Problem

International trade barriers for primary commodities

Other Names:
Protectionism in the commodities sectors
Nature:
It is convenient to distinguish barriers to trade which protect domestic producers of primary commodities against foreign competition, and those which are imposed wholly or mainly for revenue purposes, and also those barriers protecting domestic industries which process primary commodities.

Protection of domestic primary production: Although the forms of protection in force in developed countries vary considerably, they all have one general objective in common: to provide domestic producers of primary commodities with a level of real income judged to be reasonable in relation to the corresponding levels in other sectors of the economy. In most developed market countries, this income objective is sought indirectly through the support of domestic prices at remunerative and stable levels. In some countries, in addition, direct subsidies to domestic producers are made in order to maintain or increase the incomes of primary producers. However, the concern of governments to limit the budgetary cost of such assistance has generally restricted the scope for direct subsidy payments.

In some developed countries, the main effect of such protectionist measures is often to increase land values and rents, rather than to increase wages for farm workers, who usually represent an important part of the population engaged in primary production. Thus, in practice, these policies may not succeed in achieving their stated objective of increasing real incomes in the primary sector. Moreover, the resulting higher domestic prices for food and other goods mean that protectionist policies bear heaviest on the level of living of the poorer sections of the community.

The markets for most of the major agricultural commodities produced in the developed countries, and for many of the minor ones, are subject to some form of official intervention, although the forms of such intervention vary widely. Broadly speaking, such market interventions can be classified into three categories, according to whether they act primarily to support producer prices, to reduce the costs of agricultural inputs, or to influence the volume of foreign trade.

A number of developed countries impose duties for revenue purposes on the import, or internal sale, of a range of agricultural products, principally coffee, cocoa, tea, sugar, oilseeds and tobacco, and of petroleum.

In addition to barriers to trade in certain primary commodities, arising either from protection of domestic production in developed countries or from the imposition of revenue duties, all developed countries impose tariffs or quantitative restrictions on the processed forms of these commodities. For many commodities, restrictions on imports of the processed forms are combined with duty-free entry for crude materials, thus providing the domestic processing industries of the developed countries with a substantial degree of protection against imports, including imports from developing countries. Moreover, the degree of protection generally increases with the stage of fabrication, from semi-processed to further-processed commodities, and from these to fully manufactured goods.

Modification of the present tariff structures of countries with a developed market economy, designed to reduce the escalation in tariff rates on processed commodities, together with the removal of quantitative restrictions, would substantially widen the potential market for processing industries of developing countries. This would help to diversify the pattern of exports from developing countries and enable them to gain the benefit of the value added at the processing stages. It would, at the same time, allow the developed countries to use their resources more profitably in the production of the more advanced and sophisticated types of manufactured goods in which they have a substantial comparative advantage.

Problem Type:
D: Detailed problems
Subject(s):
TradeConditions of tradeCommoditiesImpediments
Date of last update
01.01.2000 – 00:00 CET