Nontrade and SPS concerns: the new agricultural protectionism

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Non-trade and SPS concerns the new
agricultural protectionism?

• Kym Anderson
• Adelaide University, Australia

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Outline

• Agricultures multifunctionality
• why is it being raised now?
• Basic principles, and their application to
• food security
• rural environment
• viability of rural areas
• Economics of quarantine/SPS
• If time rural poverty in DCs China

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Multifunctionality why is it being raised now?

• Was agreed to in UR
• see Art. 20(c) of URAA
• The concern is that reduced support for farming
  may damage the rural environment, reduce food
  security, make rural communities less viable,
  etc.
• being thought of as public goods produced jointly
  with farm goods

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Basic principles

• Sovereign govts have the right to determine
  national policy objectives
• The debate is over the means by which govts
  strive for those goals
• Need to bear in mind
• intl rights and obligations
• market failures, eg due to externalities
• in production and consumption
• in non-agric sectors as well as agric
• government failures in intervention

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Six lessons from theory and past policy practice

• 1. Where there are several policy objectives, an
  equal number of policy instruments is required to
  deal with them efficiently
• 2. The lowest-cost measure will be that which
  addresses the concern most directly
• 3. Hence trade measures are rarely the best way
  of addressing non-trade concerns

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Six lessons(continued)

• 4. Trade libn will improve economic welfare so
  long as optimal domestic interventions are in
  place to deal with non-trade concerns, and are
  adjusted as trade is freed
• 5. The extent of achievement of non-trade
  objectives may not be as great with as without
  trade libn
• the price of gains from trade

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Six lessons(continued)

• 6. Whenever govt intervenes, even if it is to
  overcome a market failure, there is a risk of
  government failure
• which could be more welfare-reducing that the
  market failure being targeted
• could occur at the bureaucratic and/or political
  level

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Why strive for the most efficient way to achieve
societys objectives?

• Because achieving those objectives requires
  resources
• And the fewer resources required to achieve each
  objective, the more there will be for achieving
  others and/or for preserving resources for future
  generations

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Do farmers make more of a non-marketed
contribution than other producers?

• All sectors generate both marketed and
  non-marketed products
• Some non-marketed products are more desirable
  than others, and some are undesirable
• Since tastes and preferences change over time and
  differ between countries, so too do societies
  valuation of non-marketed products

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(continued)

• Does farming produce more non-marketed ve
  externalities/public goods than other sectors?
• net of -ve externalities/public bads?
• If so and if they are under-supplied, what are
  the most efficient ways to get their optimal
  provision?
• are those measures WTO-consistent?
• Import barriers and other price-supports are
  inefficient instruments for boosting their supply
  (as well as WTO-inconsistent?)

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The policy task thus involves several steps

• Get a sense of societys willingness to pay for
  the non-marketed by-product
• Determine the most efficient measure for
  encouraging farmers or others to supply that
  by-product for society
• Then determine the optimal level of encouragement
• equate marginal social benefit wit marginal
  social cost of intervention
• cf sharpening of surgical instruments

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Examples of non-trade concerns 1. food security

• Food security is not synonymous with food
  self-sufficiency
• Rather, its a consumer issue
• ensure that everyone always has access to a
  threshold supply of basic food necessary for
  survival
• Requires threshold income and savings (or credit
  access) and a well-functioning market for staple
  foods
• Note that agricultural protection exacerbates
  food security, by raising consumer prices of food

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Food security (continued)

• What if the intl market is thin, as with rice?
  Or there is a risk of an export embargo (as
  permitted under GATT Article XXI)?
• Try long-term contracts with trading partners, or
  subsidize stockholding of staples (allowed in
  Annex 2 of URAA as a green box item)
• If greater domestic prodn is desired, agric RD
  (another green box item) which lowers domestic
  costs of production is better than price support

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Example 2 environmental protection

• Local environment is generally helped by lowering
  output price supports and taxing pollutive farm
  inputs
• But in the case of ve externalities, subsidize
  just their provision, to the optimal degree,
  de-coupled from farming (and even farmers?)
• rural landscape? (vs golf courses?)
• cows in alpine pasture? (pay directly)
• biodiversity? (pay for hedgerows, eg)

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What about negative externalities from farming?

• They (and food safety risks) tend to increase
  with the intensity of input use, which in turn is
  greater the more product prices are raised or
  input prices are subsidized
• taxes would be better on pollutive inputs
• Aside would global ag protection cuts worsen the
  global environment?

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Example 2 viability of rural areas

• Is agriculture the only (or even main) economic
  activity in rural areas?
• Wouldnt targeted supports for essential services
  in remote areas be a lower-cost option?
• Regional supports in one country harm rural areas
  in other countries
• What is optimal degree of support?

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Conclusions on non-trade concerns

• Likely to become more contentious as trade
  distortions are lowered
• Need to be dealt with in WTO because they can
  affect trade
• Should be handled in the same way for all sectors
• Current WTO rules are adequate
• Requires targeted, precise interventions in each
  case, rather than blunt price-support or trade
  measures

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What about negative env. externalities from
imports?

• The quarantine/SPS trade issue another
  opportunity to re-instrument agric protection
  (notwithstanding the SPS Agreement)?
• SPS policy assessment today is about where
  environmental policy assessment was 3 decades
  ago, in the sense that benefit-cost analysis is
  rarely used
• and is not encouraged in SPS Agreement, where
  consumer welfare is ignored

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How can BCA assist SPS policy-making?

• Just as zero pollution may be too little, so zero
  pest importation may be too expensive to be
  optimal
• the economic gains from importing risky products
  have to be weighed at the margin against the cost
  of potential plant, animal or human health
  consequences
• As part of that calculus, costs of alternative
  ways of reducing health risks from importation
  need to be considered

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3 ways import bans can increase the risk of major
disease outbreaks

• It may lower the natural immunity of plants or
  animals to disease
• It may encourage smuggling
• It may lead farmers into a false sense of
  security and so lower their spending on
  precautionary measures including RD

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Ways of reducing health risks from importation

• Alternatives to the extreme of an import ban
  include
• selective imports from disease-free regions
• pre-shipment inspection
• temporary isolation on arrival (eg on an island)
• spraying on arrival
• monitoring after importation
• RD to develop disease-resistant or
  pesticide-responsive varieties

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Features of the SPS Agreement

• SPS Agreement requires scientific justification,
  transparency, and consistency across measures
• but appropriate level of protection should, for
  the sake of good national economic governance,
  take into account ALL (including consumer) costs
  and benefits
• and ensure the beneficiary pays

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Elements of an optimal approach to quarantine

• Recognize that an SPS measure also distorts
  domestic resource use and consumption patterns
• so marginal gains from reducing pest importation
  need to be weighed against distortion losses
• including any risk of environmental or health
  damage from import-replacing domestic production

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Elements of an optimal approach to quarantine
(continued)

• Recognize that other industries, not just final
  food consumers, can be adversely affected by a
  quarantine import restriction
• needs to be weighed against any positive
  externality for other rural industries from an
  SPS measures contribution to clean, green image

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A useful start would be to do an economic
evaluation of each current policy measure

• For example, consider a potentially importable
  host-specific disease whose only effect is to
  raise the cost of import-competing production of
  the host product
• Assume importer spends q per unit on reducing the
  risk of disease importation (so probability of
  incursion falls as q rises)