Liberating trade

July 31, 2012

Free Market Foundation

(Imagine the harm that tariffs between SAs provinces would cause)

The United States and many other countries including all major developed countries and most developing countries would benefit economically from reductions in agricultural tariffs and subsidies worldwide, says the U.S. Congressional Budget Office (CBO).

Consider:

If all policies worldwide that distort agricultural trade were phased out in this decade, the likely total annual economic benefit to the world by 2015 would be roughly $50 billion to $185 billion.

Those estimates account for only the efficiency gains and increased investment resulting from liberalisation.

In studies that also incorporate effects on productivity growth rates, the benefits are 50 per cent to more than 100 per cent larger.

The U.S. agricultural industry, given its comparably modest tariff and export subsidy rates and somewhat higher domestic subsidies, stands to benefit more from liberalisation in terms of increased exports than it has to lose in terms of increased imports.

However, for both the United States and other countries, even relatively modest exceptions and special preferences could substantially reduce the benefits that would otherwise be realised, says the CBO:

Allowing developed countries to designate as few as 2 per cent of their tariff lines for protecting sensitive products and developing countries to designate an additional 2 per cent, could eliminate 80 per cent of the economic gain.

Also, allowing special and differential treatment to developing countries whereby their required cuts in tariffs and subsidies are smaller than developed countries could reduce the estimated benefits of liberalisation by 64 per cent.

Source: Agricultural Trade Liberalization, Congressional Budget Office, November 20, 2006.

For text: http://www.cbo.gov/ftpdoc.cfm?index=7690&type=1

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

FMF Policy Bulletin/ 05 December 2006