Agricultural and Food Policy, International Relations/Trade,

Richardson, Tom

English

Research Papers in Economics

DISCUSSION
COMMODITY  POLICY COMPATIBILITY
WITH FREE TRADE AGREEMENTS
Tom Richardson
One of  the key points in Dan Sumner's paper is that there is limited negotiating capital
in  any  trade  round,  so  the question  is where  should  resources  be  focussed?  Sumner's
analysis, for the most part,  leads to the conclusion that a lot of internal  programs, one way
or another, will be modified or  will self-destruct,  and will be redesigned into something that
is more benign.  That is an important conclusion.  But if that's  going to happen,  one might
ask why focus on it?
The paper seems to be saying that nullification and impairment  should be able to take
care  of things.  In  fact,  if some of the kinds of disciplines  that exist in  the World Trade
Organization (WTO) text were there, maybe it would be better if they weren't because maybe
the nullification would work better when it was needed. Your conclusion  in relation to this
framework  was to  go  after the  border and  go  after exports.  I agree  with that general
conclusion, particularly  in relation to limited negotiating capital.
Like Antonio Yunez-Naude,  I want  to  address  a  specific  situation  that  applies  in
Canada.  My first question is on the nullification and  impairment issue.  I don't personally
know a lot about GATT history on the use of that paragraph and how powerful it might be.
It may be worthwhile to see how that section would work with some of  the existing, domestic
disciplines  that are  in the WTO  like Annex II, paragraph  6, paragraph  7, paragraph  8, in
combination with nullification.  Is that a better combination than having nothing?
Or, what if you got rid of Annex II and you didn't worry about the colour of money
and what everybody did.  Would that work better?  Perhaps one should analyse the options
because there are paragraphs that allow certain things, some that are more benign than others,
some of that may cause problems.  Paragraph 7 in certain situations might be  quite powerful,
but you might  argue should not be there. Perhaps  that should be investigated  in terms of
whether  or not  that would work  with or  without  some kind  of disciplines  on  domestic
support.
In terms of the Canadian experience, two examples  come to mind, including one that
was mentioned  in discussion earlier in the workshop-- adjustment of the Crow subsidy.  The7Q  Proceedings
other program  that was  eliminated  in Canada at the  same time was actually  a very small
program  of "feed  freight"  assistance.  This  latter  program  was  a  subsidy  to  livestock
producers in feed deficit areas  in Canada.  When the federal government decided to eliminate
that program for budgetary reasons, they agreed  to compensate producers  but  the question
was, what kind of compensation is appropriate?
The dairy and poultry producers that benefited  from that program didn't really care
about the form of compensation because, since they did not export,  it didn't affect them.  The
hog producers and cattle producers  cared a lot!  They pushed very hard for a compensation
package that was basically green and which was  similar to  the Crow payout.  So with both
of these subsidies,  we ended up with a compensation package that basically meets the intent
of paragraph  6.  In the hog industry,  one-third  of the exports go to the United States and
there has been  an  ongoing countervail action  going on  with the United  States for  a long
period of time.  Any payment that our hog industry receives will likely be examined  in terms
of the  protection or advantage  it provides Canadian hog producers.  That is Sumner's point.
If the  compensation  that  hog  producers  receive  gets  reflected  back  into  some  kind  of
distortion in production, then does the U.S.  hog industry have a chance to get at Canadian
exports, or not?  This is an obvious area for some empirical work to be done. From a political
perspective,  my sense is that giving some flexibility  or some room  for payments to be made
for  domestic  adjustments  where  you  know  that  those  payments  will  not  or  cannot  be
countervailed,  is a really  important political issue  in a country like Canada.
It's tough enough for the politicians to cut subsidies, but to also tell  farmers  that there
will be no compensation because  compensation may be  countervailed if you're in an export
position is a very difficult position for politicians.
There is value to having some room to manoeuvre in terms of domestic programming,
and a balance must be struck between domestic  and trade responsibilities.  The experience
that Canada  has  had  so  far  is that  the  paragraphs  in Annex  II  do  give  enough  room  to
manoeuvre.  From a  U.S. perspective  perhaps there  is a perception  of too  much room to
manoeuvre.
There  is some  interesting work  that could  be  done here to  try to  take the  Sumner
thesis to the next step, to try to look at these disciplines  and determine  practically  whether
protection can be accommodated  along with a reasonable adjustment process.
70 Proceedings

DISCUSSION: COMMODITY POLICY COMPATIBILITY WITH FREE TRADE AGREEMENTS

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