TARIFF ESCALATION IN AGRICULTURAL COMMODITY MARKETS

Nasredin Elamin and Hansdeep Khaira^[76]

Tariff escalation biases protection in both developed and developing countries against agricultural and labour-intensive products. This holds back export-led growth and greater diversification in developing countries. The findings of the study suggest that tariff escalation prevails in a large number of agricultural commodity chains in both developed and developing countries. It is more pronounced in commodity sectors such as meat, sugar, fruit, coffee, cocoa, and hides and skins most of which are of export interest to many of the poor developing countries. On average, tariff escalation is lower in the case of applied than bound tariffs, particularly when tariff preferences are taken into account.

Reducing tariff escalation is considered a critical element of the development dimension of the current round of multilateral trade negotiations, as it is seen to add considerably to the export potential of commodity-exporting developing countries. Comparing the impact of three tariff reduction methods - linear, Swiss formula (25 percent), and the Harbinson proposal formula- on tariff escalation, the Harbinson formula appears to produce the lowest tariff wedges, but it will erode much of the preferential tariff margins for developing countries. Several issues of escalating tariff structure must be addressed when evaluating tariff reduction proposals in the context of the WTO negotiations on agriculture: i) measurement of tariff escalation; ii) the actual bias tariff escalation poses for processed commodity trade; and iii) their interaction with tariff preferences for developing countries.