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Agriculture and the New Trade Agenda: Creating a Global Trading Environment for Development

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Overview

This collection of essays provides the definitive survey of the importance of agricultural reform to the future of the world's trading system. There is growing consensus concerning the need to reduce the level of subsidies in agriculture and to open up the markets of the developed world more to the farmers of the developing world. However, while non-governmental organizations such as Oxfam may agree on this point with free trade economists, governments in Europe and the U.S. seem reluctant to give up their protectionist habits.

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Product Details

  • ISBN-13: 9780521054492
  • Publisher: Cambridge University Press
  • Publication date: 2/28/2008
  • Pages: 536
  • Product dimensions: 6.10 (w) x 9.20 (h) x 1.10 (d)

Meet the Author

Merlinda D. Ingco is a Senior Economist at the World Bank. Specializing in empirical and policy analyses, her published books and journal articles cover areas such as non-tariff barriers, agricultural protection, agricultural trade and poverty, commodity markets, food security, and trade. She is the author of The World Food Outlook (with Donald Mitchell and Ronald Duncan), CUP, 1997.

L. Alan Winters is Professor of Economics at the University of Sussex. He is a Research Fellow of the Centre for Economic Policy Research, London and a Senior Visiting Fellow of the Centre for Economic Performance, at the London School of Economics. His published books and articles cover areas such as regional trading arrangements, non-tariff barriers, European Integration, East-West trade, global warming, agricultural protection, trade and poverty, and the world trading system. He is the author of a major study funded by the UK Department of International Development: Trade Liberalization and Poverty: A Handbook (with Neil McCulloch and Xavier Cirera) 2001.

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Cambridge University Press
0521826853 - Agriculture and the New Trade Agenda - Creating a Global Trading Environment for Development - Edited by Merlinda D. Ingco and L. Alan Winters
Excerpt



1 Introduction

Merlinda D. Ingco and L. Alan Winters


An open trading system has long been recognized as an important element of sound economic policy, and trade liberalization as a necessary step for achieving it. Whereas the multilateral process of trade liberalization under the General Agreement on Tariffs and Trade (GATT) has been successful in opening global trade in manufactures, expanding this process for other sectors, such as agriculture, has proved very difficult to achieve. Difficult questions arise owing to the complexity of the issues and the wide range of interests across countries. In the new round of global trade negotiations under the World Trade Organization (WTO), different perspectives on agriculture have produced a highly contentious agenda. This book analyzes the key issues, diverse interests, challenges, and options for agricultural trade liberalization in the new trade agenda of the WTO, and their implications for both developed and developing countries.

The book is based on the key findings emerging from a major program of research, policy analyses, and capacity-building on agriculture and the new trade agenda in the WTO. The chapters have been prepared by many of the leading specialists in the fields of agriculture and international trade. Major policy questions addressed in this book include: What are the interests and options in the new WTO trade negotiations in agriculture and the new trade agenda from a development perspective? What new WTO trade rules on agriculture and trade policy reform would provide the largest benefits? Who would be the winners and losers under different rules? What are the agricultural trade interests of developing countries? Would market-opening measures be enough to trigger other needed reforms? What aims should developing countries pursue in tariff negotiations? Is there a danger that agricultural liberalization will create a new example of managed trade, like trade in textiles and clothing? How would farm and food trade be affected if both agricultural and non-agricultural trade barriers were slashed? Does patent protection for agricultural products hurt developing countries? These questions are explored from the viewpoint of developed as well as developing and transition economies.

Part I of the book explores the lessons and experience from the actual implementation of the Uruguay Round Agreements on Agriculture (URAA). The research evaluates the experience from actual implementation of selected WTO agreements based on the actual implementation of commitments during 1995-2000, in contrast to previous research based on the negotiated outcome of the Uruguay Round in 1994 (Martin and Winters, 1996). Part I thus sets the stage for the rest the book. Part II explores the diverse interests, options, and objectives in the new trade round. Part III is devoted to the identification and analyses of alternative disciplines and quantitative assessments of future liberalization options. It provides quantitative assessments, not as forecasts, but as analytical views of the options to identify where the biggest gains may occur. Part IV analyzes the new trade agenda and second-generation issues as they affect the agriculture sectors of both developed and developing countries.

The purpose of this book

A mercantilist concern only to expand exports and to screen out imports, although prevalent in most public and press discussion of international trade negotiations, reflects too narrow a conception of the gains from trade to permit progress in agricultural trade liberalization. This book is written from the broader perspective that would lead individual countries to take unilateral decisions to liberalize agricultural trade and adopt an enabling domestic policy and institutional environment to promote a competitive agricultural sector. Each chapter of the book is based on the fundamental premise that good economics suggests that an open international trading system is preferable to a closed one, that virtually every nation will benefit from an open international trading system, and that the multilateral approach serves best in maintaining such systems. Good economics are the same for both industrial countries and developing countries, and moving towards a unified trading system requires replacing bad economics with good, not replacing developing country economics with developed, or vice versa. For agriculture, in particular, it is argued that developing countries cannot afford to adopt the costly domestic protection policies used in most industrial countries.

We apply this insight to an examination of the economics underlying the new rules and options on trade and domestic policies that aim to bring agricultural trade more fully under the GATT/WTO disciplines. Getting the underlying economics right will help national governments and private economic interests regain confidence in the relevance of the GATT/WTO by leveraging agricultural trade to achieve national development objectives, including food security. It will also help establish with governments and the public the benefits of an open international trading system in agriculture, and in rekindling the international resolve to extend and defend the global trading system.

During the Uruguay Round the developing countries were, by and large, on the margin of the negotiations, even though analysis showed that the Round would have a relatively greater impact on developing countries than on developed countries. Given the overall importance of agriculture, and the rural economy more generally, in developing countries, developing countries need not only to understand the implications of changes in the global agricultural trading regime, but also actively to participate in them to ensure that their interests are addressed and that the system is more transparent and beneficial to a broader range of participants. Moreover, trade issues are also becoming significantly more complex. As tariffs fall, the trade agenda becomes more heavily weighed towards non-tariff trade measures which are inherently more complex to understand, measure, and analyze. Given the limited resources of many developing countries, there is a clear role for global groups in evaluating their interests and options, and in developing strategies to capture the benefits from the negotiations.

A major theme of the book is that interests, options, objectives, and strategies differ according to countries' size, export orientation, indebtedness, prosperity, trade composition, trade links, and susceptibility to external shocks.1 For example, net food importers and net food exporters will have different interests on export subsidies. A number of countries benefit from these subsidies, either indirectly by lower world commodity prices, or directly through food aid programs, while others suffer from unfair competition in their export markets. Heterogeneity of interests is also evident in the aftermath of the 1997 Asian financial crisis: the agricultural interests of Thailand and Indonesia were clearly different from those of Korea, for which agricultural exports were not very important. In this latter context, a relevant question is whether agricultural policies have had counter-cyclical effects - for instance, through achieving a better export performance of the agricultural sector than the manufacturing sector, or via its ability to absorb surplus labor.

In commodities that do not compete with industrial country output (such as coffee, tea, etc.) taxes imposed by developing countries on their own agricultural exports have been more detrimental than the global trading regime itself. To be sure, in the very long term, economic development is likely to require a shift towards manufacturing and tertiary activities, since the long-run trend in agricultural commodity prices is downwards. However, in moving in this direction, developing countries must ensure that agricultural policies, be they domestic or international, do not discriminate against agriculture, since it is the surplus savings from agriculture that have traditionally funded the early stages of economic growth.

An important question, increasingly recognized but still unresolved, is how to give poor developing countries a bigger weight in the negotiating process. Beyond the problems associated with insufficient domestic analytical capabilities, most countries simply do not have the resources to be adequately represented in Geneva and in the other venues where the negotiations occur. Most of the developed countries attend negotiations with lawyers, economists, and diplomats, whereas many developing countries must rely on one or two (if any) diplomats in residence in Geneva, with many other tasks to undertake. Clearly groups of developing countries should develop common approaches to the negotiations. Two successful coalitions come to mind: the Cairns Group of agricultural exporters, which includes both developed and developing countries, and the Alliance of Small Island States (AOSIS) formed by the small island nations in an effort to influence the global warming discussions. Even if their overall impact has been limited, they have certainly been more successful in promoting their interests than their members would have been individually.

Why trade negotiations in agriculture matter

In the seven previous rounds of trade negotiations under the GATT, the agricultural sector largely escaped the multilateral rules and disciplines developed for trade in industrial products. As a result, there were significant distortions in world agricultural markets which, in some cases, degenerated into near-autarky. It must therefore be considered a major achievement of the last multilateral trade round - the Uruguay Round of 1986-94 - to have concluded the Agreement on Agriculture (URAA), which marked a start in bringing more rules-based GATT discipline to agricultural trade and trade-related policies. Path-breaking though that achievement was, however, much remains to be done before international agricultural trade is as fully disciplined or as liberal as trade in manufactures. Further improvements in the rules and in actual implementation are needed if the objectives of real liberalization are to be achieved. After seven years of implementation (1995-2001) of the URAA, import protection against major export products from developing countries remains prohibitively high in the industrial countries and many developing countries. Applied protection in some products has even increased, compared with applied rates before the agreement.

The current agricultural negotiations in the World Trade Organization (WTO) began at a time when protection for agriculture is around the highest ever estimated. World agricultural markets continue to be distorted by high levels of support provided in Europe, North America, and several developing countries. In 2001, total support to agriculture in the OECD countries amounted to US$ 311 billion - back to the levels of domestic support and protection applied before the Uruguay Round. The losers from these arrangements are widespread. Consumers in countries that provide market-distorting support are denied the benefits from competitively produced food and agricultural products, while taxpayers are forced to subsidize high-cost and often environmentally damaging production. Such market-insulating policies depress and destabilize world market prices, disadvantaging producers in economies that either cannot afford, or are unwilling to provide, protection. Efficient farmers are thwarted in their efforts to realize their economic potential because their access to foreign markets is restricted by extensive import barriers that are far higher, on average, for agricultural products than for manufactures.

Developing countries have much to gain from further progress in trade and domestic policy reform and in further opening of global markets for their exports. For a series of reasons, advancing this process during the present WTO negotiations will be important, in order both to realize the gains made possible by previous efforts and to make future progress easier. The benefits stem from the direct effects of successful negotiations on policy and the indirect effects via perceptions of the policy environment in both rich and poor countries. If agricultural policies and expectations about policy move significantly in the direction of economic rationality, adjustments will occur in both rich and poor nations, to the advantage of nearly all. And in the few cases where the direct effects are adverse, the general improvement in efficiency will allow ample resources for supportive complementary policies.

For many countries, agriculture is still an important sector for the economy. Developing countries provide over 50 percent of the world's value added in agriculture (World Development Indicators, on line). In most low- and middle-income developing countries in Sub-Saharan Africa (SSA), East Asia, and Pacific and South Asia, a large proportion (64 percent-70 percent) of the labor force remains dependent on agriculture. Although trade patterns will diversify with development, developing countries will wish to make even more use of agricultural markets, as both exporters and importers. Thus, the future world trading system for agriculture will be a major determinant of the growth and development of many developing countries, and a critical factor in the futures of many in the poorer parts of the world. Moreover, rural growth appears to spill over to the urban economy and thus to poverty alleviation there as well as in agricultural areas themselves. At present, however, world agricultural markets remain significantly distorted by a wide range of domestic policies and border protections which impede the export performance of developing countries and reduce the world market prices of certain commodities.

The depth and complexity of agricultural protection is a major discouragement to investment in food and agro-processing industry in developing countries. Escalating tariff structures in developed countries often render agro-processing activities directly unprofitable in developing ones, but even where they do not, the uncertainty and manipulability of existing regimes makes investment unattractive. A new round that reduced escalation and the uncertainty about the barriers that remained would do much to promote rural industry and development.

Agriculture is the key sector in poverty reduction. Most of the developing world poor are in the rural economy. Most of them draw the bulk of their income directly from agriculture, and those that do not mostly rely on it indirectly by providing goods and services to farmers. The poor necessarily spend a higher proportion of their incomes on food than do the non-poor and so suffer as consumers from inefficiency and their own countries' protectionism. While there are exceptions where traditional crops and risk-sharing are displaced by risky forms of commercial agriculture, increased agricultural exports, higher prices, and stronger income generation provide one of the most effective routes to food security. Moreover, by shifting production to the most efficient locations, freer agricultural trade with fewer subsidies is more likely to promote conservation of the environment, and hence of livelihoods, than the opposite.

The developing countries also have a lot to gain from a multilateral system based on strong rules, both to protect them against pressures from more powerful countries, and to help them improve their own trade and domestic policies. The importance of this system to developing countries has increased greatly as they themselves have become more integrated into the world economy. In recent trade negotiations, developing countries have gained deeper and more secure access to developed markets (through reductions in the restrictions on imports into these markets), in exchange for providing better access to their own expanding markets (through lower tariffs on imports from the developed countries). For many developing countries, food security objectives require access on an assured basis to world market supplies, as well as to agricultural raw materials for encouraging light manufacturing in rural areas. Thus, many developing countries have a stake in building an efficient food system and maintaining market stability. For all these reasons, developing countries will gain by participating fully in WTO agricultural discussions aimed at progressive trade liberalization.

The multilateral trading system can provide a framework to improve developing countries' own trade and domestic policy regimes affecting the rural sector. Agriculture still accounts for a significant share of gross domestic product (GDP) and is, as already noted, a major source of employment in many developing countries. Continuing reform of the global trading system will make it easier for these countries to adopt rural policies that eliminate policy distortions and allocate scarce resources more efficiently, and so provide significant gains in terms of both consumer welfare and incomes. In fact, previous World Bank research (Martin and Winters, 1996) suggested that the gains to developing countries from the Uruguay Round would be much larger, relative to their GDPs, than the gains made by developed countries. And two-thirds of the estimated welfare gains to developing countries resulted from their own trade policy liberalization.

To raise welfare, farmers and households must respond to the new conditions created by a policy reform. The supply response to trade and agricultural policy reform depends heavily upon the credibility of reforms. In fact, establishing the credibility of policy measures is at least as important as choosing the efficient policy solution, for experience in many countries shows that the private sector will not invest if the persistence of reforms is in doubt. Unfortunately, in the past reform programs have frequently been reversed or halted and government policy has frequently been unpredictable. Thus, credibility can be greatly enhanced by a framework of multilateral rules, equipped with instruments that prevent backsliding, through which member governments can lock-in domestic policy reforms. The WTO is the pre-eminent example of such a framework.

Estimates of the potential economic welfare benefits of global agricultural trade reform suggests an increase in the aggregate welfare of the developing world of around US$ 142 billion annually (World Bank, 2001). Most of these gains will come from trade policy reforms within the developing countries themselves - about US$ 114 billion, which is around half of all that developing countries can expect from their own goods market trade liberalizations. But liberalization in OECD countries will deliver about another US$ 31 billion - around a third of what all OECD goods liberalization will generate and more than 50 percent of the official development assistance given to developing countries in 2001. When more dynamic effects of liberalization are considered, including productivity gains, the benefits are potentially much larger.

Perspectives on the agricultural trade negotiations

The present agricultural negotiations in the WTO started in March 2000, in accordance with the provisions of article 20 of the URAA (see the appendix to this chapter, p. 14). This article provides that, one year before the end of the implementation period for the Uruguay Round commitments for developed countries, negotiations should start on continuing the reform process to achieve the long-term objective of substantial progressive reductions in agricultural support and protection. The negotiations were formally launched in March 2000, with the work carried forward in the WTO's Standing Committee on Agriculture, meeting in special session. During the first phase of the negotiations, which lasted until March 2001, the special sessions received and reviewed more than forty initial proposals put forward by 121 member countries. In a second phase, up to February 2002, these and a smaller number of further proposals were examined in greater depth, in order to assess their implications and political support. However, before this phase had been completed, the context of the agricultural negotiations was greatly altered, and their prospects improved, by the outcome of the fourth Ministerial Conference of the WTO, held in Doha, Qatar in November 2001.

As a result of the Doha Declaration, adopted by WTO member governments at the end of the Ministerial conference, the agriculture negotiations are now taking place in the context of a wider round of multilateral trade negotiations that extends to further trade liberalization for industrial products and services and a wide range of other trade-related issues. The Declaration defines the round as a single undertaking, with a number of important deadlines and a concluding date of "not later than 1 January 2005." It also makes the negotiations as a whole subject to general provisions that stress development aims. For agriculture, the Declaration confirms the commitment of members to the reform program and adds, to a small extent, to what is said in article 20 of the URAA (see the annex to this chapter). In particular, a crucial sentence commits members (though "without prejudging the outcome of the negotiations") to comprehensive negotiations aimed at "substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support." The new round of negotiations has been placed under the overall supervision of a Trade Negotiations Committee (TNC), established under the authority of the WTO's governing General Council.

The agricultural negotiations have proved highly contentious, with several missed deadlines before the Ministerial Meeting in Cancún, and the prospects for a successful outcome are difficult to predict. The change in their context, as a result of the Doha decisions, will almost certainly be helpful, for several reasons:

  • Inclusion in a wider round offers the possibility that countries asked to make painful concessions may obtain compensatory gains in areas outside agriculture

  • Goals are now stated somewhat more precisely than in the very general terms of article 20

  • The introduction of target dates should keep the negotiations moving along

  • The increased political attention given to a broader negotiating round should help to raise the cost of failure.

Nevertheless, the fact must be acknowledged that the changing political context and new developments since the Uruguay Round, combined with the different perspectives and new dimensions on trade reform, have produced a highly contentious agenda. The environment in which the negotiations are taking place is also very different from when the Uruguay Round was launched.

Historically, developing countries have played a passive or reactive role in multilateral trade negotiations. Rich countries - mainly the United States and the European Union (EU) - set the agenda, agreed on the terms, and the other smaller and developing countries went along. As shown during the unsuccessful WTO Ministerial meeting in Seattle in 1999, and in the successful meeting in Doha in 2001, that is no longer the way the system works: developing countries, now constituting the majority of WTO members, have changed the dynamics of trade negotiations.

Proposals submitted before the Seattle meeting, and since March 2000 in the context of the agriculture negotiations, reflect the differences in approach, policies, and attitudes of the member countries. They include differences in specific objectives for trade in agricultural products, as well as more general issues about the scope and nature of the reform process. While proposals and statements preach liberalization, the reality of policies, in both the industrial and the developing countries, suggests a revival of protectionist influences. The Asian crisis heightened concerns about the adverse impacts of globalization and integration on fragile economies with pervasive poverty. Many developing countries have expressed concerns about whether key areas of the Uruguay Round have been implemented with the intent and the expectations that they had in 1994. The least-developed countries (LDCs), which are still only marginally integrated into the multilateral trading system, have produced proposals clouded with uncertainty and ambiguity as they balance an intellectual climate of liberalization with political pressures for the opposite. Indeed, many governments, responding to domestic pressures, are rethinking their policies and slowing their processes of liberalization. The failure in Seattle showed that neither industrial nor developing countries were politically ready at that time to launch a broader round of negotiations, and while Doha has reversed that, it showed that agriculture remains highly controversial, with widely differing concerns and objectives among both developed and developing countries.

The proposals tabled in the agricultural negotiations show at least two different perspectives:

  • One vision reflects the ultimate goal of fully integrating agriculture into the structure of GATT/WTO disciplines that already applies to manufactured goods. This proposal by the Cairns Group of agricultural exporters, comprising both developed and developing countries, wants world agricultural trade to be subject to multilateral rules and disciplines that eliminate restrictions and distortions. This proposal is ostensibly supported by the United States - although the Farm Bill of 2002 suggests substantial reservations - but strongly opposed by the EU and some other WTO members including Japan, Switzerland, the Republic of Korea, and Norway. Some developing countries, such as the net-food importers, also oppose it because they are uncertain about its impact on food prices.

  • The alternative vision is one of continued, but marginally more efficient, management of agricultural trade. It promotes the concept of the "multifunctionality" of agriculture, most vigorously by the EU, to oppose moves towards liberalization and total integration.

These developments are taking place against the backdrop of increasing globalization of the world economy - the linking together of countries at different levels of development by technology, information, and knowledge. Globalization of the food and agricultural trading system has brought a new set of issues beyond the so-called "built-in agenda" bequeathed to the WTO by the URAA, and to some extent even beyond the agenda explicitly set out in the Doha Declaration. These new issues include intellectual property associated with food products, food safety, harmonization of standards, and competition policy. At the same time, globalization has engaged a new set of interest groups - the non-governmental organizations (NGOs) - among which many see trade liberalization as inimical to their social and environmental objectives.

Lessons from the Uruguay Round

This is not the place for a detailed examination of the lessons learned from the experience of the seven-year-long Uruguay Round negotiations and their aftermath. However, some broad conclusions, most of which would be widely supported, can be stated briefly as a background to the new WTO round and to the objectives of this book:

  • Negotiations on rules are more complex than market access talks and the gains are less "automatic"

  • Effective participation was a challenge for many developing countries and remains in doubt this time around

  • Technical and financial assistance for developing countries was insufficient and not always properly targeted: commitments were not binding, so that assistance was often not forthcoming

  • A number of agreements emerged that may not be beneficial to some countries, especially least-developed ones

  • Implementation issues remain on several Uruguay Round agreements, including the URAA, not least because timetables were unrealistic

  • Lax drafting and political compromise mean that significant policy distortions remain

  • In the absence of clear monitoring procedures, there are serious information problems about the extent of applied agricultural protection. Information often does not exist, and even when it does, it is opaque.


An overview of the proposals

An overview of the forty-five formal proposals submitted on behalf of a total of 121 countries during Phase 1 of the work of the special sessions of the Committee on Agriculture - that is, during the period March 2000-March 2001, when WTO members were setting out the goals which they sought to achieve in the agricultural negotiations - shows comprehensive coverage of issues covered by the URAA.2 More than half the proposals were made by developing countries, with several further proposals supported by groups of both developing and developed countries. A review of the proposals shows substantial divergences in interests among members, but also some common themes.



© Cambridge University Press
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Table of Contents

List of figures, tables, and boxes
List of contributors
Preface
List of abbreviations
1 Introduction 1
2 Agriculture and the trade neotiations: a synopsis 16
3 The Uruguay Round Agreement on Agriculture in practice: how open are the OECD markets? 37
4 How developing countries are implementing tariff-rate quotas 74
5 A review of the operation of the Agreement on Sanitary and Phytosanitary Measures 101
6 Agriculture, developing countries, and the Doha Development Agenda 113
7 Where the interests of developing countries converge and diverge 136
8 Market access, export subsidies, and domestic support developing new rules 151
9 Options for enhancing market access in a new round 176
10 Liberalizing tariff-rate quotas: quantifying the effects of enhancing market access 194
11 The global and regional effects of liberalizing agriculture and other trade in the new round 221
12 Modeling the effects on agriculture of protection in developing countries 245
13 Liberalizing sugar: the taste test of the WTO 290
14 Bananas: a policy overripe for change 311
15 Sanitary and phytosanitary barriers to agricultural trade: progress, prospects, and implications for developing countries 329
16 How developing countries view the impact of sanitary and phytosanitary measures on agricultural exports 359
17 State trading in agricultural trade: options and prospects for new rules 376
18 Environmental considerations in agricultural negotiations in the new WTO round 386
19 Intellectual property rights and agriculture 401
20 Genetically modified foods, trade, and developing countries 429
21 Multifunctionality and optimal environmental policies for agriculture in an open economy 458
Author index 484
Subjet index 488
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