT) set up in the aftermath of World War II with the purpose of limiting the sorts of trade barriers which prolonged the Depression of the 1930s.

The GATT was replaced by the WTO in the mid-1990s after the Uruguay round of global trade reforms. A Government report in 2002 estimated the Uruguay round would have added $9 billion to NZ farmers’ incomes in its first decade, mainly through improved access for exports of lamb, dairy and beef to the European Union and the United States.

The WTO was set up in 1995 to finish off the work of the Uruguay round in eliminating trade barriers although the Doha round, through which this was to be achieved, was not launched until 2001 and has made little in the way of breakthroughs.
As the global trading system’s policeman the WTO also adjudicates on trade disputes and has been used by NZ to get access to the Australian market for apples, South Korea for beef and Canada for dairy products.

Source: Farmers Weekly in New Zealand – 30th July 2015


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