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Agricultural Trade and Protection in Asia: Identifying hurdles to intra-regional trade

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
December 1988
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Dean A. DeRosa

Senior Economist, Commodities Division, Research Department, IMF

Over the past decade, world production has generally outpaced the growth of demand for agricultural commodities, resulting in weak or falling prices. In part, this reflects increased agricultural productivity in many developing countries. But a less fortunate aspect of the situation is the distortions to international trade that arise from inappropriate national agricultural policies. In many countries, these policies attempt to raise the incomes of local agricultural producers through administered domestic price schemes, often involving direct controls on imports, and subsidies to production and exports. In so doing, however, they contribute to lower world prices and to reducing the incentives for production by efficient producers and exporters of agricultural commodities in other countries.

Attention in the agricultural negotiations of the Uruguay Round has focused mainly on the need to reform policies in the major industrial countries. Restrictive trade policies and practices, however, are also used by developing countries. The restrictions these countries enforce on agricultural exports are emphasized most frequently. But in terms of commodity coverage, controls on agricultural imports are more widespread.

This article reviews patterns of agricultural trade in Asia, looking in particular at the agricultural protection measures enforced by Japan and several major developing Asian economies: Bangladesh, Hong Kong, India, Indonesia, Republic of Korea, Malaysia, Pakistan, Philippines, Thailand, Singapore, and Sri Lanka. Because most of these countries both import and export agricultural products, multilateral liberalization under the Uruguay Round holds the promise of considerable economic gains. Full participation is in their interest. In the absence of such progress, or as a part of the ongoing GATT negotiations, the possibilities for liberalizing Asia’s agricultural trade on a regional basis can be considered in their own right. In particular, given the vastness of the region and the diversity of its natural and other resources, the adoption of more liberal economic relations among Asian countries could provide significant economic gains. Using a quantitative method, the article thus seeks to identify—solely on an exploratory basis—the countries between which reciprocal negotiations to reduce agricultural protection might be most fruitful.

For more details, see the author’s “Agricultural Trade and Protection in Asia,” issued as IMF Working Paper WP188163, and available from the author.

Structure of protection

Agricultural trade. The Asian countries account for roughly 15 percent of world trade in agricultural commodities. The region’s agricultural exports come mainly from Malaysia, which supplies more than 20 percent of the total, and from China, India, and Indonesia. That the region’s agricultural imports are greater than its exports is attributable to Japan, which accounts for more than 40 percent of total Asian agricultural imports, and to the trade of the high-income but resource-scarce newly industrializing economies: Hong Kong, Korea, Singapore, and Taiwan Province of China.

Asia’s strongest trading ties in agriculture are with industrial countries outside the region (see Table 1). Appreciable intra-regional trade occurs, however, particularly in connection with the imports of Japan. Hong Kong and Singapore, the two entrepôt centers, have strong trading ties with neighboring countries, while a number of South and Southeast Asian countries trade extensively with one another in foods such as sugar, vegetable oils, and rice.

Table 1Agricultural trade of Asian countries by commodity division) 19851(In billions of US dollars)
Direction of Trade2
RegionalOther
WorldAsian countriesOtherindustrial
Commodity divisionexportsExportsImportsJapanAsiacountries
(In percent)
All195.828.837.8133146
Foods146.619.724.3113146
Meats, fish, dairy products42.35.57.7242940
Cereals32.52.26.922447
Fruits, vegetables25.23.62.5134541
Sugar5.80.80.985226
Seeds, oils19.84.44.653947
Beverages, spices21.13.31.943131
Raw materials49.29.113.4153046
Tobacco3.80.30.72679
Rubber6.73.71.7124931
Wood14.42.94.5273334
Natural fibers11.11.93.7123346
Others (hides, pulp)13.10.32.882660
Source: World Bank, Trade Analysts and Reporting System.

The data cover the trade of 15 major Asian economies, including China and Taiwan Province of China. The underlying data for China are for 1984.

Average percentage share in Asian countries” exports and imports. Other industrial countries comprise Australia, Canada, New Zealand, the United States, and the industrial countries of Western Europe.

Source: World Bank, Trade Analysts and Reporting System.

The data cover the trade of 15 major Asian economies, including China and Taiwan Province of China. The underlying data for China are for 1984.

Average percentage share in Asian countries” exports and imports. Other industrial countries comprise Australia, Canada, New Zealand, the United States, and the industrial countries of Western Europe.

The following analysis discusses the import tariffs and nontariff barriers imposed by the countries studied. Average levels of tariffs and the frequency ratios of nontariff barriers are examined. The frequency ratio measures the extent to which an import restriction is imposed within a given trade category; that is, it is the percentage of the total number of commodity items defined within an aggregate trade category covered by an import regulation. (Thus, if a country has a frequency ratio of 40 percent for foods, nearly one half of the food commodities itemized in its customs schedule face import restrictions.) Though limited in economic content, the measure provides a useful starting point for assessing the incidence of different forms of agricultural protection.

Tariffs. In the sample countries, the ad valorem tariff is the most common form of restriction enforced against imports of both foods and agicultural raw materials, generally being imposed with frequency ratios of 80 percent or more (see Table 2). The lowest tariff rates are imposed by Malaysia and Japan, followed by Indonesia. Hong Kong, and Singapore, with their very small agricultural sectors, impose virtually no tariffs. In Korea, the average tariff level is about 20 percent for all agricultural commodities, and nearly 30 percent for foods. The highest tariffs are imposed by South Asian countries. The average level is higher than 50 percent in both Bangladesh and Pakistan, and over 100 percent in India. Sri Lanka, the Philippines, and Thailand enforce average tariffs of between 25 and 35 percent.

Table 2Barriers to agricultural Imports and possibilities for bilateral trade negotiations(Frequency ratios and average tariff levels in percent)
Nontariff barriers
Tariffs 1Quantitative restrictions
CountryCommodity

Division
FrequencyAvg.-

level
Bilateral

negotiation

possibilities
Restr.

licensing
QuotasProhibitionsBilateral

negotiation

possibilities
State

trading
Entry

regulations
Japan (JA)2All1124123KO
Foods1531152
Raw mat.716
South Asia
Bangladesh (BA)All9762PA, IO, MA, PH, TH3637PA, KO, SI12
Foods9866443013
Raw mat.945718563
India (IN)All99106MA, PH, TH4071IO, PH193
Foods991194765204
Raw mat.9892268318
Pakistan (FA)All9359BA, MA, PH, TH43239BA, MA5
Foods9375333557
Raw mat.9443705
Sri Lanka (SR)All9534IO, MA9KO4
Foods954894
Raw mat.942191
Southeast Asia
Indonesia (IO)All8014BA, SR, KO262350IN, MA24
Foods75198296335
Raw mat.1001098
Malaysia (MA)All779BA, IN, PA, SR81PA, IO, PH, TH20
Foods6888229
Raw mat.979101
Philippines (PH)All10028BA, IN, PA, KO4969IN, MA, TH371
Foods1003553413596
Raw mat.10021391011
Thailand (TH)All8829BA, IN, FA, KO35124MA, PH120
Foods863640032124
Raw mat.95222317
East Asia
Hong Kong (HK)All81KO3
Foods824
Raw mat.7
Korea (KO)All10021IO, TH30JA, BA, SR, HK
Foods1002938
Raw mat.100137
Singapore (SI)3All22BA9
Foods2612
Raw mat.13
Sources: United Nations Conference on Trade and Development’s Trade Information System and the World Bank.

The data refer to general or statutory ad valorem tariff rates.

The tariff data for Japan refer to Tokyo Round-bound rates. The nontariff barriers data do not include information about Japans state trading and entry regulations.

Singapore is grouped with the East Asian countries for analytical purposes.

Notes: The data refer to the following years: 1985 (Pakistan, Thailand), 1986 (Bangladesh, Japan, Korea, Singapore, Sri Lanka), and 1987 (Hong Kong, India, Indonesia, Malaysia, the Philippines)
Sources: United Nations Conference on Trade and Development’s Trade Information System and the World Bank.

The data refer to general or statutory ad valorem tariff rates.

The tariff data for Japan refer to Tokyo Round-bound rates. The nontariff barriers data do not include information about Japans state trading and entry regulations.

Singapore is grouped with the East Asian countries for analytical purposes.

Notes: The data refer to the following years: 1985 (Pakistan, Thailand), 1986 (Bangladesh, Japan, Korea, Singapore, Sri Lanka), and 1987 (Hong Kong, India, Indonesia, Malaysia, the Philippines)

In almost all the countries sampled, tariff rates are higher for foods than for agricultural raw materials. The highest rates of protection are enforced most frequently against imports of foods other than cereals. In the low- and middle-income developing Asian countries, the lower levels of protection for cereals may reflect efforts by national authorities to maintain low domestic prices for wage goods. In Japan and Korea, the level of tariff protection for cereals is low compared to that in the other Asian countries. In all the countries, however, the higher protection for foods than raw materials reflects desires for national self-sufficiency in food production, and also in many instances protection for vested agricultural interests.

Nontariff barriers. Nontariff barriers, generally regarded as more trade-distorting than tariffs, are applied widely but more selectively than tariffs. Restrictive licensing of imports is especially widely enforced, followed by prohibitions, state trading, and regulations on health and product standards. (These last often call for special processing of commodities to meet local requirements prohibiting the transmission of, for instance, infectious bacteria or other food contaminants.) Japan and Indonesia are the only two countries that apply quotas with appreciable frequency ratios, in both cases against imports of foodstuffs.

The nontariff barriers used by Japan and the East Asian countries are mainly restrictive licensing of imports by the government. Japan, Korea, and Singapore impose such requirements with freqency ratios of 20–30 percent. Hong Kong and Singapore impose health requirements and other special entry regulations with an overall frequency ratio of less than 10 percent.

Among the South and Southeast Asian countries, Sri Lanka and Malaysia enforce relatively few quantitative restrictions. Sri Lanka engages to a significant extent in state trading, while Malaysia imposes a number of health and product regulations. The remaining countries appear to apply a wide range of nontariff barriers at appreciably higher frequency ratios than Japan or the newly industrializing countries. India, Pakistan, and the Philippines, for example, enforce restrictive licensing arrangements with frequency ratios of about 40 percent, and India and Indonesia apply prohibitions with frequency ratios of 50 percent or more. In Japan, imports of the main food commodities are extensively controlled by state trading entities, which provide very high nominal rates of protection.

The use of nontariff barriers in agriculture may reflect food security concerns or development initiatives to promote production of particular commodities. It may also reflect political pressures by less well-intentioned vested interests. In the latter case, appreciable economic costs may arise, owing to the “rent-seeking” activities, including graft and corruption, that often surround the operations of government agencies established to administer nontariff measures.

Possibilities for negotiations

Possibilities for pursuing bilateral negotiations to reduce tariffs and quantitative restrictions between Asian countries can be explored using indices of comparative advantage based on the countries’ net exports of the broad agricultural commodity groups shown in Table 1, on the one hand, and information about their tariff levels and frequency ratios of quantitative restrictions, on the other. Through a correlation analysis, these data can be used to assess the degree to which each country’s comparative advantage is associated with high rates of protection in other countries. Such an analytical framework is highly stylized, of course, and is based on an essentially mercantilist approach to trade negotiations—i.e., an approach driven by the interests of exporters in lowering foreign barriers to their products. But to the extent that this approach observes GATT rules prohibiting discrimination among imports from different countries, the benefits of agricultural trade liberalization would be widely enjoyed among Asian as well as other countries. (Under GATT’s “most-favored nation” principle, a country that lowers a tariff to one foreign exporting country must do the same for all.)

The results, summarized under “Bilateral negotiation possibilities” in Table 2, suggest that opportunities exist for reducing both tariffs and quantitative restrictions between certain countries. The most extensive opportunities for successful reciprocal negotiations, especially to reduce tariffs, appear to be between low-income South Asian countries and middle-income Southeast Asian countries. Thus, Bangladesh, India, and Pakistan, on the one hand, and Malaysia, the Philippines, and Thailand, on the other, could benefit from bilateral negotiations to reduce tariffs on a variety of agricultural goods. For example, the South Asian countries might offer to lower tariffs on fruits and vegetables, oils, or wood in exchange for lower tariffs by the Southeast Asian countries on meats and fish or beverages and spices.

The analysis of quantitative restrictions reveals further possibilities for promising negotiations. For example, Bangladesh and Korea could benefit from mutual reductions in quantitative restrictions enforced against their imports of meat, fish, and dairy products, while several Southeast Asian countries might mutually reduce their quantitative restrictions against imports of commodities in which many of these countries nominally share comparative advantage—meats and fish, sugar, seeds and oils, rubber, and wood.

These results stem from the particular patterns of agricultural exports and protection of the countries identified by the analysis. Negotiations involving other countries, especially those whose agricultural trade is mainly imports, with few exports, might only be successful if linked to negotaitions covering trade in manufactures or services.

Conclusion

There is appreciable scope for liberalizing agricultural trade policies in Asia through either multilateral or regional negotiations. Though countries might always achieve economic gains by adopting more liberal trade policies unilaterally, policymakers in most countries are likely to find it more feasible to engage in reciprocal negotiations. This is because such an approach offers greater scope for overcoming opposition from domestic vested interests—through marshaling support for trade liberalization among domestic exporters of agricultural and possibly other goods. Also, if import barriers are reduced on a “most-favored nation” basis, reciprocal negotiations have the advantage that agricultural trade might be expanded to a greater extent than otherwise and the resulting economic benefits enjoyed more widely.

It remains a considerable political challenge for many Asian countries to pursue reciprocal trade negotiations. But against the background of increasing global interest in liberalizing agricultural trade and the vast opportunities for expanded trade that are presented by the Asian market, the possibilities presented by the Uruguay Round, or other negotiations for enhancing economic development and welfare through liberalization of agricultural trade in the region, are well worth considering.

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