Keeping an eye on Doha

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The current round of multilateral trade negotiations within the World Trade Organisation (WTO) have been going on since the Doha ministerial meeting in 2001, where parties agreed to start negotiations on the Doha Development Agenda. To date, there’s been some progress on determining how far proposed trade liberalisation is going to go.What will this liberalisation mean for South Africa’s imports and exports? In WTO language, the different rules and regulations covering international trade are divided into three “pillars” – market protection (tariffs), domestic support, and export subsidies.

When it comes to tariff protection it seems the proposed tariff cut won’t seriously affect South Africa. Most of our agricultural tariffs are bound at levels that are high enough to accommodate the proposed cuts without influencing the actual applied tariff. For example, dairy tariffs are bound at 89% of product value. If we apply the proposed cut, the new level is 55%, still significantly above South Africa’s current 18% to 24% tariff.

But in addition to normal imports, countries must also provide for market access quotas, imports to a specific level of domestic consumption or imports at lower tariffs. The latest proposal is an in-quota tariff at 10% of the bound rate. These quotas can seriously harm South African agriculture. One solution is to include all imports at lower-than-normal tariffs in the tariff quota.

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But this will take a lot of work from industry and government.Domestic support has been a problem for farmers in developing countries for many years. South African farmers are as efficient, if not more so, than farmers in most other countries. However, they can’t compete against governments with deep pockets. The main suppliers of domestic support are the EU, US and Japan. The WTO divides domestic support into different “boxes”. The red box contains subsidies based on a unit of production, such as per hectare planted, per cow or per ton produced. These subsidies are serious problems and have been largely phased out.

The green box contains subsidies that aren’t linked to production, which are regarded as “good” subsidies and generally aren‘t subject to WTO rules. All the EU’s decoupled subsidies fall into this category. But while it’s true these aren’t directly linked to production, they still influence farmers’ production decisions. EU farmers receive about 60% of their total income from different subsidies. Any decrease in domestic support will raise world prices. The Doha Agenda proposes some cuts in total domestic support.

The most distorting measures countries use are export subsidies. These let local processors pay producer prices that are higher than market prices, then sell the products on world markets for a lot less. Higher prices in the exporting countries make it possible for non-subsidising countries to export at lower prices. And the export-subsidising countries protect their local markets with higher import tariffs.

In summary
The movement towards lower tariff protection means countries will no longer be able to protect their markets with normal import tariffs. This is especially true for South Africa, where several trade agreements already provide low-tariff or in many cases tariff-free access, such as the Southern African Development Community, Southern African Customs Union , EU, European Free Trade Association and Mercosur agreements. In future trade remedies like anti-dumping and countervailing duties, and the WTO’s special safeguards, will be the only options for countries threatened with predatory imports.

South Africa has almost never used these measures and probably won’t develop the capacity to do so soon.Countries also use sanitary and photo-sanitary measures to limit access to their markets, and frequently impose rules on imports that aren’t based on scientific fact. Take the EU regulation that specifies different sulphur levels for different dried fruit. Large retailers also impose their own rules, often based on misperceptions.

While it’s possible to challenge these in the WTO, South Africa doesn’t have the capacity or time to do so. The problem is that we grant favourable access to our own markets, but can’t exploit export markets because of some phyto-sanitary measure.In conclusion, when agreement is reached on the Doha Round, it will result in a more liberalised market. Producers in unsubsidised countries like South Africa will benefit from this, but some benefits might be lost through non-tariff barriers like arbitrary health and other rules.Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy.     |fw