TESTING INTERNATIONAL PRICE TRANSMISSION UNDER ...

International Soft Wheat Markets Under Policy Intervention
1995, and the following implementation of the URAA, the first multilateral
agreement explicitly referred to agriculture.
The URAA regulates both domestic support and export subsidies. For the first,
the EU always kept a safe margin with respect to the maximum ceilings allowed
for distorsive support; for the latter, the limits established for wheat were never
binding for the EU (Anania 2007b).
As far as market access is concerned, the URAA abolished the possibility of
keeping threshold prices and variable levies; with the “tariffication”, all border
measures were converted into import duties to be lowered in the following six
years 45 . The EU has then consolidated the duties for cereals under the General
Agreement on Tariffs and Trade (GATT) agreement.
However, some modifications were introduced in the so-called Blair House
Agreement between the EU and the US. Due to the high levels of protections in
the reference period chosen for the tariffication (the years 1986-1988), with regard
to the main cereals, the tariff equivalents notified at the WTO were so high that a
system for restricting duties was deemed necessary for the EU, in order to put a
ceiling on the import entry price. The import entry price was then capped at 155%
of the intervention price, if the sum of the duties would make it go above this
threshold. The entry price turned out to be almost always capped, thus eliminating
any real difference between the old variable levy system and the new one (see
table 4.1)
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Table 4.1 Elements for calculating the duty on cereals
Import duty = 155% intervention price – cif reference price
cif reference price = average US quotation for the reference variety during the receding two weeks
+ Gulf premium or Great Lakes premium*
+ Gulf Rotterdam or Great Lakes-Rotterdam freight premium*
Intervention price = price in force including monthly increases at the time the duty is applied.
There are five different wheat categories for which import duties are established. For all of these categories a
US price is used to calculate the reference price. The duties are set every two weeks.
*The first freight premium corresponds to the cost of freight across the United States to the Gulf (“Gulf
premium”) if the commodity is quoted in Chicago or Kansas City, or to the Great Lakes (“Great Lakes”
premium) if the commodity is quoted in Minneapolis. The second freight premium corresponds to freight
from the United States (Gulf or Great Lakes) to the port of Rotterdam in the Netherlands. The day’s exchange
rate is used for conversion.
Source: Gallezot 2007, p.16
45 The reduction agreed was 36%, with a minimum reduction of 15% for each “8 digit” product of the
Harmonized System codification; for agriculture, customs duties are for the most part specific duties, i.e.,
expressed in euro/t.