Bringing quarantine barriers to account
meta-creation_date: April 10, 2003
The following is the text of an Op-ed article by Peter Gallagher that appeared in the Australian Financial Review on 10 April
The European Union’s complaint to WTO against the whole of our Quarantine regulations is a tactical move in the current round of WTO agricultural negotiations. But don’t dismiss the claim altogether: it points to something that is badly wrong with our quarantine protection. And it has nothing to do with WTO.
Pascal Lamy, the EU’s trade Commissioner, left no doubt that he was launching the dispute to ‘pay out’ Australia for it’s criticism of EU agricultural policies.
We believe [Australia’s quarantine] system flagrantly breaches WTO rules, despite Australia ‘s constant claims to be the only beacon of free agricultural trade. The EU will use WTO procedures to ensure that Australia practises what it preaches on agricultural market access..
It’s a tactic the Commission has used before; a smokescreen to confuse the issues in the agriculture reform negotiations and to disguise their responsibility for dragging the reform talks to a halt. It’s an abuse of the WTO disputes system to use it for contentious purposes. But the complaint seems unlikely to have much legal merit, in any case. There’s little likelihood that Australian quarantine procedures — which have been poured over in lengthy internal reviews and in recent WTO cases — are in general breech of the WTO rules.
That’s not to say the complaint is not plausible. Lamy’s barbs will resonate with many of our trading partners and even with many Australian industries.
The rest of the world does not believe that the disease and pest risks for Australian producers can be so serious that they justify banning imports from the most successful producing and exporting countries in the world. We have banned, or severely restricted, imports of bananas from the world’s fourth biggest banana producer (Philippines); imports of chicken meat from the world’s largest exporter (Thailand); fresh salmon imports from the number two exporter world-wide (Canada), and; table grapes from the world’s third biggest exporter (USA).
If the disease risks are as high as we say, how is it that these countries are such successful producers and exporters? How is it that competitive producers in other countries manage to control diseases and pests without loosing their world-leading export position?
The real problem with our quarantine barriers is not a WTO issue: it’s much closer to home. High levels of quarantine import barriers are creating a benefit for some agricultural industries by lowering disease control costs and incidentally reducing import price competition. But, as import barriers, they could also be costing consumers billions of dollars each year.
We just don’t know whether our quarantine barriers are good for the economy as a whole because our quarantine procedures consider only the benefits to the ‘threatened’ domestic industry and take no account of the costs that a quarantine import barrier imposes on the rest of the economy.
Unlike every other form of import protection in Australia, quarantine protection is a ‘free kick’ for the protected industry. Although the government minutely examines the costs and benefits of import restrictions such as textile tariffs, motor-vehicle tariffs and anti-dumping measures, there is no attempt to assess the costs of a quarantine barrier. At best, this is unfair to consumers and other Australian industries who bear the costs of the quarantine barrier. At worst, it’s a reckless way to manage our agribusiness resources.
What sort of costs are involved? The threat of retaliation by our trading partners is often the first cost that springs to mind. It’s certainly a significant threat and a reality in Asian markets as the beef and dairy export industries can testify. But losses due to retaliation and the damage to commercial relations — although crucial for exporters — are likely to be dwarfed by the costs in our own market. Typically, consumers and other industries pay higher prices due to loss of access to competitive import supply which, in turn, means reduced domestic demand and a ‘lock-in’ of domestic resources in lower-value industries.
We don’t need the EU to tell us that we have a quarantine problem — and its nothing to do with the WTO.
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‘Global warming’ not unique
“The findings [a review of literature by Harvard researchers] prove that the world experienced a Medieval Warm Period between the ninth and 14th centuries with global temperatures significantly higher even than today.“
The United Nation’s Intergovernmental Panel on Climate Change (IPCC), however, says that the Medieval Warm Period does not establish a ‘counter case’ since there is no evidence that the phenomenon was global, like the present warming.
The study is to be published in the journal Energy & Environment
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Services markets at work
The US Army has come under fierce criticism from aid agencies and from their British allies for ‘selling water’ to poor people in Umm Qasr (Iraq).
If this report is accurate, the accusation are just the usual ignorance about how services markets work.
Under the deal, the military will provide water free to locals with access to tanker trucks, who then will be allowed to sell the water for areasonablefee.
Common Dreams
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US motives in an FTA
Otherwise intelligent people are apparently puzzled about what the USA could get out of a Free Trade Agreement with Australia and, seeing nothing obvious that the USA might want assume that the US objectives are non-obvious and possibly devious.
It’s fertile grounds for conspiracy theorists. The Opposition Spokesman (Craig Emerson), desperate for notice, says that the Australian government is in league with the USA in pursuit of a hidden agenda to institute higher pharmaceutical costs and the ‘full sale of Telstra’ as part of the FTA deal.
Like all mythologists, the purveyors of the assumption that the USA will demand compliance with the 70-year (‘Bono bill’)copyright term or the abolition of the Pharmaceutical Benefits Scheme (PBS) in return for an FTA agreement are undeterred by the lack of evidence.
Neither of these objectives is mentioned in the one authoritative statement of what the USA wants from the deal—the letter that the US Trade Representative sent to the President of the Senate late last year. Nor has either yet emerged as an issue for the negotiations, according to government officials. In March, the US negotiator told the media that he wasn’t sure whether the claims by some US pharmaceutical companies about pricing in the PBS was an issue that could be addressed in an FTA.
It’s just not necessary to go hunting around for devious motives: the incentives are in fact obvious. Even the economic advisors to the Australian government had no problem finding a pretty clear US motive in their report in 2001 on the likely benefits of an FTA.
“… For GDP, the net present value of benefits [from an FTA]is US$15.5 billion for Australia and US$16.9 billion for the United States.”
Hard to imagine a more straightforward result. The USA, which has for decades run a substantial trade surplus with Austrlia, will be better off with a Free Trade Agreement (so will we) and will gain even more than Australia.
Of course, there are debates over the CIE numbers. In my paper on the potential gains for Agriculture in the FTA (for the AUSTA Conference) I suggest some reasons for thinking that CIE may have underestimated the gains for Australia. As is often the case with models of the welfare gains from trade its possible—even likely—that the gains have been underestimated for both sides.
But wait… there’s more. Its a reliable rule of thumb that the motives for almost any ‘regional agreement’ will turn out to be more about foreign policy than economic gain. As it happens, there are some non-obvious gains for both the USA and Australia in an ambitious FTA. But that story has to wait for another post …
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How deep do tariff cuts need to be?
Suppose all you wanted to do was to reduce the average legal rate of duty around the world (the bound rate in WTO-speak) down to the rate actually being applied on average for all products? How much would you need to cut tariffs in order to do that?
Such a cut would mean no actual change in the level of taxes collected on doing business across borders. It would leave today’s barriers to imports and exports in place, so it wouldn’t actually change anything that matters. But such a change would ensure that governments could not come up with any nasty surprises in future.
The answer for agriculture is more than 80% — that is three times the cut agreed in the last round of negotiations. Even for manufactures, the answer is 40%. The details are in a paper
by Kym Anderson and others that is well worth skimming.
| Depth of UR cut (1) | Post-UR bound tariff rate () | Post-UR applied tariff rate () | Depth of cut (2) | Proportional cut needed (3) | ||
|---|---|---|---|---|---|---|
| AGRICULTURE | ||||||
| OECD | 1.5 | 15 | 14 | 0.9 | 83 | |
| Developing | 4.7 | 60 | 18 | 26.3 | 78 | |
| WTO_members | 2.6 | 24 | 14 | 8.1 | 82 | |
| TEXTILES_CLOTHING | ||||||
| OECD | 1.4 | 11 | 8 | 2.7 | 76 | |
| Developing | 4.1 | 24 | 21 | 2.4 | 45 | |
| WTO_members | 1.6 | 12 | 10 | 1.8 | 53 | |
| OTHER_MANUFACTURES | ||||||
| OECD | 1.0 | 4 | 3 | 1.0 | 35 | |
| Developing | 2.7 | 20 | 13 | 5.8 | 34 | |
| WTO_members | 1.3 | 6 | 4 | 1.9 | 35 |
(1) in bound tariff rate t (as % of 1 + t)
(2) needed in bound tariff rate t (as % of 1 + t) to bring it down to sector’s post-UR applied rate
(3) in bound tariff rate t (as % of t) to bring it down to region’s post-UR average applied rate
On average, then, the EU’s proposal to ‘go round again’ would not make any difference at all to agricultural protection levels.
Surprise, surprise…
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Amusing, anecdotal, accurate 