|| Home || SEARCH|| Contact || Free Research Publications  ||  Eshop || Privacy Statement ||

Technical Issues Affecting Trade in Agricultural Products

by David Harris,  D.N. Harris & Associates

February 2007

RIRDC Publication No 07/032  RIRDC Project No DAH-2A

Executive Summary
What the report is about
World trade in agricultural products is affected by various policy interventions that constrain sales of imported products. Governments impose tariffs and a range of non-tariff measures (NTMs) as conditions of market access. These trade policies reduce the competitiveness of imports and provide support for domestic producers.

The economic effect of a tariff is straight forward. It is a tax that raises the landed cost of imports which leads to higher prices for food manufacturers and consumers. The effects of NTMs are less obvious and, in many cases, difficult to measure. In broad terms it refers to the technical regulations and standards that are market entry conditions for imports.

In recent times NTMs have been subjected to greater scrutiny as individual countries seek to maximise the gains from negotiated access improvements. Some NTMs are imposed for domestic policy reasons such as public health requirements or protecting the environment. In general the regulations are justified on the need to ensure consumer confidence in products of foreign origin. In most cases they do not discriminate against imports as they apply equally to products of domestic origin. In some cases import specific requirements are imposed for particular food safety concerns – for example, some countries have specific requirements for beef imports from countries where the BSE disease has been detected.

There are other technical requirements that apply to imported products which provide an element of protection for the domestic industry. In some cases the compliance costs increase the costs of doing business and affect the competitive position of imports. In other cases they act as non-tariff trade barriers (NTBs) that restrict the volume of trade.

Industry efforts to liberalise trade primarily focus on improving market access conditions through tariff reductions and tariff-rate quota (TRQ) expansions. But NTMs could limit the gains that can be achieved in these areas. This means efforts to liberalise trade should also consider the technical requirements that can affect the market access for imports.

Who is the report targeted at?
This report highlights some issues concerning constraints imposed by non-tariff barriers that should be considered in Doha trade negotiations. There are several TRQ administration issues and some general technical requirements that should be investigated and their trade impact quantified. This would provide some guidance for future government representations on technical trade issues.

Background
Improvements in market access are an important issue for Australian export industries in the WTO trade negotiations. Changes in tariffs and tariff-rate quota (TRQ) access will be a key aspect of the discussions. Another area of discussion that could generate some trade benefits is the non-tariff measures (NTMs) that affect market access conditions. NTMs are the technical requirements and standards that set the market entry conditions for imports.

Australian exporters have raised concerns about various NTMs that appear to be arbitrary trade impediments. The Doha trade negotiations provide an opportunity to address some of these concerns. NTMs can limit the trade gains from tariff cuts or TRQ expansions associated with future agreements to liberalise trade. But it will be important to focus attention on the non-tariff barriers that offer the greatest potential for future trade growth.

Expansions in concessionary access are one way the Doha negotiations can achieve further gains in trade liberalisation. An issue that tends to be over-looked is the way NTMs affect TRQ fill rates. In some markets there are restrictions imposed by the structure of TRQ access.

In other markets there are technical requirements that restrict the demand for import permits which can lead to an under-utilisation of the access concessions.

Some countries point to the under-fill of existing TRQs as a reason for not offering further access concessions. But in many cases the TRQ under-fill is inconsistent with market pricing conditions. It appears to be caused by technical requirements that restrict the commercial value of the access concessions. The NTMs that are applied to new and existing TRQ access concessions should be closely scrutinised.

Maximising trade through the existing TRQ access is a worthwhile objective for exporting countries like Australia. Initial discussions on the Doha negotiation framework canvassed the option of reducing in-quota tariffs as a way of improving market access. In some instances this could help to improve TRQs fill-rates in particular markets. But there may be greater gains from liberalising the technical restrictions on TRQs:
 

• liberalisation of the NTMs on existing concessionary access could yield significant trade benefits
• if proposals to reduce TRQ in-quota tariffs are part of the Doha negotiations they should also consider reforms to TRQ administration requirements.


The implications of various NTM attributes need consideration, including:

• TRQ fill rates
• the effect of non-tariff measures on TRQ fill rates
• some technical issues in TRQ management.


Aims/Objectives
The aim of this report is to provide an overview of the technical issues affecting Australian trade. It is a preliminary investigation of the non-tariff conditions attached to market access.

The intention is to review the concerns typically raised by exporters and high light the NTMs that warrant further investigation.

Methods used
The scope of the review has been restricted because of the large number of specific issues associated with individual products and importing countries. Instead the study focused on the NTMs affecting trade in the major commodities – meat, cereal and dairy products. It was also limited to a review of the measures affecting trade with the major developed economies of the United States, the EU, Canada and Japan. Many of the technical issues affecting trade with these markets are applicable in other countries.

The review has adopted a broad definition of technical trade issues. It was important to examine any non-tariff measure that could affect the volume and cost competitiveness of exports. However, the review did not extend to SPS issues associated with quarantine trade restrictions. SPS issues have received considerable attention in recent years and there is a large body of research already available. Instead this review has focused on other issues – TRQ access conditions and the technical requirements for import approvals.

Results/Key findings
Liberalisation of TRQ access conditions could yield significant trade benefits. The gains from reforms to other NTMs may not be as big but they are still important. The most commonly cited trade impediments are technical requirements on:

• product testing and import certification approval
• processing methods and product composition (i.e. food standards)
• labelling
• packaging and distribution.


Some of these technical requirements are not trade barriers imposed to protect the domestic industry. They reflect differences in business practices and regulatory standards that translate into border requirements imposed on imports. If the requirements do not discriminate against imports they will generally reflect the cost of doing business in a foreign country.

However, there are other measures that appear to be excessively detailed and unnecessarily impede trade. Efforts to reform these regulatory requirements are important as they can improve the competitiveness of imports and enhance the opportunities for trade.

For example, import certification requirements are a one-off cost that can be a short term trade impediment. The principle of mutual recognition could be applied to reduce the costs of certification especially where import approvals have been obtained from a third country with higher standards.

There are also technical requirements that relate to food and hygiene standards. They are not necessarily a trade barrier if they are based on scientific principles and applied uniformly to domestic and imported products. CODEX standards provide an international reference point on food standards, additives and chemical residues. It is important to persist with efforts to encourage importing countries to align their regulations to the CODEX standards.

Labelling rules are another potential trade impediment because it leads to higher distribution costs. The costs are multiplied if labels are changed for different markets. It requires separate stock keeping units for each market which means higher inventory management costs. It is important to maintain a strong interest in these issues through the TBT Agreement.

Implications for relevant stakeholders
There is a strong focus on improving global market access conditions for agricultural products through tariff reductions and expansion in TRQ access. But non-tariff measures can limit the gains from these improvements in market access. The Doha trade negotiations provide an opportunity to address some of these trade impediments.

Australian exporters have concerns about various NTMs that restrict the opportunities for trade. Some of these concerns need to be addressed although it is important to remain focused on the market access issues that offer the largest trade benefits. Government resources are limited so attention should centre on the non-tariff barriers that offer the greatest opportunity for trade growth.

A review of TRQ fill rates examined pricing conditions and the effect of in-quota tariffs.

There were instances where low fill rates were inconsistent with the tariff adjusted world price differential. It indicates other technical requirements are affecting TRQ trade outcomes.

The Doha negotiations provide an opportunity to address these issues.

Recommendations
TRQ access conditions are not the only source of NTMs affecting trade. Market access is conditional on compliance with the general requirements for import approvals. These rules can delay or disrupt the supply of imports to the market. They can also increase marketing and distribution costs which reduces the price competitiveness of imports.

Liberalising some of the restrictive technical requirements attached to existing TRQs could provide significant trade benefits for exporting countries like Australia. The gains will come from importing countries meeting their existing obligations to provide concessionary access for highly protected commodities. These NTMs should also be considered if new TRQs are provided with the adoption of the ‘sensitive product’ concept.

In some markets there are technical issues in the way TRQ commodity access is structured and restricted by product specifications. There are also technical restrictions associated with the management of TRQs that reduce competition and limit the opportunity to maximise fillrates.

These issues relate to eligibility requirements for firms to participate in the TRQ and the associated allocation mechanisms:

• addressing these issues in the Doha trade negotiations could be more important than reducing in-quota tariff rates.


Technical restrictions attached to TRQs interfere with the development of commercial trading relationships. In some cases they can distort the product composition of the trade. These trade impediments can cause the TRQ access to be under-utilised which provides extra protection for producers in the importing country. Fill rates are likely to improve if there are reforms in areas such as:

• treating the market access concessions as a commodity issue rather than a collection of small, specialised product TRQs with specification restrictions
• removing arbitrary, highly specialised product specifications
• changing eligibility rules to obtain a larger, competitive pool of TRQ users
• making provision for new entrants to participate in TRQs
• requiring TRQs to have a re-allocation mechanism for unused access.


Increased TRQ access is the most effective way of liberalising trade in the highly protected commodities. Realising the benefits will depend on the structure and regulatory conditions of the TRQ access concessions. The NTMs on TRQ access should be a key focus for efforts to liberalise trade. Other NTMs affecting the general requirements for import approvals are also important but should perhaps have a lower priority.

Concerns are often raised about the compliance costs for regulations on import certifications, packaging and distribution requirements and labelling rules. In general these issues warrant some attention through the TBT Agreement. The removal of arbitrary labelling requirements and import approval procedures would improve the competitiveness of imports and increase trade opportunities.

Addressing these NTMs is important but some further work needs to be done to assess the potential size of the benefits. Some of the technical issues in TRQ administration appear to offer a higher immediate pay-off. There are also some NTMs that can impose significant costs on exporters on both TRQ and non-TRQ product. They could become more important trade impediments in the future. These include:

• product standards and composition
• hygiene standards and plant inspection requirements
• product traceability rules.
 


Site map Contact us Feedback Links Disclaimer Privacy Statement