Cost of protectionism

Press, 22 April 1986, Page 20

Cost of protectionism

Finance Ministers from the 24 countries in the Organisation for Economic Co-operation and Development have agreed that agriculture must be a part of the new trade round to be conducted under the General Agreement on Tariffs and Trade. They have also agreed to a study of the cost of agricultural protectionism and have decided that steps should be taken against protectionism. Various studies have been undertaken before by the 0.E.C.D., including one in which the Principal of Lincoln College, Professor Bruce Ross, headed the trade analysis group of the O.E.C.D. A full-scale study undertaken at the request of the Finance Ministers will be a valuable contribution to thinking about the place of agriculture in world trade. It is a subject of vital importance, to New Zealand. If the effects of the European Economic Community’s Common Agricultural Policy alone are considered, the annual cost to New Zealand has been estimated by a number of Lincoln College economists to amount to more than $1 billion. This comes about through a loss of markets within the E.E.C.; through a loss of third markets because the surplus produce from the E.E.C. is sold at reduced prices to others; and from the depressed world prices which come about because of the surplus production. The examination undertaken at the request of the Finance Ministers of the O.E.C.D. will not be directly concerned with the financial impact that the various agricultural protectionist policies have on countries such as New Zealand. It will deal with such subjects as the diversion of capital into agricultural subsidies and with the general impact on world trade of agricultural protectionism. There will be great advantage in having research done at the request of the Finance Ministers; it will no doubt include the type of research done by Professor Ross and his colleagues.

Because the Finance Ministers have agreed to the study and that steps should be taken over agricultural trade, this does not mean that anything will be done to correct the unfairnesses that prevail. In the E.E.C. the Council of Finance Ministers can say one thing and the Council of Agriculture Ministers have the final say. Nevertheless, the Finance Ministers have some weight. Deciding what amounts to subsidisation will cause some argument. Much of Europe’s agriculture is not subsidised directly; but, because imports have been stopped or greatly reduced, and because a largely internal market has been created, the higher costs of production have been passed to the consumer. How much that amounts to a subsidy in its effect is a matter for debate. There is no disputing that the policy that leads to this is agricultural protectionism. Perhaps the most significant aspect of the Finance Ministers’ meeting is that the Ministers want agriculture included in the new G.A.T.T. round. The United States is absolutely determined to have agriculture included. The voice of the O.E.C.D. Finance Ministers adds to the voices of others that agriculture should be included. The fight for New Zealand will be to make sure that the agricultural products of most importance to New Zealand — which are not the agricultural products of the biggest agricultural traders — are not overlooked. Some caution needs to be exercised. The sad fact for New Zealand is that, even if all trade barriers against agricultural products were removed, many parts of the world now produce sufficient food for their own needs. Nevertheless, keeping attention concentrated on trade in agricultural products is crucial to New Zealand’s future. The Associate Minister of Finance, Mr Prebble, who attended the O.E.C.D. Finance Ministers’ meeting, is right to be pleased about the outcome of the meeting.