Bagnara, Gian Luca

Folwell, Raymond J.

Worley, C. Thomas

English

Research Papers in Economics

Tariffication Under the Uruguay Round of GATT: The Case
of Swiss  Asparagus Trade
Thomas Worley,  Raymond  Folwell  and Gian Luca Bagnara
Switzerland  has  been a  growing  export  mar-  Table 1. Quantity of Swiss Imports of Fresh
ket  for  U.S.  fresh  green  asparagus  during  recent  Green Asparagus, 1989-1995.
years.  Swiss  consumers  display  a  preference  for  Total  USA  USA
large diameter  spears of fresh asparagus.  The Swiss  --- 000 kg ---  %
are willing to pay a premium price for large diame-  1989  1633  1317  81
ter  product  which  U.S.  exporters  have  difficulty  1990  2149  1911  89
selling  in most  other export  markets.  Japan  is  the  1991  2890  2545  88
number one export market for fresh U.S. asparagus  1992  2958  2682  91
accounting  for about 75 percent of total  exports  in  1993  3477  3236  93
recent  years.  However,  Japanese  consumers  de-  1994  3641  3463  95
mand  small  diameter  asparagus  spears.  Therefore  1995  3852  3416  89
the  Swiss market  is  important  as  an  outlet  for the  Source:  Ammann and Phan-huy.
large diameter spears that must be sorted out of the
asparagus  destined  for Japan.  Switzerland  is  the  of 1953.  The  goal of this policy  is to  keep  Swiss
third  most  important  export  market  for  U.S.  as-  farmers on the land  so that they  can  conserve the
paragus  following  Japan  and  second  ranked  Can-  natural  qualities  of  the  land  and  water.  Income
ada. The  share of total U.S.  exports to Switzerland  guarantees  are  used  to  accomplish  this  purpose
have  averaged  about  10  percent  during the  1991-  which  includes a  system  of guiding  prices  set for
1994 period.  each  commodity  covered  by the  GFO.  These  do-
Swiss  asparagus  production  is  relatively  mi-  mestic  prices  are  generally  higher  than  import
nor in  comparison  to imports,  reaching  only 200  market prices. Import controls  are used to prevent
metric tons, or 2.5  percent of domestic consump-  foreign  competition  from  undercutting  the higher
tion,  in  1992.  The  U.S.  has  supplied  between  80  domestic prices. Asparagus was added to the list of
and 95 percent of all imports into Switzerland since  commodities covered  by the GFO in  1985. Prior to
1989  (Table  1).  Exports  to  Switzerland  from  the  this asparagus was not produced in Switzerland due
U.S. have increased 2.6 fold since  1989, an average  to the  lack of adapted  varieties.  Swiss  producers
annual growth rate of 17 percent. France and Spain  have  relied on quantitative  restrictions  on imports
are the other main suppliers of Swiss imports.  The  during their harvest  season to control  competition
peak sales season in Switzerland coincides with the  from imports.
end of the California season  and  beginning  of the  Prior  to conclusion of the Uruguay round  of
Washington  State asparagus  season. Washington's  GATT negotiations  the  Swiss  import control  sys-
harvest  season  generally  runs  from  mid-April  tem  for  asparagus  was  divided  into three  phases.
through mid-June.  Phase I covered those periods when there was little
or no domestic  supply. Importers were required to
Swiss Agricultural Policy  obtain  a "general  import license"  which  provided
governmental  means to collect data on import vol-
Agriculture producers in  Switzerland are sup-  umes.  There  were  no quantitative  restrictions  as-
ported by the  General  Farming  Ordinance  (GFO)  sociated with licenses granted under phase I of the
program.  This phase was  important,  however,  be-
Thomas  Worley  and  Raymond  Folwell  are  from  the  cause  licenses  granted  under phase  II  were  based
Department  of Agricultural  Economics,  Washington  State  on volumes  imported  during phase  I.  A  very  low University; and Gian Luca Bagnara is with the Horticultural
Research Institute, Forli Branch,  Italy.46  February 1996  Journal  of Food  Distribution  Research
tariff of 7 SFR  per  100 kg  was  also levied  during  Under the Uruguay Round rules on agriculture
phase I.  a price  gap calculation  is  made  in order  to convert
Phase II was initiated  when domestic  supplies  non-tariff barriers  to tariff equivalents.  This calcu-
of asparagus became available and Swiss producers  lation  reflects  the  difference  between  the  average
needed to market their production.  During phase II  CIF import price over the 1986-88  reference period
an  informal  "consultative"  group  made  up  of im-  and the average  domestic  wholesale  price. The  re-
porters,  retailers,  government  officials,  and  pro-  suiting tariff equivalent  (TE)  is  assumed  to  reflect
ducers decided the level of weekly quotas on  fresh  all trade-distorting  policies  in place during the ref-
asparagus imports. Recipients of the licenses under  erence  period.  The  green  asparagus  calculation
the import quota were then obligated to purchase a  used  by  the  Swiss  was  based  on  high  internal
percentage  of their  overall  quantity  supplied  from  (1,261  SFR  per  100  kilos)  and  low  external  (397
Swiss  producers  at  the  government  established  SFR per 100 kilos) reference prices. The difference
guiding price.  This guiding  price  was  as  much  as  between  these prices resulted  in  a tariff-equivalent
double the CIF price for imported asparagus during  of 864  SFR per  100  kilos, which  is to  be reduced
1994 (Ammann and Phan-huy). Each importer was  by  at least  15%  over the  six-year  reform  period.
granted  a minimum  allocation  with permission  to  This  tariff is  applied to asparagus  imports  that are
import additional  quantities  based upon  quantities  over and  above the  quota during the  period  when
imported during phase I of the preceding two years.  phase II  of the  licensing system  was  normally  in-
For example, licenses granted  in the  1993 phase II  voked.  The  much  lower  tariff of  7  SFR  per  100
period  were  based  on imports  in phase  I of 1992  kilos is applied to imports that are within the quota.
and  1991  of green  asparagus.  The  import duty re-  Under  a  special  bilateral  agreement,  Switzer-
mained at 7 SFR per 100 kilos under phase II.  land  agreed to two additional  modifications of the
Although limited quantities  of imports contin-  post-Uruguay  round asparagus regime in exchange
ued  during  phase  II, the  much  lower  quality  do-  for concessions from the U.S. First, the year-round
mestic product on the market tended to falsely sig-  tariff of 7 SFR per  100 kilos was eliminated.  Sec-
nal the extremely quality-conscious  Swiss consum-  ond,  the  Swiss agreed  to limit the  period  that the
ers that the production  season  for  fresh  green  as-  tariff equivalent  may  be  invoked  on  U.S.  fresh
paragus  had  concluded.  This  quality  change  se-  green  asparagus to  May  I to June  15.  Previously,
verely dampened consumer demand.  the  Swiss  could  invoke phase  II  or phase  III  any
Under phase III of the system no imports were  time between April  1 and June 30 each year.
permitted.  This phase  was implemented  when  do-  According  to  Swiss  traders,  the  level  of pro-
mestic  production  was  adequate  to  meet  the  de-  tection  provided by the TE would prohibit  imports
mand.  This  was  never  the  case  in  Switzerland,  during the weeks  it is invoked. Currently, the aver-
therefore  a  complete  cutoff of imports  never  oc-  age import price is 5.60 SFR per kilo (CIF Zurich).
curred.  Adding the  8.64  SFR per kilo tariff equivalent to
the CIF price results in a wholesale  price of 14.24
Uruguay Round of GATT Negotiations  SFR per kilo  ($9.80  U.S.  dollars per  kilo).  Swiss
importers  believed  that  consumers  will  not  pay
The  U.S.  had  little  bargaining  leverage  con-  more than  11  SFR per kilo for fresh  green aspara-
cerning  changes to the  Swiss  import regime under  gus.
the  Uruguay  round  of GATT  negotiations.  The  During  the  negotiations  there  was  consider-
Swiss  import  licensing  system  was  protected  able disagreement  between  Swiss  and  U.S.  inter-
within the  agricultural  provisions  Switzerland  ini-  ests concerning  the effects  of the  TE on U.S.  ex-
tially  negotiated  to  became  a  member  of  the  ports.  The  following  theoretical  argument  is  put
GATT.  However,  under the  terms  of the  GATT  forth to show the effects of the high tariff on Swiss
Uruguay  Round  negotiations,  the  phase  II  Swiss  producers, consumers and U.S. exporters.
licensing  system was regarded  as a non-tariff bar-
rier to  be  tariffed  and  reduced  over  the  six-year
reform period.Worley, Folwell and  Bagnara  Tariffication Under the Uruguay Round of  GA 7.T  47
The  Optimum  Tariff for the  Swiss  Asparagus  If free  trade  existed  in  fresh  green  asparagus
Market  between  the  U.S.  and  Switzerland,  the  aggregate
supply  function  (SSs&wiss)  intersects  the  Swiss
It was  the  premise  of the  U.S.  asparagus  in-  demand function at point d and the market clearing
dustry that  the  maximum  tariff equivalent  calcu-  price would be Pf. If there were  no trade, the Swiss
lated on fresh green  asparagus  imported  into Swit-  market price would be P* where the Swiss demand
zerland  during the  Swiss  Domestic  season  would  function  (Ss)  and  supply  function  (Sp,  ) inter-
completely  prohibit  imports.  U.S.  interests  there-  sect. Thus, a prohibitive tariff that would not allow
fore  argued  that the  tariff should  be  set  at  level  trade would be P* - Pf.
much lower than  the maximum  allowed  under the  Given  the  two  extremes  of free  trade  vs.  no
Uruguay Round agreement. The following analysis  trade,  what  is  the  overall  economic  welfare  of
further  explains  this  argument.  The  analysis  is  Swiss  asparagus  producers  and  consumers?  Their
based  on  finding  the  optimum  tariff  level  that  welfare  can  theoretically  be measured  by the  con-
would  be  a  non-prohibitive  tariff from  the  Swiss  cepts of producer  and consumer  surplus.  In Figure
and U.S. producer points of view.  1, when  no trade  takes place,  the  Swiss  producer
surplus or rents are the area afP*,  and the consumer
Extreme  Price  Quantity  Relations  in  the  Ab-  surplus  is  P*fe.  Under  free  trade,  the  Swiss  pro-
sence  of Trade  ducer  surplus  is  abPf, which  is  less than  with  no
trade  by  the  area  Pf bfP*.  However,  Swiss  con-
Figure  I  contains  the theoretical  U.S.  supply  sumer surplus  increases  to Pf de with free  trade or
function  for  fresh  green  asparagus  in  the  U.S.  by the area P*fdPf. It should also be noted that with
( SssP ); the supply and  demand  functions for fresh  no trade, there is a net loss to the Swiss  society of
green asparagus in Switzerland (SA  ) and (Dss )  fdb.  In  summary  then,  free  trade  benefits  Swiss
and  the  aggregate  supply schedule  from  both  the  consumers  more  than  it disadvantages  Swiss  pro-
U.S. and Switzerland ( S  swi  )  ducers.
Figure 1. Equilibrium model of free trade and a trade prohibitive tariff.
United States  Switzerland
S~  ASf  S*"Price  A,
D  ASP48  February  1996  Journal  of Food Distribution  Research
The Optimum Non-prohibitive Tariff From the  The  resulting  prices  would  be  P0 in  Switzer-
Swiss Perspective:  land and  Po'  for the U.S.  imports. The  tariff would
then  be  Po  - Po'  and would  be  the  optimum  non-
The  optimum  tariff from  the  Swiss  point  of  prohibitive  level  from  Swiss  and  U.S.  producer
view  would  be  based  upon  the  aggregate  Swiss  standpoints.  The  Swiss  producer surplus would  be
supply  function  and the  marginal  costs or outlays  Poga which  is greater  than with  free  trade  but less
for imports  from the U.S.  (MO) and the Swiss  de-  than when  no trade  is allowed.  The consumer  sur-
mand function.  The  aggregate  Swiss  supply  func-  plus  is Poce  which  is  less than  with  free trade  but
tion and  the marginal  outlay for imports  from  the  greater than when  no trade is  allowed. Overall, the
U.S.  are  shown  as (SsP  + MO)  in  Figure 2.  All  aggregate  Swiss  welfare  is  increased  because  the
other supplies, demand and prices  are  the same  as  increase  in Swiss producer surplus  and Swiss  gov-
in Figure 1.  ernment revenue (from the tariff) more than offsets
the decrease in Swiss consumer surplus.
Figure 2.  Equilibrium model of a non-prohibitive tariff.
United States  Switzerland
MO  A  AS
Su.s.  Swim  oSP+  MO
Q  0  Q-  --  ASP O  S U.S.+*  Swi
.a  D  $w
ASP  ASP Q U..  0  S i~Worley, Folwell and  Bagnara  Tariffication Under the Uruguay Round of GA TT:  49
Summary and Conclusions  References
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applied  to the  fresh  green  asparagus  imports  that  September 1994.
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equivalent because many other factors including exchange rate fluctuations, size of crops in other exporting nations and conditions in the U.S. and its other export markets have influence on the level of U.S. exports to Switzerland.

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were over and above the weekly quotas established

TARIFFICATION UNDER THE URUGUAY ROUND OF GATT: THE CASE OF SWISS ASPARAGUS TRADE

TARIFFICATION UNDER THE URUGUAY ROUND OF GATT: THE CASE OF SWISS ASPARAGUS TRADE

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Research Papers in Economics