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Japan farm subsidies distort trade: WTO report

Published Nov 09, 2002 12:00am

GENEVA, Nov 8: Japan’s extensive subsidies for its farmers and high tariffs on agricultural imports distort trade and push up food prices in that country’s shops, a World Trade Organisation (WTO) report said on Friday.

Reviewing overall Japanese foreign and domestic trade policies, the report also suggested that a reduction of government intervention in several areas of the economy could help pull it out of a decade of stagnation.

“The total value of assistance to agriculture exceeds the sector’s contribution to GDP (gross domestic product),” declared the report — compiled by WTO economists as part of a regular review to which all 145 members of the body are subjected.

“Most of the assistance seems to consist of measures that distort production and trade,” it said.

The report said that in 2001 gross farm receipts in Japan — including revenue from sales and from government support — were twice what they would have been if it had been generated purely by selling at world prices.

Much of the subsidies go to Japan’s politically powerful rice farmers, and their output is further protected by tariffs on foreign rice of up to 406 per cent, despite general global movements to liberalise agricultural markets.

The WTO report said the system effectively a tax on consumers.

Ordinary Japanese, it said, paid on average twice as much as they would have for farm produce if there were no market price support by the government.

During three days of discussion in the WTO on the report this week, the United States said the system — which included an average tariff on foreign agricultural goods of just over 20 per cent — insulated Japanese farmers from foreign competition.

In the current Doha Round of global trade liberalization negotiations at the WTO, Japan and the European Union are part of a group which argues that farm subsidies are in part essential to preserve rural life and the environment.

In its own comments on the report, Japan told the WTO it had “vigorously reformed price support measures” on several key products — including rice, wheat, soybeans, fruit, sugar and dairy items — “to allow prices to reflect the market signals.”

But the report said the current output of Japanese farmers amounted to 1.1 per cent of the country’s total economic output and government subsidies were equivalent to 1.4 per cent — although the country remained the world’s largest net importer of food.

The report said most non-agricultural goods entered Japan from outside duty free or at low tariff rates, with an average tariff of 6.9 per cent applied to imports from other WTO members.

Nearly 99 per cent of all tariffs were bound — or subject to a guaranteed ceiling — and most of those were actually applied at the bound rate “thereby imparting a high degree of predictability to Japan’s tariff schedule.”

But the situation was complicated by intricate systems of tariff quotas — under which certain quantities of some goods can enter at lower rates — and of import quotas — which establishes the amount of a product that can be bought from one country or supplier.

The report said Japan gave no preference to domestic firms in bidding for government contracts — a key attraction for foreign companies in the world’s second largest single economy.

The share of foreign suppliers in the market was up to 6.9 per cent in 2000 from 5.7 per cent in 1998, it said.

But in its comment on the report, the United States complained that there was still an unofficial system of “bid rigging”, especially for construction projects, which ensured the business went to Japanese enterprises.—Reuters