Trade measures


Trade measures The removal of tariff and non-tariff barriers to agricultural trade can improve the functioning of global food markets, reduce unsustainable agricultural practices, and further the dissemination of technical knowledge in the interest of Green Growth. Domestic supports to agricultural production delivered by OECD countries have been economically feasible due to high levels of border protection to limit imports as well as subsidies for exports when surpluses emerged on the domestic market. Reform of agricultural trade is aimed at a more efficient allocation of food production across countries according to their comparative advantage and a more level playing field in world markets. This would improve predictability and security for food importing and exporting countries alike with environmental cobenefits. By imposing tariffs and non-tariff barriers on agricultural imports, both OECD and non-OECD countries have created significant market distortions with negative environmental impacts. Within countries, trade barriers can affect the environment in altering the scale and structure of agricultural production, the mix of inputs and outputs, and production technologies. The ecological impacts tend to be indirect, including groundwater and surface-water pollution from fertilizer and pesticide run-offs and changes in land use that affect landscape appearance, flood protection, soil quality and biodiversity. Protectionism also has international impacts on agricultural production patterns and environmental values including trans-boundary spillovers such as greenhouse gas emissions and biodiversity losses. Lower trade barriers should cause production to decrease in countries with historically high levels of fertilizer and pesticide application, thereby relieving environmental stresses in these areas. At the same time, output is likely to increase in countries that can accommodate an increased use of agro-chemicals owing to current low levels of chemical inputs. Developing countries, as well as global consumers, will benefit from the removal of trade barriers for products in which they have a comparative advantage (such as sugar, fruits and vegetables) and from reduced tariffs for processed agricultural commodities. Since the late 1980s, the degree of border protection in OECD countries has been significantly reduced through international trade negotiations. Starting with the Uruguay Round Agreement on Agriculture, negotiated in 1986-1994 and phased in over five years, trade-distorting agricultural subsidies and tariffs have been subject to multilateral rules. However, bound tariffs (i.e. those at a globally-agreed maximum 16 level) on agricultural products remain high in comparison with other sectors, averaging 35%-50% of product value. Applied tariffs (i.e. those set by individual countries) are much lower averaging 17% for bulk agricultural commodities and 20% for processed foods. Ongoing multilateral trade negotiations on agriculture in the World Trade Organization (WTO)

, which are part of the Doha Development Agenda launched in 2001, have not yet yielded agreement although talks continue on further reducing tariff and non-tariff barriers and export subsidies. It has been agreed that higher tariffs on agricultural products will be reduced more than lower ones and that final bound tariffs will be lowered using an agreed formula. The average cut on final bound tariffs on agricultural products for OECD countries must be at least 54%. Agricultural export subsidies, which would not have been allowed for industrial products, have also been reduced significantly. The Agreement on Agriculture prohibits export subsidies for agricultural products unless they are specified in a member’s lists of commitments and these must be reduced in terms of the monetary level and the quantities of exports that receive subsidies. Negotiations are now aiming to eliminate export subsidies by 2013, including those contained in export credits, guarantees and insurance, international food aid and exporting state trading enterprises. Restrictions on agricultural imports by non-tariff measures have been largely replaced by “tariffication” or conversion to quantitative tariffs which are more transparent. Among the prohibited non-tariff measures are quantitative import restrictions, variable import levies, discretionary import licensing procedures, voluntary export restraint agreements, minimum import prices and non-tariff measures maintained through state-trading enterprises. The Agreement on Agriculture does not prevent the use of non-tariff import restrictions consistent with other WTO agreements such as those maintained under the Agreement on the Application of Sanitary and Phytosanitary Measures (health and safety regulations) and the Agreement on Technical Barriers to Trade (technical regulations and product standards including rules of origin). These measures, which can prove problematic for developing country producers, are also being negotiated. More open agricultural markets will facilitate the sharing of technologies and innovations supportive of Green Growth. Barriers to trade in environmental goods and services are still important obstacles to the diffusion of cleaner technologies in agriculture and other sectors. Trade in environmentally-friendly technologies faces different rates of applied tariffs in OECD and non-OECD countries. In addition, nontariff measures, such as quantitative import restrictions, customs procedures and foreign investment controls, act as barriers to technology trade and transfer. A balanced and comprehensive conclusion of the Doha Development Agenda would greatly contribute to reducing environmental distortions in agriculture. Research and development (R&D) The capacity of the global agricultural system to provide adequate supplies for food, feed, and non-food uses in an environmentally sound manner depends in large part on technology and innovation. New technologies can contribute to improving environmental performance and achieving Green Growth targets by replacing resource-intensive and polluting activities or making existing ones more eco- 17 efficient. Green Growth can provide a new paradigm for agricultural research with an emphasis on environmental requirements in the interest of both food security and enhanced productivity. Technological innovation can improve the environmental performance of farming systems through innovations in engineering, information technology and biotechnology. Newer technologies can reduce the load of known toxins in agricultural production, substitute safer alternatives, protect ground or surface waters, conserve natural habitats, reduce nutrient loads in soils, lower gaseous nitrogen loss and reduce the amount of non-renewable energy used in the cropping cycle. These innovations imply changing current farm practices and using different technologies to enhance resource productivity and eco-efficiency. Historically, the focus of agricultural research and development (R&D) has been to increase production, productivity and profits. The 1950s and 1960s saw science increasingly applied to agriculture with rapidly rising productivity growth, the development of new crop varieties, and increased yields in many countries through the “Green Revolution.” Agricultural research has contributed enormously to humanity, enabling the supply of food to grow faster than demand despite rapidly increasing populations and shrinking natural resources. Maintaining this performance now depends on research and technologies to enhance the ability of the agricultural sector to increase eco-efficiency, improve sustainable resource use, and respond to climate change. There is waning public support for agricultural R&D and a diversion of research resources towards other agendas resulting in early warning signs of a slowdown in agricultural productivity growth. Recent studies find very high economic rates of return to agricultural R&D indicating it would have been profitable to invest more in research. But growth rates in public investment in agricultural research have decreased since the 1980s with the ratio of public R&D spending relative to agricultural GDP remaining relatively flat. Despite the importance of the agricultural sector to food security and Green Growth, only about 4% of public and private R&D spending by OECD countries is oriented towards agriculture. The world continues to collectively under-invest in agricultural R&D because of domestic and international market failures associated with appropriability problems. Governments should increase agricultural R&D funding including for basic research in public laboratories and through advanced technology programs. For example, although biotechnology can play an important role in tackling Green Growth issues in agriculture, over 80% of public research investments in biotechnology go to health rather than to agricultural applications. New agricultural biotechnologies could be applied in plant and animal breeding and diagnostics, resulting in improved varieties of major food and feed crops with higher yield, pest resistance and stress tolerance. Biotechnology advances could facilitate the enhancement of the major staple crops of developing countries with vitamins and trace nutrients, and genetic traits and diseases of livestock and fish could be more easily identified. Private sector spending on agricultural research has slowed along with the growth of public spending in recent years. Governments can promote business R&D investments in agriculture through targeted supports, tax credits and public/private partnerships which have a multiplier effect on public research funding. Government research subsidies can push private research and innovation to address major 18 environmental and social challenges in agriculture and other sectors. Even though government subsidies for R&D are permitted under international trade agreements, they have accounted for a very small share of public supports to agriculture. At least 21 OECD countries stimulate private sector research through R&D tax credits which provide tax benefits to firms related to the costs of undertaking specific innovation activities. Canada, for example, offers a broad-based R&D tax credit of up to 35% for expenses towards experimental development, basic and applied research, and related supporting activities. The United States is now proposing to simplify, increase and permanently extend its R&D tax credit. Accelerated depreciation schemes for research-related capital expenditures and reduced labor taxes on scientists and researchers provide incentives to research and innovation. Some countries lower the corporate tax rate for innovationrelated profits, such as from royalties or the sale of patents. Other countries target the tax credit to specific sectors and outcomes, including environmental research. Skillfully harnessing the tax system offers a means for increasing R&D expenditures to advance Green Growth in agriculture and other sectors. Development assistance Global action is needed not only to cut distorting subsidies and open markets to agricultural products, but also to increase the level and effectiveness of development assistance to promoting Green Growth in agriculture. Donors can support sound natural resource management and sustainable farming practices in developing countries through financial aid which targets resource conservation programs and low-carbon growth. This generally requires greater emphasis in bilateral and multilateral aid flows on the agricultural sector, which now accounts for less than 4% of total development assistance. Despite the fact that 75% of the world’s poor live in rural areas and are dependent on the agricultural sector, aid to agriculture continues to decline as a share of the total. The largest decrease has been in agricultural aid from bilateral donors which is now less than 3% of official development assistance (ODA). Assistance to agriculture from multilateral organizations such as the World Bank has also declined to 5-6% of multilateral aid. While economic growth is an important contributor to poverty reduction, the sector mix matters with growth in agricultural incomes especially important in developing countries. In agriculture-based countries, for example in Sub-Saharan Africa, the sector employs up to two-thirds of the labor force and generates over 30% of GDP. For the poorest people, GDP growth originating in agriculture is four times more effective in raising incomes than that deriving from other sectors. In other countries, enhanced agricultural performance would narrow the rural-urban income gap and reduce rural poverty. It is agricultural growth, through its leverage effects on the rest of the economy that typically enables poor countries, poor regions and poor households to take the first steps toward economic transformation. In the Green Growth Polity Toolkit, development assistance to agriculture focuses on natural resource management and adaptation to climate change. Agricultural productivity could be raised through basic resource management practices such as rainfall retention, irrigation water conservation, waste water reuse, dry-land cultivation, and controlling pests and weeds by exploiting natural biological processes. 19 Water management, particularly small-scale water control, in conjunction with technology diffusion and improved rural infrastructures, offers high payoffs to public and private sector investment and to Green Growth. Development assistance to the agricultural sector must also prioritize climate change adaptation. Agriculture and water resources, which are the most vulnerable to the adverse impacts of climate change, need to be climate proofed. In addition to funding, climate adaptation requires technical assistance and capacity building in poorer countries. Poverty reduction strategies (PRSs), which are the vehicle for implementing the aid agenda, have tended to neglect the agricultural sector and also the environment. These strategies should recognize the importance of agriculture in poverty reduction and the role of natural resources as inputs into other productive sectors. Poor populations can raise incomes from selling environmental goods and services both in formal and informal markets such as wildlife products, timber, charcoal and eco-tourism. Strategies should also take into account that economic objectives will be vulnerable to environmentrelated shocks such as flooding, drought and climate change as they impact the agricultural sector, clean water and food security. Aid for Trade, which helps countries improve their capacity to participate in the global trading system, could be directed to environmental enhancements in the agricultural sector. Aid for Trade priorities for agriculture should include transferring green technologies, developing water management infrastructure and fostering green enterprises. Agricultural products, mostly unprocessed, will continue to have a considerable weight in the export profile of developing countries. Development of green agroenterprises holds potential as the cornerstone of a trade-based growth and poverty reduction strategy. This would enhance the ability of economies which rely on a narrow range of primary commodity exports (e.g. African cotton producers) to benefit from the changing global trade regime in agricultural products.

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