Ex­port sub­si­dies and global trade

Stabroek News Sunday - - REGIONAL NEWS -

Stages of de­vel­op­ment

Re­flect­ing on Ros­tow’s stages of eco­nomic growth, one re­al­izes that eco­nomic de­vel­op­ment starts with agri­cul­ture. The tra­di­tional so­ci­ety in Ros­tow’s the­ory was pri­mar­ily agri­cul­tural. If one ac­cepts the logic of Ros­tow’s think­ing on the eco­nomic evo­lu­tion of so­ci­eties, then one no­tices that agri­cul­ture was rather con­spic­u­ous in at least two of his later stages of growth, namely the pre-con­di­tions for take-off and even the phase of take-off it­self. But when one looks at large and ad­vanced economies like those of the USA, France and Ger­many, which could be placed at the end stage of Ros­tow’s the­ory, they never aban­doned their agri­cul­tural sec­tor. In­stead, they did things to strengthen it and where do­mes­tic mar­kets had be­come sat­u­rated or were too small to sup­port the tech­no­log­i­cal ex­pan­sion of agri­cul­ture, they sought for­eign mar­kets. Ad­vanced coun­tries used a com­plex of poli­cies to sup­port agri­cul­tural ex­pan­sion, but one that has riled the in­ter­na­tional com­mu­nity was the use of ex­port sub­si­dies with im­punity to sat­isfy do­mes­tic ob­jec­tives. To­day, be­fore many coun­tries could ad­vance to the take-off stage of Ros­tow’s the­ory, the use of ex­port sub­si­dies in agri­cul­ture is be­ing dis­al­lowed. This ar­ti­cle ex­am­ines some is­sues sur­round­ing the elim­i­na­tion of ex­port sub­si­dies.

Am­biva­lent

The ques­tion of ex­port sub­si­dies has never sat well in the realm of in­ter­na­tional trade. Very early on in the life of the Gen­eral Agree­ment on Tar­iffs and Trade (GATT), ex­port sub­si­dies for non-agri­cul­tural prod­ucts were elim­i­nated by coun­tries that used them. But sub­si­dies on agri­cul­tural ex­ports re­mained un­ad­dressed and be­came a thorn in the flesh of many los­ing pro­duc­ers of such prod­ucts. Many de­vel­op­ing coun­tries are agri­cul­tur­ally ori­ented but have been very am­biva­lent about the re­moval of ex­port sub­si­dies. The de­bate there­fore has been largely among de­vel­oped coun­tries and de­vel­op­ing coun­tries which are well into Ros­tow’s take-off stage of de­vel­op­ment. There are good and bad things as­so­ci­ated with ex­port sub­si­dies de­pend­ing on which side of the fence one sits. In the ag­gre­gate, ex­port sub­si­dies are thought to be ex­tremely harm­ful to world trade and global wel­fare. They have sur­vived a long time, but the end might be in sight. Many see ex­port sub­si­dies as a relic of mer­can­til­ism which sought to pro­tect state in­ter­ests.

Ex­port sub­si­dies

Ex­port sub­si­dies re­fer to the grant­ing of sup­port by gov­ern­ments to some ben­e­fi­ciary en­tity or en­ti­ties to achieve some type of ex­port ob­jec­tive. Ex­port sub­si­dies can take many forms. They can take the form of di­rect pay­ments to a firm, in­dus­try, pro­duc­ers of an agri­cul­tural prod­uct, a co­op­er­a­tive so­ci­ety or to a mar­ket­ing board in or­der to achieve some type of ex­port per­for­mance. In ad­di­tion to di­rect pay­ments of cash, ex­port sub­si­dies could in­clude low cost ex­port loans, re­bates on im­ported raw ma­te­ri­als and tax ben­e­fits such as duty-free im­ports of man­u­fac­tur­ing equip­ment. Ex­port sub­si­dies can also take the form of gov­ern­ment fi­nanced mar­ket­ing. Th­ese are of­ten thought of as ser­vice sub­si­dies and in­clude cost re­duc­tion mea­sure for things like trade pro­mo­tions, the pro­vi­sion of trade in­for­ma­tion, and as­sis­tance with fea­si­bil­ity stud­ies. It ap­pears as if al­most any­thing that has the ca­pa­bil­ity of help­ing a coun­try to gain an ad­van­tage in ex­port mar­kets is con­sid­ered an ex­port sub­sidy. Even in­ter­nal trans­port sub­si­dies linked to the ex­port of pro­duce are dis­al­lowed. Most sub­si­dies dis­cussed in the con­text of the World Trade Or­ga­ni­za­tion (WTO) are in the area of agri­cul­ture.

The prac­tice of us­ing ex­port sub­si­dies was most preva­lent among the de­vel­oped coun­tries, even though a few high-in­come de­vel­op­ing coun­tries have been as­so­ci­ated with sub­stan­tial use of the pol­icy. For a num­ber of years, the gov­ern­ments of th­ese coun­tries, in­clud­ing the United States and the coun­tries of the Euro­pean Union, sub­si­dized their ex­ports of agri­cul­tural prod­ucts. Ini­tially, th­ese sub­si­dies were im­ple­mented to aid do­mes­tic pro­duc­ers/farm­ers in ar­eas where agri­cul­tural pro­duc­tion costs were high. Coun­tries are of­ten con­cerned about food se­cu­rity, the abil­ity to pro­duce enough food to meet the coun­try’s in­ter­nal needs and de­mands at all times. They needed to keep farm pro­duc­tion buoy­ant which meant en­sur­ing that farm­ers stayed on the farms and were not dis­cour­aged by ad­verse weather con­di­tions and low prices. Sev­eral coun­tries there­fore in­sti­tuted pro­grammes to sup­port their farm­ers by find­ing ways of keep­ing prices at ac­cept­able lev­els. They did this by ei­ther re­strict­ing sup­ply or stim­u­lat­ing de­mand for their pro­duce.

Sup­port for farm­ers

The sup­port for farm­ers would not have been a prob­lem if it did not have spillover ef­fects into the in­ter­na­tional econ­omy. Coun­tries used floor prices to trig­ger gov­ern­ment sup­port for farm­ers. For ex­am­ple, when agri­cul­tural prices fell be­low a cer­tain level, the gov­ern­ment pur­chased the ex­cess sup­ply and put it in stor­age. That move helped to bring some equi­lib­rium to the do­mes­tic mar­ket by smooth­ing out sup­ply and de­mand. It was dis­cov­ered how­ever that stor­age ca­pac­ity was of­ten in­suf­fi­cient to ac­com­mo­date the ex­cess sup­ply that gov­ern­ments had un­der­taken to pur­chase. In­stead of con­stantly build­ing ex­tra stor­age ca­pac­ity, coun­tries tried to over­come their sur­plus

Tprob­lem by ex­port­ing the ex­cess pro­duce. It helped gov­ern­ments also to re­duce the need to buy the sur­plus. This was one of the con­texts in which ex­port sub­si­dies emerged and was seen as hav­ing a dis­tort­ing ef­fect on in­ter­na­tional trade. here are 25 coun­tries with very ac­tive ex­port sub­sidy pro­grammes which came un­der scru­tiny in ne­go­ti­a­tions in the WTO. Among the big­gest users of ex­port sub­si­dies were the Euro­pean Union and the United States of Amer­ica. The EU used its Com­mon Agri­cul­tural Pol­icy (CAP) while the US used the Ex­port En­hance­ment Pro­gramme (EEP) to ar­tic­u­late and im­ple­ment ex­port sub­si­dies. Ex­port sub­si­dies al­lowed ex­porters to gain mar­ket share with­out bring­ing the ef­fi­cien­cies that should ac­com­pany such growth in mar­ket share. In the case of the Euro­pean Union, it was able to put down­ward pres­sure on world mar­kets for sev­eral prod­ucts. Some com­men­ta­tors suggest that it was the EU pro­gramme that caused the US to in­tro­duce its Ex­port En­hance­ment Pro­gramme which pro­vided sup­port to US ex­porters of cer­tain agri­cul­tural prod­ucts. While ex­port sub­si­dies hurt one part of the de­vel­op­ing world, it had a ben­e­fi­cial ef­fect in other parts. Ex­port sub­si­dies low­ered the cost of food im­ports for food-im­port­ing de­vel­op­ing coun­tries.

Most de­vel­op­ing coun­tries were not ma­jor users of ex­port sub­si­dies and were rather am­biva­lent of its dis­con­tin­u­a­tion for a va­ri­ety of rea­sons. Ex­porters of cer­tain agri­cul­tural prod­ucts to the EU were con­tent to let ex­port sub­si­dies con­tinue as long as they ben­e­fited from spe­cial prices for their ex­ports. A sig­nif­i­cant rea­son for the am­biva­lence among de­vel­op­ing coun­tries was at­tached to the im­pact that the re­moval of the sub­sidy would have on food-im­port­ing de­vel­op­ing coun­tries. None­the­less, de­vel­op­ing coun­tries agreed to limit the use of ex­port sub­si­dies and might have even pledged not to use them if they had not started. Even with that com­mit­ment, de­vel­op­ing coun­tries are ex­pected to dis­con­tinue the use of ex­port sub­si­dies by 2018.

Protests and ob­jec­tions

The protests and ob­jec­tions about ex­port sub­si­dies used by de­vel­oped coun­tries forced many coun­tries to agree at the WTO Min­is­te­rial meet­ing in 2015 to take ac­tion and erad­i­cate the agri­cul­tural ex­port sub­si­dies pro­gramme and es­tab­lish equiv­a­lent dis­ci­plines on ex­port mea­sures. This ac­com­plish­ment was hailed as lev­el­ling the play­ing field for all farm­ers around the world. This de­ci­sion was ef­fec­tive im­me­di­ately for de­vel­oped coun­tries, but de­vel­op­ing coun­tries were given un­til 2018 to elim­i­nate agri­cul­tural ex­port sub­si­dies with the ex­cep­tion of cot­ton which sub­sidy had to be elim­i­nated by Jan­uary 2017. Aus­tralia re­ported ear­lier this year that it had elim­i­nated farm ex­port sub­si­dies from its WTO sched­ule. How­ever, although agri­cul­tural ex­port sub­si­dies have been abol­ished, there are other agri­cul­tural sup­port poli­cies that still cre­ate hin­drances and trade dis­tor­tions that af­fect de­vel­op­ing coun­tries.

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