. .. Edited by Merlinda D. Ingco ~ohn D. Nash Dominique Njinkeu . - .. I I Liberalizing ~gricultural Trade: Issues and Options for Sub-Saharan Africa intheWTO • Edited by Merlinda D. Ingco JohnD. Na,sh DominiqueNjinkeu ·M~ Macmillan . Nigeria © The World Banic, 2003 All rights reserved .. No part of this publication may be reproduced, stored in a retrieval system or transmitied in any fa.rm or by any means, electronics, mechanical, photocopying, recording or otherwise, without ·t4e prior pennission of the publisher · . · ' First published, 2003 Published by Macmillan Nigeria Publish.ers Limited Ilupeju Industrial Estate, P.O. Box 264, Yaba, Lagos New Oluyole Industrial Estate, P.O. Box 1463, Ibadan Companies and representatives throughout the world ISBN 978-018-353-1 Printed by Potygraphics Ventures_ Limited, Ibadan Contents List of Tables ...................................................................................... iv List of Figures ..................................... ,............................................... ix List of Abbreviations ............................ :............. ;................................. x List of Contributors .......................................................................... xiii Author Biographies .................. .'........•............ :.................................. xiv Acknowledgements ............................................ ,.............................. xvii 1. Introduction Merlinda D. lngco, JohnD. Nash andDominique Njinkeu 2. Liberalizing Agricultural Trade: Issues and Options 9 for Sub-Saharan Africa in the WTO Merlinda D. lngco, Tonia Kandiero, John D. Nash, and Dominique Njinkeu 3. Agriculture and the New Trade Agenda in the WTO: 35 Interests, and Options for Cameroon Ernest Bamou, Dominique Njinkeu, and Emmanuel Douya 4. Kenya's Agricultural Trade Reform in the Framework 97 of the World Trade Organization Hezron Omare Nyangito 5. Agriculture and the WTO: Economic Interests and 137 Options for Nigeria E. Olawale Ogunkola 6. Agriculture and the New Trade Agenda in the WTO: 183 Interests and Options for Tanzania Flora Mndeme Musonda 7. Agriculture and the New Trade Agenda in the WTO 229 2000 Negotiations: Economic Analyses oflnterests and Options for Ghana Abena D. Oduro Index 264 iii List of Tables 2.1 A Selected Number of Tariff Peak Products from Sub- 12 Saharan Africa (per cent) 2.2 Tariff Escalation of Agricultural Products in QUAD (per cent) 13 2.3 Average Tariffs by Region and Level of Processing (per cent) .13 2.4 Sub-Saharan Africa's Agricultural Exports to the United States Receiving the Highest Preferential MFN Margin, 2000 15 2.5 Nominal Protection Rates in Kenya (per cent) 20 2.6 Price Shares for Export Crops 22 2A.l Summary of Urugua)'. Round Commitments in Agriculture 34 3.1 Cameroon and the WTO Multilateral Agricultural Negotiations 38 3.2 Pre-and Post-Uruguay Round State Agricultural Extension Services Enterprises. 41 3.3 Real Nominal Rate of Protection of: Selected Export Products, 1980-99 46 3.4 Cameroon's Agricultural Products Subject to Trade Restrictions Before 1989 48 3.5 Post-January 1994 Reform of Tariff and Tax Structure 50 3.6 Evolution of Effective Rate of Protection in Key Agricultural Sectors (per cent) 51 3.7 Agricultural Tax and Tariff Structures Before and After the 1994 Reforms (per cent) 53 3.8 Main Market Destinations of Cameroon's Agricultural Products 54 3.9 Pre-and Post-Uruguay Round Most Favored Nation Rates of Selected Cameroonian Products to EU and US Markets ( per cent) 55 3.10 Impact on Agricultural, Food Security, and Macroeconomic Indicators Percentage Change from Base Run Model 60 3.11 CEMAC Tariffs and Taxes in 1998 (per cent) 64 3.12 Summary of Cameroon's Negotiation Position 68 IV 3A.I Main Export Product Competitors in 1996 82 3A.2 Products with Potential Loss of PJ;eferences for CEMAC Countries 83 3A.3 Implications for Non-LDC ACP Systematic Income Differentiation within the GSP 87 4.1 Agricultural and Trade,Related Policy Reforms, 1993-98 100 4.2 Specific Policy Changes for Various Agricultural Commodities IOI 4.3 Import Tariffs (per cent) on Selected Agricultural Commodities into Kenya 103 4.4 Government Expenditures for All Sectors, I 982/1983 - 1999/2000 (millions of Kenyan Pounds) 105 4.5 Expenditure on Agricultural Production Services, 1980- 98 (millions of Kenyan Pounds) 106 4.6 Coefficients of Variation for Production of Major Commodities in Kenya Before and After the Agreement on Agriculture (1995) 109 4.7 Real Prices per Tonne of Food Crops I 990-2000 110 4.8 Real Prices per Tonne of Industrial Crops 1990-2000 Ill 4.9 Real Prices per Tonne of Export Crops I 990-2000 112 4.10 Price Indices for Agricultural Inputs for Kenya 1994-99 113 4.11 Nominal Protection Coefficients for Major Agricultural Commodities in Kenya, I 990-99 115 4.12 Destination of Kenya's Exports to Major Markets, I 994-99 (per cent of total exports) I 16 4.13 Composition of Kenya's Exports,1994-98 (per cent) 117 4.14 Composition of Kenya Imports, 1994-98 (per cent) I 18 4.15 Origin oflmports as a Share of Total Imports, I 994-99 (per cent) 118 4.i6 Irnports of Major Food Commodities, I 980-98 (thousands of tons) 119 4A.1.I Applied Tariffs for Imports of Agricultural Commodities and Related Products into Kenya I 994 - I 999 129 4A.2.1 Kenya's Exports by Country of Destination 1990-1998 (thousands of Kenyan Pounds) 132 4A.3.I Kenya's Imports by Country of Origin (thousands of K'enyan Pounds) 133 v --!- --- ----- - 4A.4.l Value of Kenya's Exports by Principal Conunodities, 1990-98 (thousands Kenyan Pounds) 134 4A.5.l Value of Kenya's.Exports of Agricultural Conunodities (thousands of Kenyan Pounds) 135 5.1 Structure of Nigeria's Imports and Exports, 1980-96 141 5.2 Ratio of Producer Prices to World Market Prices, per cent, 1970-85 144 5.3 Evolution of Agricultural Macroeconomic Policies in Nigeria, 1970-1999 145 5.4 Nigeria's Import Duties in Agriculture, Forestry and Fisheries, 1990 and 1998 147 5.5 Effective Tariff Protection, Aggregate Model 152 5.6 Effective Rates of Protection for Nigerian Agriculture, 1990 and 1998 153 5.7 Destination of Nigerian Exports, by Value, 1980-95 155 5.8 Tariff Peaks in the European Union, Japan, and the United States on Agricultural Products of Interest to Nigeria 159 5.9 Principal Administration Methods for Tariff Rate Quotas, 1995-99 (number of tariff quotas) 160 5.10 Potential Application and Action of Special Agricultural Safeguards, by WTO Members 161 5.11 Potential Application and Action of Special Agricultural Safeguards, by Product Category 161 5A.l.l Sununary of Export Incentive Schemes Abolished'in 1999 (August) 167 5A. l.2 Summary of Export Incentive Schemes Currently in Operation in Nigeria, as at August 1999 168 5A.2.l Changes in Nigeria's Import Prohibition List (trade), ~?95 - 1998 169 5A.2.2 Import and Export Prohibition Lists 1991 - 1998 170 5A.4.l Trends in Domestic Support Measures in the European Union, Japan, and the United States, 1995-97 175 5A.4.2 EU Exports Subsidies; 1995-98 (million ECU) 177 5A.4.3 U.S. Exports Subsidies, 1995-98 (US dollars) 178 6.1 Tanzania's Exports by Type of Conunodity 185 6.2 Food Crop Production in Selected Regions of Tanzania (thousands of tons) 188 vi - - 1 __ 6.3 Cereal Yields and Average Annu.al Growth Rate of Agricultural Food Production in East Africa, Selected Periods 189 6.4 Agriculture as Share of Total GDP at Factor Costs in Constant 1992 Prices, Mainland Tarizania (per cent) 190 6.5 Real Producer Prices for Food Crops, 1981-99 (constant 1998-99 Tshs/kg) 191 6.6 Private and Social Domestic Resource Costs for Selected Tanzanian Crops 192 6.7 Food Balance, 1985/86 - 1997/98 (tons) 193 6.8 Major Destination Countries for Tanzania's Agricultural Commodity Exports Before the Uruguay Round (millions of Tsh) 195 6.9 Major Sources of Tanzania's Imports of Agricultural Commodities before the Uruguay Round (millions of Tsh) 196 6.10 Real Budget Allocation to Agricnlture, 1990/91 to I 999/ 2000 201 6.11 Changes in Import Tariffs, 1996/97 - 1998/99 202 6.12 CGE Model Simulation Results Based on Tariff Cut of 50 per cent and Exchange Rate Change of 20 per cent 208 6.13 Simulation Results, Micro and Activity Prices 210 6A.l Nominal and Effective Rates of Protection in Key Products since the- Uruguay Round Agreement on Agriculture 224 6A.2 Effective Rates of Protection 225 7.1 Market Access Conditions for Selected Agricultural Products, 2000 234 7.2 Evolution of the Agriculture Import Trade Regime 236 7.3 Decomposition of Changes in Real Wholesale Prices 238 7.4 Estimates of Effective Protection Coefficients 239 7.5 Indices of Agriculture and Food Production 1989-91 = 100 240 7.6 Production of Selected Food Crops (000 metric tonnes) 241 7.7 Production of Industrial Crops (Mt) 242 7.8 Composition of Agriculture Trade 1990-2001 243 vii 7.9 Trends in Export Volumes of Selected Agricultural Products (metric tonnes) 243 7.10 Market Share for Ghana's Major Trading Partners for Selected Agricultural Exports 244 7.11 EU Share of Selected Agricultural Exports 1995, 1997,1998 (%) 244 7.12 Developments in Agriculture and Food hnports (1989- 91=100) 245 7.13 Developments in the Structure of Agriculture Imports, 1995, 1998 246 7.14 Source of Ghana's Major Agricultural hnports 246 7.15 Production and Domestic Supply of Selected Cereals 248 7.16 Trends in National Level Food Security Indicators 249 7.17 Reasons for Refusal of Entry into .the United States of hnports from Ghana in 2002 250 7.18 Estimates of Revealed Comparative Advantage 1995- 1998 252 7.19 Tariffs and Trade Control Measures in the EU market 1994, 1996, 1998 254 Vlll List of Figures 2.1 Sub-Saharan Africa's. Share in.World Agricultural Exports Revenue !l 2.2 Distribution of Sub-Saharan Africa Exports by Market 11 2.3 Applied and Bound Tariffs for a Selected Number of Sub-Saharan African Countries (per cent) 17 2.4 WTO Member Expenditure on Export Subsidies, 1995- 1998 (per cent of total world export subsidies) 24 4.1 Production Levels of Selected Food Commodities 1990- 108 1998 4.2 Production Levels of Selected Cash Crops 1986-1998 108 4.3 Commodity World Market Prices 1993-2000 113 5.1 Share of Agriculture in Gross Domestic Product, % 1960 to 1998 138 5.2 Growth Rate of Agricultural Production in Nigeria, 1961-2000 140 5.3 Nigeria's Agricultural Trade,$ billion, 1990-1998 140 5.4 Agricultural Expenditure, Share in Total Expenditure and Value in Dollar, 1986,1988 151 5.5 Nigeria: Average Expenditure on Agriculture, 1986-88 and 1995-98 151 5.6 Tariff Escalation in Cotton in EU, Pre-and Post-UR 156 5.7 Tariff Escalation in Cocoa: Pre-and Post-UR 157 5.8 Tariff Escalation in Hides and Skin, Pre-and Post-UR 157 5.9 Tariff Escalation in Wood Product: Pre-and post-UR 157 IX -~-- ' - ---'----- List of Abbreviations ACP African Caribbean and Pacific AEC African Ec.onomic Commlmity AERC African Economic Research Consortimn AGOA African Growth and Opportunity Act AMS Aggregate Measurement of Support AoA Agreement on Agriculture ASAP Agricultnral Sector Adjustment Program CBI Caribbean Basin Initiative CEMAC Central African Monetary and Economic Community CET Constant Elasticity of Transfonnation CES Constant Elasticity of Substitution CGE Computable General Equilibrium CPI Consmner Price Index . COMESA Common Market for Eastern and Southern Africa CREDIT Centre for Research in Economic Development and International Trade CV Compensating Variation DRC Domestic Resource Cost EAC East African Community EBA Everything But Anns ECA Economic Commission for Africa ECOWAS Economic Community of West African States EPAs Economic Partnership Agreements ERB Economic Research Bureau ESRF Economic and Social Research Foundation EU European Union EV Equivalent Variation FAO Food and Agriculture Organization FEPA Federal Environmental Protection Agency FGN Federal Government of Nigeria FIF Foreign Input Facility FIMAC Financing of Investment in Community-based Micro- Agricultural Projects GAMS General Algebraic Modeling System GPJ:T General Agreement on Tariffs and Trade x GOP Gross Domestic Product GMP Good Manufacturing Practice. GP\1]) Good Practice in the Use of Veterinary Drugs GSP Generalized System ofPreferences 1 GSTP Global System of Trade Preference HACCP Hazard AnaJysis Critical Control Points HUB Hunting and\Breeding . i IFPRI Internationa Food Policy Research Institute IMF International Monetary Fund IPPC International Plant Protection Convention MAC Ministry of Agriculture and Cooperatives MFN Most-Favored Nation LOCs Least Developed Countries NACB Nigerian Agricultural and Cooperative Bank NAFDAC National Agency for Food and Drug Administration and Control NCPB National Cereals and Produce Board NEPC Nigeria Export Promotion Council NEWS National Early Warning System NEXIM Nigeria Exports and Imports Bank NGOs Non-Governmental Organizations NISER Nigerian Institute of Social and Economic Research NPR Nominal Protection Rates NTBs Non-Tariff Barriers OECD Organization ofEconomic Co-operation and Development ODC Other Duties and Charges RRF Refinancing and Rediscounting Facility SACU Southern African Customs Union S&D Special an.d Differential Treatment SADC Southern African Development Community SAG Subsistence Agriculture SAM Social Accounting Matrix SAP Structural Adjustment Program lei SEATIN Southern and Eastern Africa Trade Information and Negotiations Institute SSA Sub-Sahara Africa SPS Sanitary and Phytosanitary Measures TBT Technical Barriers to Trade TRIPS Trade-Related Aspects on Intellectual Property Rights TRQs .Tariff Rate Quotas UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Program URM Uruguay Round Agreement on Agriculture URT United Republic of Tanzania vxr Value Added Tax WFP World Food Program WIDER World Institute for Development Economics Research WTO World Trade Organization xii List of Contributors Ernest Bamou University of Yaounde II Emmanuel Donya University of Yaounde II John D. Nash World Bank Merlinda D. Ingco World Bank Tonia Kandiero University of Pretoria Flora Musonda The Economic and Social Research Foundation Dominique Njinkeu African Economic Research Consortium Hezron Omare Nyangito Kenyan Institute for Public Policy Research and Analysis Abena Oduro Centre for Policy Analysis E. Olawale Ogunkola University of Ibadan xiii --- - I . Author Biographies Ernest Bamou is a Senior Lecturer in the Department of Economics, University of Yaounde 11-Soa, and a Senior Economist in the Department of Forecasts, Ministry of Finance and Budget-Cameroon. He is co- author of Elaboration et Evaluatioin des Politiques Agricoles: Techniques etMethodes available from 'Presses Universitaires du Cameroun' (PUC). He has also written in professional journals on trade and agricultmal policy analysis. Emmanuel Douya is a Senior Lecturer at the University of Yaounde 11- Soa in Cameroon. He is a specialist of rural economy with a particular focus on Agricultural Policies and Economic Growth in Developing Countries. He is currently working on a CGE Approach to Agricultural Policies and Poverty Alleviation in Cameroon. Merlinda Ingco, Ph.D., is a Senior Economist with the World Bank staff since 1988, working with International Commodities Markets Division (1988-92), Commodity Policy and Analysis Unit (1993-94), Development Research Group (1994-98), East Asia Department and Development Economics Research Group (1998-99) and Senior Economist (1999 - present). She is the Project Leader of the Bank's integrated program of research, policy analyses and capacity building in international trade and WTO issues, with a Ph.D. and M.Sc. in Economics and Agricultural and Natural Resource Economics (Michigan State, 1986) and B.S., Management (Polytechnic University of the Philippines, 1976). Publications topics include trade policy, agricultural trade and developing countries and the WTO, South Asia, and Africa. Tonia Kandiero, Ph.D., is a Senior Lecturer and Coordinator of the Trade and Investment program at the University of Pretoria. She is a consultant for the World Bank, focusing on Agriculture and the New Trade Agenda in the New Millennium: Economic Analysis ofIssues and Options for Developing Countries. In 1998, she spent several months at the IMF. Her research program focused on foreign aid in Mozambique. She received her Ph.D. in Economics from Howard University in 200 I. Abena D. Oduro, is a Research Fellow at the Centre for Policy Analysis in Accra and previously Senior Lecturer, Department of Economics, xiv University of Ghana. She holds M.A and M.Litt degrees and has undertaken work for a Ph.D. (1983-87) at the University of Glasgow. Her main areas of research interest are poverty analysis, trade policy and the economics of education. John D. Nash, Ph.D., is the Adviser to the Commodities and Trade Group in the Agriculture and Rural Development Department of the Enviromnentally and Socially Sustainable Development, Vice-Presidency, World Bank. He has an M.Sc. artd a Ph.D. in Economics, University of Chicago (1982). Publications topics include trade policy in Latin America, Africa, South Asia, and transition economies; agricultural policy adjustment; agricultural price policy; commodity price stabilization; and capital mobility. Dominique Njinkeu, is currently the Executive Director oflntemational · Lawyers and Economists Against Poverty (!LEAP). He served as Deputy Director of Research of the African Economic Research Consortium (AERC) between 1998 and 2003. While at AERC he managed, among others, the trade policy research program. He has also worked as Research Co-ordinator of the Reseau Politiques Industrielles in Dakar (Senegal), a trade research capacity building program for Francophone Africa. Prior to that he taught at the University of Yaounde (Cameroon), at the Universite Laval in Quebec (Canada) and at Southern Illinois University at Carbondale (USA). He holds a Ph.Din Economics, a Masters Degree in Economics and Statistics and a Masters Degree in Agribusiness Economics. His research interests are in trade policy and African Development. His new institution provides assistance to developing countries for effective participation in international negotiation!;. Dominique Njinkeu is a Cameroonian citizen. Hezron Omare Nyangito, Ph.D., is an Agricultural Economist and is currently a Principal Policy Analyst and Head of Productive Sector Division at the Kenyan Institute for Public Policy Research and Analysis (KIPPRA), leading programs in agriculture, manufacturing, trade, and natural resources. He has a Ph.D. (the University of Tennessee, Knoxville, USA in 1992), and an M.Sc. in Agricultural Economics (1987) and a B.Sc. in Agriculture (1983) from the University of Nairobi, Kenya. He is also a Senior Lecturer, Department of Agricultural Economics, University of Nairobi and since 1995 on leave of absence. He has published over 70 xv professional papers and articles and worked for the Government of Kenya and numerous non-governmental organizations. E. Olawale Ognnkola, Ph.D., is a Senior Lecturer, Department of Economics, University of Ibadan and a Senior Research Fellow both at the Centre for Econometric and Allied Research (CEAR) and at the Trade Policy Research and Training Program (TPRTP) in the Department of Economics at the University of Ibadan, Ibadan, Nigeria. Flora Mndeme Mnsonda is a Senior Research Fellow at the Economic and Social Research Foundation, Tanzania. She has worked at the University of Dar es Salaam as a researcher, at the University of Zambia as a lecturer and at the Common Market ·for Eastern and Southern Africa (CO MESA) as a research coordinator. She was a visiting researcher at the Institute of Federalism in Switzerland for one year. Her areas of interest are international trade, trade policy, regional studies and development issues. XVI A,cknowledgements I Selected papers in this volume result from the World Bank's initiative to strengthen developing countries' participation in the Doha Development Round. The project, which was funded by the United Kingdom's Department for International Development (DFID), the World Bank- Netherlands Partnership Program (BNPP) and the Research Advisory Staff of the World Bank, began in October 1999 and includes an array of publications relating to agricultural trade and developing countries. We would like to thank the authors: Earnest Bamou (University of Yaounde II), Emmanuel Douya (University of Yaounde II), Merlinda D. lngco (World Bank), Tonia Kandiero (University of Pretoria), Flora Musonda (The Economic and Social Research Foundation), John D. Nash (World Bank), Dominique Njinkeu (African Economic Research Consortium), Hezron Omare Nyangito (Kenyan Institute for Public Policy Research and Analysis), Abena Oduro (Centre for Policy Analysis), and E. Olawale Ogunkola (University of Ibadan). Their leadership and participation in the project, providing different skills, backgrounds, and experience, make the publication an especially valuable tool for developing countries in the negotiations and also for the World Bank in furthering its understanding of the steps necessary to accomplish its Millennium Goals. Reducing by half the number of people who live on less than $1 dollar per day by 2015 requires confronting the economic realities of agricultural trade in developing countries. The case studies in this publication represent the final product of an ongoing work to identify and expand upon topics of interest to developing countries in Sub-Saharan Africa. In particular, papers included were discussed and reviewed at meetings in Dakar, Geneva and Kampala. On October 2-6, 2000, in Dakar, Senegal, a workshop was held on Capacity Building in International Agricultural Trade in Central and West Africa. This workshop was funded with partners from the Conference of West and Central African Agriculture Ministers (CMA-AOC) and from Germany (the German Federal Ministry of Economic Cooperation and Development (BMZ), the German Foundation for International Development/Centre for the Development of Food and Agriculture (DSE-ZEL), the Technical Centrefor Agricultural and Rural Cooperation (CTA), the German Agency for Technical Cooperation (GTZ). In Geneva, Switzerland on March 9, 2001 a seminar was held on Enhancing the Capacity of African Countries for Trade Policy and Trade XVI! r--- Negotiations. This provided the opportunity for Geneva-based African representatives and officials from the United Nations system to discuss World Trade Organization (WTO) trade negotiations issues of agriculture and trade standards, services and capacity building proposals. ANovember 13-16 2002 workshop in Kampala, Uganda under the anspices of the World Bank Institute and the African Economic Research Consortium (AERC) provided the opportunity for case stndy authors to review their analyses in the context of the Doha Development Round, which was the outcome of the Fourth WTO Ministerial Conference held in November, 2001 in Doha, Qatar. Many organizations and individuals contributed to this effort and we would like to recognize their work DFID, BNPP, GTZ and the World Bank provided the financial contributions that made this research and its dissemination possible. Our authors, collaborators and our publisher, the AERC, continue to expand the knowledge base available to readers here and through other publications like this one. We would also like to thank the reviewers of the case studies, especially Dr. Ravene Poonyth of the University of Pretoria, South Africa and Dr. Kofi Kissi Dompere of Howard University, Washington DC, USA. We recognize the very helpful work of World Bank staff Phil English, Joe Carroll and Tonia Kandeiro for their comments and suggestions. Finally, we recognize the editorial support provided by Meta de Coquereaumont (Communications Development Incorporated) and World Bank staff and consultants Fluvia Toppin, Helen Freeman, Laura Ignacio, and Matt Lexcen . .xviii 1 Introduction Merlinda D. lngco, 1ohn' D. Nash and Dominique Njinkeu During the 1960s and 1970s, inward-oriented import substitution policies dominated the trade policies of many Sub-Saharan African countries, which were then members of the GATT. Their relationship with developed country GATT members was mostly non-reciprocal and their negotiating efforts were concentrated. on obtaining preferential treatment in market access and exemptions from many GATT rules. Access under the General System of Preferences (GSP) schemes (not part of the GATT) of a number of developed countries resulted from these negotiations. Such special and differential treatment was the yardstick for judging their links to the multilateral trading system. Further exemptions from GATT rules were provided by the provisions on balance of payment restrictions or development policies in Article XVIII or in other general GATT exemption provisions.' The Uruguay Round was the first round to incorporate agriculture fully into the framework of disciplines. Developing countries were again granted partial exemptions from the general commitments to liberalize trade regimes, although many had already undertaken in the 1980s significant unilateral liberalization in the context of structural adjustment programs. But in developing, as in high-income countries, trade barriers in agriculture have been maintained at levels higher than in other sectors. For the Doha Development Agenda to succeed in its objective of creating a more pro-development international trading system, it is clear that agriculture is the key sector in which concrete results must be achieved and these barriers reduced significantly. The importance of the new round of trade negotiations in the World Trade Organization (WTO) for countries in Sub-Saharan Africa cannot . be overstated, as their economic prospects will be greatly enhanced by the full integration of agriculture into the global trading system under 1 2 Liberalizing Agricultural Trade: Issues and Options . multilateral rules. Many countries in the region with potential to expand exports stand to gain from greater openness in global markets. Even net-food importing countries that face food security challenges stand to benefit from a more transparent and more predictable. world trading system in agriculture. World agricultural markets that reflect underlying production costs rather than protectionist government interventions will ultimately help resolve not just the food· insecurity faced by many c6untries, but also help maintain the fundamental macroeconomic conditions that lead to progressive, predictable economic growth. This kind of world trading system will also reduce the volatility of agricultural markets, which will reduce and make more manageable the risks faced by both importers and exporters of foodstuffs. What should African countries do differently in the new WTO round of trade negotiations from a development perspective? In agriculture, African countries face important decisions, challenges, and risks. While the relevant issues and options are different in each country of the region, there are important areas that are cominon. Key issues in traditional areas (e.g., market access - reforms in tariffs and non-tariff ba:riers) remain very i1nportant, while several second-generation trade issues have come to the forefront. In the current trade negotiations, major issues raised by the African countries include how to improve market access to high-income countries, improved WTO rules in several areas, and the safeguarding of existing preferences under the various GSP programs and the EU's Lome Convention/Cotonou Agreement with Africa, Caribbean and Pacific com1tries. Several African countries have tabled proposals to strengthen the WTO rules and implementation of specific provisions of the Uruguay Round Agreement on Agriculture (URAA), such as new specific measures and assurances of compensation to address any adverse effects on food insecure countries of higher world food prices from further liberalization. This volume presents the key findings of analytical work on important issues facing selected countries in Sub-Saharan Africa in the context of the new WTO round of trade negotiations in agriculture. In contrast to many previous studies, the analysis here focuses upon com1try-specific issues in Cameroon, Ghana, Kenya, Nigeria, and Tanzania. The analyses are intended to be useful in carrying out well-informed country-specific evaluations of alternative options for further trade and agricultural policy reform. To facilitate ownership of findings, to build local analytical capacity, and to expand the base of local expertise, the studies were Introdnction 3 performed by experts residing in the respective countries, in a partnership between the World Bank' and the African Economic Research Consortium (AERC)'. Background research undertaken for each country case study included four general systemic and thematic issues: (i) the trade barriers facing major agricultural exports from the country; (ii) whether the WTO negotiations were pushing domestic reform in the right direction; · (iii) the best approach to market access negotiations based on the country's experience with implementing the Uruguay Round, and (iv) lessons learned as a result of the implementation of sanitary and phyto-sanitary measures and technical barriers to trade. Depending on available data, the analytical work in these countries also provides recent estimates of import protection levels in key agricultural commodities. The analysis also evaluates remaining biases in agricultural policy regimes during the implementation period' , of the URAA compared to the pre-URAA period. URAA implementation coincided with important macro-economic and agriculture-specific policy reforms, which may have reduced or even reversed the bias against agriculture in these countries. The studies include the effects of changes in tariff structures, preferential treatment, rules relating to sanitary and phyto-sanitary concerns, and technical barriers to trade. The analyses consider preferences and terms-of-trade losses from potentially higher food prices to net importers of food as export subsidies are reduced. The analyses provide evidence on whether the implementation of the URAA resulted in a significant burden to Sub-Saharan African countries'. Results show that some African countries where liberalization occurred in the 1980s were disappointed at least in the short rnn with the outcomes of structural adjustment programs and the URAA. But African countries that resisted liberalization during this period missed opportnnities to anchor domestic policy reforms in an international framework. In particular, each of the analytical studies focuses on the following: + Key issues for the country; + Where the country's policies stand today relative to its development objectives and WTO commitments; + What has been achieved at the country level and the implications of these achievements for the new WTO negotiations; + Experience and lessons from actual implementation of commitments; 4 Libera/Wng 4gricultural Trade: Issues and Options ... • Impacts of actual implementation of URAA, including domestic policy adjustments; • Market access options in agricnlture and other key sectors; (What are the main barriers facing exports from the country in the rest of the world? How large are preference margins in OECD countries?); • Impact of macro, trade, and sector specific policies on domestic incentive regimes; • The domestic trade policy agenda in agriculture; and + Non-tariff barriers to agricultural trade post-Uruguay Round; sanitary and phyto:sanitary measures, food safety standards and other technical barriers to trade. Some of the key messages from these countries case studies are as follows: + In evaluating the effects of implementation of key URAA provisions relating to disciplines on domestic support, and export subsidies, it is evident that the URAA itself had little direct impact because the 1980s reforms, resulting from structural adjustment programs, had already changed goverrunent involvement in agriculture. These reforms resulted in the elimination of support for agriculture through inputs, prices and marketing interventions, essentially covering the URAA provisions on domestic support and export subsidies. African countries generally made commitments in the URAA on tariff bindings that were far above those that they were actually applying. + Sub-Saharan African countries' own high tariffs on agricultural products and restricted access in input markets (including manufactured goods, seeds, and other inputs for agricultural production) creates great potential for them to make significant cuts in the next trade agreement. • On market access issues, these countries benefited from preferential tariffs into developed country markets and the studies all note that a reduction in MFN tariffs in these markets, as required by URAA, will erode their preferential tariff arrangements. This will result in increased competition from other exporters into developed country markets. The studies also note that in the tariffication proces~, developed cotmtries increased their border protection, using the opportunity to apply higher tariffs to processed agricultural products. This has negatively impacted the competitiveness of developing country exports in those markets. Cameroon and Tanzania note that the major constraint associated with market Introduction 5 access was a domestic one of lacking capacity to respond to market opening opportunities. The Tanzanian study lists rules of origin, environmental requirements, labeling and quality standards as also impacting on market access. + All the studies point to the problems with implementation of the Agreement on the Application of Sanitary and Phytosmntary Measures (SPS) and the possibility of SPS provisions being used for protectionist purposes. All of the country studies attach great importance to financial and technical support for capacity building (both scientific and diplomatic personnel and their attendance at standard setting bodies), and the establishment of a legal framework and institutions. While noting the longer implementation periods for implementation of SPS measures which is in accordance with special and differential treatment provision of URAA, the Ghana study comments that this could lead consumers to question the standards of developing country products and lead to a loss. of markets. + The studies recognize the impact that developed country reductions in domestic support and export subsidies may have on food security issues for net food importing countries, and the Kenya study notes that dumped subsidized product impacted on local production. + The issues for these countries in the new round of trade negotiations are affected by both their approach in the negotiations and the continuing and new issues that the negotiations will have to address. On negotiating style, the studies point to the relationships that each country has with neighboring regional groups and the regional efforts to increase trade using preferential arrangements or to limit access. The efforts associated with regional integration will have an indirect effect on the multilateral negotiations as these provide additional trade negotiating frameworks and experience in trade negotiations. The Tanzania study notes emerging regional protection, including safeguard actions, following the removal of quantitative restrictions. The Cameroon study states that a more liberalized international trading environment was to that country's long term advantage. Several of the papers point to the importance of coalitions in the negotiations, particular with more reform-minded countries on the key provisions of discipline~ on domestic support, market access and export subsidies. Several of the studies also point to how some developed countries "manipulated" the effects 6 Liberalizing Agricultural Trade: Issues and Options on both reductions in domestic support and tariffs with the use of aggregates instead of product specific approaches, effectively limiting tariff reduction. The shifting of support from the most distorting category ("boxes") of"amber" to less distorting support of"blue" and "green" also resulted-in limited reduction in domestic support. The Nigeria study notes that the "request-offer" approach to tariff negotiations used in the Uruguay Round had an impact, as countries did not have the capacity to analyze proposals, and hence in the current round, Nigeria would prefer to use the "Swiss formula" approach to tariff reductions. • On specific issues such as further tariff reductions, the studies note that their high tariffs ceiling reflected in each Schedule of Commitment may be a problem. As their applied rates are much lower, the negotiations provide an opportunity to return to this issue. One country study comments that high bound tariffs act as a negative factor for investment. Some studies (e.g. Nigeria and Cameroon) suggest that there should be some flexibility in the countries' ability to use domestic support to address rural development or to provide incentives (given the failure of the private sector) to increase agricultural productivity. • On Article 16 of the URAA, the Decision on Measures in Favour of Least Developed Countries Concerning the Possible Negative Effects of the Reform Programme on the Least Developed and Net Food Importing Countries, the studies recommend legally binding language on technical support and financial assistance, recognizing that implementation has been disappointing. • On the establishment of a Development Box, the Nigeria stud)' notes that there should be strict rules for eligiOility. • On special safeguards, the Cameroon study wants the approach to be simplified and made more nondisc.ciminatory. • On Green Box measures, while these are important the studies recognize their somewhat limited use, given the reductions in domestic agricultural budgets. • The Ghana study notes the effect of other WTO work on investment and competition policy, environmental and intellectual property issues. • On export subsidies, all studies note the impact of these on food security issues but the Camernon study states that these should "ultimately be banned". Introduction 7 These studies should serve as a resource to detail how countries in the Sub-Saharan region of Africa have experienced the implementation of trade liberalization reforms. The level of ambition in relation to liberalization in the three pillars (i.e. market access, export competition, and domestic support) should be of equal interest as thete is a need to ensure adequate linkages between these three pillars in the negotiations. In the area of market access the modalities followed in the negotiations should ensure significant reduction (or elimination) of tariff peaks and tariff escalation. This should be coupled with adequate special safeguard measures to take into account the special conditions of African and other less developed countries. As preferences will be further eroded by the negotiations, adequate compensation should be provided in the form of technical assistance to African countries to enable them to diversify their agriculture. In the areas of export competition and domestic support, which are primarily used by developed countries with significant negative impact on African production and export, there is urgent need for their significant reduction. This could be attained through a redefinition of the various boxes. Several non trade issues constrain the development of African agriculture and should be recognized and discussed. In all these specific issues and others that emerge in the new negotiations, it is hoped that the studies of implementation of the URAA are of use to policy makers as they formulate negotiating positions for the present round of agricultural trade negotiations. Conclusions of these studies can also assist other countries in identifying more clearly their own mterests in trade negotiations. 8 Liberalizing Agricultural Trade: Issues and Options ... End-Notes I. These and other GATT exemptions available for all countries to justify trade restrictive measures include (i) General Safeguards (Article XIX); (ii) General and Public Policy Exemptions (Article XX); (iii) exemptions with General Shortages (Article XI); and (iv) State Trading Enterprises (Article XVII). 2. These analyses were undertaken as part of the World Bank's integrated program of research, policy analyses, and capacity building in agricultural trade and WTO issues. 3. The involvement of AERC researchers was part of a larger program of trade capacity building; in particular an ongoing collaborative research project "African Imperatives in the New World Trade Order". See www.aercafrica.org for details. 4. From 1995, six years for developed countries and up to ten years for developing countries. 5. Other studies on the effects of the outcome of the UR on Africa that were undertaken pre-UR implementation showed that the UR Agreements did not result in many obligations and that most African countries were not required to and so did not make meaningful liberalization commitments in the UR. On the other hand, high costs of complying with the new obligations resulting from the previous WTO agreements and limits on development strategies . 2 Liberalizing Agricultural Trade: Issues and Options for Sub-Saharan Africa in the WTO Merlinda lngco, Tonia Kandiero, .John D. Nash and Dominique Njinkeu 2.1 Introduction The challenges facing Sub-Saharan Africa today include economic stagnation, a widening disparity in international living standards, high international debt, HIV/AIDS, and rural poverty. Of the J .2 billion world population that lived below $1 a day in 1998, approximately 24% were in Sub-Saharan Africa (World Bank, 2001). And of these, majority Jive in rural areas. This situation poses a serious concern not only for Sub- Saharan Africa but also for the international community. Unfortunately, in an age ofrapid globalization and liberalization, Sub- Saharan Africa's share of global agricultural export value declined from 8.4% in 1965 to approximately 2.0% in 2000. Factors contributing to this marginalization remain open to discussion. Yeats, Amjadi, Reineke, and Ng (1997) argue that African countries' domestic policies led to the decline in the region's share of global exports. Hoekman, Ng, and Olarreaga (200 I) point to restrictive market access policies in developed countries as a source of Africa's marginalization. Others maintain that global demand for primary products (Africa's major agricultural export) has been considerably weaker than demand for high value-added agricultural products, thereby causing a decline in the region's share of world agricultural trade. Greater integration of the countries' economies . 9 10 Liberalizing Agricultural Trade: Issues and Options ... into the .world market could play an important role in the promotion of sustainable development and poverty alleviation in the region. Full participation in the Doha Development Agenda has the potential to help Sub-Saharan Africa to resolve some of these challenges. In this chapter, we identify key policy issues relevant to Sub-Saharan African countries in the context of the new multilateral trade round in the World Trade Organization (WTO), referred to as the "Doha Development Round". We recognize the need for Sub-Saharan Africa to capture the benefits and increased opportunities offered through the multilateral trading system. Jn this context, the paper evaluates the progress in implementation of agriculture and trade policy reforms agreed to under the auspices of the Uruguay Round. Drawing on these findings, we address some of the high prioricy areas for Sub-Saharan Africa in the Doha Development Agenda. We focus on the following questions: 1. What is the impact of market access policies in developed countries on Sub-Saharan Africa's agricultural exports? 2. Are trade preferences beneficial? 3. Did Sub-Saharan African countries expand import market access during the implementation of the Uruguay Round? 4. Have domestic agricultural policies improved? 5. What is the way forward? 2.2 What is the Impact of Market Access Polices in Developed Countries on Sub-Saharan Africa's Agricultural Exports? The issue of market access is of great importance to the countries of Sub-Saharan Africa. Many agricultural exports from these cQUntries continu~ to face high protection levels in developed countries, exacerbating the concern over Sub-Saharan Africa's declining share of global agricultural exports. Between 1965 and 2000, the region's share of global agricultural export value dropped to a quarter of its previous level (Figure 2.1 ). Liberalizing Agricultural Trade: Issues and Options ••. 11 Figure 2.1. Sub-Saharan Africa's in World Agricultural Exports Revenue 9 - - - - - - -- ----------- . -··· 8 7 6 ~ 5 ~ 1965 1990 1995 2000 Source: Author1s calculation using data from UN Comtrade In 2000, 45% of Sub-Saharan Africa's exports went to the (EU), 7% to the United States, 6% to Japan, and I% to Canada (Figure 2.2). In each of these four markets (also known as the Quad), tariff peaks and tariff escalation are relatively common. Despite most-favo~ed nation (MFN) status and in some instances preferential tariffs, many products of trade interest to African countries continue to be subject to tariffs in excess of I 00% in developed countries. Items of major export interest to developing countries which are subject to tariff peaks include: sugar, cereal, tobacco, vegetables, fish, and fruit. Tariff peaks and tariff escalation have a disproportional in1pact on exports from Africa and other developing countries. Hoekman, Ng, and Ola1reaga (2001) estimate that if Quad countries extended complete market access to developing countries on products currently subject to tariff peaks and quotas, Africa's exports would increase by $2.5 billion (I I%). Figure 2.2. Distribution of Sub-Saharan Africa Exports b)' l\.·1arket Canada Japan United Stites The restofthe ~Wied Tariff Rates (%) Source: Author calculations based on Finger, Ingo, and Reineke (1996) 18 Liberalizing AgriculLural Trade: Issues and Options ... Three countries (Cote d'Ivoire, Ghana, and Zimbabwe) offered minor tariff reductions on a few items. While their tariff 'bindings include the customs duty and other duties and charges (ODC), the ODC rates were not listed in the country schedules in the GAIT. Not all African participants reported their ODC rates in their Uruguay Round schedules, although its application is common in these countries.' For a number of countries which had previously established bound tariffs (e.g. Cote d'Ivoire), reduction commitments in the UR were made on the previously bound duties, to which the ODC rates were then added. For example, in Cote d'Ivoire, a 7% bound duty on fresh milk was reduced to 6%, but a 200% ODC was added to this tariff item. The end result was a substantial increase in the bound rates of these products. The experience so far from implementation of Africa's Uruguay Round commitments indicates the following: First, high tariff bindings have affected the level of applied protection of agriculture in a number of African countries. The URAA has not resulted in "real" liberalization in African agriculture in the sense of reducing applied tariff rates. Although countries do not generally apply tariffs at their bound rates, the higher bindings do not impose any discipline nor require rationalization by African countrie.s of their protection in agriculture. Second, high tariff bindings have not imposed an effective constraint on policy reversals, although bindings can provide a basis for future tariff reductions. In some African countries, very high tariff binding has undermined the market objectives of stability and transparency. In a number of countries, the applied rates within the bindings are dispersed. Hence, countries are able to change applied tariffs within the margin provided by the bindings. Indeed, most of the maximum tariff rates are too high to provide a meaningful cap on applied tariff rates t" improve the security of market access. Third, the ways that applied rates and other charges have been established and changed undermine the objective of tariffication to abolish non-tariff barriers and convert them into- fixed tariffs. The use of ODCs as noted above is one example. In addition, countries are still charging tariff duties at varying levels within the margin of the binding. Iu some countries, the applied rates are still linked to a domestic threshold or reference price. The applied duty is estimated as the difference between a given domestic price and a reference price as long as the duty charged does not exceed the binding. 7 Thus, in practice, implementation of Liberalizing Agricultural Trade: Issues and Options ... 19 tariffication has resulted in a system with characteristics similar to those created by non-tariff barriers such as the variable levy or minimum price systems. While these types of arrangements are in principle not permitted under the Uruguay Round Agreement', implementation appears to provide some flexibility. The peace clause provision in the Agreement on Agriculture prevents any challenge to ::he use of these measures under the dispute settlement system for six years. 2.5 Have Domestic Agricultural Policies Improved? Agricultural prices remain a critical component of the production incentive provided to farmers in Sub-Saharan Africa. The price relationship~ faced by these agricultural producers are dependent on a complex nexus among the structures of the broader agricultural economy (marketing systems, transportation costs, infrastructure) and the macroeconomic environment (trade, exchange rates) in which agriculture operates. Several studies have examined these price relationships to assess the extent to which agriculture has been taxed or subsidized (Schiff and Valdes, 1992; Herrman, 1997). Many policies have tended to tax agriculture excessively, with farmers receiving producer prices lower than the world price equivalent, thereby inhibiting improvements in farm profit and welfare. The extent of these severe price distortions was highlighted by Schiff and Valdes (1992). According to their study, among all developing country regions Sub- Saharan African countries imposed the highest level of taxation (both explicit and implicit) on agriculture, ranging from 46-59 %. The direct tax on agriculture in these countries was similar to the level of the indirect tax. Agricultural pricing policies taxed agriculture about as much as the implicit tax resulting from industrial protection and macroeconomic policies. This differs markedly from findings in other developing countries where the combined implicit and explicit tax on agriculture was lower, and explicit taxes were about a third of the implicit taxes. Herrman (1997) conducted a similar study which focused on individual crops (coffee, wheat and rice) and found significant policy biases against agriculture, which were more excessive for export crops (coffee) than for food crops (rice and wheat). Nonetheless, favorable agricultural policies for food crops were often found to be offset by distorted macroeconomic policies with a resulting decline in the real producer · price. Both of these studies used pre-1985 data which limits their use in identifying current distortions facing today's African farmers. 20 Liberalizing Agricultural Trade: Issues and Options ... During the most recent decade, there were significant reforms in both macroeconomic and agricultural policies in most African countries which have alleviated the effects of some of these biased policies. Since the early 1980s many of these countries have pursued structural adjustment programs with macroeconomic, trade and sector reforms. The intended impact in the agricultural sector was to increase incomes to smallholder farmers primarily through an expansion in the production of export crops, thereby accelerating rural growth and poverty reduction. Some of these reforms are detailed in ·the 1994 World Bank study Adjustment in Africa, which docmnents the changes in real producer prices for export crops during thel980s. Of the 27 countries analyzed, 10 experienced an average increase of 25% in real producer prices of export crops, while 17 experienced an average decline of 28% in the real producer price of exports. The explanation provided for the large decrease was the fall in wcrld prices, coupled with countries' inability to reduce both explicit and implicit taxation simultaneously, thus the benefits of the reduction in one was normally offset by the losses from the increase in the other. To demonstrate how price changes have affected producer incentives in Kenya, nominal protection rates (NPR) for si;i: major products - wheat, maize, rice, coffee, tea, and sugar are used (Table 2.5). Wheat and maize are Kenya's main imports. Positive NPRs provided farmers with an incentive to increase production. Table 2.5 Nominal protection rates in Kenya (per cent) Year Wheat Maize Rice Coffee Tea Sugar 1990 9 -25 -36 -6 -7 -47 1991 22 -24 -45 '13 '12 -66 1992 '14 -22 -8 -21 -49 -63 1993 ~52 -31 -33 -21 -7 -42 1994 108 11 -6 ,12 -9 -63 1995 27 '11 -49 -2 '18 -51 1996 7 -2 -50 -2 -9 -39 1997 55 14 -3 1 '12 -36 1998 43 '16 -7 1 6 -22 Source: Author calculations based on Nyangito (2001) Liberalizing Agricultural Trade: Issues and Options ... 21 After 1993, the domestic price of wheat was higher than the world price, with 1994 having the highest NPR of 108%. The price of maize remained below the world price until 1993, but showed some favorable signs in 1994 (11%) and 1997 (14%). NPRs for rice were negative from 1990 to 1998, although there were signs of improvement in the later years. In Kenya, the govermnent generally keeps ·producer prices higher than world prices, with the intention of boosting productior.. Higher domestic prices are encouraged through the marketing involvement of the National Cereal Produce Board (NCPB) and the imposition of high tariffs. Changes in import duties on maize and wheat are used as a tool to restrict imports when domestic supply is high and encourage them when domestic supply is low. The main exports, tea and coffee, had negative NPRs for the majority of the years in the 1990s, but there was some improvement in 1998. The NPRs for tea increased from -12% in 1997 to 6% in 1998. The negative incentives to farmers in the earlier years were greatly caused by primary taxes on exports and deductions by marketing boards on these products. The producer price of sugar remained below the export price in all years studied. The main cause was due to poor marketing arrangements, which translated into high service charges to the farmers, and greatly reduce the producer price. 2. 5.1 Estimates ofPrice Border Wedges in Sub-Saharan Africa Due to the poor quality of data on transportation costs and marketing margins, the approach taken in this chapter is to simply estimate the producer's share of the border price, which is determined for several crops and countries and sununarized in Table 2.6. Policies that influence producer share include activities such as transportation, marketing, pricing, distribution and storage. 22 Liberalizing Agricultural Trade: Issues and Options ... Table 2.6 Price shares for export crops Country Commodity Producers Share of f.o.b. Price (percent) Benin Cotton 37 Burkina Faso Cotton 35 Cameroon Cocoa 76 Coffee 73 Cotton 5I Chad Cotton 36 Cote d'Ivoire Cocoa 46 Coffee 62 Cotton 47 Ghana Cocoa 39 Guinea Cocoa 68 Kenya Coffee 73 Tea 53 Madagascar Coffee 70 Vanilla 33 Malawi Tobacco 60 Mali Cotton 44 Mauritius Sugar 94 Mozambique Cotton 64 Cashew 5I Nigeria Cocoa 98 Rubber 100 Senegal Cotton 47 Groundnuts 5I South Africa Maize 93 Oranges 50 Apples 93 Sugar 92 Wool 89 Tanzania Coffee 77 Cotton 64 Tea 58 Cashew 71 The Gambia Groundnuts 60 Togo Cotton 39 Uganda Coffee 72 Zimbabwe Tobacco 79 Cotton 88 SourCe: Townsend (1998). World Bank and IMF data Liberalizing Agricultural Trade: Issues and Options ... 23 Townsend (1998) uses an econometric approach to explain cross country differences in producers' share of border prices. His results suggest that if agricultural and macroeconomic policies are improved, road density increased, road quality improved, more credit made available, and larger crop volumes traded, then producers will receive a higher share of the border price. According to his study, controlled marketing systems continue to distort market price signals in many countries. Three existing marketing systems can be identified in Sub-Saharan Africa, • the free market system, • the Caisse de Stabilisation and • Marketing Boards. Under the latter two systems with interventions in physical handling, price setting, taxation, and marketing costs, farmers receive a lower share of the producer price. Exchange rate pass-through to producer prices has also been inhibited. in these two systems. The free market system has resulted in substantially higher prices for farmers and lower fiscal costs. The overall macroeconomic policy stance in African countries improved significantly after 1990/91. In particular, exchange rate policies have improved substantially, with most countries analyzed having low parallel market exchange premiums in recent years. Rural infrastructure also plays a significant role in producer price determination. Evidence suggests that it is not only the lack ofroads that reduces the producer price/border price ratio, but also the quality of these roads. Feeder roads in rural areas remain scarce and are in poor condition in most Sub-Saharan African countries. Transportation is a particular problem for landlocked countries with large distances between the coastal prices and the border prices. The volume of credit extended to the private sector as well as real interest rates have also had a significant effect on private sector activities and indirectly on the producer price margin. Development of efficient markets requires volume and consistency in supply. Indeed, private sector entry into storage, transportation, and marketing of agricultural products requires some assurance of supply to induce investment. 24 Liberalizing Agricultural Trade: Issues and Options . , . 2.5.2 Subsidies in Developed Countries and their Impact on Prices in Sub-Saharan African Countries The discipline on the use of export subsidies was considered to be one of the most important accomplishments of the URAA and was expected to have the most direct quantitative effect on agricultural trade. The reduction in export subsidy expenditures was to be applied in equal installments starting from either the 1986-90 base period or the 1991-92 period, whichever was higher. In any case, the final year's commitments have to meet the 21 % and 36% reduction levels from the 1986-90 base period. Unfortunately, export subsidies continue to be used rather extensively by developed countries. In 1998, the EU accounted for approximately 89% (US$5.8 billion) of the world's total expenditure on export subsidies (figure 2.4). This sum not only far exceeded SSA export subsidies, it was approximately four times larger than the average agricultural value added (GDP) of the entire Sub-Saharan Africa region. Figure 2.4. WTO Member Expenditure on Export Subsidies, 1995-1998 (per cent of total world export subsidies) lte rest rf tte Urited States Now>{ Wiid 1% 2% SWtB!an:J SYo EU 89% Source: IA1RC (2001) When export ;mbsidies are significant, as in the case of the EU, they have the potential to depress world market prices, leading to lower producer prices received by farmers in developing countries. In the short-run, the elimination of export subsidies could have an adverse impact on net importing countries. However, in the long-run, Sub-Saharan Liberalizing Agricultural Trade: Issues and Options ... 25 Africa would likely benefit from the elimination of export subsidies as countries will be encouraged to provide the right incentives to boost food production. Of course, the actual impact of the elimination of export subsidies on Sub-Saharan Africa will depend upon the policies adopted by individual countries, and on the impact on world prices of their elimination. 2.6 What is the Way forward? Some of the high priority issues for Sub-Saharan Africa in the new trade round are a revisiting of the issues of market access, domestic support, and export subsidies. In addition to these traditional issues, other major areas of interest include food security and relate to other WTO Agreements and provisions such as Sanitary and Phytosanitary Measures (SPS), Technical Barriers to Trade (TBT), The Agreement on Trade-Related Aspects on Intellectual Property Rights (TRIPS), and Special and Differential (S&D) Treatment. 2. 6.1 Market Access Issues in Developed Countries Tariffpeaks and escalation: Sub-Saharan Africa is interested in expanded market access to developed countries, in particular the Quad market countries - the EU, United States, Japan, and Canada. However, in each of these markets tariff peaks and escalation are widespread. For both Japan and the EU, more than 26% of all agricultural tariffs are greater than 20%. Tariff peaks are more visible in food staples, fruit and vegetables, and processed food products, while tariff escalation is more evident in commodities, such as meats and oils. According to Ingco, Kandiero, and Randa (2003), a 1 % tariff reduction by OECD countries is likely to increase Sub-Saharan Africa's trade to GDP ratio by 2%. More simplified and transparent TRQs: The main objective behind the use of TRQs is to allow minimum market access for commodities previously protected by nontariff barriers. So far very few developing countries have established TRQs and for those that have (e.g., Brazil Morocco, and Thailand), there is little information available to report. In this regard, the issue of TRQs pertains more to developed countries. Therefore, in order for developed countries to improve market access conditions for products from Sub-Saharan Africa, it is still critical to identify the conditions under which TRQs are effective. This involves putting in place simplified and transparent TRQs. 26 Liheralidng Agricultural Trade: Issues and Options ... 2. 6. 2 Sub-Saharan Africa's Market Access Policies Bound and applied tariff rates: The URAA made significant efforts to improve market access conditions. However, it is crucial that countries in Sub-Saharan Africa further reduce and move toward greater uniformity across products in their bound and applied tariff rates to capture the gains from the liberalization process. So far, the region has average tariff rates in agriculture higher than the global tariff average (62%). The average protection for Sub-Saharan Africa is between 71 % and 75%. Gibson, Wainio, Whitley, and Bohman (2001). A tariff regime characterized by non-uniformity among products, escalation, and overall high rates has adverse effects on the domestic economy. Among these are implicit taxation of exports, creation of productive inefficiencies, regressive taxation of domestic consumers, promotion of rent-seeking, and corruption. Lowering bound tariff rates in the context of multilateral trade negotiations sends a powerful signal of the govenunent' s intentions to permanently adopt an open, pro-export trade regime. In this way, it guides and promotes investment in appropriate sectors and technologies. Sub-Saharan Africa did not take full advantage of the Uruguay Round to lower bound rates and lock in reforms. The region has a higher average tariff rate than the global rate, and should increase its effort in the Doha Round. Concerns about effects on local producers from lowering protection should be addressed by negotiating for transition periods, adjustment assistance, and safeguard mechanisms, not by seeking to avoid reducing bound rates. 2. 6. 3 Domestic Support Apart from South Africa, which negotiated in the URAA as a developed country, most countries in Sub-Saharan Africa declared an aggregate measurement of support (AMS) level of zero, while developed countries had a positive AMS. Disciplines on the use of domestic support in OECD countries proved to be less binding than many had envisioned as over 60% of their support programs in agriculture were exempted from URAA reductions. A major objective for Sub-Saharan African countries in the Doha Development Agenda will be to put in place a more structured operational framework for the exemption from reduction provisions. Liberalizing Agricultural Trade: Issues and Options ... 27 2. 6.4 Export Subsidies Sub-Saharan Africa continues to be concerned about the use of export subsidies by developed countries. Policy makers can not ignore the distorting nature of these subsidies. Sub-Saharan African countries fear that export subsidies amount to dumping of surplus production, depressing world prices and eventually, lowering producer prices to farmers in developing countries. While in the short-run the removal of export subsidies by developed countries may raise import costs, the long-run impact on import prices has not been convincingly quantified. In the near term, assistance can be provided to help meet domestic demand, and in the long-run the best solution is to stimulate domestic production. The impact of reforms in this area will depend on policies adopted by the individual countries, and the impact of the liberalization package on world prices. Nevertheless, it is clear that a more efficient system to reduce subsidies an.d to minimize their price distorting effects needs to be adopted. 2.6.5 Sanitary and Phytosanitary Measures (SPS) and Technical Barriers to Trade (TBT) Sub-Saharan African countries face many constraints associated with the implementation of the SPS and TBT Agreements. The major constraints pertain to lack of resources, infrastructure, and expertise. In trying to help developing countries cope with the provisions of the SPS and TBT Agreements the multilateral trade system should allow sufficient time for Sub-Saharan Africa to adjust and implement new regulations. To help enforce and assess standards, it is critical that developing countries are provided with appropriate technical assistauce to enhance their expertise. While developing countries are in the process of improving their capacity in the area of SPS measures and TBT, developed countries should not use standards as a means to reject imports originating from developing countries. Otsuki et al. (2000) analyzed the impact of EU aflatoxin standards on food exports from nine African countries and found that they decreased relevant exports by approximately 64% or $700 million. In the new trade round members have to consider the following issues: • Formation of a Development Box and whether a Transition Box will be needed; 28 Liberalir,jng Agricultural Trade: Issues and Options ... • Whether AMS measures should be applied on a product or sector basis; + Inclusion of multifunctionality into AMS provisions; • Whether AMS should be adjusted for inflation or exchange rate changes; and • A push for an increase in de-minimis by developing countries. 2. 6. 6 Trade-Related Aspects ofIntellectual Property Rights (TRIPS) Apart from market access issues, domestic support and export subsidies, Sub-Saharan Africa is expected to identify some related issues to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The TRIPS Agreement grants minimum standards for levels of protection to innovators of intellectual property in numerous fields. This Agreement is considered to be the most comprehensive multilateral agreement on intellectual property rights. However, its relation to agriculture is complex and controversial. Since the TRIPS agreement came to effect, Sub-Saharan Africa and other developing countries have had to deal with issues on technology transfer and the treatment of indigenous knowledge. In this context, better property rights may offer an incentive to developed country innovators: to provide a different wave of innovations that are appropriate for the developing countries. Pertaining to indigenous knowledge, companies in developed countries in the areas of pharmaceuticals and agricultural sectors are starting to ·recognize the importance of biodiversity and indigenous knowledge of local communities regarding plants and medicines. The serious issue is that researchers in developed countries have invented patented products using materials from developing countries. The TRIPS Agreement can play an important role in ensuring that the inventions benefit both developing and developed countries. It is important to note that the TRIPS is of huge importance to Africa regarding AIDS. 2.6. 7 Special and Differential (S&D) Treatment Member countries agree that S&D Treatment for developing countries, including Sub-Saharan Africa, shall be a central part of all the elements of the negotiations in the Doha 'Development' Agenda. S&D Treatment shall be included in the schedules of concessions and commitments and if necessary in the rules and disciplines to be negotiated. The rationale behind S&D provisions is based on two main considerations: first, to Liberalizing Agricu/Jural Trade: Issues and Options ... 29 ascertain that there is equity and fair competition where structural conditions differ; and second, to ensure that developing countries effectively take into consideration key development need such as rural poverty and food security. It is clear that the S&D treatment agenda in the Uruguay Round did not meet its goal. Snb-Saharan Africa and other developing countries, in particular, believe that many promises were made and ve1y little was delivered. Elements dealing with technical assistance implementation time must be readdressed since they appear to have been reached in an ad hoc manner and lack structure. The uniform transition period for policies to be implemented does not take into consideration the different speeds at which Sub-Saharan African countries can adjust to new provisions. Other proposals in this area of S&D Treatment include redefining classification ofWTO members and issues in relation to special market access through trade preference schemes. With all these issues considered, the region should also recognize that blocking the negotiations with S&D proposals that will never be implemented is not the way forward. In deciding on S&D provisions, these countries should also focus on those provisions that would have maximum developmental impact and would not postpone or avoid undertakings necessary for domestic reforms. 2. 7 Concluding Remarks This chapter has shown that Sub-Saharan Africa's share of global agricultural export value has declined over the past several decades. This marginalization has been caused by domestic policies employed in the region and by protectionist policies in developed countries. Assessing its own progress during the implementation of the URAA, Sub-Saharan Africa made some improvement in the area of market access, but the work is still incomplete. Africa maintains high tariff bindings and, in addition, export taxes and activities by marketing boards continue to adversely affect producer prices. In order for Sub-Saharan Africa to more fully capture gains fromtrade it is essential to reduce further applied · and bound tariff rates as well as reduce taxation in the agricultural sector. This can be done by eliminating policies that protect the industrial sector, impose taxes on export products, or that maintain govermnent controlled domestic prices below world prices. On their trading partners' side, there is clear evidence of tariff peaks and escalation, in particular in the Quad countries (EU, US, Japan, and Canada). The post-Uruguay tariff 30 Liberalizing Agricultural Trade: Issu,es and Options ... rate for tobacco reached a maximum tariff rate of 350% in the United States; those of groundnuts and coffee as high as 550% and 30%, respectively, in Japau; aud the rate for maize was around 84% in the EU. For Sub-Saharau Africa to capture the gains from trade in the Doha Development Round, concurrent domestic polices in terms of low tariffs aud sector pricing policies must improve along with market access policies in developed countries. Reducing its own import protection will make Africau exports more competitive in international markets. But it will also be importaut for developed countries to create better market access so that countries cau realize the full benefits of liberalization. Apart from traditional issues in the area of market access, domestic support, aud export subsidies, Sub-Saharan Africa countries are interested in making progress on the issues of SPS!TBT, TRIPS, S&D treatment, among others. What does the Doha Development Agenda meau for Africa? Sub- Saharan Africau countries must pay more attention to multilateral trade negotiations, increase participation in the processes, aud must redouble efforts to affect the outcomes of the negotiations as they did in the 2001 Doha WTO Ministerial Conference. These countries can use the opportunity to lock in reforms and so increase investor confidence in their approach to trade reform. Sub-Saharau countries cau, in partnership with coalitions, negotiate to achieve clearly defined goals such as the dismautling ofrestrictive trade practices that inhibit export diversification in poor countries. Liberalizing Agricultural Trade: Issues and Options ... 31 End-Notes 1. The authors gratefully acknowledge Joseph Carroll for the helpful comments and suggestions. 2. Tariff escalation is a characteristic of tariff regimes in which higher rates are levied on processed products than on products closer to raw materials in the processing chain. This protects the domestic processing industries. 3. Preference margin is the difference between MFN and preferential tariff rates. 4. This means that countries can apply tariffs at or below the bound maximum, but not raise them above the binding level unless it is renegotiated in GATT and compensation given to affected trading partners. 5. Only least-developed countries were exempt from cuts in bound rates. The lack of reduction commitments by African countries was accepted by their trading partners. 6. According to the Understanding on Article II:l (b) the ODC rates that are listed as part of the binding should reflect actual applied rates on April 15, 1994. Failure to report ODC may under-state protection. 7. This is also occurring in a number of industrial countries (e.g., European Union) and other developing countries (e.g., Latin American countries' price bands). 8. The footnote in Article II states that variable levies, etc., are forbidden. Also, the Agreement in Customs Valuation forbids the use of minimum price systems, except for developing countries that make a special reservation for it. 32 Liberalizing Agricultural Trade: Issues and Options ... References Gibson, P., J. Wainio, D. Whitley, and M. Bohman. (2001), 'Profiles of Tariffs in Global Agricultural Markets', Agricultural Economic Report Nmnber 796. Washington, D.C.:USDA. Finger, J.M., MD. lngco, and U. Reineke (1996), 'The Uruguay Round Commitments: Statistics on Tariff Concessions Given and Received', (Washington, D.C: World Bank). Herrman, R. ( 1997), 'Agricultural Policies, Macroeconomic Policies, and Producer Price Incentives in Developing Countries: Cross- country results for Major Crops:, Journal of Developing Areas, No. 31 :203-220. Hoekman B., F. Ng, and M. Olarreaga. (2001), 'Tariff Peaks in the Quad and Least Developed Country Exports', Seminar presented at the World Bank, Washington DC. Hoekman, B. and M. Kostecki. (200 I), The Political Economy of the World Trading System. (Oxford: Oxford University Press). IMF. (2001), 'Market Access for Developing Countries' Exports',(Washington, D.C.: IMF). lngco, Merlinda, Tonia Kandiero, and John Randa( 2003), "Agricultural Exports: Important Issues for Sub-Saharan Africa," DRAFT Nyangito H. 0.(2001), 'Kenya's State of Agricultural Trade Reform in the Framework of the World Trade Organization', Commissioned Paper, coordinated by M. Ingco. Otsuki, T., J. S. Wilson and M. Sewadeh.2000), 'Saving two in a billion: A case study to quantify the trade effect of European food safety standards on African Exports', Mimeo, (Washington, D.C: World Bank). Schiff, M., Valdes, A. (1992). 'The Plundering of Agriculture in Developing Countries', World Bank, Washington D. C. Tangermann S. (200 I), 'The future of Preferential Trade Arrangements for Developing Countries and the Current Round of WTO Negotiations on Agriculture', Prepared for FAO/ESCP. Liberalizing Agricultural Trade: Issues and Options ... 33 Townsend, R.F. (1998), 'Policies, Prices and Agricultural Performance in sub-Saharan Africa. World Bank Policy Research Paper. Forthcoming. Yamazaki F. (1996), 'Potential Eros10n of Trade Preferences in Agricultural Products', Food Policy. 21: 409-18. Yeats, A., A. Amjadi, U. Reineke, and F. Ng. (1997), Did Domestic Policies MarginalizeAfrica in International Trade? (Washington, D.C: World Bank). World Bank. World Bank (2000), Can Africa Claim the 21" Century? (Washington, D.C: World Bank). World Bank (200 I), World Development Indicators, (Washington, D. C: World Bank). 34 Liberalizing Agricultural 1'ratk: /Ssues and Options ... Appendix 2A.1 Table 2A.1: Summary of Uruguay round commitments in agriculture Country GAIT Average Average Total Average Average Domestic Export Status Bound Bound Tariff Binding Applied Support Subsidies Duty ODC (Duty+ODC) Rates % % % % Angola D 80 0.1 80. l Benin LD 60 18 78 Botswana D 40 40** Burkina Faso LD 100 50 150 Burundi LD 100 30 130 Cameroon D 80 230 310 24.5* Central African Republic LD 30 16 46 Chad LD 80 80 Congo D 30 0 30 Cote d'Ivoire D 15 200 215 20 Djibouti LD 42 100 142 Gabon LD 60 200 260 Gambia LD 102 10 112 Ghana D 98 0.2 98.2 22• Guinea LD 38 24 62 Guinea Bissau LD 40 26 66 Kenya D 100 0 100 44' Lesotho LD 200 200 Madagascar LD 30 250 280 39 Malawi LD 124 20 144 Mali LD 60 50 110 Mauritania LD 37 I5 52 Mauritius D 120 17 137 52 Mozambique LD 100 300 400 Namibia D 40 0 40** Niger LD 80 50 130 Nigeria D 150 80 230 47• Rwanda LD 80 80 Senegal D 30 150 180 44' Sierra Leone LD 40 20 60 South Africa IND 40 40$$ 7• by 2000 by 2000 Swaziland D 40 40** 34 Tanzania LD 120 120 240 Togo LD 80 7 87 Uganda LD 80 0 80 Zaire LD 98 98 Zambia LD 124 125 Zimbabwe Notes: .. * D 146 Reduced from 70% to 40°/o Ttade-weighted average 15 161 24' D developing LD least developed Source: Finger, J.M., MD. Ingco, and U. Reineke (1996) 3 Agriculture and the New Trade Agenda in the WTO: Interests and Options for Cameroon Ernest Bamou, Dominique Njinkeu and E11111Ulnuel Douya 3.1 Introduction Current negotiations under the Doha Development Round of the World Trade Organization (WTO), which are expected to lead tp greater liberalization of agricultural trade worldwide, present exceptional opportunities for Cameroon. Since the late 1980s, Cameroon has progressively shifted from protectionist policies to policies based on market fundamentals and the policy environment is crucial. hnproving agricultural performance in the more liberalized emerging global tracling environment requires that more attention be given to measures for enhancing agricultural productivity. The WTO negotiations could allow Cameroon to capitalize on the efficiencies gained in this process to stimulate further development of both food and nonfood agricultural sectors and revitalize its economy. For that to happen, Cameroon needs to clearly identify opportunities and constraints, and the positions it wishes to take in the negotiations. A priority would be to ensure adequate market access in all markets. Given its small economic power and current export orientation, market access issues are also related to progress on regional integration. The adoption of common regional policies increases market size, reduces transaction costs, and boosts economic efficiency. And a larger, more integrated group can more readily mobilize the human and financial resources necessary to formulate sound negotiating positions. Properly designed, 35 36 Liberalizing Agricultural Trade: Issues and Options ... regional integration can therefore be a building block toward Cameroon's integration in the world trading system. A second priority should be measures to enhance agricultural productivity and minimize price variability in food and other agricultural products. The relevant WTO policy instruments include export subsidies and restrictions, and the special measures available to food-insecure states. A third priority relates to WTO rules that treat developing countries differently from developed countries, the rules on Special and Differential Treatment. One important aspect is domestic support. Improving agricultural performance in the more liberalized emerging global trading environment requires that more attention be given to measures for enhancing agricultural productivity. Cameroon has fewer options for enhancing productivity since it removed many trade-distorting measures unilaterally, even those permitted under WTO rules. Thus, Cameroon should use the international trade negotiations to permit measures comparable to those used by developing countries for sustaining development of the agricultural sector. 3.2 The Importance of Agriculture to Ca1J1eroon's Economy Agricultural development is at the center of Cameroon's growth performance. Perennial agriculture (tree crops), forestry, and fishing have been the main drivers of growth in the agricultural sector. Food production, though it does not feature prominently in the economic performance of the sector because of the high level of subsistence agriculture, plays an important role in overall development, especially rural poverty alleviation. Agriculture has always been Cameroon's main economic activity. Up to the mid-1980s it contributed close to one-third of GDP and more than 90% of exports, with 55% of those exports comprised of cocoa and coffee. Close to 80% of the population was rural and relied essentially on agricultural activities. The country's dynamic food production base had average annual growth of 14% against 3% for agricultural exports (F.A.O., 1995). Beginning in 1982, as both the industrial and agricultural sectors stagnated, oil exports began to substitute for agricultur~ as the main export. Agriculture made a comeback from 1985/86 to 1992/93 when an economic crisis created by a crash in world oil prices caused farm exports to total one-third of GDP and more than 50% of export earnings and employment (see MINEFI, 1999). Agriculture also contributed to Cameroon 37 Cameroon's economic revival after 1993/94. During this revival, agriculture's share of GDP increased by close to 10% and stabilized at slightly more than one-third until 1997. Its share in overall exports stood at over a third in 1995/96-and reached up to 79% of non-oil exports after the 1994 currency devaluation. To achieve high economic growth rates and expand international trade, Cameroon must increase productivity and competitiveness in the agricultural sector. The structure of incentives should change to eliminate the anti-agricultural bias of macroeconomic policy. Enhancing the incentives for agriculture also requires deeper reforms, even at the sector level. Cameroon also needs to enhance its resistance to external shocks without significantly changing its long-term development priorities- because of its small size, external shocks can easily disrnpt the growth process. Diversification of production and exports is crucial. That will require better access to credit for farmers and a coherent government program for rural infrastructure, basic education, and technology and extension services. Marketing channels, intellectual property rights, and patent rights are very important as well. 3.2.J Food Security and other Nontrade Concerns A country's food security can be domestic production-based, trade- based, or transfer- (aid) based. Production-based food security can be changed through policies that affect domestic demand and supply. Trade- based food security can be influenced through policies that affect the level and variability of the relative food price or the ability to generate sufficient foreign exchange to pay for food imports. Food insecurity can arise because production is insufficient or irregular or because of inadequate technologies for marketing and distribution or poor overall agricultural policy. Table 3 .I sununarizes these policies for Cameroon with a focus on those that are relevant to WTO negotiations. 38 Liberalizing Agricu/Jural Trade: Issues and Options ... Table 3.1. Cameroon and the WTO multilateral agricultural negotiations Policy WTO negotiation focus Food production Input credit Domestic subsidies Subsidized or free inputs Domestic subsidies Research and extension TRIPS Capital expenditure and investment promotion Domestic subsidies Marketing (trade) Market development and regulation No direct focus Parastatal reform State trading ente.rprises Food price stabilization (buffer stock or funding) Domestic subsidies and tariff: Green Box conditions, export regulation Labor High-value export crops Market access, domestic sub.!.idie Micro-finance No direct focus Minimum wages Process criteria Transfer and safety nets LaborMintensive public works programs Export subsidies Targeted~eding programs Export subsidies Food price subsidies Dom,estic subsidies Enabling macro and sectoral policies Infrastructure (transport, communication) No direct focus Exchange rate policy No direct focus Health No direct focus Education No direct focus Source: Authors. Despite remarkable performances in food production, Cameroon's food self-sufficiency coefficient has been low. The contribution of traditional production to domestic consumption decreased from 86% in 1970 to 63% in 1990, with the gap filled by imports and agro-industrial production (FAO, 1995). This growing dependence on imports puts food security at the mercy of external shocks and involves significant outflows of foreign exchange that weaken the country's balance of trade. The domestic food deficit can be explained by a rapidly growing population, with an annual growth rate of 2.8%, and rapid urbanization (Herbel, 2000). Rising food exports to neighboring countries (regional trade partners and Nigeria) in recent years has worsened the deficit. Cameroon 39 To improve food security, in the 1970 's the government initially adopted an interventionist policy, creating public enterprises such as the Cereal Authority and the Foodstuff Development Authority to stabilize food prices and supply. Despite annual subsidies amounting to some 700 million CFAF, these objectives were not attained and the enterprises were liquiaated. Since the .structural adjustment program reforms implemented in 1989, the food security strategy has been based on private initiative. To ensure food of adequate quality and quantity, the govermnent set up a new food security program in 1991 jointly with the IBRD and the Japanese government to cover the organization of food markets in secondary towns, nutrition education, phytosanitary control, financing through the Fund for Agricultural and Communal Microprojects, and a National Early Warning System (NEWS). The early warning system is intended to provide information on food markets, harvests, and forecast, especially in ecologically fragile areas (MINAGRI, 1998). Its effectiveness has been limited, however, largely because of underfunding. 3.2.2Agricultural Policy in Cameroon The agricultural sector has, until the mid 1980s, been dominated by govermnent intervention and failure in the supply of inputs and marketing of products and the high taxation rates applied to agricultural exports. Liberalization brought about major changes in government policies on subsidies. The strnctural adjustment programs eliminated all subsidies, including those for which developing countries are eligible for exemptions under the WTO. Instead of direct subsidies, the government is endeavoring to indirectly assist farmers and other operators in the agricultural sector through grants and the provision of scientific, technical, and business information. Thus, for example, FIMAC was created in 1996 to facilitate the financing of agricultural microenterprises. In conjunction with international organizations such as the World Bank and the African Development Bank, government structures (National Project for Extension Work and Agricultural Training, Support for Peasant Strategies and Professionalism in Agriculture ) were set up to provide farmers and other agricultural agents with economic, business, scientific, and technical information. Non-govermnental organizations (NGOs), cooperatives, and private service providers are assisting the govermnent in this information and extension work. Several aspects of food and agricultural policy are related to the agricultural agreements under the Uruguay Round. In particular, 40 Liberalizing Agricultural Trade: Issues and Options ... Cameroon's unilateral liberalization ofinput supply and extension services and its still weak capabilities. in sanitary and phytosanitary protection affect its negotiation position in Doha Round of trade talks. Input policy: Input policy is atthe center ofCaineroon's efforts to increase agricultural productivity and competitiveness. In the period before the Uruguay Round negotiations, the government intervened heavily in the supply of inputs to agricultural producers, especially fertilizer-proper use of fertilizer can lead to production increases of as much as 40-5 0% (MINAGRI, 1999). This included the National Fertilizer Program, set up in the 1960s and replaced in 1980 by the National Rural Development Fund (FONADER), which in addition to fertilizers supplied other types of agricultural inputs such as phytosanitary products. Inputs were heavily subsidized and distributed to farmers by the Ministry of Agriculture or by the development corporations in charge of cocoa (SODECAO) and cotton (SODECOTON). This active promotion and subsidized provision of inputs significantly increased demand for agricultural inputs, but state monopolies proved ineffective in distributing the inputs and the program became increasingly costly to the treasury (Ntsama, 2000). A turning point came in the 1986/ 87 agricultural season, as a sharp drop in the prices of major export commodities led to increasing financial tensions. With the backing of international donors., a new strategy in 1987 sought to liberalize and privatize the fertilizer sector through an efficient and sustrunable program for the import, distribution, and use of fertilizers. Fertilizer imports declined (Ntsama, 2000) until the 1994/95 season, due to rising prices with the progressive phasing out of subsidies; the oligopolistic character of the market; the fall in the prices of agricultural products, which lowered the purchasing power of farmers; and a high indirect tax burden on agriculture, which penalized agriculture relative to the rest of the economy. Agricultural extension service's and crop development: In 1994 most services were provided by cartels or monopoly state enterprises; by 200 I few were. Agricultural development corporations have played a critical role in Cameroon's agricultural development (see Table 3.2 listing the pre- and post-Uruguay Round state agricultural extension service enterprises). The reform led to some rationalization, with areas previously under state monopoly liquidated, restructured, or privatized. Cameroon 43 Direct intervention in the agricultural sector by state enterprises has at times contributed to the transfer of valuable knowledge and the adoption of modern teclmiques, and even to the provision of social services (schools, dispensaries). For example, the Cameroon Development Corporation, in a partnership agreement with Del Monte, made major investments in the banana sector in exchange for exclusive marketing rights. In return, the government imposed an export tax of CFAF 4,500 per ton on bananas. The state enterprise Organisation Camerounaise de la Banane was involved in the production of bananas and helped create thousands of direct and associated jobs. Other fonus of intervention included the provision of agricultural inputs and the development offarmlands for private producers. The Societe de Developement du Cacao served as an intermediary to FONADER, supplying subsidized inputs to cocoa producers and it directly carried out certain production operations such as phytosanitary treatment. Its intervention helped ensure the maintenance of plantations and the production of good quality cocoa. Three state firms focused on developing farmlands, employing independent subsistence farmers in irrigated rice farming, supplying inputs and credit, and processing paddy rice. In the cotton growing regions, SODECOTON trains and supervises producers, employing more than 1,000 extension workers and prefinancing inputs. This continuous training and. supervision helped sustain the growth of cotton production while growth of other export commodities collapsed. State marketing of agricultural products has been less successful. MIDEVIV°was responsible for securing a regular and stable supply of staple foodstuffs for the urban population. The National Produce Marketing Board was in charge of marketing export crops, especially coffee, cocoa, and cotton. On the whole, the marketing board was unable te buffer price changes for producers once world prices started their downward spiral toward the end of the 1980s. As part of the agricultural liberalization reforms, the marketing board was liquidated and replaced by the National Coffee and Cocoa Board and by professional organizations including a group of exporters. The last area of intervention for public authorities was in the traming and supervision of farmers in the use of improved varieties, notably maize, cocoa hybrids, coffee clones, and a variety of oil palm. Farm credit is provided by many agencies including the Financing of Investment in Community-based Micro-Agricultural Projects (FIMAC), which in less than a decade has granted CFAF 1.1 billion in credit to 2,885 groups. 44 Liberalizing Agricultural Trtide: Issues and Options ... Despite the efforts of FIMAC, funds mobilized and distributed remain far below the needs of producers. Sanitary and phytosanitary protection: The WTO Agreement on Sanitary and Phytosanitary Measures (the Agreement or SPS) permits individual members to apply phytosanitary standards on imports as long as they are consistent with the provisions of the Agreement, are based on scientific principles, and are not used to protect domestic firms. The Agreement specifies that import restrictions to protect human, animal, or plant life should be the minimum necessary to achieve their objectives. Like most other developing countries Cameroon does not yet have the capacity to apply these international standards relating to risk assessments, data provision, and. other standards. Before the structural adjustment program, the National Rural Development Fund (FONADER) financed phytosanitary inputs and agricultural equipment for farmers. Though phytosanitary treatment was left to farmers, the government was heavily involved in treatment campaigns against insect pests, often across entire agricultural zones. Both government distribution of phytosanitary products and treatment of vast infected areas came to an end with the economic crisis and later reforms. Law 90/013 of August IO, 1990 on phytosanitary regulations in Cameroon specifies the conditions governing the. importation, exportation, conditioning, storage and distribution of pesticides for agriculture. Decree 92/223/PM of May 25, 1992, defines the terms and conditions of enforcement of the law. It is aimed at preventing the introduction or propagation of plant diseases and at ensuring the legality, quality, and safety of phytosanitary products. Imports of plants, plant products, or soils require a country of origin document and import authorization, while exports also require a phytosanitary certificate on sanitary status, origin, and destination. Authorization and certificates are issued by the phytosanitary services at the request of the importer or exporter according to the terms set by the Ministry of Agriculture. The decree also regulates authorizations to market and to use pesticides for agricultural purposes. The procedure is long and costly. Real nominal rates ofprotection: The real nominal protection rate assesses the effects of all factors such as tariffs, non-tariff barriers, fraud, corruption, weak infrastructure that influence the prices paid to local Cameroon 45 producers. Nominal rates of protection on Cameroon's chief agricultural exports have worsened since the reforms, from -4 7. 6% for cocoa, - 54.5% for robusta coffee, and -61.0% for arabica coffee in 1980-89 to -50.6%, -56.3%, and -61.2% in 1990/1999, reducing producer prices by some 30-40% (Table 3.3). Contributing factors include excessive regulation of exports, the poor state of roads, insufficient storage facilities, and delays in loading, which increase transportation and transaction costs. Direct transport costs are also high. Douala port, Cameroon's main transit port, is the most expensive port in West Africa-a ton of rice is charged CFAF 861 at Douala port, but only CFAF 666 in Libreville, CFAF 550 in Conakry, CFAF 357 in Dakar, and CFAF 250 in Abidjan (Njinkeu and Monkam, 2002). Telecommunication services costs are also higher in Cameroon. All of these factors add to the costs of Cameroon's exports, making them less competitive. The extent of domestic distortion is also reflected in how far producer prices fall short of the border price, which can be influenced by· transportation, marketing, pricing, distribution, and storage policies. That share is 70% for cocoa and coffee for Cameroon producers. Factors explaining these price wedges include agricultural and macroeconomic policies, road density and quality, credit availability, and crop trade volumes (Townsend, 1998). 48 Liberalizing Agricultural Trade: Issues and Options ... 3.3 Unilateral and Multilateral Trade Policy Commitments 3.3.1 Unilateral Agricultural Trade Policy A comparison of policy outcomes prior to 1988/89 and since 1989/90 gives an indication of the extent of liberalization achieved and of what outcome can be attributed to unilateral reforms and which to the multilateral framework. Agriculture and trade until 1988: The main objective of trade policy during the two decades following independence was development of the industrial sector. To protect this infant sector from foreign competition, policy instruments included tariff barriers and quantitative restrictions, import and export authorization requirements, import and export· price adjustments (using tax revenues from imports of a particular product to subsidize local producers of the same product and authorizing imports in proportion to local purchases of the product), local content prescriptions, and a wide range of price control measures. Table 3.4 shows the products subject to those trade restrictions. Table 3.4. Cameroon's agricultural products subject to trade restrictions before 1989 Product Trade distortions Wheat flour Import and export authorization and price controls Pasta Import and export authorization and price controls Fungicides, herbicides, Import and export authorization and price controls and insecticides Plastic bags and sacks Import and export authorization and price controls Concentrated sweetened milk Import and export authorization and price controls Salt Import and export authorization and price controls Cotton wool Import and export authorization, price controls, and import and export price adjustments Tea Import and export authorization, price controls, and import and export price adjustments Maize Import and export authorization, price controls, and import and export price adjustments Rice Import and export authorization, price controls, and itriport and export price adjustments Cameroon 49 Corn meal Import and export authorization, price controls, and import and export price adjustments Soya-bean and groundnut oil Import and export authorization, price controls, and import and export price adjustments Palm, cotton and coconut oils Import and export authorization, price controls, and import and eXport price adjustments Raw and refined sugar Import and export authorization, price controls, and import and export price adjustments Edible meat Import and export authorization, price controls, and import and export price adjustments Fishery and livestock products Import and export authorization, price controls, import and export price adjustments, and Supervisory ministry's visa FOod for animals Import and export authorization, price controls, import and export price adjustments, and Supervisory ministry's visa Medicaments for cattle Import and export authorization, price controls, import and export price adjustments, and Supervisory ministry's visa Other pharmaceutical product Import and export authorization, price controls, import and export price adjustments, and Supervisory ministry's visa Alcoholic beverages Import and export authorization, price controls, import and export price adjustments, and Supervisory ministry's visa Source: Authors' compilation, based on MINDIC (1989). The protectionist trade policy of this period is reflected in multiple tax and tariff rates (more than 20 different taxes). Applied in a discretionary manner, they sometimes reached 90% of the cost, insurance, and freight (c.i.f.) value (see tables 3.5 and 3.6). Numerous state-owned corporations also indirectly managed the agricultural market during that period and provided subsidies for agricultural inputs (fertilizers, phytosanitary products). Nominal and effective rates of tariff prntection for the agricultural sector were only around 20%, while most industrial sectors had nominal and effective rates of tariff protection from 50% to 70% in 1989/90 (Nguidjol, 1998). Nontariffbarriers such as import and export licenses and local content requirements significantly protected important foodstuffs. 50 Liberalizing Agricultural Trade: Issues and Options ... The complex protectionist policy regime imposed heavy losses on producers and discouraged new investments in the sector. The effective rate of taxation on cocoa farmers was estimated at 24-76% between 1970 and 1985 and that on coffee farmers at35-76% (World Bank,1989). Agriculture and trade since 1989190: Although Cameroon did not participate in the Uruguay Round negotiations (1986-1993), it achieved significant liberalization unilaterally during the negotiation period through its structural adjustment program policy reforms. Quantitative restrictions and price controls were gradually lifted. Today, protection is limited and 1s provided almost exclusively through tariffs. Heavy government Table 3.5: Post-January, 1994 reform of tariff and tax structure Tax/tariff Field Base Rate range Customs duty Import Ad valorum 5 to 30% Entry tax Import Ad 5 to 70%1 valorum Turnover tax Import Ad valorum 10% Complementary tax Import Ad valorum 0 to 90% Unique tax UDEACimports Ad valorum 10% Exit tax Export Ad valorum O to 40%t Unloading tax Import Specific, 595 to 6,200 CFAF/ton Warehouse tax Import Specific na Petrol tax Import Specific na Animal circulation tax Import/Export Ad valoi'um 100 CFAF/lOOkgs Sanitary and veterinary tax lmportf.Export Specific, 1 to 3o/o Council tax Export Specific na Packaging tax Export Ad valorum 5°/o Additional tax Import Ad valorum na Computer dues Import Ad valorum 1.5%, Fees for establishment of loading slip (customs) Export Specific na Fees for registration in the permanent survey on merchandise transactions Sanitary control fees Export Specific na Conditioning tax Export Ad valorum 50 CFAF/ton Loading tax Export Specific Oo/o Cameroon National Loaders Export Ad valorum 247.2 - 588.5 CFAF Board (CNCC) tax Export Toll and weighting charges Export Ad valorem 0.30 - 0.39% Credit distribution tax Export Specific 1% ASECNA royalties Export Ad valorem 2 CFAF/kg na = not available. Source: Authors' compilation based on "Tart[ Douanier UDEAC" (1988) and Bamou (1999) Camerovn 51 involvement in input supply and distribution have largely been replaced by greater private sector participation. For. some products, howi;ver, market failures still impede the development of competitive market conditions. And the inexperienced exporters who entered the market often lacked the skills to assess product quality, resulting in a reduction in export quality (Douya, 1995) . ... ~ N 0 ~ "' • • - .; .., N .,; N <-i I N N "' "' - "' "' r. s t "' ~ ~ 0 0 ~ ~ N ... .; N C! .., ~ - - "' 0 ... • "' ~ ! .. • j ~ ~ "' ~ - "' 00 .; .., "' 0 N .., 0 N "' .,; ... ~ .; N rt: "' ; .5 ... N ": .., ... ": z ~ .., - ~ N "' - - '- '"' N - - ..; N u " 0 "' ~ ii: "' .., ~ ~ ,.; ... 0 0 "' .,; "' .,; 0 ~ N ~ ~ "' !l - "' "' ... .., ... "' • .. .,, ;; 0 a; .., .,; 0 ~ .; 00 .; N .,; ·~ 00 ~ • g ~ .- .,," .e - ~ • • -~ "3 ~ .£! ol :g • " .£! • • e ] " ·~ "ii, • " ,, .,, "ii, "' • .2 -s : • g ·~ .5 .• .. -~~ ii .. " ii. • 0. 0. • g ~ • § • ..- ~ j ~ 0 1l "ll e -~ • • • :z: 0 • • r.!l " " "' 52 Liberalizing Agricultural Trade: Issues and Options ... Another significant post-1988 policy undertaking was the Agricultural Sector Adjustment Program (ASAP) of 1994, which sought to create a favorable envirorunent to boost production in agriculture, ensure food security, and increase agricultural competitiveness (M!NAGRI, 1994). This reform coincided with the Regional Fiscal Reform Program of the Central African Economic and Customs Union (UDEAC), which sought to reduce tariffs, indirect taxes, and the scope of exemptions and customs duties among members by simplifying the fiscal system, increasing the transparency of administration, strengthening revenue collection, and improving the efficiency and competitiveness of enterprises through a wider tax base and reduced and uniform tax rates.' The reforms were reinforced by the devaluation of the currency, which removed most of the bias against agricultural development introduced by past macroeconomic policies. These sets of reforms resulted in a substantial reduction in the number of taxes and rates in Cameroon (see table 3. 7). 3.3. 2 Cameroon's Experience with the Uruguay Round Agreement on Agricultural The Uruguay Round Agreement on Agriculture established new multilateral rules for market access, domestic support, and export subsidies. What has this meant for Cameroon? Market access and agricultural tariffs: The European Union remains the main outlet for Cameroon products, thanks to the preferential trade agreements of the Lome Conventions (and the successor Cotonou Agreement) (table 3.8). The average tariff facing Cameroon exports on international markets is low. For the European Union, the main destination, exports in 95 of514 lines of the European Union's 9,506 customs schedule lines faced a zero most favored nation duty rate. Overall, 98% of the schedule lines in which Cameroon exports to the European Union pay no tariff once restrictions such as on rules of origin are met (see table 3. 7 for tax l!Ild tariff rates on some agricultural products before and after the 1994 reforms). 56 Liberalizing Agricultural Trade: :fssues and Options ... The low tariff does not necessarily. mean easy access, however, most competitors have been trading at most favored nation rates, and these are due to fall. Some preference schemes, such as the African, Caribbean, and Pacific countries-EU accords are due to be renegotiated. One of the main consequences of the Uruguay Round negotiations, therefore, is the erosion of preferences affecting the competitive positions for Cameroon's agricultural exports as products face competitors, many with better cost structures. In 1992, Cameroon's non-oil exports faced a 3.81% average tariff into EU markets, but a zero rate was applied because of special treatment, yielding a 3.81% preference margin. The EU's most favored nation rate in the post Uruguay Round is 1.62%, a level that erodes Cameroon's tariff preference margin. And agricultural imports are protected relative to exports by the taxes imposed by Cameroon on its main agricultural exports and by the improvements in tax collection following computerization of customs and duties. · Cameroon undertook most of its liberalization measures unilaterally rather than within the Uruguay Round framework, binding agricultural products at a ceiling rate of 150% and a maximum 80% for other .duties and charges. The bound rates for most products are considerably higher than applied custom duties. While a step in the right direction, rates will need to be bound at levels closer to current applicable rates. • Average border protection for agricultural products rather than decrease as a result of the Uruguay Round negotiations actually increased in developed countries. Tariff escalation, which is the difference between tariffs on raw goods and processed goods, is found on important agricultural product categories, and limits Cameroon's opportunities for developing a strong agro-industrial sector and continues to provide incentives for exporting low valued-added primary products. Market access and nontarif.fbarriers: Cameroon has significantly reduced or eliminated all nontariff barriers on agricultural imports. Biit the agricultural exports of Cameroon and other African countries still face heavy nontariffbarriers in other countries, including safeguards, sanitary and phytosanitary measures, technical barriers, and antidumping measures. The sanitary and phytosanitary measures are probably the biggest constraint. Products affected by sanitary and phytosanitary measures include most of Cameroon's nontraditional agricultural exports (fresh fruits and vegetables, food preparations, meat and meat products). Lack of access to information on the sanitary and phytosanitary Cameroon 57 requirements for products in target markets and lack of capability in meeting them are constraining diversification of Cameroon's agricultural exports. 3.3.3 Domestic Policies and Constraints to the Forthcoming WTO Round Cameroon made no specific commitment under the WTO on domestic support for agricultural production. Nor did Cameroon incorporate special safeguards measnres in its WTO· submission (which give members the right to increase tariffs above bound rates in response to a snrge in imports or a decline in import prices) because it lacked the expertise needed to do so. Domestic supports still in place since the structnral adjustment programs are generally WTO compatible and cover government assistance for inputs, export transport and marketing, research, pest and disease control, infrastructure, and food secnrity. Constraints to export-led development come mainly from weak export support services and institutions for production and export (sea and air transport, storage, and packaging), investment promotion for domestic · and foreign investors, export promotion schemes, dnty exemption schemes, bonded houses, and entrepreneurship or private sector development programs. 3.4 Impact Assessment of Unilateral Liberalization Partial equilibrium and general equilibrium analysis are used to assess the impact of Cameroon's unilateral liberalization of the agricultural sector. 3.4.1 Partial Equilibrium Analysis Analysis of the impact of the 1994 currency devaluation on selected export and food products shows an overall increase in profits for cocoa, coffee, and cotton after the devaluation despite a 35% increase in production costs. These results. confirm the existence of a potential comparative advantage for Cameroon's agricultnral products (see Douya 1998 and Bamou, 1999). Though the devaluation led to a reduction in imports, while some local products, like maize and palm oil, recorded a high upsurge in demand, the absence of a coherent policy environment prevented producers from taking advantage of this opportunity. The expected effects of the devaluation on exports were also inhibited by such government measnres as the introduction of excise duties on key 58 Liberali:ing Agricultural Trade: Issues and Optibm ... agricultural exports (15% on cocoa, cotton, sugar, rubber and medicinal plants; 25% on coffee; 30% on palm oil; and CFAF 6500 per ton on bananas). The 25% tax on coffee exports reduced the price paid to farmers by about 30%. This helped to erode the incentives offarmers to increase production and encouraged the smuggling of goods into Nigeria. Analysis of the impact of overall trade reform on the agricultural sector shows a direct and significant effect on the agricultural structure and level of protection. Because of a lack of data on tax rates for individual agricultural products, nominal and effective rates of protection (NRP and ERP) are calculated for the main agricultural subsectors. 2 Agricultural sector reforms led to a reduction in the level of tariff protection. For perennial agriculture the effective rate of tariff protection went from 74% in 1992/93 to 26% in 1994/95 to 18.4% at the entry into force of the Uruguay Round Agreement on Agriculture (I 995/96). 3. 4. 2 Computable General Equilibrium Analysis To assess the overall impact of agricultural trade liberalization options, simulations were conducted using a computable general equilibrium model to test five key assumptions:' • There exists a competitive market where price, quantity of goods and services, and factors are adjusted to determine supply and aggregate demand at equilibrium. • Because the sectoral supply of capital is fixed, there can be different sectoral rates of return to capital. Technological parameters characterize the heterogeneity of the sectors. • Cameroon's share in international trade is too small to influence international prices. • There is underemployment of labor. • Sectoral production is homogeneous. Six liberalization options are considered: • Scenario I: Tax exemption of all agricultural imports. • Scenario 2: Same as scenario 1 but with the exemption of all industrial food products imported from the Central African Monetary and Economic Community (CEMAC) zone. 4 • Scenario 3: Tax exemption as in scenario 2 but with a further 25% tax rebate on industrial food products imported from the rest of the world. Cameroon 59 • Scenario 4: Same as scenario 3 but with tax exemption of all agricultural exports. • Scenario 5: Same as scenario 4 but with increased transfer from the rest of the world equal to the fiscal revenue deterioration in scenario 4. • Scenario 6: Same as scenario 5 but with double the transfer and exemption of subsistence agricultural products sold locally. Results analysis: The analysis looks at the impact of simulated measures on agricultural and agro-industrial sectors, household incomes, and food consumption. The results are summarized in table 3.10. Scenario I, exempting agricultural imports from taxes generates positive effects on the overall production of foodstuff commodities and on the food security of households. The immediate impact of this measure is the reduction of import prices relative to local products. The slight decrease in production for the hunting and agroindustrial sectors, which are in competition with liberalized imports, is more than compensated for by production increases in the three remaining agricultural sectors. Under scenario 2, the additional tax exemption of food product imports from CEMAC members reduces the budgetary surplus and, as a result, investment. A slight reduction in economic activity follows, accompanied by a slight increase in unemployment and a drop in household income. But the positive price effects have led to increased food consumption, resulting in a positive change in household welfare and an increase in food security. The macroeconomic, sectoral, and food security impacts of scenario 2 are similar to those of scenario I, except for a clear reduction in the trade balance surplus with CEMAC. This suggests that a sound, discriminatory regional agricultural and agroindustrial policy toward the rest of the world could revive regional cooperation within CEMAC. In scenario 3, which adds a 25% tax reduction to industrial food imports from the rest of the world, the positive effects on food security and agricultural production are stronger. However, the negative effects on industrial production, including agroindustry, intensify the negative macroeconomic effects. GDP falls 0.5% and unemployment rises I%. Not only does the price of domestic products relative to imports deteriorate, but the drop in local agroindustrial product demand affects supply 1in the 62 Liberalizing Agricultural Trade: Issues and OptiDns ... agroindustrial sector. This drop (the agroindustrial sub-sector dominates the industrial sector), coupled with a decline in global economic activity, results in relatively high rates of unemployment. Once more, the positive price effects due to tax rate decreases more than compensates for the negative revenue effects and results in a relative increase in household food consumption and food security. In scenario 4, the strengthening of the positive effects on overall agricultural production offsets the negative effects on industrial production in scenario 3, spurring a revival in global production that results in a notable drop in unemployment rates. The repeal of taxes on exports !roost farmers' prices, stimulating supply. The perennial agricultural sector, with a heavier tax burden than other agricultural sectors, is the main beneficiary. Deterioration in the price of local agricultural products relative to exports results in a significant upswing in exports to CEMAC and the rest of the world. The increase in imports reflects the increase in the country's overall volume of international trade, confirming the theoretical expectations for trade liberalization. The positive revenue and price effects on agroindustrial imports, due to the positive income effects and negative price effects, have a significantly positlve- impact on food security. However, tax exemptions on imports shrink the budgetary surplus by more than half. Scenario 5, in which international organizations (World Bank, International Monetary Fund, and WTO) assist agricultural liberalization programs in developing countries, is an attempt to solve the budgetary problem that could arise from agricultural trade liberalization. In general, the effects of scenario 5 are positive, at sectoral (agriculture, agroindustry), food security, and macroeconomic levels. There is a notable improvement in agricultural production as well as a clear increase in the volume of food consumption and in household welfare. The GDP growth rate is higher than in scenario 4, so the decline in the unemployment rate is almost double that in scenario 4. The budgetary surplns of the base year is regained and even exceeded by more than 20%. Sector demands being addressed through a basket of composite prodncts, increase of these demands is accompanied by producer price increases, which react by boosting supply. This then has a positive bearing on households' income. The combined positive effects of producer price and household revenue which adjust to demand and supply trends, are balanced by a substantial spur of households' welfare due to food consumption and, consequently, .by an improvement of their food Cameroon 63 . security. These positive effects are more than strengthened in scenario 6. 3,5 Regional Analysis The regional analysis, conducted within the framework of CEMAC, focuses on two points: the regional trade protocol and the constraints and opportrmities of CEMAC countries for negotiating together in the WTO framework. 3. 5.1 Regional Agriculiural Trade Protocol CEMAC's framework for coordinating and harmonizing economic and social polices has been liberalized since 1994, resulting in a more neutral and flexible trade and fiscal incentive system. CEMAC has no provisions on export subsidies and leaves to individual states the decision on export taxes. Cameroon, Central African Republic, and Gabon (see table 3.11) have some agricultural export taxes, largely intended to c~pture some of the windfall profits due to the 1994 devaluation. Agriculture, dominated by five products, represents about 25% of the value of regional trade. Trade data for 1988 and 1996 show that Cameroon dominates in agricultural trade and Cameroon and Chad in livestock trade. There are two characteristics of regional liberalization that are relevant for WTO negotiations on agriculture. First, WTO participation is low. Only Cameroon and Gabon have submitted notification to the WTO. Second, the commitment level on tariffs is also low. While the average applied tariff on agricultural goods in Cameroon and Gabon is moderate (18.7% and 22.6%), the maximum notified bound rates are some 9 and 12 times higher. Since there are no quantitative restrictions on agricultural trade, the bindings would have been expected to be close to the actual maximum Common External Tariff (TEC) value of 30% plus the maximum surtax rate of 30%. What this means is that regional liberalization could offer several desirable features, the most important being policy commitment. For this reason, a properly designed regional liberalization framework can complement integration in the world trade system. The CEMAC offers scope for policy harmonization across member states that could be used to further members' participation in WTO negotiations on agriculture. Member countries have more than 50 years of experience consolidating Cameroon 65 the external tariff and harmonizing internal tax structures. Regional trade reform already suggests the level at which consolidated and coordinated regional binding can be made. And a regional approach could help to address the main constraint facing all CE MAC members: increasing productivity for an expanded range of products. Failure to realize the benefits of regional integration has been due primarily to difficulties in sharing the benefits and costs of regional integration. This has in turn limited the benefits that agreement at the regional level could provide with such a high level of policy harmonization. Thus the main question to be addressed"is j:he extent to which regional and multilateral approaches can become reinforcing processes. 3. 5. 2 Regional or Multilateral Liberalization-or Both? While regionalism is a breach of WTO's rule on most favored national treatment of partners, the WTO allows for such free trade areas, transitional time frames and technical assistance for developing countries in implementing various agreements in recognition of their special needs and weak capacity in some areas. Overall, weaknesses in human and physical infrastructure and institutions related to international trade have been identified as key impediments to full participation by developing countries. The main problem with complementary regional and multilateral approaches is the heterogeneity of CEMAC members. Congo and Gabon depend largely on oil exports, while Cameroon has a more diversified export base. Cameroon, Congo and Gabon are developing countries while the other members are least developed countries, and the two groups are treated differently in the WTO. That differentiated treatment could circumscribe efforts to deepen policy harmonization commitments made at the regional level. Nonetheless, there are several reasons for Cameroon to coordinate its negotiations with other CEMAC members, other African regional groups, the African, Caribbean, and Pacific group, and other trading partners with converging interests on particular issues. Coordination within CEMAC would require that multilateral negotiations sustain the regional undertakings. With both developing countries and least developed countries in CEMAC, this would call for turning regional achievements into building blocks for multilateralism. Market access conditions need to be consistent with current regional reform. Countries in CEMAC should all opt to bind their CE MAC tariff structure in the WTO. The regional achievements 66 Liberalizing Agricultural Trade: Issues and Options ... made in food policy could be consolidated. Further liberalization of nonagricultural trade in the region would help reduce the effective rate of protection and stimulate efficiency and regional trade. In turn, Cameroon and other CEMAC countries would be in a better negotiating positioP to request a reduction in tariff escalation in their traditional OECD markets. 3.6, Policy Issues, Options, and Strategies for Negotiation There is a need for Cameroon to understand the context and the instruments of international trade negotiations to determine appropriate strategies and to harness regional alliances to strengthen its negotiating position (see table 3 .12 for proposals for Cameroon's negotiating position). The extent of agricultural liberalization will depend on the tariff bindings and tariff commitments and other commitments on domestic support and export subsidies. The focus of the negotiations, already agreed to during the Uruguay Round, will be on lowering bound rates and on the use of export subsidies. The agricultural negotiations should take into account experience with implementation of reduction commitments made under the URAA, the effects of these commitments on world trade in agricultural products, the special and differential treatment to be accorded developing countries, and the overall objective of establishing a fair and market-oriented trading system. Cameroon should coordinate its negotiating position with that of other relevant trading partners, talcing into account what can be obtained from the negotiations. A more liberal international trading environment is, in the long run, to the advantage of Cameroon. Such a long-term objective is however attainable only if proper actions are taken in the short-run. The short-term actions include redressing the imbalances in the current trading system. The most outspoken WTO liberalizers, such as countries that make up the Cairns Group, are prepared to include in negotiations the principle of special and differential treatment for developing countries, as well as othe: issues of interest to developing countries such as tariff peaks and tariff escalation. However, these issues will have to be negotiated by Cameroon and other developing countries, as will improved market access for products in which Cameroon has an actual or potential competitive advantage. Improvements in market access will be largely a matter of tariff bargaining, but the general formula for tariff reduction is yet to be Cameroon 67 decided. Cameroon, in coordination with other African countries, should lobby for more balance between trade in agricultural and industrial products, with a particular focus on tropical products and on the factors that have constrained expansion of agricultural production and better use of preferences available in previous agreements. Because the European Union is the main market for Cameroon's agricultural exports, negotiations should be coordinated with those on the Cotonou Agreement (successor to the Lome convention) and cover issues ofreciprocity, special and differential treatment, and the European Union's proposal to create economic partnership arrangements. A related issue is the compatibility between economic partnership arrangements and GATT article XXIV or GATS article Von regional groupings. Special attention should also be given to preferential treatment of EU commodity protocols. The European Union's Common Agricultural Policy, and the potential importation of subsidized European products that could affect domestic production of food crops, should also be considered. Trade liberalization and market access alone may not be enough to improve trade and economic performance. A new trade agreement should include the "missing links" of production and supply capacities, human resource development, physical infrastructure, trade-related technical standards, and support for regional integration as an instrument for enhancing competitiveness and easing integration into the global economy. Agricultural development in Cameroon needs to properly integrate short- and long-term dimensions, to prevent short-term solutions from impeding increased productivity in the long term. And that means distinguishing food import capacity and agricultural tradability. Food import capacity (the ratio of food import expenditures to total export revenue) is an indicator of the demand for foreign exchange to finance food imports. It shows that in the post-Uruguay Round period (l 9"15-97) Cameroon, the Republic of Congo, Equatorial Guinea, and Gabon are the only CEMAC countries with acceptable levels of food security. Agricultural tradability (the ratio of the value of agricultural trade-the sum of import costs and export revenues-to GDP) captures the extent to which the agricultural sector is directly affected by developments in world markets for agricultural products. Together, these indictors shed light on a country's interests in agricultural negotiations. African net exporters would be helped by improved market access in developed countries, combined with a reduction in export subsidies and domestic snpport, whereas African net importers are likely to have contrary interests. Cameroon 71 Like the Uruguay Round, the Doha Round has as its long-term objective establishing a fair and market-oriented agricultural trading system that provides for substantial, progressive reductions in agricultural support and protection to correct and prevent distortions in world agricultural markets. This should also be Cameroon's objective, and that of other countries at the same level of agricultural. development, as long as their specific conditions and needs are properly factored into the agreements. The main elements of Cameroon's negotiating position will focus on preference erosion, tariff escalation and tariff peaks, tariff rate quotas, export subsidies, domestic subsidies, capacity building, state trading, special and differential treatment, and consideration of multi-functional character of agriculture, especially as it relates to food security. The negotiations could provide an opportunity to examine key issues with important implications for developing countries . .Market access: Contrary to expectations, implementation of the Uruguay Round Agreement on Agriculture provisions on market access did not benefit developing countries. Exports of both primary and processed agricultural products from the developed countries to developing countries increased, while the share of developing countries in world agricultural exports was almost the same in 1997 as in the early 1970s. Upcoming negotiations need to correct this imbalance. Several factors led to the imbalances and interfered with the . achievement of simplified and transparent tariff protection reductions in developed countries. The 36 percent tariff reduction by developed countries had far less impact than intended because the base tariff was often higher than applied levels and sensitive products were differentiated from nonsensitive products. Non-ad valorem tariffs have been introduced and are being increasingly used. Up to 42% of EU tariff lines are expressed in non-ad valorem form (WT0/37, 2000). The discipline on the use of tariff rate quotas by developed countries also has not worked as intended. In converting nontariff barriers to tariffs, developed countries often converted to levels higher than the nontariff equivalents, especially on temperate-zone food products. Several tariff peaks are also found, especially on major agricultural staples and other expm:ts of interest to Cameroon and other developing countries, such as sugar, tobacco, cotton, and fruits and vegetables. Furthermore, tariffs for several key agricultural cormnodities rise along the processing chain, limiting prospects for production and trade diversification by developing countries that would 72 Libera/izi.ng Agricultural Trade: Issues and Options ... allow them to shift to trade in high value-added products with their more stablecterms of trade. Variable tari:fl); used by developed countries such as price band schemes, as well as seasonal tariffs, should be eliminated. Variable tariffs should be allowed only under the provisions for special and differential treatment for developing countries. Special safeguards also need to be simplified and made more nondiscriminatory. Market access commitments were based on the average price level in 1986-88. Members are allowed to introduce import control measures when prices are higher than the average. Complicated guidelines for calculating the reference price are subject to abuse. Safeguards should either be broadened in scope to make them available to all markets or abolished altogether. Agreements such as the Sanitary and Phytosanitary Agreement that constrain exports of agricultural commodities need to be revised to ensure that they are not used as an indirect means of protection. Developing countries often lack the human, technological, and financial resources to comply with the more stringent sanitary and phytosanitary requirements. A negotiation objective, therefore, is to ensure that requirements are revised so that only the most necessary standards are applied and that a binding technical assistance program be established for developing countries. Cameroon's competitive position could be' significantly eroded by the continued reduction in tariffs within the multilateral framework, including the outcome of ACP-EU negotiations and the generalized system of preferences (GSP). Cameroon's agricultural products will be pitted against competitors with better cost structures. Market access negotiations therefore need to properly account for the preferential access enjoyed by Cameroon and other African countries in their traditional export markets, where agriculture is highly protected. In sum, to improve market access for Cameroon's agricultural products, negotiations should strive to remove remaining nontariffbarriers and reduce tariff peaks and tariff escalation in developed country markets. ' The reduction formula should avoid differentiated treatment of sensitive and nonsensitive products and should link tariff levels on primary commodities to those on processed forms of the commodity. Cameroon should offer to reduce the level of its agricultural tariff binding and set it closer to the current applied tariff level by locking in at the current level of commitment within CEMAC. Further liberalization of nonagricultural tariffs could reduce the bias against agricultural exports. Cameroon 73 This would improve policy predictability and encourage investment and associated spillover effects on efficiency and market access. Domestic support: Overall, implementation of the agreement on domestic support to agriculture increased imbalances in the legitimate use of these trade- and incentive-distorting measures. The agreement legalized the use of these measures by developed countries while developing countries were curtailing their use, and it failed to properly define the nontrade concerns that should be taken into account in implementing them (Shirotori, 2000). Green box measures have resulted in higher overall domestic snpport levels in developed countries, meet the nontrade interests of developed countries only, create loopholes that developed countries can more readily take advantage of, and impose administrative burdens that are especially heavy for developing countries. Cameroon should request reform of each of these dimensions, so that there are new incentives for deeper liberalization in inpnt sectors and for enhanced reliance on market mechanisms to promote crop development. Export subsidies: The Uruguay Round Agreement on Agriculture required that ·export subsidies be reduced (20 percent in quantity and 36 percent in budgetary outlays) by the end of the six year implementation period and that no new subsidies be introduced. Cameroon, largely for fiscal reasons, phased out its agricultural input subsidies, resulting in reduced agricultural productivity. Negotiations on agricultural subsidies need to provide for market- based mechanisms for raising productivity, including adequate support to agricultural research and extension activities. Some export support mechanisms that are not currently available in Cameroon should have been included among the special and differential treatment measures. Cameroon should negotiate to have the option of using export support measures that can enhance the competitiveness of its agricultural products. Developing countries should be allowed greater flexibility on export subsidies and taxation. In the long run, however, these instruments should be banned. Cameroon and other African countries eliminated subsidies as part of their unilateral structural adjustment program-driven liberalization. It makes sense for these countries to receive credit for these undertakings. The credits could be in the form of assistance in completing agricultural reforms in the least painful manner. 74 Liberalizing Agricultural Trade: Issues and Options ... Food security: Although Cameroon is not on the list of net food importers, analysis points to a deteriorating food situation, giving Cameroon an interest in negotiations on this issue. Cameroon's concerns relate to the capacity to meet food consumption requirements through domestic production and imports at prevailing income levels and prices. Multilateral liberalization could reduce the availability of adequate supplies and result in short-term difficulties in financing imports of basic foodstuffs at commercial prices. The Marrakech Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net-Food Importing Developing Countries was meant to cushion these negative effects. Its key elements include support for domestic production rather than trade, technical and financial assistance to improve productivity and infrastructure, and food aid commitments. Implementation has been poor, however, largely because of design weaknesses. There is a need to ensure that the framework contains binding and feasible commitments that can assist-or at least not impede-agricultural development and food security. ht negotiations, Cameroon could request that key elements of the Marrakech Decision, especially on food aid, compensatory fmancing, and technical and financial assistance, be revised and put in legally binding terms; that agricultural support measures that impede domestic food production be eliminated or substantially reduced; that low-income countries be allowed the flexibility to pursue their food security objectives primarily through increased domestic production; and that all low-income African countries be allowed greater flexibility in domestic support measures under special and differential treatment. Cameroon could ask to be allowed to introduce measures to increase export diversification. These measures could include the cost of searching new markets in view of the likely underinvestment by the private sector. It could also ask for specific assistance in building local capacity, providing a discussion forum on trade-related issues, maintaining trade-related databases and information, undertaking high-quality analyses, providing technical assistance on norms and standards and dispute settlement, advocating better market access in industrial countries, aud helping developing countries to build coalitions and reach common positions in multilateral trade negotiati0ns. Cameroon should also join with its partners in CEMAC, for whom food security is a grt:ater concern. Solidarity with other CEMAC members Cameroon 75 could contribute to enhanced productivity of tbe couutty's agriculture and could win CEMAC members' support for some agricultural export crops tbat are of interest only to Cameroon. Taking into account lingering supply and capacity constraints needs to be a pre-condition for new negotiations. Commitments by developed countries to help developing countries to overcome these constraints should be in binding terms and with a focus on the needed structural transformation of production and distribution that is required by the liberalized international markets. Most agricultural exports are currently under zero or relatively low tariff. It is important to have these tariff preferences "bound" in the current round. 3. 7 Conclusion Cameroon's agricultural sector appears to be constrained more by its lack of capacity to respond to emerging opportunities offered by Uruguay Round tban by lack of market access. Supply-side constraints as well as institutional and human capacity have limited competitiveness. Consequently, tbe country's ability to meet its WTO commitments is limited because of inefficient administration and low levels of human and financial resources. The WTO negotiations provide an opportunity for examining key issues with potentially important implications for Cameroon and other developing countries. These countries need to participate more actively and commit themselves to go beyond their current unilateral efforts at trade liberalization. End-Notes I. SeeNjinkeu (1997), Kamgnia(l997) and Bamou (1997 and 1999a) for more developments on that fiscal reform. 2. The output-based NRP is used for calculating tbe ERP The following formulas are thus used for tbe calculations: NRP, + La" NRP, = J -1 (1) 1- ~a j ij 76 Liberalizing Agricultural Trade: Issues and Options ... with, (!+ t) . (1 + tm,) NRP, -1 (2) (1 + td,) Where t, tm, , td,, au, NRP,, NRP; are ad-valorem total imports tariff rate, sub-sector imported products tariff rate, domestic sub- sector products tax rate, input/output coefficients and nominal rate of protection on output and input respectively. The Balassa calculation approach of the ERP is preferred to Corden's. Data used are from the recent input-output tables published by MINEFI/DSCN (1999). 3. The structure of the model and the list of variables and parameters are given in the annex. 4. The Communate Economique et Monetaire d' Afrique Centrale, begun in 1994, replaced UDEAC in 1999. Members include Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, and Gabon. · 5. The database of the earlier models for Cameroon is dated 1984/85 and 1989/90. See Njinkeu (1997) for developments on the advantages of using a recent da\abase in the CGE model analysis. 6. See Bamou (1997), Njinkeu and Bamou (2000) and Dissou and Decalnwe (1994) for alternative closures of the labor market in CGEmodels. References Amin, A. A. 1999. Policies Changes and Agricultural Sector in Cameroon ISNAR, The Hague, The Netherlands. Amjadi, A., Reineke, U. and Yeats, A.J. 1996. "Did External Barriers Cause the Marginalization of Sub-Saharan Africa in World Trade?" World Bank Discussion Paper, No. 348. The World Bank, Washington, D.C. · Bamou, E. 1997. "Cameroon and Gabon Comparative Analysis of the Impact of Fiscal Reform Within UDEAC: A CGE Model Approach". African Journal ofEconomic Policy. Vol. 4, Number 2, December. pp. 115-145. Cameroon 77 Bamou, E. 1999. Trade Liberalization and Economic Performance of Cameroon and Gabon: A Comparative Analysis with a CGEModel. AERC Research Paper No. 97. Nairobi, Kenya. Banque Mondiale 1989. Cameroun: Rapport sur /'Agriculture. Volume 1 : Rapport Principal. Rapport No. 7486-CM. CEMAC. 1999. Bulletin des Statistiques Genera/es. Bangui, RCA. CIRAD. 1993. Re lance Regionalisee de la Production Paysanne du Cafe et du Cacao au Cameroun. Yaounde, Cameroun. Decaluwe, B., Njinkeu, D., Bela, L and Cockburn, J. 1999. Regional Integration and Trade Liberalization in SSA: A UDEAC Case Study, in Oyejide, A., Elbaclawi, I. and Yeo, S. (eds) MacMillan Press, Dissou, Y., and B. Decaluwe. 1994. Chocs Externes et Ajustement en Cote d'Ivoire : Une Analyse en Equilibre General Dynamique. Paper presented at Second International Conference on African Economic Issues. Arusha, Tanzania, 11-14 October. Douya, E. 1995. Analyse de I 'Impact de la Devaluation du FCFA sur la Production Agricole et la Securite Alimentaire au Cameroun. F.A.O., Yaounde, Cameroun. Douya, E. 1998. Cotton Supply Response in Cameroon. African Journal of Economic Policy. Vol. 5, Number 1 (June). Dunlop, A. 1999. "What Future for Lorne's Commodity Protocols?" ECDPM Discussion Paper No:5. FAO-, CEEAC et UDEAC. 1993. Programme Comp/et de Securite Alimentaire pour l'Afrique Centrale. CEEAC RAF/88/049 et UDEAC RAF/89/061. F.A.O. 1995. Analyse de /'Impact de la Devaluation du Franc C.FA. sur la Production Agricole et la Securite Alimentaire et Proposition d'Action: Camefoun. Rapport Technique TCP/CMR/3452 (A). FAD- 1998. Rapport d'Evaluation: Appui au Programme National de Recherche et de Vulgarisation Agricoles, CAM/PSAN98/01. Republique du Cameroun. Goldin, I. et Knudsen, 0. 1990. -eds- Liberalisation des £changes Agricoles: Implications pour !es Pays en Developpement. OCDE, Paris, France. Harre, D et Engola Oyep, J. 1992. La Redefinrtion des Roles dans la Commercialisation duRiz au Cameroun Apres la Liberalisation du Marchnf) 8.1 5.8 1984/85 90.4 39.0 129.4 1521.7 8.5 1985/86 62.2 77.6 139.8 1628.4 8.5 1986/87 122.7 99.7 222.4 2063 .1 10.7 1987/88 168. I 67.7 135.8 2198.9 6.1 1988/89 310.0 91.6 401.6 3101.9 12.9 1989/90 82.7 71.1 153.8 3156.0 4.8 1990/91 38.6 40.2 78.8 2815.7 2.8 1991/92 13.3 4.9 18.2 4926. 7 0.4 1992/93 117.0 177.2 294.2 6064. 7 4.8 1993/94 160.6 302.9 463.5 9007.7 5.1 1994/95 184.4 192.2 376.6 9205.6 4.1 1995/96 216. l 170.5 386.6 9170.4 4.2 1996/97 229.5 331.8 561.3 10147.8 5.5 1997/98 213.4 174.4 387.8 1213.5 3.2 1998/99 243.4 229.9 473.3 1364.6 3.4 1999/2000 221.1 265.8 486.9 1917.4 2.5 Note: One Kenyan pound is equal to 20 Kenyan shillings and US$1 was equal to about 78 Kshs in June 2002. Source: Kenya, Statistical Abstracts (Various Years) The government has increased its funding of such support services as research, market information, and seed inspection in nominal terms since 1990 relative to such direct production support measures as artificial insemination, tractor hire, aerial spraying, veterinary services, and farm planning (Table 4.5), raising the costs of these services to farmers. Yet such direct support services are permitted for developing countries under the special and differential clause for developmental activities. 106 Libera/hing Agricultural Trade: Issues and Options . , , - Table 4.5 Expenditure on agricultural production services, 1980-98 - (millions of Kenyan pounds) '\\Dr Artif"odal Amal Thartor v~ Fann and imemination spraying ,...;,., ,...;,., inspection planning 1980 """""" 2,624 17 120 2,363 31 """""' 46 I 1981 2,703 17 124 2,435 32 47 l 1982 2,919 18 130 2,523 32 48 l 1983 3,066 19 135 2,6 l l 35 48 2 1984 3,126 19 137 2,676 38 48 2 1985 3;28 l 20 139 2 944 50 82 2 1986 3,081 15 141 l,052 174 113 4 1988 3,174 18 140 2,073 112 104 6 1989 3,139 17 144 l,783 143 11 l 6 1990 9,315 18 141 2,027 122 110 6 1991 9,789 17 144 2,030 125 110 6 1992 9,559 17 . 144 l,843 141 117 5 1993 10,700 16 145 l,800 146 119 4 1994 9,815 15 140 l,805 148 12 l 5 1995 10,450 16 149 l,924 158 129 5 1996 11,240 17 160 2,071 170 139 5 1997 l l ,688 18 166 2,152 177 144 5 1998 12,621 19 179 2,324 ;[ 9 l 156 5 Source: Kenya, Statistical Abstracts (various years). Export subsidies: Developing conntry members of the WTO made commitments to reduce export subsidies by 24 percent in value over eight years. Developing countries may exempt existing subsidies that rednce costs associated with export marketing and internal transportation, although they cannot introduce new ones. Importing countries can undertake countervailing measures if export subsidies by other countries cause serious injury to their domestic industries. For Kenya and many other developing countries the key issue in export subsidies is underuse (Oyejide, 1997). In most cases subsidies are much smaller than allowed. Since few developing countries provided export subsidies at the time of the Agreement on Agriculture, the disciplining of this practice has no direct consequence for them. The indirect effects of export subsidies can be substantial, however. For net food exporters export subsidies by competitors can cut into their market share and earnings, while net food importers may face higher import bills once subsidies are withdrawn. Kenya 107 Other Issues: The Agreement on Agricultnre also contains three other elements that are importllllt to Kenya. First, it contains new rules on sanitary and phytosanitary measures. Although intended only to protect food safety and animal and plant health, application of the rules can constitute unfair technical barriers to trade when used indiscriminately. Provision is also made for possible technical assistance for developing countries to help them comply with standards imposed by importing countries. Second, the Agreement recognizes special and differential treatment for developing countries and least developed countries, granting them 10 years to implement their reduction commitments (least developed countries are not required to make reduction commitments in any of the three areas of market access, domestic support, and export subsidies). Third, while the Marrakech Declaration noted the special difficulties of least developed countries and net food importing developing countries, which may suffer sharply increased food import bills following reductions in food export subsidies by developed countries, no operational mechanisms have been developed for implementing this decision to assist these countries. 4.3 Impacts of the Agreement on Agriculture on Kenya This section analyses the impact of the Agreement on Agricultnre on agricultnral production and on adjustments in prices, tariffs, and' trade in agricultnral commodities. 4. 3.1 Agricultural production The agricultural sector is dominated by production of a few export commodities (tea, coffee, and horticultnre), food crops (maize, wheat, and rice), industrial crops (sugar, pyrethrum, cotton, and sisal) and livestock products (milk and beef). Performance of the sector in the 1990s was dismal. Annual growth in agricultnral GDP averaged 2 percent, down from 4 percent in the 1980s. Trends were mixed for most commodities (Figures 4.1 and 4.2). The worst declines in production occurred in maize, milk, coffee, and sisal. Contributing to the decline were climate, price, market, and technological factors, but the major contributors were more likely policy related, particularly market reforms. For example, the shift from government controls on pricing and marketing to liberalized market 108 Liberalizing Agricultural Trade: Issues and Options ... Figure 4.J, Production levels of selected food commodities 1990 - 1998 i ' 1= ' i 1500 • i ·= ~ ·~· ·~' ... ·~· Figure 4.2. Production levels of selected cash crop 1986 - 1998 350 i 300 ~ 250 0 -;; 200 -·:e 150 :ii 100 b g 50 <..- 0 .1>. ~ .o."> Ri"' ~ Ri100 Number Share in (SITC) percen percent percent of peaks total (percent) European Union Fish and crustaceans (3) 373 45 0 0 45 12 Dairy products ( 4) 197 21 77 9 107 54 Fruit and vegetables (7-8) 407 10 5 1 16 4 Cereals, flours etc. (I 0-11) 174 29 75 0 104 60 Veg. Oils, fats, oilseeds (12,15) 211 0 8 2 10 5 Canned and prep.meat, fish (16) 105 17 8 0 25 24 Sugar, cocoa and prep. (17,18) 75 34 6 0 40 53 All agri., fishery products (I-24) 2,726 343 334 33 701 26 Japan Fish and crustaceans (3) 189 0 0 0 0 0 Dairy products ( 4) 146 45 57 22 122 84 Fruit and vegetables (7-8) 209 1 2 7 10 5 Cereals, flours etc. (10-1 I) 132 37 24 10 71 54 V~g. oils, fats, oilseeds (12,15) 161 1 1 3 5 3 Canned and prep. meat, fish (16) 101 21 3 3 27 27 Sugar, cocoa and prep. (17,18) 80 26 19 6 51 64 All a~ri., fishery products (1-24) 1,890. 307 132 75 514 27 160 liberalizing Agricultural Trade: Issues and Options ... Table 5.8 continues Number of tariff Jines within a tariff range Country, product group Total 20-29 30-99 >100 Number Share in (SITC) percent percent perceni of peaks total (perc~ United States Fish and crustaceans (3) 114 0 0 0 0 0 Dairy products ( 4) 251 29 58 9 96 38 Fruit and vegetables (7-8) 269 13 0 0 13 5 Cereals, flours etc. (10-11) 59 0 0 0 0 0 Veg. oils, fats, oilseeds (12,15) 124 0 2 2 4 3 Canned and prep. meat, fish (16) 90 1 1 0 2 2 Sugar, cocoa and prep. ( 17,18) 144 6 13 2 21 15 All agri., fishery products (I-24) 1,779 70 99 26 195 11 Note: Tariff peaks are defined as tariff rates of 20 percent or more. All are most- favored nation rates. Source: FAO (1999), Table 5.4 Table 5.9. Principal administration methods for tariff rate quotas, 1995- 99 (number of tariff quotas) Principal Administration Method 1995 1996 1997 1998 1999 Applied tariff 49 36 38 26 20 First-come, first-served 1_, 3 1 1 - Licenses on demand 13 22 25 25 32 Auctioning 2 - 8 10 10 Historical Importers 6 20 25 35 35 State Trading 3 3 1 - 1 Producer groups 2 2 1 1 1 Other 5 6 - - - Mixed methods 4 6 9 10 9 Non-specified 23 10 - - Total sample 108 108 108 108 108 Source: WTO (2000), Committee on Agriculture Special Session, Changes in Tariff Quota Administration and Fill Rate, G/AG/NG/S/20, 08 November. Nigeria 161 Table 5.10. Potential application and action o~ special agricultural safeguar.ds, by WTO members Potential application of Safeguard action by member and safeguards number of tariff items, 1995-98 Member Number of Number of Price-based Volume-based tariff items product groups action action (HS 4-digit headings) . Developed countries: 3856 967 64 128 European Union 539 72 26"' 47"' Japan 121 27 4" 73 bl United States 189 26 24 "' 6"' Develnping countries: 2216 728 8 0 Korea 111 34 8" Total 6,072 1,695 74 128 Source: FAQ (1999), Table 5.5 a/ HS 8-digit items. b/ HS- 9-digit items. c/ HS 6-digit items. Table 5.11. Potential applicatiori and action of special agricultural safeguards, by product category Potential application of Safeguard action by member an safeguards number of tariff items, 1995-91 Product category Number of Percentage of Price-based Volume-based tariff items total number action action of tarriff items Cereals 1,087 17.9 7. 2 Oil seeds, fats and oils and products 706 11.6 5 Sugar and confec- tionarv 291 4.8 23 . Dairy products 715 11.8 15 20 . Animal and product thereof 1327 21.9 5 47 Eggs 74 1.2 I Beverages and spirits 329 5.4 I Fruit and vegetables 809 13.3 I 48 Tobacco 73 1.2 Agricultural fibers 13 0.2 5 162 Liberalizing Agricultural Trade: Issues and Options ... Potential application of Safeguard action by member and safeguards number of tariff items, 1995-98 Product category Number of Percentage of Price-based Volume-based tariff items total number action action of tarriff items Coffee, tea, mate, cocoa and preparations; . spices and other food preparations 277 4.6 6 1 Other agricultural products 371 6.1 8 All commodity categories 6,072 100.0 72 123 Source: FAO (1999), Table 5.6 The total EU export subsidy on agricultural products, though within its connnitment level, is on an upward trend, rising from ECU 6.9 billion i.'l 1995 to ECU 7.3 billion in 1998. Rice, sugar, milk products, beef, alcohol, and ''incorporated products" were highly subsidized, with some subsidies higher than the connnitted level. TheAgreement on Agriculture allows for export subsidies on a given product to exceed the annual commitment level under certain conditions. One condition is that budgetary outlays not be greater than 64 percent of the 1986-90 based period by the end of the implementation period. Available data suggest that substantial reductions will be required in certain groups of products ·if these conditions are to be met. For example, export subsidies on sugar have not only been greater than commitment levels since 1995 but budgetary outlays have more than doubled, from ECU 379 million in 1995 to ECU 795 million in 1998. Similar trends are observable for "other milk products." U.S. export subsidy connnitments on about a dozen food products or product groups were to decrease from $1.17 billion in 1995 to $0.71 billion in 1999 (Annex 5A.4 Annex Table 5A.4.3). Actual subsidies were provided only on butter and milk products, however. Budgetary outlays on subsidies are on an upward trend, increasing from $26 million in 1995 to $14 7 million in 1998. While expenditures on most items increased over the year, they were within product commitment levels until 1998, when export subsidies on skinuned milk and other milk products were about 130 percent above connnitment levels. Substantial reductions in Nigeria 163 these subsidies will be required if the United States is to meet its overall commitment by the end of the implementation period. 5.5 Regional, Bilateral, and Preferential Trade Agreements Nigeria is a member of the African Economic Community (AEC). Established in 1991 with the aim of becoming a pan-African economic and monetary union over a 34-year period, the AEC has yet to fully take off. Thus Nigeria has not taken any specific measures under the AEC treaty. Nigeria is a founding member of the Economic Community of West African States (ECOWAS), which has provisions for trade and investment liberalization commitments. However, the ECOWAS Trade Liberalization Scheme has remained ineffective as a result of a preponderance of informal trading activities. Nigeria has also signed bilateral trade agreements with Benin, Bulgaria, Equatorial Guinea, Jamaica, Niger, Romania, Turkey, Uganda, and Zimbabwe, to facilitate trade and provide for joint committees to monitor and advise on measures for improving the volume and balance of trade among parties. It has signed investment promotion and protection agreements with China, France,, the People's Democratic Republic of Korea, the Netherlands, Turkey, · and the United Kingdom. In addition, Nigeria is a signatory to the UNCTAD agreement on the Global System of Trade Preferences among Developing Countries (GSTP). Under the GSTP Nigeria offers lower tariffs for imports from other participating countries on a limited number of products, including pharmaceuticals and certain machinery. Nigeria is also a signatory to several preferential trade agreements with developed countries. The Cotonou Agreement (the former Lome Convention) between the European Union and developing countries of Africa, the Caribbean, and the Pacific (ACP) grants Nigeria and other signatories duty-free access to the EU market for exports of all industrial and agricultural products not subject to provisions under the EU's Common Agricultural Policy. With exports of ECU 4.9 billion, or 22 percent of total EU-ACP imports in 1996, Nigeria is the largest exporter to the EU. Crude oil accounts for most of these exports. Preferential trade relationships such as the ACP-EU Cotonou Agreement and Generalized System of Preferences (GSP) offered by some developed countries to developing countries are based on complementruy rather than competitive aspects of trade (Olofin 1977; Ogunkola and Oyejide 2001), making them of limited usefulness for long-term development. In a study of preferences under the GSP and 164 Liberalizing Agricultural Trade: Issues and Options ... theACP-EU Wang and Winters (1998) found thatthemargin ofpreference is usually very small and encumbered by other requirements such as strict rules of origin and tariff rate quotas. They concluded that there is little future in trade preferences, which will continue to erode with future multilateral trade liberalization. Trade relationships among developing countries, for their part, are beset by constraints. ECOWAS, expected to be a building block of the AEC, has been more involved with peacekeeping operations than with trade issues. It has not served as an effective restraint on members' trade policy. Trade infrastructure facilities such as effective payments system, telecommunications, and transport are still underdeveloped. Since the ultimate goal is integration with the world economy, ECOWAS should focus on aligning policies with those of the WTO and on assisting members in developing the capacity for effective participation in multilateral negotiations. 5.6 Nige;ria's Interests and Optioms for the New Round of Negotiations The Doha Development Round is an important opportunity for addressing some of the remaining domestic and trade policy issues impeding developing countries' realization of the full benefits of trade liberalization. /To make the round a true pro-development round, Nigeria should tari.ffy its remaining nontariff barriers and shift from ceiling to floor binding and from uniform binding to binding that reflects comparative advantage in the agricultural sector. It should call for the establishment of a development box with strict rules on eligibility of use. Nigeria should also seek more effective implementation of Uruguay Round provisions and ministerial decisions, especially those relating to technical and financial assistance to developing countries for capacity building in trade-related issues. Especially important are improved market access conditions for its exports, stricter application of the rules on the use of domestic supports by developed countries, and elimination of export subsidies by developed countries. 5.6.1 MarketAccesslssues On the domestic side Nigeria should convert its remaining nontariff barriers to tariffs, relying on special safeguard measures for addressing balance of payment problems resulting from a surge in imports. Nigeria should bind tariffs on agricultural products at floor rather than ceiling Nigeria 165 rates as a means of locking in unilateral trade liberalization, ensuring transparency, attracting foreign direct investment, and ensuring policy stability. Uniform agricultural tariffs should give way to rates that reflect comparative advantage, development priorities, and intersectoral linkages. Tariffs on agricultural inputs and raw materials should incorporate the priority accorded to the sector, which is a necessary step for making nominal rates effective. To improve market access for its major agricultural products, Nigeria needs. to push for reduced tariff peaks and tariff escalation in its major markets. Also important is the negotiation modality for reductions in tariffs. Lack of technical capacity make the "request and offer" approach to tariff reductions currently proposed for multilateral trade negotiations inappropriate for meeting Nigeria's needs. Nigeria should request a formula-based approach for reducing high tariffs, such as the Swiss ·formula used in the Tokyo Round or the setting of limits on the ratio of the maximum most-favored-nation tariff rate to the average rate. On special safeguards Nigeria has two concerns. One is to secure its right to use special safeguard measures as an alternative to nontariff barriers, and the other is to seek a review of the rules on application of safeguards to ensure that they do not constitute a trade barrier. Nigeria should seek clearer rules on tariff rate quotas to ensure transparency and to prevent their use for circumventing the objective of greater market access. Efforts should be geared toward expanding and disaggregating the tariff rate quotas to create conditions for fair market access. 5. 6.2 Domestic Support Nigeria should argue for product-specific reductions in domestic support in place of calculations based on averages, which leave too much room for manipulation at the product level. Total support (exempted and nonexempted expenditures) has been on an upwl!J"d trend (OECD 2000), made possible by the absence of a cap on exempted expenditures or on total support. Nigeria should seek caps on total support and exempted expenditure. In addition, de minimis allowances for countries with high Aggregate Measurement of Support levels should be reviewed. Items on the list of exempted expenditures should be rationalized and some should be reserved for developing countries. 166 Liberalizing Agricultural Trade: Issues and Options.,. On the domestic front the need to develop domestic capacity for agricultural production includes, among others, improvement in production technology, distribution and processing. While Nigeria favors market-based incentives, market failures in the agriculture sector and the need to ensure food security may require government intervention. Nigeria should seek greater latitude in the forthcoming negotiations, within the confines of the Agreement on Agriculture to apply domestic support measures that address rural development (roads, water, housing, drainage, sewerage, and other infrastructure), rural poverty, environmental problems, and food security. Securing the right to provide such domestic support does not mean that the country will do so. Some of these previously-used support measures were dropped because of budget constraints. One possibility is to set aside revenue from agricultural tariffs for developing the sector. External sources of finance would also be important, whether as grants or as foreign direct investment. 5. 6. 3 Export Subsidies Export subsidies depress world prices and thus distort true comparative advantage. While removing subsidies will increase the food bill of net food importing developing countries such as Nigeria in the short run, the country should still press for abolition of export subsidies, which will improve incentives over the long run. Assistance may be required in the short run to meet food demand, and it should be directed at stimulating domestic production of food to meet basic food requirements locally. Nigeria should argue for effective implementation of the WTO Ministerial Decision on the possible negative effects of subsidy reform on the least developed countries and net food-importing developing countries. Nigeria should also seek to be officially categorized as a net food-importing developing country. 9 5. 7 Conclusion Trade policy reforms under thel986 Structural Adjustment Programs did not have a sustainable impact on development of the agricultural sector since little or nothing was done to address the fundamental problems of agricultural production. While Nigeria has gone a long way in reducing trade barriers, development of the agricultural sector remains constrained by nontrade factors, especially agricultural production Nigeria 167 infrastructure. Developing these should be a priority. Further liberalization of the sector without addressing the infrastructure bottleneck could aggravate rather than improve the trade situation. To ensure that the benefits of reform reach peasant farmers, who make up most of the sector, farmers need to be protected while efforts are directed at land reform and other measures to encourage large-scale farming. Agricultural sector reform in Nigeria is far ahead of that of reform in its major trading partners. The country should take advantage of the next round of multilateral trade negotiations not only to seek greater latitude in the use of support measures but also to push for reform of the Agreement on Agriculture and its effective implementation by developed countries. Nigeria should also use the new round to bind its agricultural products at floor levels and possibly to liberalize nonstrategic subsectors. Annex SA.1. Summaries of Nigeria's export incentive schemes Annex Table 5A.l.1 Summary of export incentive schemes abolished, in 1999 (August) Incentive scheme Operating agent Objective and remark Duty Drawback Customs Department; Standard To reimburse customs duty paid by Scheme Organization of Nigeria, Nigeria exporters on imported input used Export Promotion Council for export production. This bas not (NEPC), Conmercial and been widely utilized by exporters due Merchant Banks and CBN to the cumbersome procedural requirements involved, although the fund has been increased to $50 million (US 42.5 million) Export Expansion NEPC To encourage companies to engage Grant in export business rather than domestic business, especially exporters who have exported N50,000 worth of semi-manufactured or manufactured , products. Export Developmetl NEPC To assist exporters in partly paying Fund the costs of participation in trade fairs, foreign market research, etc. Manufacturing in Federal Ministry of To assist potential exporters of Bond Scheme Commerce and Tourism manufactured products to import free of duty, raw materials for production Of exportable products. Source: Ministry of Finance, Abuja, Nigeria 168 Liberalizing Agricultural Trade.< Issues and Options , .. Annex Table 5A.1.2 Summary of export incentive schemes currently in operation in Nigeria, as at August 1999 Incentive scheme Operating agent Objective and remark Refinancing and Central Bank of Nigeria(CBN) To provide liquidity to banks in support rediscounting facilit) Nigeria Exports and Import Banl of their export finance business, (RRF) and foreign (NEXIM). directed on exports promotions and input facility (FIF) development. Currency Retentior CBN, Commercial and Merchant To enable exporters to hold export Scheme Banks proceeds in fofeign currency in their banks. Tax relief earned by Banks -and Federal Board of To encourage banks to finance banks on export Inland Revenue exports by reducing their tax burden. credit Export Credit CBN and NEXIM Assists banks to bear the risks in Guarantee and export business and thereby facilitating Insurance Scheme export financing and export volumes. Export Price NEPC This is a form of export subsidy Adjustment designed to compensate exporters of products whose foreign prices become relatively unattractive, due to factor beyond the exporters control. Subsidy Scheme for NEPC To encourage exporters to use local use of local raw raw·materials in export production materials in export production Abolition of export Federal Ministry of Commerce To remove administrative obstacles licensing and Tourism from the export sector as much as possible. Supplementary Federal Ministry of Commerce To extend supplementary incentive allowance in favQ1 and Tourism to pioneer companies that exports of piqneer companies their products. Accelerated depre- Federal Ministry of Commerce To eXtend supplementary incentive ciation and capital and Tourism to industrial organizations for export allowance of their products. Eiqx>rt Liberalization Federal Ministry of Commerce To liberalize and promote export Measures Buyback and Tourism trade. Arrangement Export Processin~ Federal Ministry of Commerce Opened in mid - 1996 in Calabar, to . Zone and TouriSm facilitate and enhance exports. Source: Ministry of Commerce and Tourism, Abuja, Nigeria Nigeria 169 Annex SA.2 Nigeria's import and export prohibition lists Appendix Table SA.2.1 Changes in Nigeria's import prohlbition list (trade), 1995 to 1998 Date Old applied New, applied Reason emoved Rate, 1995 rate, 1998 percent percent Live or dead poultry (i.e. fowls, ducks, geese, 1998 25-35 150 turkeys; and guinea fowls) excluding day old chicks, grand parent and foundation stocks for research and multiplication purpose (H.S. 0105.1200-0105.9990 and 0207. 1100-0207.3600); Eggs in the shell, including those for hatching (0407.0000) Maize (1005.1000-1005.9000) 30 30 BOP Sorghum (1007.0000) 150 150 SDP Millet (1008.2000) 150 150 SDP Wheat flour ( 110 1.0000) 60 60 SDP Vegetable oils, excluding licensed and castor oils used as industrial raw material (1515.1100.1515.1900 and 1515.3000) 15-45 15-45 BOP Beer and stout (2203.0000, 1998 80 100 Barley (I 003.0000) 15 20 Malt (1107.1000-! 107.2000) 40 20 Evian and similar waters 65 100 (220 I. I 000-2202.9000) Baryes and Bentonite (2511 l I00-2511. 1996 5-20 5-20 2000.2508.1100) Gypsum '(2520.1000) 150 150 BOP Mosquito Repellant coils (3808.1110) 55 55 SAF Domestic articles and wares made of plastic 30-40 30-40 BOP materials excluding babies' feeding bottle (3922. l 000-3922.9000.3924. 1000-3924-9000) Retreated/used tyres (4012.1000-4012.9000) 50 50 BOP,SA Textile fabrics of all types and articles thereof, 1997 I 0-5 5 10-75 Chapters 50-63, but excluding: (a) Nylon- tyre cord (5902.100-5902.9000) (b) Multifilament Nylon chaffer fabric and tracing cloth (5111.2000.5112.2000 and 5901.9000) (c) Mattress tickings (5901.1000-5903.9000) (d) Narrow fabrics (58p6.l000-5806.4000 (e) Made-up fishing nets (5608.1100) and mosquito netting materials (5608.1900 and 5608.90001 170 Liberalizing Agricultural Trade: Issues and Options ... Date Old applied New, applied Reason removed Rate, 1995 rate, 1998 percent percent ' (f) Gloves for industrial use (6116. l 000-6116.9900) (g) Canvas fabric for the manufacture of fan belt (5907.0000 and 5908.0000) (h) Moulding cups and lacra (6212.90000 Elastic bands (5604.9000) Motifs (5810.1000 - 5810.9000) (i) Textile products and articles for technical use (5911. l 000-5911.9000) G) Transmission or Conveyor belt or belting of textile material (5910.0000) (k) Polypropylene primary backing material (5512.1100-5512.9000) (l)Fibre rope (5607.1000-5607.9000) (m) Mutilated rags (6310.1100) (n) Sacks and bags (6305.1000 and 6305.2000) Motor Vehicles and motor cycles above 1998 5-40 5-40 eight (8) years from the date of manufacture (8702.1100-8702. 9900, 8703 .1000-8703 .9000, 8704. l 000-8704 .9900, 8711.1000-8711.9000) Furniture and furniture products 1996 30-50 45-65 (9401.1000-9401.9000, 9403.1000 to 9406.0000) Gaming machines (9504 1000-9504.3000) 55 55 PMO Key for reason: BOP = Balance of Payment; SDP = Safeguarding domestic production; SAF = Safety; PMO = Public morals Source: Based on the information from the Federal Ministry of Finance, Abuja, Nigeria Annex SA.2 Nigeria's import and export prohibition lists Appendix Table SA.2.2 Import and Rxport Prohibition Lists 1991 to 1998 Conditional import prohibition list, 1991 I Live or dead poultry, that is, fowls, ducks, geese, turkeys, fowls excluding grand-parent and foundation stocks for research and multiplication purpose, eggs in the shell, including those for hatching. 2 Vegetable, including tomato puree and paste, roots and tubers, fresh or dried, whole or sliced, cut or powdered and sago pith. Nigeria 171 3 Processed wood excluding wood in the rough, squared or half squared but not further manufactured and particle board; furniture and furniture products; wooden cabinets for radio and television sets. Fruits fresh or preserved and fruit juices. 4 Mosquito repellant coils (HS Code 3808.111). 5 Textile fabrics of all types and articles thereof excluding: (a) Nylon tire cord; (b) Multifilament nylon chafer fabric and tracing cloth; ( c) Mattress ticking; (d) Narrow fabric, trimmings and linings; (e) Made-up fishing nets, mosquito netting materials; (f) Gloves for industrial use; (g) Canvas fabric for the manufacture of fan belt; (h) Molding cups and lycra, elastic bands and motifs; (i) Textile products and articles for technical uses; (j) Transmission or conveyor belt or betting of textile material; (k) Polypropylene Primary backing material; (!) Fiber rope product (HS Code 56.07). 6 Domestic articles and wares made of plastic material including babies feeding bottles. 7 Evian and similar waters, soft drinks and beverages, beer and stout, malt and barley. 8 Maize and maize products. 9 Wheat and wheat products. I0 All sparkling wines including champagne. I! Vegetable oils excluding linseed and castor oils used as industrial raw materials. 12 Aluminum sulfate including alum. 13 Retreaded sulfate including alum. 14 Branched alkyl benzene, bentonite and baryes. Import prohibition list, 1995 1. Live or dead poultry (i.e. fowls, ducks, geese, turkeys; and guinea fowls) excluding day old chicks, grand parent and foundation stocks 172 Libera/king Agricultural Trade: Issues and Options ... for research and multiplication purpose (H.S. 0105.1200-0105 .9990 and 0207.1100-0207.3600); Eggs in the shell, including those for hatching (0407.0000) 2. Maize(l005.1000-1005.9000) 3. Sorghum (1007.0000) 4. Millet (1008.2000) 5. Wheat flour (1101.0000) 6. Vegetable oils, excluding licensed and castor oils used as industrial raw material 1507-1517 (excluding 1515.1100.1515.1900 and 1515.3000) 7. Beer and stout (2203.0000, Barley and Malt (1003.0000 and 1107.1000-1107.2000 evian and similar waters (2201.1000- · 2202.9000) 8. Barytes and Bentonite (2511.1100-2511.2000.2508.1100) ·. 9. Gypsum (2520.1000) ~O. Mosquito Repellantcoils (3808.1110) '11. Domestic articles and wares made of plastic materials excluding babies' feeding bottle (3922.1000-3922.9000.3924.1000-3924- 9000) 12. Retread/used tyres (4012.1000-4012.9000) 13. Textile fabrics of all types and articles thereof, Chapters 50-63, but excluding: (a) Nylon tyre cord (5902.100-5902.9000) (b) Multifilament Nylon chaffer fabric and tracing cloth (5111.2000.5112.2000 and 5901.9000) (c) Mattress ticking (5901.1000-5903.9000) (d) Narrow fabrics (5806.1000-5806.4000) (e) Made-up fishing nets (5608.1100) and mosquito netting materials (5608.1900 and 5608.9000) (f) Gloves for industrial use (6116.1000-6116.9900) (g) Canvas fabric for the manufacture of fan belt (5907.0000 and 5908. 0000) (h) Molding cups and lycra (6212.90000 Elastic bands (5604.9000) Motifs (5810.1000 - 5810.9000) Nigeria 173 (i) Textile products and articles for technical use (5911.1000- 5911.9000) (j) Transmission or Conveyor belt or belting of textile material (5910.0000) (k) Polypropylene primary backing material (5512.1100- 5512.9000) (I) Fiber rope (5607.1000-5607.9000) (m) Mutilated rags (6310.1100) (n) Sacks and bags (6305.1000 and 6305.2000) 14. Motor Vehicles and motor cycles above eight (8) years from the date of manufacture (8702.1100-8702.9900, 8703.1000- 8703.9000, 8704.1000-8704.9900, 8711.l 000-8711.9000) 15. Furniture and furniture products (9401.1000-9401.9000, 9403.1000 to 9406.0000) 16. Gaming machines (9504.1000-9504.3000) Import prohibition list, 1999 I. Maize (1005.1000-1005.9000) 2. Sorghum (1007.0000) 3. Millet(I008.2000) 4. Wheat flour (llOl.0000) 5. Barytes and Bentonite (2511.1100-2511.2000.2508.1100) 6. Gypsum (2520.l 000) 7. Mosquito Repellant coils (3808. ll!Q) 8. Retread/used tires (4012.1000-4012.9000) 9. Gaming machines (9504.1000-9504.3000) Export prohibition list, 1995 I. Beans 2. Rice 3. Cassava 4. Maize 5. Yam 174 Liberalizing Agricu/Jural Trade: Issues and Options ... 6. Timber, rough or sawn 7. Raw hides and skin 8. Scrap metals 9. Unprocessed rubber latex and rubber lumps Export prohibition list, 1995 }. Timber, rough or sawn 2. Raw hides and skin 3. Scrap metals 4. Unprocessed rubber latex and rubber lumps Source: Based on the information from the Federal Ministry ofFinance, Abuja, Nigeria Annex 5A.3 Computation of effective rate of protection The effective rate of protection is the percentage increase in value-added per unit of economic activity made possible by the tariff structure relative to the situation in the absence of tariffs, given the same exchange rate. Two levels of aggregation were involved in calculating the effective rate of protection. The first consisted of the 36 tradable sectors (21 in agriculture-crops, livestock, forestry and fishery; 3 in mining and quarrying; and 12 in manufacturing). The analysis a, this level is used for inter-sectoral comparisons in the agricultural sector at commodity level. The second level of analysis involved highly aggregated sectors: crops, other agriculture, mining and manufacturing. The effective protective rate for industry j (T.)J is defined as the difference between industry's value added under protection (VAP,) and the value added under free market condition (V) J expressed in percentage of free market value-added. That is (1) It should be noted that value-added can be expressed as sales value of industry j's product net the sum of intermediate inputs. Using this definition for free market value-added, equation 1 becomes (2) Nigeria 175 where S. is the sales value of industry j in domestic market prices and L"M.. is'the sum of intermediate inputs valued in domestic market prices. Defnimg t.• and t.J as nominal tariffs on inputs and final output respectively and deflating the new expression for value added under free market by these rates, equation 2 becomes TJ = [VAP/({S/l+t.}·{L J J J M./l+t.})]-1 IJ l (3) Equation 3 is used for calculating the effective rate of protection. 10 Annex SA.4 Domestic support and export subsidies in major markets for Nigeria's agricultural exports Annex 5A.4 Table 5A.4.1 Trends in domestic support measures in the European Union, Japan, and the United States, 1995-97 USA (million $) Base 1995 1996 1997 Green Box measures 24098.0 46041.0 51825.0 51249.0 Development program measures 0.0 0.0 Direct payment under production-limiting 7030.0 Non-exempt categories I 25470.0 7696.9 7052.8 7042.7 Non-exempt categories II 6213.9 5897.7 6238.4 TOTAL SUPPORT 49568.0 60767.9 58877.8 58291.7 Total aggregate measurement of support commitment level 23083.1 22287.2 21491.2 Japan (billion yen) Base 1995 1996 1997 Green Box measures 2204.6 3169.0 2818.0 2652.0 Development program measures Direct payment under production-limiting Non-exempt categories I 4959.0 3544.7 3367.0 3207.1 Non-exempt categories II 3507.5 3329. 7 3170.8 TOTAL SUPPORT 7163.6 6713.7 6185.0 5859. I Total aggregate measurement of support commitment level 4800.6 4635.0 4469.5 European Union (million ECU) Base 1995 1996 Green Box Measures 9233.4 18779.2 22138 Deve.Jopment Program Measures 0.0 0.0 0.0 Direct Payment Under production-limiting 20845.5 21$20.~; 176 Liberalizing Agricultural Trade: Issues and Options . , . European Union (million ECU) Base 1995 1996 Non-exempt categories I 73644.9 50600. l 51478.0 Non-exempt categories I I 50030.0 51000.00 TOTAL SUPPORT 82878.3 90224.8 95137.4 Total aggregate measurement of support commitment level 78670.0 76370.0 Note: The figures in row for non-exempt categories I were calculated from product by product notification of expenditure. This did not distinguished from whether de minimis clause was satisfied or not. On the hand, the figures in row for non-exempt categories II only included expenditure within the de minimis level (see paragraph of Article 6 Domestic Support Commitments of the URAA). Thus, all the sampled countries violated the de minimi"s clause. The rate of violation was more pronounced in the United States. Source: Based on (1) WTO (2000), Conuajttee on Agriculture, Special Session, Domestic Support, GA!G!NG/S/l (2) WTO (2000), Committee on Agriculture, Special Session, Green Box Measures, GA/G/NG/S/2 Nigeria 179 End-Notes I. At various periods the Ministly of Trade and Tourism, Ministly of Commerce and lndustly, and currently Ministly of Commerce. 2. According to WTO (1998), the area under cultivation was about 34 million hectares. This translates to about 37 percent of total arable landmass. 3. The overvalued currency altered the competitiveness and profitability of agricultural practice and hence dampened agricultural production. SAP had reversed the trend in such a way that exports of cash crops were encouraged. 4. The analysis is based on the United Nations Conference on Trade and Development (UNCTAD) coding system of trade control measures. The system is arranged into nine broad categories: tariff measures (I 000), para-tariff measures (2000), price control measures (3000), finance measures (4000), automatic licensing measures (5000), quantity control measures (6000), monopolistic measures (7000), technical measures (8000), and miscellaneous measures (9000). Within these categories the measures are further subdivided according to their nature or objective. An example of classification by nature is prohibitions (total prohibition, seasonal prohibition, and suspension of issuance oflicense) under the broad category of quantity control measures. In sub-categorization by objectives, measures for sensitive products, be it internal taxes or charges levied on imports or technical measures, are further classified according to objectives of protecting animal health and life, plant life, environment, wildlife, control drug abuse, ensure human safety, ensure national security, and the like. 5. Customs duties on 333 six-digit HS tariff lines were also bound a1 between 40 and 80 percent. 6. Although customs duties for a period of seven years are published, changes are usually made during the annual budget presentation. For example, in 1998, the import duty rate applicable to textile fabrics in HS Chapters 50 to 60 was 65 percent instead of the published rate of 45 percent. Similarly, several items were removed from the import prohibition list and assigned high duty ra:tes. 7 In the 1999 budget, all rebates were cancelled. 8 Under licenses on demand importers' shares are generally allocated, 180 Libera/king Agricultural Trade: Issues and Options ... or licenses issued, in relation to quantities demanded and often prior to the commencement of the period in which imports are to take place. This includes methods involving licenses issued on a first-come, first-served basis and those in which license requests are reduced to pro-rata where they exceed available quantities. 9 The current list ofnet food-importing developing countries includes: Barbados, Botswana, Cote d'Ivoire, Dominican Republic, Egypt, Honduras, Jamaica, Kenya, Mauritius, Morocco, Pakistan, Peru, Saint Lucia, Senegal, Sri Lanka, Trinidad and Tobago, Tunisia, and Veneznela. 10 It should be noted that the equation recognizes tariff as the only trade distortion in the Nigerian economy. This assumption is particularly so because of lack of data on other forms of trade distortion. To a reasonable extent the assumption holds noting that ad valorem tariff dominates Nigeria's trade control measures. However, the formula can be extended to take into consideration other non-tariff trade control measures. Another important point is that ERP model has been criticized on many grounds especially on the basis of input-output assumptions. References Blackhurst, R., B. Lyakurwa, and A. Oyejide. 1999. "Improvtng African Participation in the WTO." Paper Commissioned by the World Bank for a Conference at the WTO, 20-21 September. CBN (Central Bank of Nigeria). 1997. Annual Report and Statement of Accounts for the Year Ended 31st December 1997. Abuja. CBN/NISER (Central Bank of Nigeria and Nigerian Institute of Economic and Social Research). 1992. The Impact of SAP on Nigerian Agriculture and Rural Life, Volume I: The National Report. Abuja. Federal Ministry of Agriculture, Water Resources, and Rural Development, Nigeria. 1987. Agriculture Policy for Nigeria. Lagos. FGN (Federal GovernmentofNigeria) and Vision 2010 Committee. 1997. Report of the Vision 2010 Committee. Lagos. (FAO) Food and Agriculture Organization. 1999. "Issues at Stake Relating to Agricultural Development, Trade and Food Security." Paper 4. Presented at the FAO Symposium on Agriculture, Trade and Food Security: Issues and Options in the Forthcoming WTO Negotiations Nigeria 181 from the Perspective of Developing Countries, 23-24 September, Geneva. lngco, M. D., and R. Townsend. 1998. "Experience and Lessons from the Implementation ofUruguay Round Commitments: Policy Options and Challenges for African Countries." Paper presented at the International Workshop on Agricultural Policy of African Countries and Multilateral Trade Negotiations: Challenges and Options, November 23-26, Harare, Zimbabwe. Olofin, S. 0. 1977. "ECOWAS and the Lome Convention: An Experiment in Complementarity or Conflicting Customs Union Arrangements?" Journal of Common Market Studies 16 (1). OECD (Organisation for Economic Co-operation and Development). 2000. "Agricultural Policy Reform: Developments and Prospects." Policy Brief. Paris. Ogunkola, E.O. 1999. "African Capacity for Compliance and Defence ofWTO Rights." Paper presented at a Dissemination Workshop of the Collaborative Research Project "Africa and the World Trading System" April 17-18, Yaounde, Cameroon. Ogunkola, E.O., and Y F. Agah,. 1998. "Nigeria and the World Trading System", A Draft Final Report for the AERC Collaborative Project on "Africa and the World Trading System". Ogunkola, E. 0., and T. A. Oyejide. 2001. "Market Access for Nigeria's Exports in the European Union: An Assessment of the Impact of Lome and the Uruguay Round" The Nigerian Journal ofEconomics and Social Studies Volume 43, Number !, April. Ohiorhenuan, J.F.E. 1998. "Capacity Building Implications of Enhanced African Participation in Global Trade Rules-Making and Arrangements." AERC Working Paper CR-3. African Economic Research Consortium, Nairobi. Oyejide, T.A. 1986. The Effects of Trade and Exchange Rate Policies on Agriculture in Nigeria. IFPRI Research Report 55. Washington, D. C.: International Food Policy Research Institute. Wang, Z.K. and L.A. Winters. 1998. "Africa's Role in Multilateral Trade Negotiations: Past and Future." Journal of African Economies 7 (supplement !). WTO (World Trade Organization). 1998. Trade Policy Review, Federal Republic of Nigeria. Geneva. 182 Liberalizing Agricultural Trade: Issues and Options ... WTO (World Trade Organization). 2000a. Committee on Agriculture, Special Session, Domestic Support, GNG/NG/S/l. - - - . 2000b. Committee on Agriculture, Special Session, Green Box Measures, GNG/NG/S/2. - - - . 2000c. Committee on Agriculture, Special Session, Export Subsidies, GNG/NG/S/5. 6 Agriculture and the New Trade Agenda in the WTO: Interests and Options for Tanzania Flora Mndeme Musonda 6.1 Tanzania's Economy and Trade Tanzania has liberalized its economy since 1986 under World Bank and International Monetary Fund structural adjustment programs. However, despite extensive sectoral and trade reforms, the country still faces major challenges in reducing poverty, improving food security and nutrition, and protecting the environment. With agriculture the dominant sector in the economy and the major foreign exchange earner, these challenges cannot be met without raising agricultural productivity. Doing so will require switching from traditional and subsistence farming methods to modem and commercial methods, especially by smallholder farmers, who make up most of the agricultural sector. It will also require making the right policy responses to the 1994 Urugµay Round Agreement on Agriculture, (URAA) and in the new multilateral trade negotiations of the World Trade Organization (WTO) known as the Doha Development Round. 6.1.1 The Economy Today Agriculture (including fisheries and forestry) dominates Tanzania's economy, from employment to exports. It is the major source of raw material for industry, the main purchaser of simple tools and services, and the main consumer of locally produced consumer goods. Gross domestic product (GDP) has historically moved in tandem with 183 184 Liberalizing Agricultural Trade: Issues and Options ... agriculture. In 2000, agriculture contributed 48 percent of GDP and accounted for about 80 percent of employment for Tanzania's population of 34 million. Coffee and cotton alone have accounted for as much as a third of exports, but have recently been surpassed by cashews. Other important agricultural exports are tea, tobacco, and sisal. As a group, agricultmal commodities comprised over half of Tanzania's merchandise exports in 1998. The manufacturing sector is small, accounting for 8 percent of GDP in 1998. For years the sector was dominated by state enterprises and enjoyed a high level of protection. The resulting anti-export bias (compounded by an overvalued exchange rate) discouraged production for export. Manufactures averaged just 13.8 percent of exports between 1995 and 1998. Tanzania's dependence on primary commodities means that variability in world commodity prices and vulnerability to weather conditions constrains its export performance, in addition to many other development related factors. Govermnent efforts to diversify exports achieved some success, especially following trade liberalization in the 1980s. Nontraditional exports increased in value, but the promising perfomiitnce was not sustained. As the country has liberalized, the highly sheltered industries could not compete with cheaper imports. 6.1. 2 Trade Structure Traditional export crops such as coffee, cotton, tea, cashew nuts, tobacco, sisal, and pyrethrum that had contributed more than 66 percent of export earnings in 1990 were contributing 52 percent in 1999. Nontraditional exports include processed manufactured goods, minerals, and services, with tourism at the top of the list Exports of cash crops during the past decade have been uneven, reflecting unreliable rainfall and surges in international commodity prices. During the 1990s the value of coffee exports increased until 1995 and then declined (Table 6.1). Prices nearly doubled in 1994, but volumes declined considerably, falling from 64;000 tons to 37,000 tons. Supp}x was slow to respond to the price increase, in part because export prices were not fully translated into producer prices, but mainly because coffee crops take years to mature. By 1996, production and exports had increased, but by then prices were falling. Tea values fluctuated as well. Price increases led to production increases, but again with a lag. When prices dropped sharply in 1995, value was sustained by the increase in Tanzania 185 volume. Cotton values peaked in 1996 _and then dropped. Sisal, an important export crop in the 1960s, has decreased in importance, although there are signs of an upswing. Tobacco export values peaked in 1996, nearly doubling as a result of increase in volume. Prices, which fell in 1994, recovered in 1997, but failed to regain their 1991 high. The value of cashew nut exports has soared from $5.6 million in 1990 to $112 million in 1998, thanks mainly to production increases in response to liberalization and greater private sector participation. Tanzania's semi-autonomous region of Zanzibar exports cloves which are Zanzibar's most important agricultural export, accounting for more than 90 percent of the value of exports, and a source of income for many rural people, have fallen dramatically in value since the mid-l 980s, with producer prices falling more than the world market prices in real terms. Yields are low, because many trees are old, and husbandry practices are generally poor. Table 6.1: Tanzania's Exports by 'fype of Commodity Commodity January-December 1990 1991 1992 1993 1994 1995 1996 1997 1998 Coffee Value 85.0 77.3 59.5 96 115.4 142.6 137.8 117.4 114.9 Volume 62.7 52.5 51.0 58.6 37.0 48.0 64.0 46.6 53.6 Unit price 1,355.6 1,472.3_ 1,166.7 1,639.8 3,117.8 2,972.7 2,152.7 2,518.9 2,143.6 Cotton Value 74.6 153.3 97.6 78.4 105.1 120.2 137.8 116.5 54.1 Volume 46.3 38.7 72.8 61.2 60.0 70.9 64.0 77.3 37.3 Unit price 1,611.2 1,635.7 1,340.7 1,281.6 1752 1,695.6 1,535.1 1,518.9 1,450.1 Sisal Value 4.0 2.2 1.3 3.3 5.1 6.3 4.8 8.5 6.8 Volume 7.7 4.5 4.9 4.9 7.2 11.3 7.6 13.7 10.9 Unit price 519.5 488.9 317.0 672.7 71 l.1 556.4 631.6 623.8 619.3 T•a Value 21.5 21.7 22.4 38 39.5 23.4 26.3 30.1 32.2 Volume 14.8 17.5 20.4 19.7 21.7 2L6 24.7 20.4 22.7 Unit price 1,452.7 1,240.0 1,098.0 1,925.6 1,823.7 1,081.5 1,065.6 1,473.2 1,421.0 Tubacco Value 10.6 16.7 27.2 17.0 20.6 27.l 47.0 12.9 25.5 Volume 5.8 8.0 12.7 10.6 15.4 17.0 24.0 6.3 12.7 Unit price 1,827.6 2,087.5 2,141.7 1,607.3 1,335.0 1,588.4 1957 2,065.3 2,012.3 Cashewnut Value 5.6 16,7 23.5 23.3 51.2 64.0 93.8 75.1 112.0 Volume 7.4 19.Q 29.3 32.2 65.0 75.6 121.2 103.3 140.0 Unit price 756.8 878.9 802.0 724.8 787.0 847.0 774.0 727.0 798.3 • Provisional data Note: Volume in 'ODO' Tohs; value in millions of US $; and unit price in· US $/ton. Source: Bank of Tanzania, International Economics Department. 186 Liberali.zing Agricultural Trade: 'Issues and Options ... Producer prices did not decline in real terms for copra and chilies; Zanzibar's other main exports, between the early 1980s and mid 1990, though prjces were volatile (World Bank, 2000). When prices have been good, producers have responded by increasing production. The new agricultural policy intends to encourage the production of preferred varieties of chilies and to help improve yields through extension services. Nontraditional exports have grown in importance since liberalization. Several fish species and seaweed have shown great potential, but oligopolistic private buyers reportedly pay only 10 percent of the export price of seaweed to producers. The government is exploring ways to facilitate a more competitive environment so that producers can receive a higher return. Other nontraditional export crops in Zanzibar include citrus fruits, rambutan, mango, sugarcane, ginger, turmeric, black pepper, and cinnamon. Tanzania depends heavily on imports, especially of machines (capital goods constituted 42.3 percent of imports in 1998) and other intermediate inputs (27.2 percent in 1998), but also of consumer goods (30.5 percent in 1998). Low exports and high imports translate into persistent trade d~cits, which requires borrowing. Despite its vast arabkland, Tanzania must often import food to meet its needs. With agriculture entirely dependent on rainfall, food production drops drastically during periods of drought. A joint assessment by the World Food Program (WFP) and the Food and Agriculture Organization (FAO) projects grain deficits of 560,000 tons through the mid-2000. An earlier government evaluation estimated a deficit of about 600,000 tons. Fertilizers, pesticides and herbicides, and other farm inputs and equipment are also imported, which severely diminishes the positive trade balance effects of agricultural exports. 6.1.3 Regional Trade Blocs Tanzania is actively pursuing a regional integration strategy. Regional protocols will deepen the. ongoing processes of economic integration and development in the region, improving competitiveness and promoting integration into the global economy. Regional integration is important for expanding Tanzania's markets and increasing its capacity for participation in the multinational trading system, including more effective negotiations in the WTO. Tanzania expects to maximize its influence in the negotiating process by coordinating on preparations with other si\nilar countries and through the use of common negotiating. positions. Tanzania 187 Liberalization of regional agricultural trade requires that regional group members harmonize government policies, including tariffs, special safeguard measures, technical barriers, and sanitary and phytosanitary measures. Agricultural policies in many developing countries are already drawing closer, and the commitments provided under the Agreement on Agriculture will serve as the basis for even greater coherence in trade policy through tariffication and tariff reduction. Tanzania is a member of the Southern African Development Community (SADC) and has been strengthening the East African Cooperation (EAC) agreement with neighboring Kenya and Uganda. These regional efforts are intended to harmonize economic policy and facilitate trade. Expected benefits from regional cooperation include increased trade, rural employment, and income generation; reduced informal trade; improved food security; lower marketing costs; and effective resource allocation in a long-run process of technology change and transfer. For net food importing countries like Tanzania, regional groups also offer the promise of increasing productivity in agriculture through joint regional efforts in research and development. Under the Lome Convention and its successor, the Cotonou Agreement, Tanzania received the full range of aid made available to African Caribbean, and Pacific countries by. the European Union (EU). Under Lome IV, many Tanzanian exports to the EU enjoyed nonreciprocal preferential treatment in the form of exemption from import duties. Tanzania's goods also enjoyed nonreciprocal preferential access to the markets of other developed countries through the Generalized System of Preferences. Because of Tanzania's limited export capacity, however, the benefits Tanzania reaped from these preferential arrangements have been minimal. 6.1.4 The Pre-reform Years In the first six years of independence (in 1961 Tanganikyka became independent and in 1964 united with Zanzibar to form one nation -0f Tanzania), economic policy aimed at faster incoJlle growth, with import substitution-based industrialization and wide room for private and foreign investment. Private enterprise responded enthusiastically to government promises of tariff protection and guarantees against nationalization. In 1967, however, policies shifted toward socialism, emphasizing inward orientation and a strong, direct role in the economy for the public sector. The result was policies that not only discriminated against agricultural exports and but also dampened prospects for manufactured exports. 188 Liberalizing Agricullural Trade: Issues and Options ... After growing rapidly until the late 1970s, the economy faltered from 1979 to 1985. Inflation shot up to 36 percent in 1984. Accommodation of public sector deficits added to inflationary pressures. Weak export performance meant that there was inadequate foreign exchange for imports of vital inputs needed to sustain domestic productive capacity, so manufactured goods were in short supply. Efforts were made to encourage diversification of export markets, and an export promotion department was established at the Bank of Tanzania in 1972. In response to the emerging foreign exchange crisis of the late 1970s, a new export drive became a cornerstone of the early 1980's adjustment efforts. Export promotion schemes, from duty drawbacks to foreign exchange retention schemes, failed to yield the intended results because of operational problems and an unfavorable macroeconomic enviromnent, especially an overvalued real exchange rate. 6.2 Agriculture and Food Sector Performance Over the last two decades, food production in Tanzania (Table 6.2) has failed to keep pace with population growth, remaining one percentage point below the population growth rate. That means that Tanzania is dependent on food imports and food aid to help meet its food needs. Because of heavy protection of agriculture in many developed countries, surplus production is exported at artificially low prices, depressing world market prices, so that Tanzania's food prices and food import bill are determined by events outside Tanzania, mainly in developed countries. Table 6.2: Food crop production in selected regions of Tanzania (thousands of tons) Crop 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 (estimated) Maize 2,219.7 2267 2,188.l 2,874.4 2,648.2 1.831.2 2,750.0 Sorghum 587. l 719. l 473.0 838.8 872.4 498.5 673.2 Millet 451.8 424.l 435.3 342.0 585.0 347.0 195.0 Paddy 393. l 640.9 654.5 622.6 806.8 549.7 811.5 Wheat 65.8 83.5 59.7 75.3 83.6 78.5 110.5 Sweet potatoes 256.9 258.8 283.5 448.8 418. l 477.7 394.4 Pulses 31 l.6 397.5 279.3 374.2 467.3 368.7 447.6 Banana 793.7 798.2 733.4 650.9 640.9 604.l 949.4 Cassava l,J77.7 1,708.2 1,802.3 1,492.2 1,498.4 1426.0 1,528.5 Sub-total 6,857.4 7 ,297.3 6,909. l 7,719.2 8,020.7 6.,181.4 7,860.l Source: Ministry of Agricµlture and Cooperatives, 1998 Tanzania 189 6.2.1 Food Crop Production Tanzania has enormous agricultural potential in terms of land resources and range of climatic conditions, but agricultural performance is poor for both cash and food crops. Cereal yields are far below those of the other states in East Africa (Table 6.3). During 1991-95, when the agricultural growth rate averaged 2.6 percent a year in Uganda and 3.2 percent in Kenya, it averaged -2. 4 percent in Tanzania. Agriculture is the main source of domestic food supply, raw materials for domestic industry, investible capital, and demand in other sectors. Food crops dominate production, accounting for 55 percent of agricultural GDP at current prices. Much of agriculture is subsistence production (an estimated 44 percent) and never enters the internal or external trading system (Table 6.4). Nearly all production is rain-fed. In addition to drought, late onset of rains, and pest infestations, weak agricultural performance is attributed to inadequate investment and maintenance of the economic infrastructure, weak institutional structures, poor management, and inadequate technical capacity. Poor transport infrastructure, for example, costs the economy nearly US$200 million a year, almost half the country's total export earnings (World Bank 1989). Table 6.3: Cereal yields and average annual growth rate of agricultural food production in East Africa, selected periods Cereal yields Average annual growth rate of food production Country Kilograms per hectare Percent 1979-81 1994-96 1986-90 1991-95 Tanzania l,063 l,310 0.9 -2.4 Kenya 1,364 1,822 0.9 3.2 Uganda 1,555 1,552 4.1 2.6 Average 1,327 1,561 2.0 l.O Tanzania, percentage below average -19.9 -16. I -54.2 -3 l l.8 Source: Maro 1999. ;--- 190 Liberalizing Agricultural Trade: Issues and Options ... Table 6.4: Agriculture as share of total GDP a:t factor costs in constant 1992 prices, mainland Tanzania (per cent) -Economic Activity 1992 1993 1994 1995 1996 1997 1998 1999 2000 Monetary Agriculture 26,6 27.3 27.5 28.3 28.4 27.9 27.4 27.3 26.9 Crops 18.3 18.8 18.9 19.8 19.9 19.4 19 .1 19. l 18.7 Livestock 4.5 4.6 4.6 4.6 4.5 4.5 4.4 4.4 4.3 Forestry and hunting l.3 l.3 1.3 1.3 l.3 l.3 1.3 l.2 l.2 Fishing 2.5 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.7 Total monetary GDP 73.3 72.6 72.4 72.2 72.4 72.4 72.4 73.l 73.4 Nonmonetary Agriculture 21.4 22.0 22.l 22.4 22.2 22.2 21.7 21.6 21.2 Crops 17.0 17.5 17.6 17.9 17.7 17.8 17.4 17.3 17.0 Livestock 2.2 2.2 2.2 2.2 2.2 2.2 2.1 2.1 2.1 Forestry and hunting l.9 2.0 2.0 2 2 l.9 1.9 l.9 l.8 Fishing 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 TOtal nonmonetary . GDP 26.7 27.4 17.6 27.8 27.6 27.6 27.6 26.9 26.6 Total monetary and nonmonetary 100.0 lOO.O 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Bureau of Statistics. During the 1980s price controls kept real producer prices low. Prices rose following the reforms of the late 1980s, reaching 50-165 percent of previous levels. Prices fell again between 1993 and 1999 (wheat and paddy fell the most but maize and millet as well as world prices for cereals and traditional commodity exports trended downward (Table 6.5). i 191 Table 6.5: Real producer prices for food crops, 1981-99 (constant 1998-99 Tshs/kg) Year ].>rice index" Maize Paddy Wheat Millet Beans Cassava Official procurement prices 1981-85 1.4 140 232 195 117 334 na 1986-90 5.6 149 250 170 109 369 na Market Prices 1990-91 12.3 106 212 473 279 471 na 1991-92 14.7 279 370 495 289 508 73 1992-93 18.6 298 491 525 365 533 91 1993-94 25.2 256 424 497 376 712 84 1994-95 32.7 181 254 452 484 797 76 1995-96 43.3 165 216 423 538 571 75 1996-97 58.3 138 245 362 245 475 67 1997-98 77.3 117 195 272 175 431 61 1998-9.9b 100 118 151 228 175 317 53 a. National Consumer Price Index where 1998-99 = 100 b. To April 1999. Source: World Bank, 2000a A key impediment to more rapid agricultural sector growth is the legal and regulatory framework. Among priority measures for improving the regulatory framework are reform of the business licensing system, implementation of the Land Act and the Fair Trade Practices Act, and coordination of industrial, environmental, privatization, and investment policies with export development initiatives. But Tanzania lacks the resources to put regulations and institutions in place to operationalize the laws. Sensitivity analysis on various food and cash crops in Tanzania indicates that lowering prices and taxes has different impacts on these crops. Input subsidies may not be the best way to promote better cotton management, for example (World Bank, 2000). Local market taxes and levies seem to account for a substantial share of total crop income. If all cashew taxes were eliminated, for example, farmers' profits would rise by 19-30 percent. Calculations of private and social domestic resource costs for selected crops using average technology levels show that these crops are internationally competitive (Table 6.6). The only exceptions are tea and maize. 192 µbera/idng Agricultural Trade: Issues and Options ... Table 6.6: Private and social domestic resource costs for selected Tanzanian crott!J Commodity PrivateDRC SocialDRC Average Improved Potential Average Improved Potential Maize (Iringa) 0.89 0.71 0.61 0.93 0.72 0.61 Maize (fabora) 0.79 0.84 0.77 o_,73 0.80 0.72 Maize (Dodoma 1.02 1.23 2.26 0.66 0.71 0.96 Rko(ramfud, upland) 0.58 0.82 Rice (rainfed, lowland) 0.37 0.47 0.60 0.78 Rice Irrigated, Morogoro) 0.32 O;l4 0.31 0.63 0.72 0.66 Sesame (Mtwara) 0.62 0.44 0.50 0.31 Cotton (Shinyanga) 0.59 0.66 0.74 0.43 0.50 0.53 Tobacco ((flue cured) 0.77 0.70 0.59 0.62 0.56 0.47 Tobacco(fire cured) 0.76 0.77 0.60 0.56 0.56 0.44 C"hew (Mtw"") 0,35 0.48 0.41 0.27 0.26 0.22 Cashew(Tanga) 0.69 2.57 2.51 0.50 0.90 0.81 Coffee (arabica) 0.50 0.35 0.28 0.39 0.27 o.zi CofTue (robooa) 0.66 0.65 0.58 0.59 0.56 0.49 Tea (smallholder) Iringa l.40 l.48 0.97 0.92 Tea(estate) Iringa 1.30 1.01 0.55 0.43 Sugarcane Morogoro 0.68 0.65 0.80 0.77 Average means average of the sector, improved is improved technology, potential is 'what can be achieved with changes in technology. DRC is Domestic ~esource Cost. Source: World Bank. 2000b. "Tanzania, Agriculture: Performance and Strategies for Sustainable Growth." Washington D.C. Ministry of Planning Tanzania for Methodology. 6. 2. 2 Poverty Reduction and Food Security Progress in reducing poverty and malnutrition and in increasing food security .in Tanzania is highly dependent on performance in the agricultural sector. The incidence and severity of poverty are twice as high in rural areas as in urban areas, and rural households lag behind urban households in almost every quality oflife indicator. And with about 80 percent of the workforce involved in agricultural production, no development strategy could improve the lives of the majority of the population without significant investment in agriculture (WTO, 2000). Unstable agricultural production coupled with fluctuations in commodity prices has adversely affected food security. Food aid serves as a mechanism for lessening the tension of structural deficits and a weakening economy. The World Food Program (WFP) and Food and Agriculture Organization (FAO) estimated a national food deficit of 560,000 tons for the period through mid-2000, and an earlier evaluation by the government estimated a deficit of about 600,000 tons. That means that the country continues to need food aid. Tanzania 193 However, food aid does not always reach the most vulnerable groups, and it can act as a disincentive to local food production. Subsidization of food imports can accelerate substitution of imports for domestic production. Local coarse grains, owing to discriminatory domestic pricing policies, tend to lose in the competition with imported grains. Although aggregate data on food crop production indicate a surplus, food insecurity (defined by the FAO to encompass food supply, access to food, and stability of flows over time) is common in some parts in the country (Table 6.7). The reason lies mainly in the difficulty of moving the surplus from one area to another due to problems associated with internal trading and marketing (Maro, 1999). Limiting factors include inadequate production and supply of food by households, reliance on subsistence fanning, high population growth rate, poor infrastructure, and trade restrictions and market-related policies, including regulations that impede interregional trade. Table 6.7: Food balance, 1985/86 -1997/98 (tons) Deficit Surplus Total Surplus/Deficits percent Years Regions Regions Production Production 1985/86 1,622.82 2,241.62 3,864.44 618.80 16.01 86/87 1,511.46 2,247.42 3,758.88 735.96 19.58 87/88 892.45 2,711.95 3,604.40 1,819.50 50.48 88/89 1,141.83 -J,083.0S- 4,224.88 1,941.22 45.95 89/90 1,014.02 2,903. 70 3,917. 72 1,889.68 48.23 90/91 972.93 2,471.60 3,444.53 1,498.67 43.51 91/92 1,190.37 2,513.60 3,703.97 1,323.23 35,72 92/93 1,194.20 2,857.30 4,051.50 1,663.10 41.05 93/94 1,011.00 2,768.20 3,779:20 - 1,757.20 46.50 94195 1,333.00 3,345.00 4,678.00 2,012.00 43.01 95196 1,546.40 3,345.00 4,891."40 1,798.60 36.77 96197 838.60 2,427.50 3,266.10 1,588.90 48.65 97/98 1,692.90 2,799.40 4,482.30 1,106.50 24.63 Average 1,227.84 2,747.33 3,975.18 1,519.49 38.47 Source:Based on Mjema 1999. 6.3 Liberalization before the Uruguay Ronnd Tanzania began trade liberalization and other economic reforms in the mid-1980s under World Bank- and IMF-sponsored adjustment programs, well before WTO agreements came into force in 1_995. In June 1986 the govermnent launched the Economic Recovery Program (1986-89) to continue and intensify earlier adjustment initiatives. Macroeconomic and sectoral measures were designed to increase the output of food and 194 Liberalizing Agricultural Trade: Issues and Options ... export crops, channel investment resources into rehabilitation of physical infrasttucture and productive activities, boost capacity utilization in industr)', restore internal and external balance, and increase foreign exchange earnings. Measures included devaluation, tight fiscal and monetary policy, and a schedule for dismantling controls over prices and distribution. Jn 1988 an open general license scheme was implemented, which allowed a more market-oriented allocation of foreign exchange. The F6reign Exchange Act of 1992 made it legal for citizens to possess and sell foreign exchange through foreign exchange bureaus, which became. another window for fmancing imports. The Second Economic Recovery Program (1989-92) focused on strengthening social services delivery by increasing efficiency, accountability, and community support and accelerating employment creation and income generating activities in small-scale manufacturing and services. Starting with the First Economic Recovery Program in 1986, trade policy has increasingly relied on market incentives and less on controls. Trade and exchange rate liberalization and macroeconomic reforms were the hallmarks of outward-oriented policies. Tariff rates were lowered and compressed, and quantitative restrictions were reduced. In 1992, the Tax Commission proposed further measures to simplify customs duties, reduce exemptions, increase efficiency in revenue collection, and reduce import duties on raw material inputs for exporting firms (CREDIT, 1998). Tanzania has steadily liberalized its tariff regime. Tariff rates were reduced from the high level of 120 percent prevailing in the 1980s to 40 percent in 1995. Nontariff barriers, including quantitative restrictions, discretionary licensing, and variable levies, have largely disappeared. Jn 1980-8.6, nontariff barriers covered more than 50 percent of imports. By 1993/94 nontariff barriers covered 15 percent of goods. Remaining nontariff barriers are restrictions on petroleum imports, which mainly reflect limitations in physical capacity at the port and storage capacity. 6.3.1 Reforms in Agriculture Liberalization of food crops started as early as 1981/82, but not until 1988/89 was the marketing of all food crops decontrolled at the level of cooperative unions and a year later at the level of primary societies (Ministry of Agriculture, 2000). Marketing boards were made the agents of cooperative unions, and cooperatives became private institutions, with minimal government intervention. Crop boards took on regulatory functions on behalf of the Ministry of Agriculture and Cooperatives. !an:ania 195 Most nontariff barriers have been removed. Tariff barriers are lower for agricultural commodities than for manufactured imports. Nuisance taxes on cash crops have also been removed, and the national goveniment has tried to harmonize local and national taxation to avoid double taxation of exportable crops. Private traders began to operate legally in the coffee and cotton sector in 1994"95 and in the tobacco sector the following year. Private traders were allowed to buy, process, and export these crops. The Pyrethrum Board's factory was closed in 1997 due to financial problems and privatized in 1998. Private tea estates already ae<;ount for 70 percent of production, and the remaining estates and processing plants of the Tanzania Tea Authority are being privatized. The government replaced fixed producer prices for food crops. with indicative prices, dropping even those in 1993/94. Over time, as they lost their monopoly power, cooperative unions diminished in itifluence, as did the National Milling Corporation, which once enjoyed a ~onopoly of domestic food crop marketing for domestic and imported food. Table 6.8: Major destination countries for Tanzania's agricultural coinmodity exports before the Uruguay Round (millions of Tsh) Country EXPORTS-1986 0 1 2 3 4 Total Grand Total Exports-1987 France 2,579 19 21 1 2,620 2,678 United Kingdom 564 258 32 l 855 1,367 Finland 933 l 934 934 Netherlands 577 96 46 719 774 Italy 389 0 127 516 540 India 465 9 474 503 Exports-1990 India l l,589 l,610 13,199 13,527 France 6,548 123 309 l 6,981 7-,422 United Kingdom 2,925 820 70 l 33 4,479 6,267 Taiwan 3,322 3,322 3,329 Netherlands 2,340 312 120 6 2,778 2,993 Singapore 1,610 946 1 2,557 2,565 Note. 0 ts food and hve animals; 1 IS beverage and tobacco; 2 ts crude, materials except fuels; 3 is mineral fuels; 4 is animal and vegetable oils. Total,' is total of subgroup 0, 1,2,3,and 4 while grand total is total for all groups for that country. Source: Tanzania Foreign Trade; Bureau of Statistic, se_veral issues. 196 Libera/king Agricu/Jural Trade: Issues and Options ... Before the conclusion of Uruguay Round in 1994, industrial countries in Europe, including France, United Kingdom, Netherlands, Finland, and Italy, were the major markets for Tanzania's agricultural commodity exports (Table 6.8). Other important markets included India, Taiwan (China), and Singapore. Agricultural imports also came mainly from European markets, reflecting historical ties (Table 6.9). Other important partners were Japan, the United Arab Emirates, Iran, and Kenya. Table 6.9. Major sources of Tanzania's imports of agricultural commodities before the Uruguay Round (millions of Tsh) Country IMPORTS-1986 Grand total 0 1 2 3 4 Total United Kingdom 200 20 75 24 34 353 3,613 Japan 76 0 44 7 1 128 3,471 France 154 6 44 86 86 376 3,203 Italy 18 4 105 340 3· 470 2,011 United Arab Emirates 3 0 3 1,451 17 1,474 1,653 _K~nya 17 3 3 416 2 441 1,256 IMPORTS-1987 United ·Kingdom 118 24 143 32 20 337 8,987 France :.____-=-=-- - 285 5 244 50 29 613 7,689 Japan 34 0 128 11 5 178 6,955 Italy 20 25 141 295 10 491 5,749 Netherlands 173 6 257 108 143 687 3,136 Denmark 5 2 293 3 258 561 2,884 IMPORTS-1990 United Kingdom 194 128 1,120 466 34 1,942 34,104 France 591 23 225 93 261 1,193 20,059 Japan 7 0 23 11 33 74 15,426 United Arab Emirates 97 7 286 2,955 79 3,424 8,861 N~therlandS 700 21 285 79 62 1,147 8,719 Iran 6 8,561 8,567 8,608 Note: 0 is food and live animals; 1 is beverage and tobacco; 2· is crude materials except fuels; 3 is mineral fuels; 4 is animal and vegetable oils. Total is total of subgroup 0,1,2,'3,and 4 while grand total is total for all groups for that country. Source: Tanzania. Foreign Trade; Bureau of Statistic, several issues. 6.3,2 Impact of Policy and Macroeconomic Reforms in Agriculture Overall, the reforms moved Tanzania from a plarmed to a market-based economy (see Box 6.1 ). Inputs, production, processing, marketing, and international trade functions are in private sector hands. Though marketing boards are still in place for most of Tanzania's major export crops (Coffee Tanzania 197 Marketing Board, Cotton and Lint Marketing Board, Pyrethrum Marketing Board, Tea Marketing Board, Tobacco Marketing Board, Cashew Marketing Board, and Sisal Marketing Board), the boards no longer set prices for export crops or buy crops, as they did in the 1970s and 1980s. Today, the boards regulate marketing and exporting, advise the government on matters relating to production and marketing, set quality standards and inspect products before marketing and exporting, issue licenses and permits for purchasing and marketing products, provide extension services, collect data and disseminate information to producers and buyers, conduct and finance research, and solicit funds for crop development. Farmers are free to sell their crops to cooperatives or private traders. Greater efficiency in marketing systems for some crops has enabled farmers to market their crops more quickly. Farmers are no longer confined to a single source for fertilizers, agro-chemicals, seeds, farm implements, and veterinary drugs. For some crops, however, liberalization has meant hardship for farmers whose marketing systems have been disrupted and not yet replaced by new ones. Box 6.1. The trade regime in agriculture 1961-1994 l ~8 Libera/;,ing Agricukural Trade: Issues and Options ... Economic reforms have included removal or reduction of government subsidies on basic commodities, which had become unsustainable. However, the fiscal savings from eliminating fertilizer subsidies and the loss-making activities of the National Milling Corporation and other state enterprises have. not been reallocated to investments in agricultural research, extension, and market development activities. And in Zanzibar, despite the policy reforms, the share of the development budget going to subsidies for agriculture has increased from 4 percent in 1994 to more tha.n 6 percent, even though development budget resources have been dwindling rapidly. Agricultural subsidies tend to be somewhat sticky in nominal terms, falling less than overall expenditure (World Bank, 2000). Internal trade has not been a strong engine of economic growth for several reasons: e Weak marketing infrastructure has delayed full integration of the economy. Most of the country is not easily accessible by road, rail, sea, or air. Telephones, telex, and telefax facilities are poorly developed, greatly slowing commercial transactions from one part of the country to another and adding to their cost. " Low productivity, particularly in peasant agriculture, has further slowed integration. Low productivity means low income earning capacity and so low effective demand and weak incentives for trade to act as an engine of growth. Tanzania 199 • Low levels of education lead to weak managerial capabilities and low efficiency. Human resources development is essential for raising productivity across the economy (ERB, 1994). 6.4 Trade Policy Regime and Agricultural Sector after the 1994 Uruguay Round Agreement on Agriculture When iii 1994 Tanzania signed the Final Act of the Uruguay Round and the Marrakech Agreement establishing the WTO, all WTO agreements became bi.tiding on Tanzania. While Tanzania has attempted to comply with certain requirements, such as establishing a National Inquiry Poi.tit and Acceptance of Code of Good Practice on Voluntary Standards under the Sanitary and Phytosanitary Agreement, effective implementa!Ion of most WTO commi!Inents is hampered by a lack of adequate information and fmancial, institutional, and technical capacities. Tanzania would need to rely on technical cooperation from the WTO and other development agencies to strengthen its capability toimplement WTO agreements· and negotiate effectively iii further WTO multilateral trade negotiations. As a member of the WTO, Tanzania has bound certain of its tariffs (mainly on goods that are not produced locally). As a least developed . country, Tanzania has a longer period for implementing .many of the WTO agreements. But while the WTO allows least developed countries to reduce subsidies on a longer schedule, Tanzania cannot take advantage of that flexibility because of commi!Inents to the World Bank and IMF. Tanzania's export policies have generally taken the form of export restraints (taxes, quotas, and prohibitions) rather than subsidies. However, Tanzania and other developing countries will be affected by developed countries' commi!Inent to remove or reduce export subsidies and domestic support measures, which may reduce the supply of developed country exports and increase import demand in developed countries. While the reduction in export subsidies and market access commitments by developed countries (through tariff quotas) should increase opportunities for developing countries, Tanzania's access to developed country markets has frequently been provided under bilateral and preferential terms under the Lome Convention/Cotonou Agreement and the bilateral Generalized System of Preferences schemes provided by developed countries. These trade preferences are being eroded in the liberalized global trading environment as developed countries further reduce their tariffs. For implementation of the WTO Agreement on Agriculture, food security is an extremely important issue for Tanzania and other least 200 Liberalizing Agricultural Trade: Issues and Options ... developed COWltries that are net food importers. Tanzania should take advantage of provisions for special and differential treatment to ensure its food security. Another concern is standards and technical barriers, which present problems of market access for.Tanzania's agricultural commodities. Tanzania will need technical assistance to achieve required standards. Regional cooperation can also assist Tanzania in reaching agreed standards thereby ensuring that their products can be traded globally. The government has emphasized the importance of opening markets abroad to expand exports, but the COWltry's severely limited export capacity has hindered any significant export-led growth. Tanzania, like most African countries, does not subsidize agriculture or agricultural exports but rather taxes them either implicitly through protection of industry or explicitly through taxation of exports or government controls to keep domestic prices below world prices. Thus Tanzania and other African coWltries are not taking advantage of the provisions of the Agreement on Agriculture allowing developing coWltries greater leeway in subsidizing agriculture. The real value of bndget allocations to the Ministry of Agriculture and Cooperatives has declined since the 1990/91 budget (World Bank, 2000). In 1997/98, for example, it was about a third the annual average for 1991/92 to 1993/94 (Table 6.10). The declining share of research and development is especially worrisome for future productivity growth in agriculture, falling from 25-30 percent in the early years to an estimated 12 percent in the 1999/2000 budget. Tanzania's export promotion activities have included tariff rebates (although implementation has been difficult), local-content requirenients, . and for some products, higher tariffs. Export controls have been imposed on certain products for a variety of reasons, inclnding conservation concerns in the case of timber. Subsidies on agricultural inputs and equipment, long viewed as fWldamental for increasing agricultural productivity, have been removed. Although trade policy is generally similar for mainland Tanzania and for Zanzibar, there are some differences in practice. The establishment of the Zanzibar Freeport Authority in 1992 was an important incentive for external trade. The authority controls and manages the free port zones, promotes trade in goods including transshipment, and provides facilities, including infrastructure and storage, for licensees in freeport zones. Tanzania 201 Table 6.10: Real budget allocatiOn to agriculture, 1990/91 to 1999/2000 ::.. ~ .,, 0 • 0 -oo "' .- . 00 Budget item ~ N ~ ~ ~ "' ~ ~ ~ ~ ~ ~ 00 " > 0 - o " o N~"; 0 ~ N ~ ~ ~ "' ~ ~ ~ "' ~ ~ ~ ~ ~ 0 e N ~ ·.;::: ~ -~ -i - - "' - ~ Tola! amount - - ~ ~ "' ~ ~ ~ ~ - 15: < - "' ~ ~~ ~- (million 1998 -99 57;293 64,432 71,001 62,6% 63,252 40,161 26,420 21,829 37,047 44,421 386,839 Share (percent) Administration 33 10 10 10 5 4 9 13 29 32 13 Crop development 4 47 39 44 47 55 49 48 34 36 s42 Research and d~Iopment 29 25 34 22 30 18 10 15 15 12 20 Cooperative development 0 6 5 6 3 4 5 9 4 4 5 Food security and strategic grain reserve 0 0 0 7 5 6 12 11 3 3 5 Livestock develop 33 12 12 12 9 13 16 4 15 13 13 Total 100 100 100 100 100 100 100 100 100 100 JOO a. 1990/91 distribution by sector includes only recurrent expenditure because development expenditure figures are not allocated by sector. Note: Total amount includes recurrent and development expenditure. "AdminiStration" includes policy and planning. "Crop development" includes input trust _funds. Totals may differ by I percent from 100 due to rounding error. Source: Quoted. from World Bank, Agriculture in Tanzania since 1986, Follower or Leader of Growth?, 2000, pl4. 6.4.J Tariffs and Nontarijf Barriers The government's trade policy objective is to open up the economy and provide incentives for investment in priority sectors such as agriculture, tourism, mining, and transport. Tanzania has been making a concerted effort to create an environment conducive to domestic and foreign investment. The Tanzania Investment Centre offers incentives for setting up projects, including incentives for imports of capital goods. Import duties have been eliminated on all farm inputs and equipment to support development of the agricultural sector. Reforms undertaken since 1985 have resulted in a trade policy framework based largely on tariffs. Most nontariff barriers have been dismantled. Export restrictions and foreign exchange controls have been eliminated. 202 Liberalizing Agricultural Trade: Issues and Options ... In 1996/97 tariffs were widely dispersed, from 0 to 40 percent (5, 10; W, 25, 30, 40). Recent reform has resulted in a simplified five-tier structure: 0, 5 percent, 10 percent, 20 percent, and 25 percent, depending on the degree of processing (Table ·6.11 ). The maximum rate fell from 40 percent to 25 percent in 1999. The trade-weighted tariff fell from 25 percent in 1993/94 to 20 percent in 1997/98 (URT, 1999). The zero rate is maintained for strategic and lead investment sectors, including agricultural inputs and infrastructure. Import duties for agricultural inputs are fairly low, with most between 0 and 5 percent. Effective rates of protectioll rise along the processing chain, providing greater protection to higher-level processing activities, causing resource misallocation and increasing costs for Tanzanian consumers. The govenunent still relies heavily on tariff revenues, creating pressure to maintain revenues through high tariff levels. Table 6.11. Changes in import tariffs, 1996/97-1998/99 Fiscal year Tariff bands and percentage 1996197 5, 10, 20, 25, 36, 40 1997/98 5,10,20;30 1998/99 0,5, 10,20,25 6.4.2 Safeguards The Agreement on Agriculture permits developing countries to apply emergency protection measures to safeguard domestic producers from an unforeseen surge in imports that could result following removal of quantitative restrictions. Tanzania has suspended duties of 20 percent on selected conunodities (dairy products, edible oil, sugar, eggs, hatching and tomato products) originating from CO MESA member states to protect local industries-(Ministry of Agriculture, 2000). The suspended duties are used as safeguard measure in the manner that if Tanzania believes that its domestic industries or economy is affected by lower COMESA member imports due lo liberalization program, it can use the suspended duties up· to 20% on those imports. This has been used in for example imports from Kenya'causii1g disputes between the two countries. 1 Some imports are also charged a 20 percent value-added tax (VAT). These Tanzania 203 tariffs are prohibitive to trade and need to be harmonized with those of Tanzania's trading partners. 6. 4.3 Sanitary and Phytosanitary Standards The Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) deals with border control measures necessary to protect human, animal, or plant life or health. The agreement took effect on 1 January 1995 for all WTO member countries except the least developed countries, including Tanzania, which have a longer timeframe for compliance. Although Tanzania is a member of International Office of Epizootic Diseases and Codex Alimentarius Commission (but not of the International Plant Protection Convention,(IPPC), like many developing countries it still finds it difficult to adhere to even minimum international standards for food safety, including Good Agriculture Practice, Good Practice in the Use of Veterinary Drugs (GPVD), and Good Manufacturing Practice (GMP) in food processing and many of its laws governing sanitary and phytosanitary measures are outdated and ineffective. Among the reasons are poor technology for processing and inspection and inadequate skills and knowledge of laws and standards. The fish industry is a case in point. Fish from Lake Victoria was banned by the European Union in 1998 and 1999 for failing to adhere to EU standards. While Tanzania has more than 20 phytosanitary inspectorate service posts, they lack adequate infrastructure and resources. 6. 4A Special and Differential Treatment Under the WTO principle of special and differential treatment, phased introduction or longer timeframes for compliance may be granted for products of interest to developing country members, taking into account their financial, trade, and development needs. Given its limited technical capabilities in this area, Tanzania needs to take advantage of the provision in the Decision on Measures in Favour of Least Developed Countries (URAAArticle 16) on "substantially increased technical assisiance" related to production and exports. In addition, food security concerns for the least developed countries are addressed in the Decision on Measures Concerning the Possible Negative Effects of the Reform Progranune OJ1 Least-Developed and New Food Importing-Developing Countries (URAA Article 16) by reviewing levels of food aid and providing increasing amounts of food aid on grant terms. There is also provision for short-term ~ssistance 204 Liberalizing Agricultural Trade: Issues and Options , , , from international financial institutions in financing nonnal imports. These measures are aimed at alleviating the burden on the food import bill and balance of payments situation and enhancing the ability of developing countries to increase their agricultural production capacity and reduce their high dependence on imports. 6.5 Tanzania's Interests and Options for the New WTO Ronnd of Negotiations Agriculture has been one of the most politicized and protected sectors in international trade. Heavy government subsidies in developed countries with their negative impact on markets and prices are turning Africa from a food surplus to a food deficit continent. Implementation of the Agreement on Agriculture on tariffs will erode the tariff preferences of African countries by an estimated average of 30 percent. Exports of some tropical products from the Africa, Caribbean, and Pacific countries will suffer losses of as much as 51 percent due to loss of tariff preferences (OECD, 1994). The Agreement on Agriculture is designed mainly to refonn domestic policies in many developed countries, which tend to subsidize agricultural production, rather than developing countries, which tend to tax agriculture. Policies important to Tanzania include policies aimed at providing food aid to vulnerable segments of the population, including public food stocks held for food security purposes. Other important policies include de minimis provisions (subsidies under 10 percent of the value of production for specific products or the total value of agricultural production for non-product-specific measures) and Blue Box policies (production payments with area limitations, which are exceptions to the rule that subsidies linked to production must be reduced or kept within defined minimal levels). These policies arnong. others are important for Tanzania as experience has shown that many producers have failed to use some inputs and pesticides that are important for production. Private sector has not been able to assist Tanzanian producers so a fonn of government support is still needed to make agriculture competitive. 6.5.1 Market Access and Constraints to Trade from OECD Policies Since the late 1980s Tanzania's exports have been concentrated in six major traditional crops and a few countries of destination, particularly the United Kingdom, Italy, Gennany, Netherlands, India, and Japan. Regional trading has not expanded as expected. The success of measures Tanzania 205 to stimulate trade will depend on the extent of product and market diversification. And for diversification to work, issues of market access are crucial. African countries including Tanzania tend to be importers of food, particularly wheat, rice, and dairy products. URAA provisions requiring cuts of 20 percent in domestic support and 36 percent in export subsidies by developed countries would raise Tanzania's food import costs by US$808 million and result in net income losses of US$! I billion (UNCTAD/WIDER, 1990). Reductions in export subsidies may also lead to trade creation as the value of agricultural exports will rise. But economic gains will be reduced or eliminated by the reduction of tariff preferences into developed country markets. For Tanzania, the overall impact of trade liberalization on trade creation may be negative and import bills high. To overcome this, policies to increase food production and promote export commodity diversification are necessary. The magnitudes of tariff preference margins in OECD countries are thus very important. The FAO (1995) estimates that Africa's food import bill will grow from US$6.0 billion in 1987/89 to US$! 0.5 billion in 2000, with US$0.5 billion of it due to the effects of the Uruguay Round. Thus taking advantage of special and differential treatment provisions to meet its food security needs will continue to be important for Tanzania, given its level of development and lack of adequate infrastructure. Under the Uruguay Round, developed countries have lowered their most-favored nation (MFN) tariffs on industrial products by an average of 2 percentage points, from 6 percent to 4 percent. Changes have been greater for some of the most protected products. The "Analysis of the Draft Final Act of the Uruguay Round, with Special Attention to Aspects of Interest to Developing Countries" of 1993 found smaller tariff cuts on goods of export interest to developing countries than on goods of export interest to developed countries. For example, tariff reductions for industrial goods averaged 38 percent for imports from all origins but only 34 percent for imports from developing countries. Peak tariffs (exceeding 12 percent and going as high as 300 percent in some cases) resulting from the tariffication of nontariff measures affect many agricultural items. Tariff escalation remains high on several product groups of export interest to developing countries, particularly leather, coffee, tea, jute, fabrics, cocoa products, and tropical fruits, limiting the scope for expansion of production into value-added and higher priced products such as coffee. This problem is likely to' be compounded by 206 Liberalizing.Agricultural Trade: Issues and Options ... Africa's low level of competitiveness. In addition, the preferential treatment · on tariffs for exports to major markets that Tanzama and other developing countries have received under the Generalized System of Preferences and other arrangements such as the Lome Convention and Cotonou Agreement are being eroded by reductions in the MFN tariff rates, reducing their effective level of preference as well as by improving the market access of more competitive developing countries. Other factors may be even greater barriers to trade than tariffs for many developing countries. These include rules of origin, quality standards, sanitary and phytosanitary requirements, environmental requirements, and labeling requirements. The impact of agricultural liberalization on rural employment is another serious concern. All these issues require priority attention by Tanzania in multilateral trade negotiations given the centrality of agriculture to the economy. Tanzania needs to analyze the impact of tarrification, tariff reduction, and other liberalization measures on market access with a view to identifying strategies to take advantage of the Agreement on Agriculture. Effective use of the technicaJ assistance provision provided in the WTO agreement will be critical for . reducing these barriers to increased access. 6.5.2 What Tanzania Needs to Do A key prionty for Tanzania is product diversification into nontraditional food products for export. Achieving this depends on developing a strategy and understanding the issues involved. For example, Tanzania has a comparative advantage and high export potential in the prqduction of tropical fruits and fresh produce. But production of value-added products is affected by the Agreements on Technical Barriers to Trade and Sanitary and Phytosanitary Measures, which affect such issues as health standards, packaging, and labeling requirements. For example, market access for Tanzanian horticultural products into Japan and Europe has become increasingly difficult because of packaging requirements, shelf lifetime requirements, allowable levels of additives, and disease-free- arearequirements. Constraints such as these can be partly tackled through requests for technical assistance provided under the WTO framework By committing to eliminate subsidies, Tanzania has lost one of its most important instruments for pursuing an export-led growth, while other constraints severely constrain its ability to impose quantitative restrictions for balance of payment purposes. Progressive liberalization of agriculture under the Uruguay Round will inevitably favor countries Tanzania 207 with high levels of productivity and competitiveness over those like Tanzania that still have a long way to go. Agricultural exports depend on efficiency and on management effectiveness is such areas as product quality and adherence to product specifications and delivery schedules, among many others. 6.6. Modeling the Effects of Liberalizing Trade on the Agricultural Sector This section models the effects of trade liberalization on agriculture compared with other sectors in Tanzania.' 6.6.J Mode/Description The simulation uses 1992 data from the social accounting matrix (SAM) in a static computable general equilibrium (CGE) model for Tanzania. The SAM covers eight activities, seven production factors, four households, and other institutions. The activities are agricultural exports, food, other agricultural, mining, food processing, nonagricultural light manufacturing, nonagricultural heavy industry, and nonagricultural service. The factors are urban professional labor, urban white collar labor, urban blue collar labor, urban unskilled labor, rural labor, land, and capital. The four households are enterprises, urban farmers, urban nonfarmers, rural farmers, and rural nonfarmers, and the institutions are government, rest of the world, and the savings-investment account. The classification made for different farmers is not very accurate in Tanzania but was used because of the kind of standardization that was adopted as the model was developed for many countries in Southern Africa, countries belonging to SADC under MERISSAprogram ofIFPRI. Nevertheless urban farmers in Tanzania are important especially in the area of poultry, pig rearing, cattle and vegetable growing. The benchmark SAM for 1992 is the base solution for the Tanzania trade model used for policy changes in the model simulations. Trade refonns are defined as across-the-board tariff cuts, reductions in the trade balance using reductions in foreign savings (the current account deficit), and exchange rate depreciation. Different scenarios of trade refonns involving micro-and macro-closures are also explored. The following simulations were perfonned: • Simulation la, tariff cut without capital mobility. Tariff rate reduced by 50 percent in five successive moves of I 0 percent each, with flexible govermnent savings, activity-specific (fixed) 208 Liberalizing Agricqfturtil Trade: Issues and Options ... capital, and endogenized foreign exchange rate (fixed foreign exchange rate). • Simulation 1b, tariff cut with capital mobility. Tariff rate reduced by 50 percent in five successive moves of IO percent each, with flexible government savings, capital mobility, and endogenized foreign exchange rate (fixed foreign exchange rate). • Simulation 2a, increase in exchange rate (depreciation). Exchange rate increased by 20 percent in five successive moves of 4 percent each, with flexible government savings, activity-specific (fixed) capital, and flexible roreign savings. • Simulation 2b, increase in exchange rate (depreciation).Exchange rate increased by 20 percent in five successive moves of 4 percent each, with flexible government savings, capital mobility, and flexible foreign savings. Table 6.12. CGE Model Simulation Results Based on Tariff Cut of 50 Per cent and Exchange Rate Change of 20 Per cent Simulation Base la lb 2a 2b Real absorntion 1937.7 -5.5 -13.9 Real investment 419.5 Real government consumption 331.6 Real household consumntion 1186.6 -9 -22.8 Total real ex 16".7 2.1 2.< 41.6 l 71.4 Total real imnorts 576.8 0.6 0.8 -5.6 -6.6 Real exchange rate JOO 0.9 0.8 15.2 16.8 Nominal exchanl!e rate JOO I. I I 20 20 Domesti,. nric" index JOO 0.2 0.2 4.1 2.8 Tariff rate 5 2.5 2.5 5 4.9 Percentage of nominal GDP Investment 27. I "0. J -0.I 3.5 3.2 Priv'1te ~avina~ 0.2 0.1 0.2 Foreion savinE:s 10.2 0.2 0.1 -5.8 -16.4 Trade deficit 26.5 -0.4 -0.4 -3.2 -13.8 Government savinP-S -I. I -0.7 -0.7 0.4 0.5 Tariff revenue 1.5 -0.7 -0.7 0.1 0.1 Direct tax revenue 5.3 0.3 0.1 Tanzania 209 6.6.2 ModelResults Simulation I a: Total exports increase by 2.1 percent, and total imports increase marginally by 0.6 percent (Table 6.12). The real exchange rate depreciates by 0.9 percent. The trade deficit improves by 0.4 while prices increase by 0.2 percent. As a percentage of GDP government savings rise by 0. 7 percent, tariff revenues decrease by 0. 7 percent, and foreign savings increase by 0.2 percent. Household consmnption increases overall, but decreases among urban and rural farmers (Table 6. 13). Factor income remains unchanged except for rural labor, which decreases marginally by 0. 1 percent while capital gains by 0. 1 percent. Light manufacturing increases by 0. 3 percent and services by 0.1 percent. Agricultural export prices increase by 0.3 percent, Nonagricultural light industries and services prices rise by 0.6 percent each, while heavy manufacturing prices decrease by 0.2 percent. Simulation I b: All variables move in the same direction as in simulation 1a but the changes are smaller except for total exports and imports. The real exchange rate depreciates by 0.8 percent, while foreign savings increase marginally. Total household consmnption increases, activity output and prices increase, while factor income changes marginally, perhaps because tradable sectors are more profitable after the tariff cut and so attract more investment. Simulation 2a: Total exports increase by 41.6 percent, while total imports decrease by 5.6 percent. The real exchange rate depreciates by 15.2 percent. The trade deficit decreases by 3:2 percent. As a percentage of GDP, government savings decrease by 0.4 percent, tariff revenues increase by 0. I percent, and foreign savings decrease by 5. 8. The effects on micro variables differ. Consumption decreases for urban and rural farmers and increases for urban and rural non-farmers. Rural labor decreases by 6. 6 percent and land by 0.4 percent. Agricultural export prices increased by 5.3 percent, light manufacturing by 15.5 percent, services by 12.2 percent, and heavy manufacturing by 15.1 percent. Simulation 2b: Absorption decreases by 13. 9 percent and consmnption by 22. 8 percent compared with the case of fixed factors. Total real exports increase by 123.4 percent, imports decrease by 6.6 percent, while the real exchange rate depreciates by 16.8 percent. The trade deficit improves by 13.8 percent, while foreign savings decrease by 16.4 percent. Household consumption in different sectors changes much more. It decreases by 39.4 percent for urban farmers by 32. 1 percent for rural 210 Liberalizing Agricultural Trade: Issues and Options ... farmers, and by 10.1 percent for rural non-farmers and increases by 10.3 percent for urban non-farmers. 6. 6.3 What the Model Results Suggest for Tanzania in the Next Round of Trade Negotiations The simulation effects are more dramatic with factor mobility than when factors are fixed. This is important because it shows that when factors are not mobile, policy changes will not produce the expected effects. This is a problem for many developing countries such as Tanzania that have structural rigidities that prevent factors from moving freely. The simulations showed larger effects on trade variables than on macro variables such as GDP or govermnent savings. The choice of closure has a large influence on results. Table 6,'13: Simulation results, micro and activity prices Simulation Base la lb 2a 2b Disag1rregated real household consumntion Household urban farmers 165.3 -0.3 -0.2 -18 -39.4 Household nonurban farmers 260.6 0.5 0.5 11.4 10.3 Household rural farmers 705.1 -0.2 -0. l -15 .2 -32.1 Household rural nonfarmers 55.5 0.2 0.1 0.9 -10.1 Total household consumption 1186.6 -9 -22.8 Disai:n:Jregated Factor Income Distribution Urban professionals 8.1 1 0.9 Urban white color 4.3 0.5 0.5 Urban blue color 8.4 0.9 0.9 Urban unskilled 3.9 0.5 0.5 Rural labor 35.6 -0. l -0.1 -6.6 -6.3 Land 2.8 -0.4 -0.2 Capital 36.9 0.1 4.1 3.7 Total factor income 100 Disaggregated Activity Production Levels Agricultural exports 75.7 1.8 2.1 61.9 242.2 Agricultural food 338.4 -0.2 -0.3 -6.2 -21.3 Other a!:!ricultural 471.8 -2.9 -12 ..9 Min in!:! 60 -0.4 -0.6 3.5 7.1 Nonagricultural food orocessing 401.2 -0.2 -0.2 -4.7 -18.5 Nonagricultural light manufacturing 227.7 0.3 0.7 3.9 17.3 Nona!:!ricultural heavv industries 360 -0.4 -0.6 2 3.5 Nonae:ricultural sel'.vices 1097.6 0.1 0.1 0.6 1.6 Total production 3032.4 0.6 1.7 Tanzania 211 Disaggregated activity prices Agricultural exports 100 0.3 0.1 5.3 -I.I _Agricultural food 100 0.2 -11.3 -9.4 Other agricultural 100 0.1 0.2 -8. l -6.4 Mining 100 0.1 0.4 13.7 · 11.5 Nonagricultural food processing 100 0.1 0.2 -0.8 0.5 Nonagricultural light industries 100 0.6 0.1 15.5 9.5 Nonagricultural heavy industries 100 -0.2 15. l 12.5 Nonagricultural services 100 0.6 0.3 12.2 10.2 Note: Simulation la tariff cut with activity-specific capital; lb tariff cut with mobile capital; 2a increase in exchange rate with activity-specific capital; 2b increase in exchange rate with mobile capital. The model suggests that cutting tariffs will have a positive effect on agricultural exports, but a negative effect on agricultural food production. Household income will decline for rural farmers while rising for rural nonfarmers. Exchange rate devaluation has the same effects, but the levels of change are much more dramatic. Devaluing the Tanzanian shilling increases exports by 61.9 percent with no factor mobility and by 242.2 percent with factor mobility. Agricultural food production decreases by 6.2 percent with no factor mobility and by 21.3 percent with factor mobility. This indicates that Tanzania would not gain or lose very much in the agriculture sector by cutting tariffs. However, because exports increase with devaluation, other countries will have to open their markets in order for Tanzania to reap some of the benefits from liberalizing trade. And liberalization reduces food production. Because the increased exports come at the expense of diminishing levels of agricultural food under the assumption that resources are fully employed, a kind of substitution in production must take place. Also, because factor mobility is limited, the positive benefits expected from greater movement of factors across sectors are limited. This points to the need to address supply constraints if more positive results are expected from the Uruguay Round Agreement on Agriculture. 6. 7 Conclusions and Recommendations The analysis presented in this report and the results of the CGE model simulations suggest several issues that need to be dealt with in the new round of negotiations. For Tanzania, the Agreement on Agriculture will have significant impacts at various levels. The central challenge of the new negotiations is to ensure that issues of trade-related development activities are fully 212 Liberalizing Agricultural Trade: Issues and Options ... addressed. With development in mind, agricnlture, still the backbone of the Tanzanian economy, can be assisted to grow and contribute to sustained economic growth and poverty eradication. Achieving that will require a degree of flexibility to acconnnodate constraints faced by Tanzania and other least developed countries in the new mnltilateral trading system. Tanzania faces many challenges in making its laws and regulations consistent with WTO commitments. Meeting them will require enhancing institutional and human resource capacities in trade-related information management, among other areas. That will require setting up new institutions and restructuring old ones, requirements that impose relatively heavy demands on Tanzania. Resources and technical assistance are needed to establish efficient information systems and to identify market access constraints in the area of finance and credit facilities, to facilitate market development and adaptation programs. Reforms shonld be taken to strengthen the supply response to any new markets that may open up as a resnlt of developed country reductions in domestic support policies and export subsidies. Assistance is needed to rationalize and improve the efficiency of trade support service institutions and for human resource development. Needs related to policy formuiation and implementation include enhancing the ability of ministerial departments to formulate, review, and implement trade policy. Also important is training public and exporters and institutions in small to medium-size enterprises to take advantage of the opportunities provided through trade liberalization by enhancing productivity, product development, and diversification through improved research and identifying ways of loosening supply capacity constraints. The new round of negotiations must take into account the welfare of people in developing countries that are net food importers. Ensuring that freer trade in agriculture does not diminish food security is of utmost importance. Especially important are rising import bills and potential loss of market share as tariff preference margins erode in developed countries. It wonld be prudent for Tanzania to formulate domestic policies that address these issues while complying in content and spirit with the Agreement on Agriculture. The new rnles for international trade could benefit Tanzania and other developing countries more if they took full advantage of the special and differential treatment and capacity building options provided for in various WTO measures, applying whatever restrictions or exceptions are allowed under the WTO agreement to Tanzania 213 protect Tanzania's interest. Policies are needed on a product-by-product basis, taking into account that the URAA provisions will have more impact on temperate products than tropical products. Also important are increasing public awareness of the WTO agreements and reviewing the regulatory system to align it with WTO rules. Tanzania should take the initiative to ensure that the current WTO negotiations address the need for greater access to existing and new markets. And it should make adequate preparations to make a strong case for its positions, through research, consultation, and lobbying. Tanzania needs to ensure that standards and technical requirements do not remain or become barriers to trade. While technical assistance to help reach required standards is important, so is using safeguard measures. Technical cooperation will also be important for helping Tanzania participate fully and effectively in international meetings of key standardization bodies (CodexAlimentarius Commission, OIE, and IPPC) and in the WTO committee sessions on sanitary and phytosanitary measures. Regional cooperation can also assist Tanzania and other member countries to reach common agreed standards and reduced trade barriers can provide the impetus for increased regional and international trade. Annex 6A.1: Details of the Computable General Equilibrium Model The model follows the neoclassical specification of general equilibrimn models'. Markets for goods and factors and foreign exchange are assmned to respond to changing demand and supply conditions, which in turn are affected by government policies, the external enviromnent, and other exogenous influences. The model is Walrasian in that it determines only relative prices and other endogenous variables in the real economy (monetary factors are not considered). Sectoral product prices and factor prices are determined relative to the Consmner Price Index (CPI), the numeraire. The~e are four blocks of equations in the model, for price, production, institutions and system constraints. The price block defines the domestic price of imports as the world price times the exchange rate adjusted for tariffs, and defines the export price as the world price times the exchange rate adjusted by subsidy/ export taxes. The prices of imports and exports are given in domestic currency. The absorption price for each commodity is expressed as the smn of spending on domestic output and imports, including an adjustment for sales taxes. The composite price is paid by domestic demanders (households, the government, producers, and investors). Domestic output . 214 Liberalizing Agrkultural Trade: Issues and Options ... value at producer prices is divided between export value and domestic output sold domestically. This equation reflects a constant elasticity of transformation (CET) that is linearly homogeneous. The activity price is the sum of producer prices of different commodities and the yield of output of commodities per activity. The value added price is the price of activities times the input cost per activity unit. In the production and commodity block, the production technology is presented by a set of constant elasticity of substitution (CES), constant elasticity of transformation (CET) and linear expenditure functions. The activity production function is defined by CES technology. Factor demand is a CES function of wage distortion for factors-land, capital, and five types of labor (urban professional, urban white collar, urban blue collar, urban unskilled and rural labor). Intermediate demand is fixed as a share of level of activities. Output is a function of yield of activity times its level. The export to domestic commodities supply ratio is a CET function while the import to domestic demand ratio for commodities is a CES function. The Armington assumption is used for aggregating domestic demand and import demand. The model allows for product differentiation between import and domestically produced goods in demand and between exports and domestically consumed goods, and this permits two-way trade. This assumption is realistic in the case of Tanzania because imported and domestically produced goods are not perfect substitutes-horizontal as well as vertical differentiation exists. However, the differentiation varies from sector to sector, and different levels of elasticities of substitutions and transformation represent this across sectors. The institution block detennines transfers of income from factors to institutions, which are defined as the share to institutions' and factors and factor income and transfers from the rest of the world. Transfers are also determined as well as household demand and expenditure, investment demand, government revenue and expenditure, and govermnent saving, which is the difference between govermnent revenue and expenditure (fiscal balance). Household consumption demand is based on a LES utility function with constant expenditure shares. Household and enterprise savings are specified to be in fixed proportion to after-tax income. The system constraint block specifies four macroeconomic balances: the external balance (current account), factor demand and supply balance, commodity supply and demand balance, and the neoclassical Tanzania 215 macroeconomic closure that total investnient is determined by total savings. In addition in the system block there is the price normalization equation (numeraire ). Based on the small-country assumption (price taker), domestic prices of imports and exports are expressed in terms of the exchange rate and their foreign prices, as well as the trade taxes on foreign transfers. The tariff rate on the import tax rate represents the import duty collected divided by total imports. The Tanzania data does not include a subsidy, although specification of the equations allows for policy experimentation. Different macro and micro closures are used in the model. Savings- driven investment implies a flexible investment adjustment factor, fixed foreign savings and therefore a flexible exchange rate, and fixed direct tax rates for institutions and factors. All factors are fully employed, available in fixed supply, and mobile in each market so that the average wage rate is the clearing variable. Prodncers maximize profits subject to specified production functions with primary factors as arguments, while households maximize utility subject to budget constraint. The model recognizes that an exogenous change (in policy or from some other source, such as world markets) that has an impact on any part of the economy can have consequences throughout the system, direct and indirect effects. The model satisfies Walras's law in that the set of commodity market equilibrium conditions is functionally dependent. The equilibrium condition is dropped for one variable using the closure rules. The model is homogeneous of degree zero in prices to ensure that only one solution exists. A price normalization equation (consumer price index) has been added-equal number of endogenous variables and independent equations. Given the numeraire, all simulated price changes can be directly interpreted as changes relative to the CPI. Because the model is static, it is difficult to see the effects of policy changes on some important variables such as growth. Another limitation is the level of disaggregation. For trade-based experiments, it would be helpful to observe the impact of policy changes on different categories of imports-capital, intermediate, and consumer imports-and to specific disaggregate data into different categories· of exports, non-traditional and traditional and even important commodities such as coffee, tea, and cotton that face frequent price fluctuations. 216 Liberalizing Agricultural Trade: Issues and Options ... farameters of the model ad, efficiency parameter in the C-D prod function adces, efficiency parameter in the CES prod function a,, share of value-added to factor f Armington function shift parameter CET function shift parameter marginal share of household consumption spending cwts, weight of conunodity in the CPI A.aea CES production function share parameter A.q, Armington function share parameter A.t, CET function share parameter 1\. per-capita subsistence consumption icaca intermediate input per unit of activity pdwts, weight of conunodity in the PDI pwec export price(foreign currency) pwm, import price(foreign currency) rhoaa CES production function exponent rhoq, Armington function exponent for conunodity c rhot, CET function exponent shrtr ~. household share in distributed enterprise income shry" enterprise share in factor income ta • = enterprise rate te, export tax rate _8.ac per unit enterprise output yield qg, government conunodity demand qinvc = base-year investment demand tm, = import tariff rate tq, rate of sales tax Tanzania 217 Model Equations Price block I. PM, = (1 + tm,) . EXR . pwm, import price 2. PE, =(I - te) . EXR . pwe, export price 3. PQ, . QQ, =(PD, . QD + (PM,. QM)) (L + tq) absorption for commodity 4. P)\ . Q)\ =PD, . QD, + (PE, . QE) output value for commodity 5. PA = .EPX . ti" pri~e for ci~ti".'ity 6. PVA a =PA a . (l - ta) - .EPQc . icaca ,,, value-added price for activity a Production and commodity block 7. QAc = adces a . .E (Aizfi . QF fi·;'.""") ,~;,, n feFn CES production function - rhon --=.l 8. WF . WFDISTfia 1 = PVAa . adces . .E (Ali~ . QF Jo ') ,,,,, ·~a factor demand fpEF 9. QINTca = icaca . QA a intermediate demand 10. QX, = ,£ ti"' . QA, output of commodity 218 Liberalizing Agricultural Trade: Issues and Options ... Institution block 11. QQ, = aq, . A.qc. QM, _,hope + (I - deltaq) (QD, -'h''') ,"h,~. composite supply (Annington) function 12. import-domestic demand ratio 13. QQ, = QD, composite supply for non-imported commodities '°'· 14. QXc = atc . (iltc . QEc (I + iltt) c . QD' c «)-,;;;;;: 0 output transformation (CET) function 1 PEc I-Atc ) ~' 15. ( PD k- , ' export-domestic supply ratio 16. QX, = QD, output transformation for non-exported commodities - ERX. trbarrowf factor income 18. TRid,idng = shrtrid,tcing . ( 1- mps1dng) . (l- ~d,,/. YI idng - EXR . trbarrow,idng transfer from domestic non-government institution to domestic institution Tanzania 219 19. YI.~ I IYFif jtF 1 + EIR,,~ iclng.;l , u"g + trbar.1,gov +EXR. trbari, row income of domestic non-government institution 20. EH.~ (I- Eshrtr, ) . (I-MPS). (!-TY 1. n.-EXR. trbar H • 1r v - consumption expenditures for household 21. PQc .QH• c ~ PQc.c o• +p •. EH.- c fl'Q cp•Ccpcp, .o • LES consumption demand by household for conunodity 22. QINV ~ qinv . !ADJ investment demand for commodity ' ' 23. YG ~JD' ·' + IS IYFgov., EI'Y. I Y/1 + JSF EIY 1 . EWFJ WFDISTfi 1 aEA a . QFfi -EXR.trbarrow.1 +idngE Q. EIR I gO\\I . + EXR.trbargo\\roW + 1Jctq, . PD, . QD, + PM,. QM, " +Elm c&Cc .QM .EXR.pwmc c + cl:Cc .QE Ite . EXR.pwec c +Eta. cEC a PA a . QA a government revenue 24. EG ~ Etr, + fl'Q c . qgc + EXR.trbarrow,gov idngsl 1 ng,row csC government expenditures 25. GSAV~ YG~EG government savings System constraint block 220 Liberalizing Agricultural Trade: Issues and Options ... factor markets 27. QQ, = LQINT00 +hl,QHH,h + qg 0 + QINV, ..... ' composite commodity markets 28. .Epwe,. QE, + ..fu;,ow+ FSAV = .Epwm,.QM, cl:CE i&1 c&CM + ir( ..fubar el row,inf.a current account balance for RoW (in foreign currency) 29. .EPQ,. QINV, + WALRAS = .EM.PS,. (I - TY) c&C Jdng&I - EXR. trbar,,w, + GSAV +EXR.FSAV saving-investment balance 30. .EPQc . cwtsc c&C = CPI price normalization End-Notes 1. "Suspended duties" loosely refers to duties levied on some imported products, over and above taxes. Under the WTO provisions suspended duties constitute a NTB. Suspended duties are not expected to be a lasting feature, but are applied selectively to address a temporary problem. Because of this leeway, all the countries in the East African region have been said to levy some percentage of duty in addition to other taxes. 2. The model, using the general algebraic modeling system (GAMS) program (a la Sherman Robinson, Hans Lofgren, and Peter Wobst), was developed and estimated in the CGE course in Bunda, Malawi, offered by the International Food Research Institute (IFPRI). The Tanzania 221 model is presented in the working paper on microcomputers in IFPRI Policy Research 4. References Ackello-Ogutu, C., and P.N. Echessah April 1997. "Unrecorded Cross- Border Trade Between Tanzania and Her Neighbors: Implications for Food Security." Technical Paper No.59 SD Publication Series, AFR/SD and REDSO/ESA. Badiane Osman. 1993. "The Common Agricultural Policy and African Countries" in Europe and Africa: The New Phase. In William Zartman, ed., Washington D.C.: Lynne Rienner_Publishers. Bautista R.M. Hans Lofgren and Marcelle Thomas. Does Trade Liberalization Enhance Income Growth and Equity in Zimbabwe? The Role of Complementary Policies. IFPRI 1998. Bank of Tanzania (BoT), Economic and operations report for the year - ended 3 Olh June, 1999. Cleaver, Kevin M. 1993. "A Strategy to Develop Agriculture in Sub- Saharan Africa and a Focus for the World Bank." World Bank Technical Paper 203, Africa Technical Department Series. Washington, D.C. CREDIT 1998, Agriculture Marketing in Tanzania. Center for Research in Economic Development and International Trade. Nottingham. De Rosa Dean. 1992, "Protection and Export Performance in Sub- Saharan Africa." Weltwirtshcajiliches Archiv Review of World Economics Bo. 128, pp. 88-124. Dollar, David. 1992. "Outward-oriented Developing Economies Really Do Grow More Rapidly." Economic Development and Cultural Change vol. 40, no. 3, pp. 523-544. Dombush, Rudiger, and D. Leslie C.H. Helmers, eds. 1993. The open Economy tools for policy makers in developing countries. Oxford University Press. ECA (Economic Commission for Africa). July 1999. "Report on Preparatory Meeting of Senior Trade Negotiations for Seattle WTO Ministerial Conference and UNCTAD X." Addis Ababa, Ethiopia. ERB (Economic Research Bureau).1994. "Development Challenges and Strategies for Tanzania. An Agenda for the 21"' Century." University of Dar es Salaam, Tanzania i, 222 Liberalizing Agricultural Trade: Issues and OptiDns ... ESRF (Economic and Social Research Foundation).1999. "Food Aid and Development, A Summary Evaluation Report." Quarterly Economic Review Jan-March, Netherlands Development Cooperation. Tanzania ESRF (Economic and Social Research Foundation). 2000. "Implications of the Uruguay Round Agreement on Tanzania's Development." Policy Dialogue series 001. Tanzania FAO (Food and Agriculture Organization).1995. Assessment ofthe Current World Food Security Situation. Rome. Krugman, Paul.1988. "External Shocks and Domestic Policy Responses in The Open Economy: Tools for Policymakers in Developing Countries, by Rudiger Dornbusch and Leslie Helmers, eds., Oxford: EDI Maro, W. E. October 1999. "Agricultural Sector Performance, Trade and Food Security." In Godwin D. Mjema and others, eds., Food Security, Agriculture and Trade: Some Local and Global Linkages. Dar es Salaam: University Press Mjema, G. D., ed 1999. "Food Security, Agriculture and Trade: Some Local and Global Linkages." University Press, Tanzania. Ndulu B. J., and S.M. Wangwe. 1997. Manag(ng Tanzania's Economy in Transition to Sustained Development. ESRF Discussion Paper. Economic and Social Research Foundation. OECD (Organisation for Economic Co-operation and Development). 1994. "A Preliminary Assessment of the Impact of the Uruguay Round on Developing Countries." Paris. SAPES Trust. 1993. "Food Policy and Agriculture in Southern Africa." Zimbabwe. UNCTAD/WIDER (United Nations Conference on Trade and Development, World Institute for Development Economics Research). 1990. Study on Agricultural Trade Liberalization in the Umguay Round, Geneva. URT (United Republic of Tanzania). 1994/95."National Sample Census of Agriculture, Tanzania Mainland Report," vol. III. Dar es Salaam. - - 1995/96. "Expanded Survey of Agriculture, Tanzania Mainland Report." Dar es Salaam. - - June 1998."Hali ya Uchumi wa Taifa." Dar es Salaam. - - 1999. "The Integrated Framework for Trade Development," vol. II. Report prepared under the consultation on Trade-Related Assistance. Dar es Salaam. Tanzania 223 URT, MAC (United Republic of Tanzania, Ministry of Agriculture and Cooperatives). 1991/92-1997/98. "Basic Data Agriculture and Livestock Sector." Dar es Salaam. --MAC 1994/95-1996/97. "Agriculture Sector Policy Paper." Dar es Salaam. - - MAC June 2000. "Freeing Cross Border Trade in Agricultural Products," Vol. III. Dar es Salaam. World Bank.1989. Road Deterioration in Developing Countries: Causes and Remedies. Washington, D.C. - - 1994. "Tanzania Agriculture Sector Memorandum." Washington, D.C. - - 2000a. Agriculture in Tanzania since J986: Follower or Leader of Growth? Washington, D.C.: World Bank and International Food Policy Research Institute. - - 2000b. "Tanzania, Agriculture: Perfonnance and Strategies for Sustainable Growth." Washington D.C. WTO (World Trade Organization). 1995 "Agreement on Agriculture." Geneva. Yeats, Alexander, and others.1997. "Did Domestic Policies Marginalize Africa in International Trade? Directions in Development, Washington D.C.: The World Bank. 224 Liberalizing Agricultural Trade: Issues and Options ... Appendix Table 6A.1 Nominal and effective rates of protection in key prodUcts since the Uruguay Round Agreement on Agriculture Total Nominal Protection Chapter Description Addition of all Trade Taxes) 1995 1996 1997 1998 1999 00 0 0 0.63 0 0 01 Live animals 0.024 0.056 0.121 0.128 0.099 02 Meat & edible meat offal 0.0541 0.346 0.166 0.213 0.213 03 Fish & crustacean, molluscs & other aquatic invertebrate 0.105 0.382 0.407 0.329 0.080 04 Dairy prod; birds' eggs; natural honev 0.353 0.389 0.373 0.309 0.300 05 Products of animal origin, nes or included 0.4271 0.264 0.043 0.180 0.255 06 Live tree & other plant; bulb, root, cutflower 0.006 0.002 0.015 0.087 0.234 07 Edible vegetables and certain roots and tubers 0 0.004 0.027 0.008 0.008 08 Edible fruit and nuts; peel of citrus or melons 0.044 0.236 0.359 0.254 0.234 09 Coffee, tea, mate and spices 0.694 0.584 0.606 0.541 0.263 IO Cereals 0.062 0.081 0.181 0.140 0.102 11 Prod mi11 indust; starches; insulin; wheat gluten 0.191 0.332 0.254 0.143 0.081 12 Oil seed, oleagi fruits; miscell grain, seed, fruit O.Q4 l 0.051 0.066 0.093 0.047 13 Lac; gums, resins and other vegetable saos and extras 0.048 0.255 0.213 0.298 0.225 14 Vegetable plaiting materials; vegetable products nes 0.019 0.113 0.390 0.101 0.434 15 Animal/veg fats& oil & their cleavage products 0.249 0.291 0.379 0.350 0.36!i 16 Prep of meat, fish or crustaceans, molluscs 0.524 0.068 0.177 0.172 0.092 17 Sugars.and sugar. confectionery 0.181 0.324 0.423 0.471 0.330 18 Cocoa and cocoa preparations 0.431 0.747 0.709 0.359 0.430 19 Prep of Cereal, flour, starch/milk; pastrycooks' prod 0.199 0.668 0.148 0.113 0.367 20 Prep of vegetable, fruit, nuts or other oarts of vlants 1.949 0.535 0.573 0.485 0.476 21 Miscellaneous edible preparations 0.335 0.434 0.444 0.353 0.340 23 Residuals & waste from the food industry; prep ani fodder 0.081 0.366 0.866 0.148 0.109 Tanzania 225 4 Tobacco and manufactured tobacco substitutes 0.043 1.473 0.158 0.282 0.482 ol Fertilizers 0.043 0.008 0.243 0.001 0.0003 3 Essential oils & resins; perf, cosmetic/toilet prep 0.010 0.660 Q.019 0.542 0.545 1 Raw hides and skins (other 1 than furskins) and leather 0.416 0.287 0.595 0.346 0.065 3 Furskins and artificial fur; manufactured thereof 0.046 0.398 0.201 0.592 0.467 4 Wood and articles of wood; wood charcoal 0.113 0.143 0.240 0.476 0.228 5 Cork and articles of cork 0.030 0.178 0.148 0.302 0.230 6 Mantifactured of straw, esparto/other plaiting materials 0.124 0.276 0.060 0.353 0.277 7 Pulp of wood/of other fibrous cellulosic mat waste 0.407 0.603 0.536 0.571 0.541 8 Paper & paperboard; art of paper pulp, paper/paperboard 0.124 0.395 0.368 0.300 0.328 Calculated using addition of import duty, sales tax (VAT) for imports and excise duty as a ratio of imports for home use. Appendix Table 6A.2. -Effective rates of protection 199112 1994 1995 1996 1997 1998 1999 2000 Growingofmaire -39.0827 -0.62056 -295128 -0.9089 -0.40216 -330544 4.17508 -0.79414 GrowinP-of~ 40.9552 1.104364 -137231 0.051%1 9.509134 9.555479 12.64837 12.4722 Growing of ~"' -38.9214 25.I 1837 17.01198 2355883 23.12094 18D229 -54.8752 15.85421 -0.44627 4337190 3.103186 -026425 14.44269 4.9961 0.35731 0.254639 Growingofwreat Growingofbmns -20.8471 -2.33795 -2.29279 -2.12038 -1.64032 2976497 -2.42696 19.16102 GrowingofQlS.Sa'\ia -531854 -000036 3896273 38.72783 2803987 29fl49 20.56572 24.20978 Growingofotherreeal..-J -37.5053 -11.6476 -11.7105 -11.7918 -11.8004 15.82328 -11.7932 -11.7702 Grov.~m• ofoil seeds -21.2696 4.362968 -0.116994 18.17997 5.62.2226 25.03837 21.16852 2272819 Growing ofother roots mrure. -10.5314 -0.00228 14.17373 -0.03975 -0.00603 28.24556 -0.00477 -OJJ0559 Growingofcotton -100.107 .27.5391 -10.9743 -24.3335 5.882492 .S.43885 -26.6835 -22.9905 Gro,..mwofo.:iffue -64A768 36.0378 -8.38571 -3.1)6317 6230485 20.62096 -0.7932 4.64085 1 Growingoftol:ocro -79.0075 -7.05359 2921745 .Jl.20324 -7.63223 10.73018 -7.22741 -722953 Growing oftea -91.3677 10.11359 -3.69197 27.61014 23.71362 15.95283 9.00384 16.03413 Growingofcashewnuts -30.1179 -0.06402 -1.03854 9.08911 I 28.9654 11.43048 25.92121 23.67743 Growingofsisal firnP -72.3735 -2.48064 -2.95597 -2.93614 -328935 5.565117 -2.69795 -3.f>Af,77 Growin.,.ofcoconuts 4.44426 0204847 I1.70114 0.181006 1.843067 0.579302 0.38945 0.481553 Growing ofsugarcane -30.9993 -0.66336 36.40375 1246345 21.64799 20.7P>789 1023578 8.399107 Growingofumanas -9.60964 4.312781 37.73684 21.90071 21.87379 13.74588 12.6069 16.53498 Growine:ofcxher fiuits -30.8676 4.824464 27.90954 20.56348 20.30008 1328627 1228624 15.8292 Growing ofother ~ -15.0676 37.1305 -273197 23.16114 35.05503 27.51105 22.36229 22.78271 Growing ofother oil 0 4.75 3.0914 19.81 6.282 27.3 2306 24.725 ""'" Growing ofothercrops -13.447 4.02861 4.26855 0.517304 0.09092 2.744314 -0.96067 -1.62643 - ---------,-- 226 Liberalizing Agricultural Trade: Issues and Options ... mo -,, -v.. -0. =·· Fiinng rux!fuh £nm -25.5025 4.58646 10.83366 1.607082 -5.11609 -6.68347 24.91912 19.IITT83 Olherfunning ofaumru -353446 'L""u041 13.04053 17.48712 70.67054 14.52073 0.9".ll404 231S!I054 HmJmg ruxi gane ~m -149979 17A136 9.81639 24.54634 36.87073 24.58492 8.0llJ666 10.162)6 F<=try md Joggmg -162482 -0.30%7 17.65782 10.92169 15.85611 24.01&36 397IB3 5.905244 Qwnyingofstrne, clay aid sand -229274 2764292 17.13166 1289579 11.63089 10.96SQ9 4.070559 1.736985 Exlractionofsalt -22.7613 3.578884 19.08544 13.866 1228!Xi9 11.92497 4.824269 2.447689 Minmg of g=tooe; -7.38714 28662 -205014 13.45618 1249935 11.56508 14.30133 I.w7389 Otha' mirung md q.ary;ng -25.9718 -1.72453 -1.86433 -1.87671 9.869167 10.46566 -1.80124 1984051 ~igofm::at ruxidruryc JXru -64.264 4.38041 -6.53318 •7.6033 -9.04383 -11.299 -5.00492 -6.16417 -- Mamfucfureofpclpm -67.8W3 -1.67313 -163406 44.54357 16.14412 -4.76614 -13.6708 -103217 PrnEng ruxi publilrung -54.051 -12.3404 -'JA.7g]5 -23.1996 -16.4791 -18.13'.L! -20.864 -30.4855 M•mfudu.mtbs ruxi iro:blrial cl=icaJ, -353719 -49.6915 -47.4209 429606 -9.44517 -47.73Cf7 -50.7053 -533986 Mmfidu'ootfutili= eni .--:ticide -34.8688 -57.4469 -529422 -53.0SH -59.6786 -57.4191 -573703 -57."lfl Pruolrumdinailclay -75.563 -17.1858 -15.()()89 -5.16739 9.074014 -13.0759 -9.68927 -7.63335 Pn=singofnoo, sta:larrlnoo-temx.is mi ' ~,;,.,,,,.,, 49.9928 -24.0491 -21.5378 -20.9143 -220558 -21.2363 -224268 -228255 Mlnulirueof ebkai~ -325659 -38.4459 -36.4016 -34.8699 -33.9577 -35.4908 -35.4356 -35.837 Mlnulirueof -31.8713 -36.4312 -35.7502 -33.8179 -21.5407 -37.3CJ79 -~ -35.501 -329189 O Fruits, nuts, Jruit peel 1994 0-25 18 l qgn fl-? 'l 17 6 10 0 1998 0-21.7 15.4 10 200> Fruit iuices 1994 19-42 30.5 1996 J7-j9 28 100 200919 Orange juice 1998 14.5-36.4 25.5 100 """"' Pineapple Juice ,,,. 16.5-,0. I ~t.7 lO Source: UNCTAD TRAINS. 255 tariff reductions will erode the advantage it has against non-preference receiving countries. Since Ghana is unlikely to be able to Stop the process of tariff liberalisation it should negotiate for a reduction in any domestic support measures that may discriminate against foreign goods but tend to favour domestic producers. A second reason for Ghana to support any proposals for the reduction in domestic support measures is that the domestic support provided by other countries to products Ghana exports, gives these countries an undue advantage in third countries. The trade regime of the Lome Convention was not consistent with the WTO rules. The issue of compatibility with the WTO was addressed in the Cotonou Agreement of 2000. It was agreed thatnegotiations for Economic Partnership Agreements should titlce place between September 2002 and January 2008. Under the Economic Partnership Agreements obstacles to trade between the EU and the ACP countries will be removed, i.e. there will be a shift to reciprocal preferences in contrast to the current non reciprocal arrangement. This changed arrangement has significant implications extending beyond Ghana's agriculture sector. With this ahead, discussions on reducing domestic support measures in the current trade negotiations become even more crucial as under the Economic Partnership Agreements, imports from the EU will have an undue advantage if domestic support measures are not reduced substantially at the same time that Ghana removes duties on imports from the EU. Non-Tariff measures Except for bananas, tomatoes, coffee, cassava processed fruit, fish and fish products, Ghana's agricultural exports are not subject to non-tariff measures in the EU (Table 7.19). From the discussions with staff of the Ghana Export Promotion Council and the Ministry of Trade and Industry non-tariff barriers are the main barriers to entry into the major markets. One concern is with the costs that these barriers, in particular the SPS measures impose on export.,rs. There is the fear that increasingly health and quality standards will become trade control measures and not merely measures to protect the life and health of plants, animals and people. The Perspective of E:worters: A limited survey was conducted of producers/exporters of agricultural products. The export items covered by the survey were pineapples, papaya, assorted vegetables, yam, cashew nuts and pifieapple juice. Except for the yam and cashew nut exports 256 Libera/i.zing AgTicu/tuTal TTade: Issues and Options ... that were sent to the US market, the exporters of fruit and vegetables were concentrated in the EU market. S()me of the exporters to the EU market commented that quality considerations had become increasingly important in the mid-l 990s. In tl.e case of pineapples for example buyers were becoming more particular about the minimum residual level of pesticides in the fruit. UK buyers of papaya regularly inspected the facilities and conditions under which the workforce operates in order to ensure that work and production conditions meet their specifications. The exporters attributed the growing concerns about quality to the rising competition in the fruit market and the need for buyers to maintain their share of the domestic market. They did not all perceive the quality requirements to be a problemu One producer/exporter was. installing a new factory to ensure that quality requirements were met. All exports require a phytosanitary certificate issued by the Ministry of Food and Agriculture and for exporters to the EU, a form had to be completed which would allow them to benefit from duty-free entry. 7.11.2 Import Policy Taxes on international trade are the only significant source of indirect price support received by the agriculture sector: The WTO rules allow countries to provide domestic support without any limit if this support does not distort trade and falls into the Green Box category of support such as extension services. In Ghana, government support is limited. Tariffs are a subsidy to the producer and a tax on consumers. A further decline in import tariffs would reduce the indirect subsidy received by agriculture. Some crop and livestock producers would find it difficult to compete against imports (often subsidized), and this could increase the reliance on imports Further, liberalisation may not be an optimal strategy to pursue from a food-security perspective. Trade taxes are not the best way to achieve an increase in production. However in the absence of production and input subsidies and other measures to support production, trade taxes may be considered a second- best alternative. If further trade liberalisation is to be implemented, it is imperative that other support measures be introduc.ed to enable domestic producers compete with imports coming from countries that provide their farmers with substantial support 12 • An alternative argument is that the US and EU are unlikely to reduce significantly their support to agriculture. If the effect of the actions of these countries is to reduce Ghana 257 world prices, the low world prices of food imports would benefit consumers. On the other hand, allowing cheap food imports into the country could increase rural poverty (whilst proving beneficial to net food purchasers) especially if alternative forms of rural employment are not immediately found. In government consultations with stakeholders in agriculture conducted in 1995, it was recommended that subsidies be provided the agriculture sector in order to increase production. A portion of the cocoa revenue could be allocated to provide a 20% fertiliser subsidy over a 5 year period. It was estimated that the subsidy would cost approximately US$5 million per annum. Tue advantages of such a measure would be the increase in agriculture production, reduced feed costs to the livestock and fish industry as prices fell and the resulting increase in the production of these sectors. These benefits would have to be weighed against the loss of part of the cocoa revenue to government. The degrees of freedom available to Government on the issue of subsidies are not dictated by WTO rules but largely by the requirements of the IMF and World Bank agreements and budgetary considerations. Its obligations with these institutions make it difficult for Ghana to take advantage of some of the provisions in the URAA. 7.11.3 Export Policy The possible option for further liberalisation within the cocoa sector is the increase in the share of the world price received by farmers. In 1998 farmers received approximately 59% of the f.o.b price. This is more than the target of 55% that was recommended in a consultation with stakeholders in the agriculture sector. In deciding to liberalise the cocoa sector with an increase in the farmer's share of the world price, it is necessary to consider possible repercussions on world prices and the national budget. An increase in the farmer's share of the world price, if it is accompanied by an increase in the real producer price of cocoa, will generate an increase in supply and could encourage the planting of new trees. Ghana is no longer the world's largest exporter of cocoa beans and comes a distant second to Cote d'Ivoire in the EU market supplying not more than 20% of that market. The impact on world prices of an increase in cocoa bean exports from Ghana may therefore not be very large, but could still put some downward pressure on prices. Cocoa tax revenue does not account for more than 20% of total central government · revenues. A decline in government's share of the world price may not -------- ---- 258 Liberalizing Agricultural Trade: Issues and Options ... dent revenues to any large extent especially if alternative sources of revenue generation are tapped. Thus the possibility of liberalising the cocoa trade regime exists but the benefits of increased real incomes to farmers in the short run need to be weighed against the possible downward pressure on world prices and impact on the budget. The producers/exporters interviewed were not overly concerned about export taxes. Their preference is for non-price assistance to deal with the problems such as freight charges for the shipment of pineapples from Ghana being higher than in Cote d'Ivoire. The larger export volumes from Cote d'Ivoire, making it possible to take advantage of scale economies, and higher port charges in Ghana were cited as the causes of this. The potential to increase production and export of fruits exists, however some entrepreneurs mentioned that there is a lack of labour with skills to manage the production of horticultural products. There is inadequate scientific support to analyse and advice on plant disease. In some years production and export is low because the crop has become diseased at1d producers claim that there is inadequate support from research laboratories to help them deal with these problems. Inadequa{e storage facilities at the ports and poor road infrastructure contribute to undermining the quality of the product before it gets to its fmal destination. 7.11.4 The New Issues Investment Policy Ghana would like the WTO to set rules that are explicit about the obligations of the recipient countries and investors. The rules, however, should not infringe on a host country's capacity to decide where investment flows should go. Discussions on the rules regarding investment policy should be guided by the links between development and investment. Within Ghana, further work needs to be done on the analysis of the implications of negotiations on an investment policy in WTO. Thus at the international level, the negotiations should not be rushed in order for there lo be a full appreciation of what is being agreed upon. Competition Policy Ghana is in the process of putting together a restrictive business practices law. Its concern with discussions on competition policy in the WTO is the fear that the OECD multilateral agreement on investment will not be a negotiating framework, but may be imposed on countries. Its view is Ghana 259 that the WTO negotiations should focus on introducing rules that will allow countries to monitor the activities of transnational corporations. This is to reduce the incidence of restrictive business practices amongst these entities, such as collective bidding. Environment Issues A major concern for Ghana is the costs accompanying the introduction of environmental measures and how the burden of costs is to be distributed. The fear is that the costs of implementing environmental measures may result in some of Ghana's products becoming uncompetitive. Resources will have to be provided to assist in the development in environment friendly technologies. Intellectual Property Ghana had until December 1999 to meet its obligations and commitments under the TRIPs agreement. The copyright law has be.en updated to conform to the rules of the TRIPs. A problem with attempts to monitor the infringement of copyright laws is the lack of basic infrastructure, such as computers and vehicles. It would be in Ghana's interest as well as in the interest of other developing countries to lobby for firmer commitments from the industrialised countries that have been championing the cause of TRIPs to provide resources to developing countries to enable them meet their obligations. 7.11.5 Policy Lessons and Recommendations for the Current WTO Round Ghana has made more headway (albeit within the context of the structural adjustment programmes) in liberalising the agriculture sector than have many other developing and industrialised countries. The experience of Ghana's agricultural liberalisation is pertinent for other countries even though it was not implemented as part of its URAA commitments. The main lesson from Ghana is that as government withdraws from certain activities, it must ensure 1hat the private sector is in a position to effectively fill in the gap left by government. For developing countries in particular, this suggests that the liberalisation process should not be rushed. It is important that the process is sustained so as not to create time consistency and credibility problems. The private sector's capacities must be assessed and analysed and the information obtained used to design the liberalisation strategy. 260 Libera/bing Agricultural Trade: Issues and Optums ... The agenda· of the current negotiations mnst include sessions on assistance to developing countries that need to invest substantial resources in order to implement the Uruguay Round Agreements. If the objective of a development round is to be achieved then commitments need to be made by developed countries to support countries such as Ghana in tackling the problems associated with implementing and complying with the SPS and TBT Agreements. Agriculture still constitutes a significant share of exports and employs a majority of the population. These arrangements now appear critical to ensuring that Ghanaian agriculture remains competitive. In addition, the proposed expansion in the production and export of agro-processed products will be handicapped if Ghanaian producers are not able to meet minimum international standards of production, packaging and labelling. In the new round of trade negotiations Ghana's interests lie in improving market access conditions for its exports of interest. A two-pronged attack needs to be adopted. This wonld require agreeing to limited reductions in tariff rates in order to reduce the erosion of preferential tariffs. Deep cuts in tariffs would hurt Ghana for two reasons. The tariff cuts would erode its preference margins. Second, tariffs are the only significant price support (although indirect) that Ghana's farmers have. Reducing tariffs, given the constraints to increasing otherforms of support because of budgetary considerations could hurt farmers and have adverse implications for food security and rural employment. The second prong of the attack is to support coalitions that press for reductions in domestic support measures. These discussions are important for Ghana not only in the WTO but also in the current negotiations with respect to the Economic Partnership Agreements with the EU. Ghana needs more time to be able to analyse the short to long run implications of any proposed rules. Since Ghana has made much more progress in liberalising the agriculture sector than have many other countries, its concerns should be on how it can improve upon agriculture yields and productivity. If indeed the WTO negotiations are to provide benefits for developing countries the emphasis should not be only on the establishment of rules but also in assisting the developing countries adjust to the new rules and increase their production and incomes. There are several domestic constraints that ma'ke participation in the talks and implementation of the various agreements difficult. A great deal of effort needs to be made for staff of the ministries, departments and agencies to be informed about the WTO agreements. There does not appear to be enough co-ordination between the Ministry of Trade, 261 responsible for the WTO and the other ministries and departments that have to institute the changes that the Agreements reqnire. The second constraint is the relationship with the Bretton Woods institutions (the IMF and the World Bank). The conditionalities of the agreements made with these institutions can act as a constraint on the ability to negotiate within the WTO and take advantage of provisions in the WTO agreements. The third constraint is the limited number of personnel in Geneva to actually participate in the discussion of issues pertinent to Ghana. Implementation of the agreements' requirements will be enhanced if personnel in the implementing institutions are able to participate in the negotiations. The Ministry of Trade personnel may not have the necessary competencies to negotiate on issues related to technical barriers to trade and sanitary and phytosanitary measures. If however there is qualified personnel from the relevant section of the Ministry of Agriculture also participating in the negotiations, the negotiating strength of the Ghana team will be improved and the concern about the flow of information will be addressed. Limited resources are a major reason why there is only Ministry of Trade personnel participating in the multilateral trade negotiations. The WTO agenda should therefore also include a session on the funding of developing country participation as a means of avoiding their marginalisation in the discussions. End-Notes I. Forestry and logging includes activities such as timber felling, planting and replanting of trees, transportation of logs up to permanent transportation links, gathering of uncultivated materials and charcoal burning in the forest. 2. Traditional exports are exports of cocoa beans, timber, minerals and electricity. Non-traditional exports are all others. 3. A special import tax of 20% was introduced in April 2000 and is applicable to about 7% of tariff lines. This tax was imposed in the aftermath of a decline in the terms of trade in an attempt to stem the demand for foreign exchange. 4. Unprocessed goods from within ECOWAS with an ECOWAS Certificate of Origin are expected to enter duty free. 5. This section depends heavily on discussion provided in Helfand and de Rezende (200 I. 6. Rice, maize and millet are produced for own consumption and for sale. The response to changing incentive structures is likely to be 262 Libera/izing Agricultural Trade,. Issues and Options ... determined by the extent to which farmers produce for the market and the extent to which they utilise marketed inputs. 7. It was anticipated that liberalisation of agriculture under the URAA would cause international food prices to decline. This did not happen to the extent anticipated. In retrospect this is not surprising since the extent of liberalisation was lower than anticipated (Diakosavvas, 2001; Ingco, 1996) .. 8. The US claim is that Ghana has an insect that it does not want to enter its territories. The insect feeds internally in the yam, hence the need for fumigation. 9. In 2002 there were 74 refusals of imports of food and drugs into the United States. 10. The first set of products was obtained from the Ministry of Trade and Industry. The additional products were obtained from the Ghana Export Promotion Council. 11. There is a sample selection bias here. Those exporters who cannot meet the quality standards will probably drop out of the market. 12. This is not a feasible scenario since there is an urgent need to increase revenues. References Assuming-Brempong (1994) Effects of Exchange-Rate Liberalization and Input-Subsidy Removal on the Competitiveness of Cereals in Ghana in S. Breth (ed) Issues in African Rural Development Vol. 2 ARPAN Proceedings. Diakosavvas, D. (2001) 'The Uruguay Round Agreement on Agriculture in Practice: How Open are OECD Markets?' Paper presented at the World Bank Conference "Leveraging Trade, Global Market Integration, and the New WTO Negotiations for Development" Washington D.C. Helfand, S.M. and G. Castro de Rezende (2001) "The Impact ofSector- Specific and Economy-wide Policy Reforms on Agriculture: The case ofBrazil, 1980-1998" University of California, Working Paper No. 01-34, Riverside. Henson S.J. , R.J. Loader, a. Swinbank, A. Bredahl and N.Lux (2000) Impact of Sanitary and Phytosanitary Moosures on Developing ~ Countries, Department of Agriculture Economics, University of ·.; Reading, Reading. Ghana 263 Ingco, M. (1996) 'Tariffication in the Uruguay Round: How Liberalisation?' 1he World Economy, Vol. 19, No.4, pp.425-446. Seini, AW (2002) Agricultural Growth and Competitiveness under Policy Regimes in Ghana ISSER Technical Paper No.61, ISSER, University of Ghana, Legon. Seini, A.W., Y. Asante, V.K. Nyanteng and G.K. Mensah (2000) Competitiveness in the Agricultural and Industrial Sectors in Ghana, ISSER, University of Ghana; Legon. Index Amberbox 104, 124 Acceptance of code of good practice 199 Applied tariff 129, 147, 234, 235. Acquired Immune Deficiency Syndrome Antidumping actions 148 (AIDS) 9, 28 Arable land 138, 186, 230 African Caribbean and Pacific (ACP) 14, Argentina 117 98, 119, 163, 255 Australia 117, 118 African Caribbean and Pacific European Average MFN Rates 15 Union (ACP-Eu) Group 72, 98, 119, Average tariff 13, 14, 26, 100, 122, 123 163, 164 African Development Bank 39 Barbados 180 African Economic Community (ABC) BankofTanzania 185, 188 163 Base period 17, 24 African Economic Research Consortium, Base tariff 234 (AERC) 1, 3, 8 Belgium 244, 246 African Growth Opportunity Act Benin 143, 163 (AGOA) 14 Bilateral Trade Negotiations 97 African phytosanitary council 235 Blue Box 104, 123, 204 Aggregate Measurement of Support Borderprices 21,23,237 (AMS) 2, 27, 165 Border price ratio 23 Agreement coefficient 109 Border protection 231 Agreement on Agriculture (AOA) I 02, Botswana 17, 180 104, 106, !'07, 108, 114, 115, 116, Bound tariffs 6, 103, 146, 234 118, 122, 125, 138, 141, 142, 149, Bound tariffrate 26, 147 156, 166, 187,200,202,211 Brazil 25 Agricultural commodities 99, IOI, 112, Bretton Woods Institution 261 114, 115, 121, 129, 135, 139, 140, Budgets 6, 142, 149, 179, 198,200,201, 143 247,258 Agricultural Development Projects 151 Budgetary surplus 59, 62 Agricultural exports 9, IO, 36, 39, 117, Bulgaria 163 138, 142 Bureau of statistics 190 Agricultural growth rates 230 Agricultural imports 138 Cairns group 66 Agricultural inputs 113 Caisse de Stabilisation 23 Agricultural negotiations 13 7 Cameroon 2, 4, 7, 35-39, 43-45, 52, 56, Agricultural policies 3, 19, 20, 39, 144 63, 65-67, 71-75, 85-88 Agricultural policy reforms 2, 99 Cameroon's agricultural exports 56, 57, Agricultural prices 237 67 Agricultural producers 99, 152 Cameroon's unilateral Hberaliw.tion 57 Agriculturalpr0duct 4,5, 12, 13, 14, 16, Cameroon development corporation 43, 40, 117, 122, 236, 243 44 Agricultural production 107-114 Cameroon's agricultural products 48 Agricultural sector 20, 36, 39, 49, 57,59, Cameroon's non~oil exports 56 99, 107, 126,142, 144, 164, 167, 183, Canada 11, 14, 25, 29, 98, 117, 246 191,230,233 Cash crops 114, 189, 191, 195 Agricultural Sector Adjustment Program Cashew Marketing Board 197 (ASAP) 52 Cassava leaf exports 249 I Agricultural tariff 52 Ceiling bindings 17 264 ! Index 265 Central African Economic and Custom Debt 9, 122 Union 52 Deficit regions 193 Central African Monetary and Economic Delmonte 43 Community(CEMAC) 58,59,62,63, Demand block 90 65, 72,74,93 Demand balance 214 Centra!BankofNigeria(CBN) 144, 152, Development box 6, 27, 121 167 Distort market price 23 Cereal authority 39 Doha development agenda I, IO, 26, 28, Cereal yields 189 137 China 163, 246 Doha development round 10, 26, 30, 35, , C.l.F. borderprices . . Coastal pnces 23 237 71, 97, 127, 137, 164, 183,229 Doha WTO Ministerial Conference 30 Cocoa Board 231,232, 233 Domestic agricultural policies 232 Cocoa smuggling 143 Domestic commodity prices 114 Cocoa tax revenue 257 Domestic currency 213 Codex Alimentarius Commission 150, Domestic demand 214 213 Domestic food security 247 Commodity Board Era 144 Domestic food supply 189 Common External Tariff (TEC) 63 Domestic import 246 Common market 100 Domestic incentive regime 4 Common Market for Eastern and Domestic industries 189 Southern Africa (COMESA) 14, 98, Domestic market management I 03 116, 118, 119, 202 Domestic policy 4, 9, 57, 237, 238, 241 Competition policy 258 Domestic price 21, 29, 47, 114, 126, Computable General Equilibrium (CGE) 139,237 89, 213 Domestic price index 208, 237 CGE model 89, 93, 207, 211,220 Domestic production 141, 247 Congo 17,65,67,83,84,86 Domestic reform 3, 29 Constant Elasticity of Transformation Domestic Resource Cost (DRC) 192 (CET) 214 Domestic supply 23, 247, 248 Constant Elasticity of Substitution (CES) Domestic support 1, 5, 6, 7, 25, 26, 30, 214 52, 57, 73, 97, 104, 107, 123, 124, Consumer price index 213,215,216,237 126, 146, 149, 155, 158, 165, 166, Cote d'Ivoire 18, 180, 257, 258 175,229,233,255 Domestic trade policy 4 Cotonou Agreement 2, 14, 16, 52, 67, 120, 163,187,199,206 Douala port 45 Cotton and Lint Marketing Board 197 Draft final act 205 Credit financing 151 Crop boards 194 East African Community (EAC). 98, 100. Crude oil 163 116, 119, 127, 187 Custom duty 147, 148, 179, 232 East African Custom Union 127 Custom evaluation 235 Economic Community of West African Custom duty drawback scheme 23-2 States(ECOWAS) 14, 146, 163, 164, Currency reteption scheme 168 253,261 ECOWAS market 253 Dairy products 156, 158 Economic survey 116, 117, 118 Dakar 45 Economic Partnership Agreement (EPA) 16, 255, 260 266 Liberalizing Agricullural Trade: Issues and Options ... Economic recovery program 194 Export restrictions 231 Economic reforms 139 Export subsidies 3, 4, 5, 6, 7, 24, 25, 27. Edible fruits 231 52, 73, 97, 103, 106, 107, 122, 123, Effective Protection Coefficient 239 124, 146, 149, 155, 159, 166, 175, Effective rates 153 199, 205, 232, 233 Effective Rates of Protection (ERP) 51, Export taxes 43, 231 58,152,153,154,174,202,224,225, Export trade regimes 231 239,241 External balance 214 Economic recovery program 193, 194 External markets 153 Endogenized foreign exchange rate 208 Export volume 243 Endogenous variables 93, 215 Empirical analysis 237 Fair Trade Practices Act 191 Equatorial Guinea 67 Farm credit 43 Equilibrium bloc 92 Farm gate prices 232 Estimated of Rev_ealed Comparative Farm holdings 139 Advantage, 252 Farm inputs 99 European markets 55, 56, 196 Farm planning services 104 EuropeanUnion(EU) 11, 12,24,25,29 Farm profit 19 31, 52, 67, 98, 116, 118, 121, 155, Farmers 19, 37, 39, 105, 114, 121, 139, 158, 159, 187, 203, 239, 243, 246, 142, 143, 151, 191, 197, 230, 231, 251 232,247 EU export subsidies 177, 178 Federal Environmental Protection Agency European union market 120, 196, 253, (FEPA) 150 254,256,257 Federal Superphosphate Fertilizer EU's Lome Convention 214 Company 151 EU market duty free 253 Fertilizer 40, 113, 139, 140, 144, 148, Everything But Arms (EBA) 14, 16 151, 186,197,230 Exchange rate 144 Financing of Investment in Community- Exogenous change 215 based Micro-Agricultural Projects Exogenous variables 94 (Fl11AC) 39,43,44 Explicit tax 19 Finland 196 Export 116-7, 139, 242 Fiscal balance 214 Export credit guarantee 168 Fiscal policies 145 Export crops 19, 22, 112 Fish industry 203 Export earnings 36, 189 Fisheries 230 Export incentive schemes 167, 168 Fixed dried tax rates 215 Export licenses 49, 168 F.o.b. price 22, 257 Export market 188, 229 Food aid import volumes 247 Export policy 257 Food and Agriculture Organization (FOA) Export prices 49, 168 36,38,122,155, 186, 192,205,235 Export price adjustments 168 Food balance 193 Export processing zone 168 Food budget 247 Export prohibition lists 169, 170, 173, Food crop 107, 189, 191, 193, 198,230, 174 232,240,241 Export promotion 232 Food security 2, 5, 25, 37,39, 57, 59, 60, Export promotion department 197 69,74,192,247 Export promotion scheme 188 Food exports 141 Index 267 Food import 37, 141,245,249 253,255,262 Food import bill 141, 188, 204 Ghana food distribution corporation 232 Food import-eXport gap 141 Ghana's agricultural exports 242, 253 Food insecurity 2, 37 Ghana's agricultural imports 244, 245, Food production 141, 240 246 Food security 29, 71, 142, 149, 166, Ghana's agricultural trade 242 183,187,199,205 Ghana seed company 232 Food security indicators 249 Ghana statistical services 244, 246 Food security issues 7, 121, 247 Ghana's major agricultural imports 245, Foocl security perspective 256 246 Food sector 138, 142, 188 Ghana's major trading partners 246 Food trade balance 248, 249 Ghananian emigrants 232 Foodstuff development authority 39 Global agricultural export IO, 29 Foreign currency IOI, 237 Global System of Trade Preference Foreign exchange IOI, 102, 117,248 (GSTP) 146, 163 Foreign exchange act 194 Green box 6, 73, 104, 120, 121, 122, Foreign exchange bureaus 194 123, 124, 158 Foreign exchange crisis 188 Green box category 158, 256 Foreign exchange earning 138, 194, 197, Gross Domestic Product (G.D.P) 24, 230,232 25,36,37,59,62,67,102, 107,138 Foreign exchange rate 208 183, 189,208,209,230 ' Foreign exchange retension 99 Foreign Input Facility (FIF) 168 Hazard Analysis Critical Control Points Foreign price 237 (HACCP) 120 Forestry 80, 230 Herbicides 186 France 163, 196, 246 Household welfare variation model 92 Free market forces 144 HS code 231 Free market system 23 HS commodity codes 246 Freeport authority 200 Husbandry practices 185 Freeport zones 200 Fumigation process 249 Implicit tax 19 Import 117-8, 139, 245 Gabon 65,67,83,86 Import certificate 148 General Agreement on Tariffs and Trade Import cost 27 (GAIT) 1, 3, 8, 18, 31, 67, 97 Import demand 214 General equilibrium analysis 58 Import duties 187, 231 Generalized System of Preferences (GSP) Import licensing system 231 !, 2, 14, 72, 98, 120, !63, 187, 199, Import policy 256 206 Import prices 27, 114 General Algebraic Modeling System Import prohibition list 170, 171, 173 (GAMS) 220 Import restriction 231 Ghana, 2, 5, 6, 18, 229, 230, 232-236, Import tariffs 103, 114, 231, 236 239-246, 248, 249 ,251, 253, 255-262 Import tax 236 Ghana cotton company 232 Import trade regime 236 Ghana export promotion council 243, Import volume 245 268 Liberali,;ng Agricultural Trade' Issues and Options ... Incentive structure 236, 241 Kenyan shillings 109, 110, 111, 112, 113, Income tax rebate scheme 232 114, 127 India 204 Kenya's economy 126 Industrial crops 107, 110, 114 Kenya's exports 115, 116, 117, 126, 132, Industrial crops prices 110 134, 135 Informal trade 187 Kenya's food imports 121 Infrastructure 19, 47, 57, 67, 122, 126, Kenya's imports 118, 133 139, 149, 151, 166, 189, 193, 194, Kenya's trade 118 202 Kenya's trade policy 97 Input prices 113 Korea 158, 163 Input policy 40 Input subsidies 232, 233 Landact 191 Insurance scheme 168 Lake Victoria 203 Inter African phytosanitary council 235 Latin American countries' price bands 31 Institution block 214, 218 WCs benefit 16 Intellectual property 259 LES utility 214 Internal trading system 189 Livestock marketing board 232 International community prices 184 Livestock products 107 International Food Policy Research Local market taxes 191 Institute o;FPRI) 207, 220 Lome agreement protocols 16 - International inflation index 237 Lome convention 52,67, 117, 119, 163, International market 122, 142 187, 199, 206 International Monetary Fund (Th.fF) 12, Logistic support 230 22,62, 183, 199,235,257,261 Logging 230 International Organization of Standardi- Luxury goods 231 zation 150 International Plant Protection Convention Macroeconomic balances 214 (IPPC) 203, 213 Macroeconomic policies 19, 23, 37, 45, International price, 237, 238 52, 99, 145, 237 Investment policy 258 Malawi 220 Italy, 204 Market access 1, 2, 5, 6, 9, 10, 17, 25, 30, 35, 52, 56, 71, 73, 97, 103, 107, Jamaica 163 116, ll8, 120, 123, 126, 147, 155, Japan 11, 14, 25,30,98,116, 117, 120, 164, 165,204,233,253 155, 158, 159, 196,204,206 Market reforms 99, 107 Japan market 120 Marketing board 23, 143, 194, 197 Marketing prices 144 Kenya 2, 5, 97-98, 102-107, 109-127, Marrakech agreements 199 189 Marrakech decision 74, 122 Kenya co-operative Creameries mono- Marrakech declaration 107 poly, 101 Medium-size landholders 139 Kenya Dairy Board IO I MERISSA program 207 Kenya statistical abstracts 105 MFN (Most Favored Nation) 4, 20, 31, Kenyan farmers 114 165 Kenyan pounds 105, 132, 133, 134, 135 MFN preferential margin 15 Kenyan products J 16 MFN rates 12, 13, 15, 31 MFN duty rates 254 Index 269 MFN tariff reduction 255 Nigerian cocoa board 143 Minimum price scheme 232 Nigerian cotton board 143 Mining and quarrying 154 Nigerian Institute of Social and Economic Ministry of Agriculture and Cooperatives Research (NISER) 144 194,200 Nigeria palm produce board 143 Ministry of Food and Agriculture 256 Nigerian rubber board 143 Ministry of Trade 179 Nigeria's agricultural trade policies 142 Ministry of Trade and Industry 253, Nigeria's export 140, 141, 153, 155, 167 255,262 Nigeria's import 141, 169 Model description 207 Nigeria's interest and options 164 Model equation 217 Nominal border price 237 Model result 209, 210 Nominal coefficient 114 Model structure 80 Nominal exchange rate 237 Monetary policies 145 Nominal rate 45, 152, 153, 237 Multilateral liberalization 65 Nominal prices 237 Multilateral trade negotiations 26, 183,. Nominal ·protection 236 199,206 Nominal protection coefficient 114, 115 Multilateral trade system 1, 10, 98, 137, Nominal Protection-Rates (NPR) 20, 21, 186 224 Nominal tariff rate 152, 153, 154, 236 Namibia 17 Non-automatic licensing 233 National Agency for Food, Drugs Non-Governmental Organization (NGO) Administration and Control 39 (NAFDAC) 148, 150 Non-traditional exports 116,. 117, 184, National Agricultural Land Development 186,232 Authority 151 Non-Tariff Barriers (NTBs) 2, 4, 16, 17, National Cer"e~t Produce Board (NCPB) 18, 19, 44, 47, 49, 56, 72, 104, 115, 21, 101, 114 119, 120, 125, 164, 165, 194; 195, National Coffee and Cocoa Board 43 201,220,231,233,239 National consumer price index 191 Non-tariff measures 255 National Fertilizer.Corporation ofNigeria Nontrade concerns 37 151 non-trade distorting 124 National fertilizer program 40 Norway 98 National hazardous chemical tracking program 150 Oligopolistic private buyers 186 National inquiry point 199 Oil boom 142 National Milling Corporation 195, 198 Oil palm production 241 National plant quarantine service 150 Orgariization of Economic Co-operation National produce marketing board 43 and Development (OECD) 25, 26, National rural development fund 40, 44 66, 155, 165,204,205,258 Negotiable duty credit certificate 149 Other Duties and Charges (ODC) 18, Neoclassical macroeconomic closure 219 31,234 Netherlands 163, 196, 204, 246 ODC rates 18, 25, 31 Nigeria 2, 6, 137, 138, 141, 142, 146- 152, 156, 159, 163-170, 232 Pakistan 246 NigCrian Agricultural and Cooperative Partial equilibrium analysis 52 Bank (NACB) 145, 152 Perennial agriculture 36, 60, 80 -- I - 270 Liberali;jng Agricultural Tratk: Issues and OptWm ... Plant quarantine legislation 235 Real nominal rate 44, 46 Poland 158 Real prices llO, Ill, ll2,238,241 Policy reforms. 100, 102, 198 Real wholesale prices 238 Post-harvest losses 233 Refmancing and Rediscounting Facility Post-UR ad-va/ore.m tariffequivalent 240 (RRF) 168 Post-Uruguay 12 Regional analysis 63 Post-Uruguay Round 4, 40, 41, 155 Regional fiscal reform program 52 Post-Uruguay tariff rate 29 Regional integration 5, 35, l 86 Poverty 9, 10, 29, 98, 138, 142, 166, Regional protection I 5 183,i92,229 Regional protocols 186 Pre-agreement period 117 Regional trade blocs I S6 Pre-reform years 1187 Revenue/saving block 89 Preferential margins 16, 30 RiVer basin development authorities 151 preferential rates 15, 30 Rural employment 257 Preferential treatment I, 3, 14, Rural farmers 207, 209 Perennial agriculture 36, 51 Rural infrastructure ·23, 37 Prices block 91, 213, 217 Rural poverty 9, 29, 36, 257 Price control 48, 50 Priceincentives 114,237 Safeguard action 5, 161,202 Price indices 113 Safeguard measures 124, 141, 147, 158, Price instability 112 165, 235, 255 Price stability I 09 Sales tax schedule 236 Pricing policies 19 Sanitary and Phytosanitary Standards Private prices 239 (SPS) 3, 4, 5, 25, 27, 44, 104, 120, Private sector 6, 23, 51, 57, 98, 99, 101, 125,203;206,229 204 SPS agreement 72, 104, 199, 249, 250, Produce buying company 232 260 Producer price 46, IOI, 114, 143, 144, SPS measure 3, 56, 107, 126, 149, 187, 184, 186,190,237,238 203, 213, 249, 250 Production block 89, 217 Simulation 207, 208, 209 Pyrethrum prices 110 Sisal marketing board 197 Pyrethrum board's factory 195 Sisal prices 110, 184, 185 Pyrethrum extract 111 Slovak republic 158 Pyrethrum marketing board 197 Smallholders 139, 230 Smallholder farmers 20, 183 Quad II, 12, 13, 14,25 Social Accounting Matrix (SAM) 207 Quad countries 12, 29 SADECAO 40 Quantitative restrictions 5, ·so, 148 SODECOTON 40,43 Quarantine check list 235 South Africa 17, ll 7 Quota fill rates 156, 158 Southern African Custom Union Quota tariff 234 (SACU) 17 Southern African Development Rain-fed agriculture. 139 Community (SADC) 187, 207 Real ·domestic prices 237 Special and Differential (S&D) Treatment Realexchangerate 237,238 l,25,29,36,69,107,137,203 Real international price 237, 238· Special safeguard 6, 57, 72, 123, 165, 187 Index 271 Structural Adjustment Programs (SAPs) Tea marketing board 197 I,3,20,50,57,98,99,102,104,109, Techriical barriers 3, 56 115, 120, 127, 138, 139, 141, 142, Technical Barriers to Trade (TBT) 3, 4, . 143, 144, 145, 146, 166, 179, 183 25,27,30, 126, 149187,206,235 Sub-Saharan Africa I, 3, 9, 10, 16, 23, TBT agreement 260 26,28 Tobacco marketing board 197 Sub-Saharan Africa's agricultural exports Tokyo round 149, 165 10, 15 Total crop income ·191 Subsistence agriculture 36, 51, 60, 80 Trade and_excha:ngC rate policies 145 Subsistence farming 183 Trade barriers I, 165 Super sales tax 236 .Trade distortions 48 Supply balance 214 Ttade liberaiization 14 Swaziland 17 Trade negotiations 1, 2, 5, 6, 7 Swiss formula 6, 165 Trade policy 49, 142, 187, 194 Switzerland 98 Trade policy reforms ·10, 99 Trade policy regime 199 Taiwan 196 Trade preferences IO, 14, 15, 16 Tanganikyka 187 Trade regime I, 239, 253 Tanzania 3,4, 5, 117, 183-197, 199-207, Trade-Related Aspects on Intellectual 210-215 Property Rights (TRIPS) 25, 28, 30, Tanzania investment centre 201 38,259 Tanzanian crops 192 Trade taxes 256 Tanzanfan shilling 211 Traditional exports 116, 117 Tanzanian Tea Authority 195 Transition box 27 Tanzanian's economy 183,212 Turkey 163 Tanzania's exports 185, 187, 204 Tanzania's import 196 Uganda 98, 117, 163, 187, 189 Tariff 44, 47, 50, 103, 146, 201 Unilateral agricultural trade policy 48 Tariff barriers 195 United Arab Emirates 196 Tariffbindings 4, 17, 18, 123 United Kingdom (UK) 196, 204 Tariff cut 208 United Nations Comtrade 11 Tariff escalation II, 13, 14, 25, 30, 56, United Nations Conference on Trade and 66, 71, 122,123, 156 Development (UNCTAD) 163 179, Tariff lines 17, 155, 156, 160,231 205 Tariff margin 14 United Nations Development Program Tariff peaks II, 12, 25, 71, 122, 123, (UNDP) 115 155,!56,159 United States 11, 12, 29, 98, 117, 118, Tariff rates 17, 49, 52, 115, 165, 194, 121, 158, 159 231,239, 253 US exports subsidies 178 Tariff rate quotas (TRQs) 25, 68, 71, US market 156, 249, 256 156 Urban farmers 207 Tariff reduction 6, 18, 115, 187, 206 Urban non-farmers 207, 210 Tariff regime 26, 30 Uruguay round I, 3, 10, 12, 16, 18, 26, Tariff structures 3, 152 29,39,144,!46,193,!96 Tax rate 52 Uruguay round a,Steement on agriculture Tax structure 50, 153 2,3,4,5,6, 7, 10, 16, 17, 18, 19,24, Taxes and duties 53 26, 29, 34, 52; 66, 73, 97' 102, 103, 272 Liberalit)ng Agricultural Trark: Issues and Options ... 111, 137, 183, 203, 211, 233, 235, WTO commitments 3, 75, 212 239,247,249,257,259 WTO framework 63, 98, 206 WTO liberalizers 66 Value-added tax (VAT) 147, 202, 236 WTO members 29, 64, 69, 115, 116, Vietnam 246 123, 149,158,161 Voluntary standard 199 WTO ministerial decision 166 WTO multilRteral agricultural nego- Walrasian 213 tiations 238 Walras's law 215 WTO negotiations 3, 4, 35, 37, 38, 63, Wholesale prices 238 75, 213 World Bank 3, 20, 22, 39, 50, 62, 125, WTOrules 2,36,65, 100, 126, 148, 179, 183, 186, 189, 191, 193, 198, 199, 192, 193, 199,213,220,239,257 200,235,257,261 World food program 186, 192 Zanzibar 186, 187, 198, 200 World market JO, 114, 188, 229, 247 Zanzibar freeport authority 200 World market prices 46, 112, 113, 143, Zanzibar's exports 185 144 Zero tariff rate 231 World prices• 19, 20, 21, 25, 27, 238, Zimbabwe 18, 163 257,258 World Trade Organization (WTO) agreements 8, 25, 44, 150, 199, 206, 213,260,261 -~ ,_ -- This book is a compendium of key findings of analytic work on important issues facing selected Sub-Sahara African countries in the context of the new World Trade Organization (WTO) round of trade negotiations in agriculture. It differs from previous studies in the sense that it focuses on country-specific issues in Cameroon, Ghana, Kenya, Nigeria and Tanzania with the intention of carrying out well-informed country-specific evaluation of alternative options for further trade and agricultural policy reform. Borne out of the collaborative efforts of the World Bank and the African Economic Research Consortium (AERC), the authors are experts residing in the respective countries so as to facilitate ownership of findings and to build local analytical capacity for expansion oflocal expertise base. The study undertaken for each case studies answers general systemic and thematic questions and evaluates biases in agricultural policy regimes during implementation periods. In particular each ofthe studies focuses on: * Key issues for the country; * Country's policy stand relative to development objectives and WTO commitment; * Achievement at country level and its implications for new WTO negotiations; * Lessons and experiences from implementation of commitment; * Impacts ofURAA implementation; * Market access options in agriculture and other key sectors; * Domestic policy agenda in agriculture; and * Impact of macro-trade and sector specific policies on domestic incentive regimes. By bringing together studies which will serve as resource to detail how countries in the Sub-Sahara regions of Africa have experienced the implementation of trade liberalization reforms, it is hoped that it will be of immense help to policy makers in formulating negotiating positions and also assist other countries in identifying more clearly their own interest in trade negotiations. Macmillan Nigeria ISBN 978-018-353-1