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AGRICULTURAL TRADE

AGRICULTURAL TRADE. Peter Kuperis Senior Trade Policy Analyst Alberta Agriculture and Food (780) 415 –8608 peter.kuperis@gov.ab.ca. ARCHITECTURE OF TRADE. OVERVIEW. Trade is the exchange of goods and services across national borders Trade operates at three different levels Global

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AGRICULTURAL TRADE

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  1. AGRICULTURAL TRADE Peter Kuperis Senior Trade Policy Analyst Alberta Agriculture and Food (780) 415 –8608 peter.kuperis@gov.ab.ca

  2. ARCHITECTURE OF TRADE

  3. OVERVIEW • Trade is the exchange of goods and services across national borders • Trade operates at three different levels • Global • Regional/bilateral • Internal • Trade agreements set the rules of trade between two or more jurisdictions

  4. OVERVIEW • Countries regulate trade through: • Tariffs (tax on imports) • Quotas (quantity or value limits) • Regulations (health, packaging,consumer protection) • Export taxes • And other methods

  5. WTO • Global trade is governed through the World Trade Organization (WTO) • 150 members • Began as GATT – General Agreement on Tariffs and Trade • Objective is to liberalize trade by reducing tariffs and eliminating subsidies • Agriculture was added to global trade rules in 1994

  6. WTO • WTO gives its members a forum for settling disputes • Can challenge another country’s subsidy or regulations through dispute settlement • E.g. EU beef hormone ban, US cotton, Canada dairy

  7. WTO • WTO Agreement on Agriculture • Contains tariff reduction commitments by member countries • 34% average reduction was agreed to in 1994 • Defines 3 types of subsidies – amber, blue, green • Limits export subsidies and gradually reduces them

  8. WTO • Amber • Most trade and production distorting • Amount of spending on amber programs is limited • U.S. yearly limit is US$19.1 billion • Canada’s limit is $4.3 billion • Example – pay farmers $3/bu of wheat • Incentive to grow wheat regardless of price and other market conditions

  9. WTO • Blue • aka “the blue box” • Trade and production distorting programs BUT limits are placed on production • e.g. per head payment on cattle but number of cattle per acre is limited • Currently have no limits on blue box spending • “Transition mechanism” away from amber programs

  10. WTO • Green • aka “Green box” • Least trade and production distorting • Payments cannot be based on current prices or production levels • e.g. income support payments, environmental programs, research, infrastructure • No limits on spending

  11. WTO • Export subsidies • Payments contingent on export • Most trade distorting type of subsidy • E.g. EU “export refunds” • Pays farmer difference between price received for product exported and the domestic price

  12. WTO • Also have rules on regulations to protect animal, plant and human health (SPS) • Rules on use of technical barriers to trade (TBT) • e.g. labelling, standards, packaging, grading)

  13. WTO • New round of negotiations is underway • Doha Round • Launched in Doha, Qatar in Nov 2001 • Focused on 3 pillars – Market access, Domestic support, Export competition • Negotiations are still going on and agriculture is one of the most difficult areas • Hope to conclude negotiations in 2008

  14. WTO • Market access • Tariffs, tariff rate quotas, special safeguards • Have agreement to reduce highest tariffs the most (tiered formula) • Members will be able to designate a certain number of products as “sensitive” and make smaller tariff reductions • Tighter rules on use of safeguards

  15. WTO • Domestic support • Large reductions in amber spending under negotiation • US limit could go from US$19.1 billion to US$7.4 billion • Canada from $4.3 billion to about $2 billion • Cap on blue box payments • No substantial change to green

  16. WTO • Export Competition • Export subsidies, export credits, food aid, state trading enterprises • Elimination of all export subsidies by 2013 • Tighter rules on export credits and food aid • Rules on operation of state trading enterprises (e.g Canadian Wheat Board)

  17. WTO • Advantages of WTO • Global – access to many markets • Deals with subsidies (“level playing field”) • Effective dispute settlement mechanism • Disadvantages of WTO • Long, slow negotiations • Slow, expensive dispute settlement

  18. Bilateral/Regional • Agreements between two or more countries • Bilateral agreements address market access but usually don’t deal with subsidies • Currently there ar380 bilateral agreements, expected to grow to 400 by 2010 • Canada has bilateral agreements with many countries: • NAFTA (US, Mexico) • Israel

  19. Bilateral/Regional • Canada has agreements (cont’d): • Costa Rica • European Free Trade Association (Norway, Switzerland, Liechtenstein, Iceland) • Chile • Canada has/is negotiating with • Dominican Republic & CAFTA (Honduras, Nicaragua, El Salvador, Guatemala) • Peru. Columbia • South Korea

  20. Bilateral/Regional • Canada has/is negotiating with (cont’d): • Singapore • CARICOM (Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago • Jordan

  21. Bilateral/Regional • Bilateral agreements usually govern: • Tariffs • Regulations • Rules of Origin • Excellent tool for gaining market access but don’t bring a “level playing field”

  22. Bilateral/Regional • NAFTA has been a highly successful trade agreement. • Since 1994 the total value of Canada-US-Mexico trade grew to US$ 845 billion in 2006 • Total Canada-US trade grew from US$199 billion in 1994 to US$509 billion in 2006 • Alberta ag exports to US grew from $1.9 billion in 1995 to $2.6 billion in 2006.

  23. Bilateral/Regional • Advantages of Bilateral agreements • Faster, simpler to negotiate • Market access • Disadvantages • Don’t address subsidies • Often have poor dispute settlement mechanisms

  24. Bilateral/Regional • What should be priority countries for bilateral trade agreements?

  25. INTERNAL TRADE • Agreements governing trade within a country • Canada has the Agreement on Internal Trade (AIT) • July 1, 1995 • Governs trade in many areas including agriculture • Primarily deals with Provincial and Federal regulations • Each sector has its own Chapter – its own rules • Dispute settlement – no penalties for failure to comply • Quebec margarine

  26. INTERNAL TRADE • AIT • Currently under review • Alberta has 2 more inter-provincial trade agreements • Trade Enhancement Agreement on Agriculture • BC, Alta, Sask, Manitoba, PEI, Yukon • Expands agricultural trade beyond AIT

  27. INTERNAL TRADE • Alberta agreements (cont’d) • Alberta-BC Trade Investment and Labour Mobility Agreement (TILMA) • April 1, 2007, transition to April 1, 2009 • Governs trade in all sectors, one set of rules for all sectors • Effective dispute settlement with monetary penalties

  28. Alberta’s Trade Objectives • Trade Liberalization • Maximum possible market access • Lowest possible levels of trade-distorting support • Elimination of export subsidies

  29. THE DEVIL’S DETAILS

  30. WTO Disputes • EU beef hormone ban (SPS) • Continued non-compliance and retaliation • Canada dairy (Export subsidies) • Removed Canada’s ability to export dairy products • Canadian Wheat Board (Subsidies) • US corn subsidies • Alleges US has exceeded its amber limits

  31. Tariffs • Tariff parity between Canola and soybeans • High tariffs and restrictive TRQ’s for beef and pork • Tariff escalation • Tariff on processed product significantly higher than on raw material • E.g. tariff on canola seed – 10%, canola meal – 25%, canola oil – 80%

  32. Regulatory Barriers • Beef market access post-BSE • Potato cyst nematode • US, Mexico • Ractopamine residues in pork • China, Taiwan • EU regime for licensing genetically modified organisms

  33. Trade in Major Commodities • Wheat • Canada had exports of $ 4.7 billion in 2007 • Top 5 markets in 2007 were the US, Indonesia, Japan, Mexico and Iraq • Canola • Canada exported $ 2.26 billion in 2007 • Top 5 markets: Japan, Mexico, China, US, Pakistan

  34. Trade in Major Commodities • Barley • Exports of $ 765 million in 2007 • Top markets were: Saudi Arabia, US, China, Japan, Columbia • $315 million of this total was malt barley • Top malt markets were: US, Japan, Brazil, Venezuela, South Korea

  35. Trade in Major Commodities • Fresh and frozen pork • Exports of $ 2.7 billion in 2007 • Top 5 markets: US, Japan, Australia, South Korea, Russia • Fresh and Frozen beef • Exports of $ 1.2 billion in 2007 • Top 5 markets: US, Mexico, Hong Kong, Japan, Macau

  36. Trade in Major Commodities • Dairy • Exports of $232 million in 2007 • Top 5 markets: US, UK, Egypt, South Korea, Mexico • Poultry meat • Exports of $ 238 million in 2007 • Top 5 markets: US, Hong Kong, South Africa, Philippines, Macedonia

  37. Trade in Major Commodities

  38. Trade in Major Commodities

  39. Case Study: Beef and Cattle • In 2002 beef exports were $ 2.2 billion and exports of cattle were $ 1.8 billion • In 2003 BSE was found in Canada • Virtually all borders closed to Canadian cattle and beef overnight • Devastating impact on beef and cattle industry

  40. Case Study: Beef and Cattle • US also found BSE in late 2003 and experienced the same border closures • Due to a common policy of “one case and you’re out” • US and Canada began negotiating for renewed access to markets • Worked with other major beef exporting nations to get a new set of World Animal Health Organization (OIE) guidelines

  41. Case Study: Beef and Cattle • New OIE guidelines say that if a country has proper BSE safeguards in place then all beef products are safe for trade • Canada has slowly regained access to major beef markets: • US restored access in stages: • Boneless UTM in August 2003 • All UTM and live UTM cattle in July 2005

  42. Case Study: Beef and Cattle • US Access (cont’d) • November 19, 2007 - Restored access for all cattle born after March 1, 1999 for any purpose • Effectively restores almost all of former trade with US • Mexico • UTM beef and dairy breeding cattle under 30 months of age

  43. Case Study: Beef and Cattle • Japan • Canada has access for boneless beef from animals under 21 months of age • South Korea • No access for beef or live cattle • Negotiations very slow and difficult • China • No access for beef or live cattle

  44. Case Study: Beef and Cattle

  45. Case Study: Beef and Cattle • Macau • All beef • Hong Kong • Boneless UTM • Taiwan • Boneless UTM • Cuba • Open to all beef and cattle

  46. Case Study: Beef and Cattle • Negotiating approaches • US – Access according to OIE and nothing less • Canada – has taken a similar approach but less aggressively • Both countries accepted staged access in the past • What to do with China and South Korea?

  47. Case Study: Beef and Cattle • Other market access barriers for beef • EU hormone ban • High tariffs and a safeguard in Japan • Likely to be designated as a sensitive product by many countries

  48. Case Study: Canola • In some markets soybeans are charged a lower tariff than canola • China charges a tariff of 9% on canola and 3% on soybeans (temporarily reduced to 1%) • Canola also faces tariff escalation • Japan: canola seed no tariff canola oil 10.90 yen/kg - 13.20 yen/kg

  49. Case Study: Canola • Tariff escalation (cont’d) • Korea: canola seed 10% refined canola oil 30% soybean oil 5.4% • Taiwan : canola seed 0 – 9% canola oil 4.3% - 15% soybean oil 5% - 8%

  50. Case Study: Canola • How to address tariff parity? • How to address tariff escalation? • How to address regulatory barriers?

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