WORLD BANK DISCUSSION PAPER NO. 418 WDP418 Work In progress for public dIsoussIon September 2001 Agricultural Trade Liberalization in a New Trade Round Perspectives of Developing Countries and Transition Economies IY Edited by Mlerlinda Ingco L. Alan Winters WORLD BANK DISCUSSION PAPER NO. 418 Agricultural Trade Liberalization in a New Trade Round Perspectives of Developing Countries and Transition Economies Edited by Merlinda Ingco L. Alan !Vnters The World Bank Washington, D. . Copyright ( 2000 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing September 2001 1 2 3 4 04 03 02 01 Discussion Papers present results of country analysis or research that are circulated to encourage discussion and comment within the development community. 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ISBN: 0-8213-4986-4 ISSN: 0259-210X Merlinda Ingco is a Senior Economist in the Rural Development Department of the World Bank. L. Alan Winters is a professor of Economics at Sussex University, England. Cover photo: Brazil 1980s. Photographer unknown. World Bank Photo Library Library of Congress Cataloging-in-Publication Data Agricultural trade liberalization in a new trade round: perspectives of developing countries and transition economies / Merlinda D. Ingco, L. Alan Winters, editors. p. cm. -- (World Bank discussion papers; 418) Includes bibliographical references. ISBN 0-8213-49864 1. Tariff on farm produce. 2. Free trade. 3. Produce trade--Government policy. 4. Agriculture and state. 5. Produce trade-Government policy--Developing countries. 6. Agriculture and state--Developing countries 7. Produce trade--Government policy--Europe, Eastern. 8. Agriculture and state--Europe, Eastern. 9. Word Trade Organization. I. Ingco, Merlinda D. II. Winters, L. Alan. III. Series. HF2651.F27 A2324 2001 382'.41-dc2l 2001045423 Contents Foreword ....... ............................................................... iv Abstract ....... ............................................................... vii Acknowledgments ...................................................................... ix List of Contributors ..................................................................... xi 1. Introduction ..................................................................... 1 Merlinda D. Ingco 2. Agriculture in the Millennium Round of Multilateral Trade Negotiations: African Interests and Options ..................................................................... 11 T Ademola Oyejide 3. Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia ..................................................................... 25 Prema-chandra Athukorala 4. East Asia: Economic Recovery and Agricultural Trade Reform ............................................. 63 Malcolm Bale 5. Interests and Options in the WTO 2000 Negotiations: Latin America and the Caribbean ..................................................................... 77 Julio Paz Cafferata and Alberto Valdes 6. CEEC Interests and Options in the WTO 2000 Negotiations ........................ .......................... 95 Natal/ja Kazlauskiene and William H. Meyers 7. Interests and Options in the WTO 2000 Negotiations on Agriculture: Industrialized Countries ......................................................................111 Stefan Tangermann 8. The Dynamics of Multilateral Agricultural Policy Reform .................................................... 145 Ivan Roberts, Troy Podbury, Neil Andrews, and Brian S. Fisher iii Foreword Bringing agricultural policies under the mainstream ing production. Such market insulating policies of World Trade Organization (WTO) discipline was depress and destabilize world market prices, disad- a major achievement during the Uruguay Round vantaging the producers in economies that cannot (UR). The UR established a rules-based framework afford or are not willing to provide protection. Ef- for agricultural trade and took an important first ficient farmers are thwarted in their efforts to real- step in reducing agricultural protection and trade ize their economic potential by extensive import distortionary policies. But much remains to be barriers that are far higher, on average, than for done to deepen the actual liberalization process in non-agricultural products. agricultural trade. For major agricultural products One of the main objectives of WTO trade nego- exports from developing countries, import protec- tiations over the past two decades has been to inte- tion remain prohibitively high in industrial coun- grate developing countries more fully into the tries. Developing countries have a great deal to world trading system. For most of the Global gain from further progress in trade and domestic Agreement on Tariffs and Trade (GATT) era, de- policy reform and in further opening of global veloping countries were, to a large extent, "free markets for their exports. Advancing this process riders" that were not bound tightly to GATT disci- during the next round of WTO negotiations will be plines. The single undertaking of the Uruguay important to cash in on previous efforts, as well as Round substantially changed this imbalance by to make future progress easier. The World Bank has requiring developing countries to accept all the a comparative advantage in aiding this process in negotiated agreement, including those containing several ways during the next WTO round, includ- provisions that would be difficult for many of them ing keeping it up to speed and responsive to the to implement in the prescribed period. needs of developing countries. Strengthening the capacity of developing coun- Negotiations in the WTO have commenced at a tries to participate in and benefit from more open time when protection for agriculture is around the markets is critical for poverty reduction. A global highest ever estimated. World agricultural markets trading system that enhances market access, creates continue to be distorted by the high levels of sup- opportunities for poor countries to boost exports, port provided in Europe, North America, and sev- and promotes sound agriculture and rural sector eral developing countries. In 1999, support to policies and institutions can provide significant agriculture in OECD countries amounted to gains for the poor, particularly the rural poor. Food US$360 billion. The losers from these arrange- security in poor countries requires access on an ments are widespread. Consumers in countries that assured basis to world market supplies, as well as provide market-distorting support are denied the agricultural raw materials for encouraging light benefits from competitively produced food and manufacturing in rural areas. Hence, developing agricultural products, while taxpayers are forced to countries have a great stake in building an efficient subsidize high-cost, often environmentally damag- global trading system and maintaining global mar- iv ket stability. However, they often lack the capacity The World Bank program includes a series of to participate effectively and negotiate with trading analytical papers on key issues under the "built-in" partners in industrial countries. More important, agenda, as well as the new trade issues in the WTO the requirements and implementation of the new that impact developing countries. Research and WTO agreements have often taxed the limited hu- analyses of key interests and options at the regional man, institutional, and infrastructure resources of and country level are highlights of the program. many developing countries. Initial capacity building is carried out by support- Given the importance of the agricultural sector ing efforts of regional and national researchers, as and the global trading system in poverty reduction well as developing country analysts and govern- in developing countries, the World Bank launched ments which evaluate their policy options, identify in May 1999 an integrated program of research and their interests, and formulate negotiating objectives capacity building with the aim of assisting develop- and strategies. Knowledge dissemination is pur- ing countries, particularly the poorest countries, to sued through national consultations, regional work- participate more effectively in the new trade talks shops, and training activities, and is carried out in and to derive greater benefits from integration in partnerships with the World Bank Institute, re- the global trading system. The program, financed gional research networks, non-governmental or- in part by grants from the United Kingdom De- ganizations (NGOs) and UN organizations (FAO, partment for International Development (DFID) UNCTAD, UNDP). Access to key data and infor- and the Government of the Netherlands, takes up mation which otherwise are not easily available is agriculture trade issues (at the global, regional, and facilitated through database development and Web- country level) and the new trade agenda with po- sites. A handbook on agricultural trade issues is tentially important implications for agricultural being prepared for policymakers and trade negotia- trade and growth performance of developing coun- tors that provides information, in an accessible and tries. The motivation behind the World Bank re- operationally relevant form, about the key search program is that, despite the much more issues on the agricultural negotiating agenda. substantial unilateral trade reforms carried out by Country-specific technical assistance is also avail- developing countries than their trading partners in able. The program also aims to identify approaches industrial countries since the 1980s, developing for Bank lending and non-lending assistance for countries missed an opportunity at the Uruguay long-term capacity building in international and Round to advance or "lock-in" their own liberaliza- regional trade, and to strengthen the capacity of tion and to press the industrial countries for im- client countries to benefit from more open trade in proved access to their markets. Though the domestic, regional, and international markets. A Uruguay Round succeeded in converting all non- global conference in October 1999 and five re- tariff import barriers in agriculture to tariffs, the gional workshops in December 1999 and 2000 (for degree of protection was minimally reduced. In South Asia, Latin America, Central Africa, West some cases, the applied protection has increased Africa, and Sub-Saharan Africa) have been held under the high bound tariffs agreed in the Uruguay under the auspices of the program. Round. Thus, issues of "backsliding" from previ- Why is it so important for developing countries ous unilateral liberalization, now "legal" under the to support the launch of a new Round and to par- UR Agreements, are critical. Indeed, significant ticipate actively in the new WTO negotiations? The trade barriers and distortions remain in global agri- answer is not simple because developing countries cultural markets following the implementation of now have widely differing priorities and diverse the Uruguay Round Agreement in 1995. In some interests depending on their level of development, sensitive sectors, new forms of protection have on their obligations under regional integration ini- been implemented. tiatives, and on their dependence on trade in agri- v culture and commodities, manufacturing, and ser- developing countries. These papers will provide vices. Coalitions among developing countries now them with valuable insights into the diverging is- devise common positions that attempt to bridge the sues, perspectives, and interests of different regions gap between industrial and developing country and countries in the new WTO negotiations in interests. This volume contains several of the re- agriculture. gional studies presented at the conference and regional workshops, revised and updated to take account of comments and peer review re- ceived following the meetings. The papers in this ROBERT L. THOMPSON volume are intended for policy makers, analysts, DIRECTOR and other stakeholders from both industrial and RuRAL DEVELOPMENT DEPARTMENT vi Abstract This Discussion Paper contains seven studies de- in negotiating reduced volumes of subsidized ex- signed to (1) review and assess the impact of the ports and in providing at least minimum levels of implementation of the Uruguay Round Agreement access to markets. There were, however, a number on Agriculture (URAA), and (2) to analyze the key of limitations both in what was agreed to and in issues, interests, and options for developing coun- how the Agreement in Agriculture has actually tries in the new WTO round of multilateral trade been implemented. The analyses of actual imple- negotiations in agriculture. Six regional case stud- mentation of the UR Agreement in Agriculture ies are presented: Sub-Saharan Africa, South Asia, show that the work achieved during the Uruguay Latin America, East Asia, Central and Eastern Round will be of limited value unless market dis- Europe, and Industrial Countries. A quantitative tortions in agriculture can be reduced substantially analysis of the dynamics of multilateral liberaliza- toward levels for other major traded goods in the tion in food and agricultural trade is also presented. new trade round. If the potential gains from more Some of the key conclusions to emerge from the liberal agricultural trade are to be achieved in the studies are presented in this abstract. new WTO trade talks, it is important that the limi- First, much preparatory work was achieved in tations of the URAA are addressed and that policy bringing agriculture fully into the multilateral trad- induced distortions to agricultural production, trade ing system during the Uruguay Round (UR). A and prices are substantially reduced. The new significant achievement was the development of a WTO trade talks in agriculture provide an opportu- broad framework for reductions in trade-distorting nity to continue the fundamental reform of trade- policies. The Uruguay Round was also successful distorting policies. vii Acknowledgments We would like to express our gratitude to the De- We are grateful to the staff of the World Bank Of- partment for International Development (DFID) in fice of the Publisher for their support and assis- the United Kingdom and the Research Advisory tance during the publication process. We also thank Staff of the World Bank for their financial contribu- the staff of the Rural Development Department and tions that made this research possible. We also the Development Research Group who helped dur- thank the staff of DFID who provided suggestions ing the editorial and revision process from initial that contributed to the success of the program of drafts to the final document. Particular thanks go to research. Peer reviewers also contributed by pro- Melissa Williams, Margaret Amaral, Sanda Lay viding comments on drafts of the introductory Chao, Aban Daruwala and Liliana Longo. Thanks chapter and papers, including L. Alan Winters, Jim also to Alison Raphael for copyediting Rollo, Jinkun Huang, and Susan Scurlock Theiler. and to Michael Alwan for final typesetting of We thank them all. the manuscript. ix List of Contributors Merlinda Ingco World Bank William H. Meyers Food and Agricultural Organization T. Ademola Oyejide University of Ibadan, Nigeria Stefan Tangermann University of Goettingen, Germany Prema-chandra Athukorala Australian National University, Australia Ivan Roberts Australian Bureau ofAgricultural Economics Malcolm Bale World Bank Troy Podbury Australian Bureau ofAgricultural Economics Julio Paz Cafferata Food and Agricultural Organization Neil Andrews Australian Bureau of Agricultural Economics Alberto Valdes World Bank Brian S. Fisher Australian Bureau ofAgricultural Economics Natalija Kazlauskiene Food and Agricultural Organization xi 1. Introduction Merlinda D. Ingco Agriculture and agricultural exports continue to The studies and the conference itself, revealed play a significant role in the economic life of most both diversity and similarities between the prob- countries, especially in the developing world. The lems and needs of different regions and individual Uruguay Round Agreement on Agriculture countries. The pace of economic reform has been (URAA) established new rules for world trade in far faster in East Asia and Latin America, for ex- agricultural commodities, initiated modest reduc- ample, than in Africa and South Asia. The former tions in protection, and mandated new talks to con- two regions are also more involved in other trade tinue the negotiation of trade liberalization agree- groups than the latter. These factors and others tend ments. World Trade Organization (WTO) members to influence the position of a given region on a agreed "that negotiations for continuing the process variety of trade issues, and make it hard to distin- of substantial progressive reductions in support and guish areas of common concern that provide a protection will be initiated one year before the end strong bargaining platform. Overall, the studies of the implementation period (2000)." Agriculture underline the importance that developing countries is therefore an integral part of the "built-in agenda" should place on strengthening their participation in that was agreed on in the Uruguay Round and will future negotiations and reviewing the domestic be a central focus of attention in the new round of policies that affect their ability to do so. trade negotiations. Concerned that in the past de- veloping countries have not played an active role in the international trade agreements, the World Bank organized a conference in October 1999 to analyze Africa is'ues and options for developing countries prior to the December 1999 World Trade Organization The paper by T. Ademola Oyejide examines the meetings in Seattle, Washington, USA. Papers in- key issues, interests, and options for Sub-Saharan cluded in this book were commissioned for the African countries in the new trade negotiations. T. conference to highlight the main trade issues of Ademola Oyejide advocates active, informed par- importance in different regions of the world, and ticipation by African nations in trade negotiations, thus to form a basis upon which developing coun- given the vital importance of agriculture to eco- tries could develop positions during that upcoming nomic growth in the region. He points out that the round of trade negotiations. The papers include per- Uruguay Round (UR) was unique in that it explic- spectives from Africa, South Asia, East Asia, Latin itly specified a set of multilateral disciplines on the America and the Caribbean, Central and Eastern production and trade of global agricultural prod- Europe, and industrialized countries, as well as a ucts, in an attempt to overcome several policy dis- final chapter on multilateral agricultural policy re- tortions. The UR was viewed as a first step, and its forn. This first chapter summarizes the regional achievements have been limited. But it served the perspectives that are discussed in greater detail in important purpose of focusing attention on agricul- the following chapters. tural trade, and thus, it is hoped, stimulating poli- Agricultural Trade Liberalization in a New Trade Round cymakers and negotiators to give more careful con- losses vary, analysts agree that they are likely to sideration to their goals during subsequent rounds. occur and further hurt nations in the region. Africa depends on agriculture for 35 percent of The URAA imposes few obligations on African its gross national product (GNP) and for employ- nations, Oyejide notes, because the major agricul- ment of two-thirds of its population. Perhaps more tural trade distortions that it addressed are absent in than in any other region of the world, agricultural most African countries, many of which in any case production and exports are crucial to the well-being receive "special and differential treatment" (SDT) of Africa; yet agricultural technology and resources due to their "least-developed" status. Although Afri- are less advanced than in other regions, and tax and can countries have undertaken many economic re- fiscal policies often harm agricultural producers. forms to free up the agricultural sector, most had Moreover, Africa's food exports are few, and de- already been implemented prior to the URAA, and pend heavily on the performance of three main thus were not "counted"-a problem shared with products (coffee, cocoa, and cotton), for which the East Asia. region suffered market-share losses between the Oyejide urges African policymakers to sharpen 1960s and the mid-1990s. Overall agricultural their focus on the structure and needs of the agri- growth lagged seriously in the 1970s and 80s, al- cultural sector to ensure more favorable results though some improvements appear to have oc- during upcoming negotiations. Africans should not curred during the 1990s. oppose the trend toward liberalization, but rather Low productivity, reduced areas dedicated to seek concrete forms of technical assistance. An- cropland, and poor irrigation systems-compared other area of interest for Africans would be further to other regions in the developing world-have put market-access improvements that result in the re- Africa at a major disadvantage. Oyejide suggests duction of tariff peaks and eliminate tariff escala- that one of the concerns of African countries in the tion, especially for agricultural products. Finally, Millennium Round of agricultural trade negotia- the chapter points to the pressing need for over- tions should be to ensure that new rules pernit Af- coming the structural and technological constraints rica to use appropriate non-price support measures to that have kept agricultural production low. Meeting facilitate the development of its agricultural sector. this need may call for use of public resources, The post-UR multilateral trade regime poses given the predominance of smallholders in African many potential problems for Africa. For example, agriculture. Thus African trade negotiators should the region imports vast amounts of grain and other work in international forums to ensure that these agricultural products. The impact of liberalization changes are viewed positively-as a step in Af- on the price of imported food could add as much as rica's progress toward becoming internationally 10 percent to the region's annual import bill. Even competitive-rather than as "breaking the rules." low-income food-deficit (LIFD) countries would be Finally, Oyejide suggests a need to revisit such negatively affected. The URAA recognized the need categories as "developing" and "least developed" for assisting LIFD countries to cope with the impact and create more objective criteria for establishing of its new provisions on international food prices the basis of special and differential treatment. and the effect of reduced subsidies on food exports Oyejide concludes that SSA countries have a lot at from industrialized countries. But none of the meas- stake in a world trading system whose multilateral ures spelled out in the WTO decision (increased agreements defines the broad rules under which food aid, technical assistance to improve agricultural agricultural production and trade will occur. The productivity, and others) have, in fact, been imple- agricultural sector in SAA remains pivotal to the mented. Other provisions of the URAA, Oyejide overall growth and development of the economy. notes, have resulted in reduced trade preferences for Just as it has for other regions of the world, the numerous countries. While the estimates of these new trade negotiations would have important im- 2 Introduction plications for African agriculture. These effects can on the South Asian experience, the key policy op- be expected from at least three directions. First, a tions for the new round of multilateral trade nego- new agreement on agriculture will define the broad tiations include reductions of the high bound tar- market access conditions for African agricultural iffs, provide institutional support, and improve the exports. Second, it will also determine the conditions capacity of these countries to meet the new interna- of access into Africa's markets for the importation of tional standard required under the Sanitary and a wide range of processed and unprocessed agricul- Phytosanitary Agreement. tural products. Third, the new trade negotiations The study expresses optimism about the eco- would present new challenges on Africa's agricul- nomic benefits of trade liberalization for the four tural development, strategy and policies. countries, but warns that social safety nets will be required during the transition period, since, as in Africa, agriculture employs a significant proportion of the population (35 percent in Sri Lanka and up South Asia to 50 percent in the others countries in South Asia). While the importance of agricultural exports has The analysis by Prema-chandra Athukorala focuses declined in the four countries studied, the role of on four countries in South Asia: Bangladesh, India, processed agricultural products (fish, fruits, and Pakistan, and Sri Lanka. The URAA was com- vegetables) has grown substantially. pleted at a time when countries in South Asia had All four countries have experienced loss of already embarked on significant unilateral trade market share in several main agricultural com- liberalization reforms. Athukorala shows that Sri modities, which the author attributes to a "signifi- Lanka took advantage of the opportunity provided cant anti-export bias" in the countries' incentive by the URAA to significantly liberalize agricultural structures. He describes a range of protectionist trade and to lock-in ongoing unilateral trade reform and distortionary agricultural trade policies that by binding its tariffs at low levels. India and Paki- have penalized farmers in South Asia and kept raw stan, by contrast, bound their tariffs at high levels materials prices low. Yet the study shows that all and did not provide binding commitments for the four countries, especially Sri Lanka and Bangla- removal of remaining non-price border restrictions. desh, have made admirable progress toward elimi- Bangladesh also bound its URAA tariffs at high nating these distortions during the 1980s and 90s. levels, despite unilateral liberalization carried out India and Pakistan, however, still retain complex in recent years. Massive domestic production sub- import restrictions and domestic subsidies. Al- sidies in all four countries, and export taxes and though by the mid-1990s each country had restrictions in India and Pakistan, are prominent achieved IMF "Article VIII status," liberalization elements of the agricultural trade regimes in the of agricultural trade has lagged behind that of region. Hence, the trade policy reform agenda in overall international trade-unlike, for example, India and Pakistan should involve simultaneous Latin America, where all sectors have been affected reforms of import and export regimes and domestic more or less equally. production support mechanisms. Given the nature Of the three main trade-reform areas addressed of the political economy of agricultural trade pol- by the URAA, only regulations on market access icy, it is unrealistic to assume that reforms in the are pertinent to South Asia-in particular, the import trade regime will automatically trigger re- requirement that participating countries convert all forms in other areas. Provision of financial support non-tariff measures (NTMs) affecting agricultural for implementing required social safety net meas- imports into ad valorem, or specific, tariffs. ures can play an important role in making such Athukorala provides an analysis of a variety of comprehensive reforms politically feasible. Based NTMs in use in South Asia and discusses the issue 3 Agricultural Trade Liberalization in a New Trade Round of tariff binding and its implications in the four Bale concludes that East Asian countries are likely countries. He concludes that one of the most to approach the new negotiations with a great deal important areas upon which South Asian countries of caution-if not skepticism. If industrial coun- should focus in future trade negotiations is the re- tries are to overcome this and draw East Asian duction of bound tariffs, which could undermine countries fully into the process of liberalization, the ongoing process of unilateral liberalization by they must be prepared to take the time to under- strengthening protectionist lobbies in the region. stand the legitimate concerns of these countries and He also suggests that South Asian and other devel- respond to them in a genuine and sympathetic oping countries should seek more assistance in the manner. use of WTO dispute-settlement mechanisms, which International trade represents a large proportion are used far more frequently by industrialized than of GNP in East Asian countries, and the region has developing countries. Finally, Athukorala suggests a competitive agriculture sector in which exports that South Asian countries need improved capacity play a strong role. Nonetheless, as is the case in to meet sanitary and phytosanitary standards (SPS) South Asia, agriculture's overall role in national to make their products more competitive in global economies has declined in recent decades; and like markets. Africa, agriculture is a very important source of employment and income for the poor. Exchange rate policies are particularly important to the facili- tation of trade in East Asian economies, Bale East Asia states, citing the benefits of currency devaluation to the rural poor and farm sector in countries worst hit Malcolm Bale's study of several East Asian devel- by the 1998 economic crisis. Moreover, the rural oping economies points to some aspects unique to sector served as a social safety net for the urban these countries-such as the 1997-98 financial poor, who returned to rural areas and benefited crisis and the heavy presence of alternative organi- from rising prices for farm products. On the other zations to regulate trade-which may lead East hand, the crisis raised issues of food insecurity for Asian countries to be more aloof than others from the first time in many years, focusing greater atten- multilateral trade negotiations and the WTO proc- tion on the agricultural sector and its needs. ess. He posits that the URAA did not offer mean- The importance of agricultural trade to the ingful gains to East Asia, the costs of participation countries of East Asia means that the region has a are high, and earlier assurances of assistance have significant stake in global trade negotiations, espe- not materialized. Thus Bale suggests that East Asia cially in regard to tariffs and market access. But is likely to adopt a "wait and see" attitude in the many of the countries struggled to overcome the upcoming round of global trade negotiations. fallout from the financial crisis, and are enmeshed Bale reviewed the experience of East Asian in a series of domestic reforms that generally have countries as they emerge from a period when their taken precedence over trade reform. At present, economies were rocked by financial crisis. Bale agricultural protection is considerably higher than concludes that the Asian crisis spilled over onto the industrial protection, and East Asian countries are agricultural sector and some countries faced the interested in further cuts in bound tariffs, tighter issue of food insecurity for the first time in many controls over export subsidies, stronger commit- years. Moreover, many of the countries feel that the ments on domestic policies, and deepening the pro- benefits to agriculture of the last trade round are tocols on SPS. more illusory than real and that, with the maturing Bale suggests that the flexible approach to trade of Asia-Pacific Economic Cooperation (APEC), refonns of organizations such as the APEC group they now have a viable alternative. As a result, is more compatible with the needs of East Asian 4 Introduction countries than that of the World Trade Organiza- products, while the Andean and Southem Cone coun- tion. Like South Asian countries, those in East Asia tries export temperate-zone agricultural products. A feel that the WTO process is dominated by Organi- common factor is that most countries in the region zation for Economic Cooperation and Development export large quantities of fruits and vegetables. (OECD) countries, who can better afford large- Many LAC countries had already begun to take scale participation and are more able to manipulate unilateral steps toward liberalizing trade prior to the rules in their own favor. Also like Africa, East the Uruguay Round. The political changes that Asia would like to receive "credit" for the reforms sparked this trend also mean that, with stronger undertaken unilaterally prior to the Uruguay democratic processes in place, more social forces Round. Bale urges that industrialized countries, if will seek to influence each country's position in they wish to achieve the full cooperation and trade talks. Agricultural trade liberalization under participation of East Asia, take the time to listen to the UR created winners and losers; winners were these countries' legitimate concerns and respond to often exporters of nontraditional agricultural prod- them in a meaningful way. ucts, while producers of traditional cereal and dairy products now face lower levels of protection and are thus likely to lobby to improve their position through future reforms. Latin America and the Among the issues liable to be of particular im- portance to LAC countries is the question of sani- Caribbean tary and phytosanitary agreements. Especially be- cause they export quantities of fruits and vegeta- Julio Paz Cafferata and Alberto Valdes examined bles, these countries, like those in South Asia, may the new trade issues facing Latin America and the require technical and financial assistance to meet Caribbean (LAC) in the next WTO round. Caffer- SPS standards. Another concern is particular to the ata and Valdes conclude that there is considerable countries of the Caribbean: under trade liberaliza- diversity among countries in terms of both priori- tion they may well be squeezed between potentially ties and positions. Five key factors determine the higher import prices and lower prices for their ex- cross-country heterogeneity that characterize the ports, and will thus need some form of relief. LAC differences among LAC countries including: (1) (especially Caribbean) countries also share a prob- net trade position, (2) participation in regional lem with Africa: the potential loss of preferential trade groups, (3) composition of agricultural ex- market access in industrialized countries under new ports, (4) level of economic development, and (5) trade rules. Finally, the authors note that rising tar- agricultural export potential. iffs on processed and semi-processed products will Cafferata and Valdes, argue that despite the im- be of increasing importance to countries in the re- portance of upcoming trade negotiations to all gion. They conclude by summarizing the likely countries in the region, individual country priorities positions of net agricultural exporters and those are likely to differ sharply. The five main factors who are net importers, foreseeing a major differ- that will determine these differences are: net trade ence of opinion over whether to eliminate or main- position, participation in regional trade groups, tain Special Safeguards. composition of agricultural exports, level of eco- nomic development, and agricultural export potential. For example, while the Caribbean is highly dependent on imports, the Southern Cone and Central American countries are net exporters. Central America and the Caribbean export tropical 5 Agricultural Trade Liberalization in a New Trade Round Central and Eastern CEEC was below 20 percent, and in many coun- Europe tries below 10 percent. The share of agricultural exports in total exports rarely exceeds 15 percent. Natalija Kazlauskiene and William H. Meyers de- The interests, options, and negotiating objec- scribe the similarities and differences that influence tives of the various CEEC are liable to be heavily the trade stance of 12 Central and East European influenced by the differences in their current WTO countries (CEEC) analyzed in this chapter. These commitments. Pre-UR members of the Global countries share one key characteristic that is likely Agreement on Tariffs and Trade (GATT) generally to influence their overall stance during trade nego- succeeded in binding their commitments on import tiations-their recent transition from centralized tariffs, market access, and export subsidies at rela- toward market-oriented economies. But, as the tively high levels. Post-UR newcomers, however, authors note, the point at which a country became a faced protracted bilateral and multilateral negotia- member of the WTO (before or after the URAA) tions to set these commitments according to a will influence its position on a number of specific much tighter schedule, and generally had far less issues. Pre-URAA accession countries include the flexibility. As a result, the authors point out, there Czech Republic, Hungary, Poland, Romania, and tends to be considerably more "water" in the pre- the Slovak Republic. Those that joined after the UR member's bindings, and thus more room for UR or are still in the process of acceding include painless cuts. Moreover, the level of bound tariffs Albania, Bulgaria, Croatia, Estonia, Latvia, Lithua- differs considerably for major, tradable, sensitive nia, and Slovenia. Another factor that could strongly commodities; for example, Slovenia's tariff for influence the stance of the CEEC countries is their wheat is 5 percent, while Romania's is 240 percent. common desire to join the European Union (EU). In addition, pre-UR WTO members were able to The authors note that this could be a decisive factor negotiate non-zero commitments on export subsi- in defining the strategy of CEEC countries during dies for major commodities. the Millennium Round. Despite such differences, the authors predict Because they are "transition" economies, the that the issues of most importance to the CEEC at CEEC share such problems as weak market and the upcoming trade negotiations will include policy institutions and low human and physical changes in modalities or disciplines on domestic capital. The changes required to become competi- support, market access, non-tariff measures, export tive in the global marketplace will take time, which competition, safeguard provisions, and state trad- should be recognized during trade negotiations. ing. The positions of new and older members may None of the countries has formulated a consistent, differ on some issues, and Central and East Euro- transparent, long-term policy on agriculture. De- pean countries may decide to align with the EU to velopment levels among the countries are quite advance their chances of joining that economic disparate; per capita gross national product ranges group. Conclusions regarding the likely stance to from a low of under US$800 in Albania to nearly be taken must be understood in the context that, to US$10,000 in Slovenia. The disparity in numbers date, the CEEC have not undertaken any sort of of people employed in agriculture is similarly policy coordination, either among themselves or wide, ranging from 4.2 to 64 percent. Except for with external entities. Albania, the contribution of agriculture to GDP in 6 Introduction Industrialized Countries cerns, the treatment of genetically modified organ- isms, the environmental function of agriculture, The paper by Stefan Tangermann examines the key and animal welfare. issues and options for major industrialized coun- Protection and domestic support levels in most tries. Tangermann shows that the URAA required developing countries are disparate, but they are changes in the implementation, if not direction, of generally lower than in many northern hemisphere domestic agricultural policies in industrial coun- OECD countries. Successful agricultural negotia- tries. In industrialized countries, these changes tions would change the balance of agricultural pro- coincided with domestic policy reforms. Signifi- duction away from high support countries to low cant policy changes were made, in the context of support countries. Trade liberalization in agricul- the URAA, in the European Union and Japan. Can- ture will affect different developing countries dif- ada also had to change some of its policies. The ferently. Agricultural exporters will gain from United States modified some commodity programs higher and more stable prices. Farmers as a group fundamentally, but not necessarily in response to in agricultural importing countries would benefit the URAA. In Australia and New Zealand, the but import costs could rise. To enable such coun- changes required were less pronounced. Tanger- tries to benefit from multilateral reforms, it is im- mann evaluates the positions of major industrial- portant for negotiations to be broad based, provid- ized countries for the next round. Somewhat like in ing additional opportunities for items in which the Uruguay Round, the EU tends to defend its these countries have a comparative advantage. current policies, as reformed again under Agenda Much preparatory work has gone into bringing 2000, and argues against an ambitious negotiating agriculture fully into the multilateral trading sys- agenda in agriculture. The United States and the tem. However, that work will be of limited value Caims Group, on the other hand, have issued unless market distortions in agriculture can be re- strong statements requesting elimination of all ex- duced substantially toward levels for other major port subsidies and other forms of trade-distorting traded goods. support. While most of the Cairns Group countries This chapter examines the interests and options might well be prepared to accept significant further of Australia and New Zealand, Canada, the EU, tariff reductions and removal of tariff peaks, the Japan, and the United States in future agricultural United States is more cautious on that front. With trade negotiations. Tangermann begins by explor- recent large ad hoc support payments to U.S. farm- ing the impact of the UR agreements on industrial- ers, the United States may have specific views on ized countries, concluding that, overall, policy the future of the domestic support provisions. Ja- changes have been minimal, with the exception of pan's emphasis on the "multifunctionality" of agri- the elimination of Section 22 of the Agricultural culture and in particular the need for food security Adjustment Act in the United States. Only modest does not easily translate into a concrete position on improvements in market access can be cited. Some WTO rules and commitments. In defense of high form of export subsidies continues in most coun- support and protection, some industrialized coun- tries, and the EU and United States in particular tries (as well as some developing countries) stress have yet to take steps in the area of domestic sup- the need to consider "non-trade concerns" in the ports. Nonetheless, Tangermann stresses that there next round. The last part of the paper discusses the have been no efforts by industrialized countries to possible role of such concerns in the negotiations. weaken decisions already made, and on the whole, It also addresses some issues that did not yet figure they are moving toward compliance with the prominently in the Uruguay Round, but are URAA. increasingly referred to in the current debate. These Industrialized countries are likely to approach issues include policy responses to consumer con- the different aspects to be treated in upcoming ne- 7 Agricultural Trade Liberalization in a New Trade Round gotiations from differing perspectives. Reviewing Dynamics of Multilateral the different positions, Tangermann concludes that the EU will argue against an ambitious negotiating Agricultural Policy Reform agenda, while the United States and the Cairns Group (of which Australia and New Zealand are The paper by Ivan Roberts, Troy Podbury, Neil leading members) will seek the elimination of all Andrews, and Brian S. Fisher presents a quantita- export subsidies and other forms of trade-distorting tive analyses of the dynamics of multilateral agri- supports. But the U.S. may not be as open as cultural policy reform in the context of the WTO Cairns Group countries to further tariff reductions trade negotiations in agriculture. The key findings and removal of tariff peaks, and is likely to be sen- of the analyses show that the largest benefits from sitive on the issue of domestic supports. Japan, reducing support-induced distortions would be which tends to see agriculture as a means to food achieved by targeting the largest support reductions security, will have to find a way to address the con- to those items with the largest distorting policies. tradictions inherent in promoting both open trade These are mainly in large northern hemisphere and self-sufficiency. OECD economies and include a wide range of This chapter also explores three issues not ad- commodities in Japan and western European coun- dressed during the UR, but which are likely to be tries and some commodities in the United States. raised by consumers and social groups in industri- Roberts and others highlight the range of systemic alized countries, and thus to have an impact on issues that must be addressed for a successful out- their positions in future negotiations: food safety, come of the new trade negotiations as follows. genetically modified organisms (GMOs), and ani- mal welfare. The problems associated with beef * First, base periods for support reductions hormones exploded with the outbreak of "mad should be representative of normal years, or cow" disease and have created disputes among EU cuts must be sufficient to achieve actual re- countries and with the United States. Overall, tech- ductions in support. nical issues in the food and agricultural sector, es- * Second, methods of measuring support pecially the use of GMOs, are likely to persist well should be agreed so that the scope for ex- into the future. Consumer attitudes will play a key aggerating support levels is minimized. role in these issues, indicating that the concern of . Third, safeguards should provide protec- developing countries about their capacity to meet tion only against large falls in world price, SPS is well placed. Tangermann points out that or against import surges that would harm consumer perceptions about food safety at the na- domestic markets. Safeguards should not tional level will almost certainly be extended to be used to exclude imports under normal imported foodstuffs. Other consumer-related issues world market conditions. are agricultural imports considered dangerous to * Fourth, the import tariff quota mechanism, the environment or immoral, in the sense of being while opening markets somewhat, can also cruel to animals. be used in much the same way as import quo- tas. Ideally, tariff quotas should be transitory, with tariff reductions sufficient for trade to exceed the tariff-quota quantity. * Fifth, a move toward genuinely decoupled domestic support could, in time, achieve many of the economic gains from liberali- zation while allowing a level of assistance. For decoupling that is minimally market dis- 8 Introduction torting, the prices that farmers receive for Among the main achievements of the UR cited output must be the world market price and by the authors were the development of a broad marginal costs should not be affected by framework for negotiating and implementing re- support payments. Even then, it will take ductions in agricultural support, the negotiation of time for distortions to fall markedly be- reductions in the volume of subsidized exports, and cause of capacity overhangs from previous the provision of at least minimum levels of access support. If farmers believe they can affect fu- to markets. But numerous steps remain to be taken ture support by current production decisions, to further reduce policy-induced distortions to support will not be minimally distorting. agricultural production, trade, and prices. Industri- * Sixth, production-limiting (blue box) ar- alized countries have not fully complied with the rangements as currently applied lock in spirit of the UR, even when they have remained distorted production capacity. They are within the letter of the agreement, as the authors only partly decoupled. Having them fully point out in a discussion on decoupling and produc- decoupled would be an advance. If not, tion-limiting arrangements. Many developing coun- they should be subject to cuts like other tries, meanwhile, lack the institutional framework distorting policies. (markets, property rights, legal systems) needed to * Seventh, the elimination of export subsi- realize their economic potential and thus receive the dies appears to be a reasonable objective. full benefits of agricultural liberalization. Therefore However, it would be a hollow victory if the position of developing countries in future nego- export subsidies were merely replaced by tiations could either advance liberalization efforts other forms of distorting support. This or stymie them by defending existing supports and would be an example of a wider potential not pressing industrialized countries toward further problem that applies to other formns of sup- liberalization. port as well. Care must be taken to prevent Some of the issues that must be addressed to reductions in support for one area being re- advance beyond the agreements at the UR include: placed with distorting support in others. safeguards, which should protect only against large drops in world prices or import surges that would Roberts, Podbury, Andrews, and Fisher con- harm domestic markets; tariff quotas, which should cur that positive, but modest, results have come be transitory; and export subsidies, which should be from the URAA and suggest a range of issues eliminated and not replaced by other form of distort- that should be addressed to ensure a successful ing support. The next round of negotiations, the au- outcome to future trade negotiations on agricul- thors note, represent an ideal opportunity to achieve ture. The key to obtaining economic benefits fundamental reform of distorting policies and ensure from trade liberalization, they posit, is to ad- that market distortions in agriculture are reduced to a 'Yance toward a situation in which domestic agri- level similar to other major traded goods. cultural prices in all countries are similar to, and vary with, world market prices. 9 2. Agriculture in the Millennium Round of Multilateral Trade Negotiations: African Interests and Options T. Ademola Oyejide Introduction world, the URAA is bound to have important im- plications for African agriculture. By the same to- The Uruguay Round (U1R) of multilateral trade ken, a new or revised agreement on agriculture that negotiations has created something of a record in emerges from the Millennium round will also af- the history of the series of trade negotiations as the fect the agricultural sector of many SSA countries. first to explicitly specify a set of multilateral disci- These effects can be expected from at least three plines on the production and trade of world agricul- directions. ture. The Uruguay Round Agreement on First, a revised or new agreement on agriculture Agriculture (URAA) was intended to limit several will define the broad market access conditions for policy distortions that substantially affect the con- African agricultural exports. Second, it will also ditions under which both agricultural production determine the broad terms and conditions for the and trade take place worldwide. As a first step, importation into Africa of a wide range of proc- URAA's coverage-as well as the achievements essed and unprocessed agricultural products. The within that agreement-are inherently limited. It is third and perhaps more long-term effect could be partly for this reason that URAA itself contains a associated with the challenges and constraints that provision (Article XX) which mandates that new the rules of the new world agricultural production negotiations should be initiated by 1 January, 2000. and trading system may impose on the choice of Countries of Sub-Saharan Africa (SSA) should agricultural development strategy and policies by pay particular attention to, and participate actively various African countries. in, the new negotiations on agriculture for a num- The desire to ensure that these effects are bene- ber of reasons. These countries have a lot at stake ficial for the development of African agriculture in a world trading system whose multilateral should motivate an active and effective participa- agreements defines the broad rules under which tion by African countries in the proposed new agricultural production and trade will occur. For round, since it is primarily through such involve- many of them, the agricultural sector remains piv- ment that they can ensure that their interests are otal to the overall growth and development of the fully reflected in the design of the new rules. In economy. Just as it has for other regions of the articulating their interests within the context of the 11 Agricultural Trade Liberalization in A New Trade Round new negotiations, however, African countries must unfulfilled promises of the URAA. It suggests a begin with a clear understanding of the key charac- more transparent and coherent definition of "spe- teristics of their agricultural sector, the demands cial and differential treatment" (SDT) for the de- placed on it by the aspirations for rapid overall veloping and least-developed countries in the WTO economic growth, and the development strategy framework, and it argues that a more consistent and policies which are required to enable the sector application of SDT provisions in the URAA would to develop in the desired direction. A relation be- enable many African countries to cope better with tween these considerations and the extemal policy the demands of a multilaterally disciplined global environment faced by African agriculture should agricultural production and trading system. The last begin to suggest the negotiating interests that Afri- section offers some concluding remarks. can countries should articulate and pursue as well as the set of negotiating options with which they will be confronted. This broad perspective guides the sequencing The State of African of the various parts of this paper. Thus, the next section reviews the state of African agriculture, Agriculture focusing in particular on its production and export performance and the proximate factors to which The agricultural sector is strategic to the long-term this performance can be ascribed. Since many of growth and development of most SSA countries. In the disciplines embodied in URAA amount to at- fact, the region's high dependence on the agricul- tempts to liberalize (or at least limit certain policy tural sector for income, employment, and export distortions affecting) agricultural production and earnings is one major reason for its relatively large trade, the third section explores the extent to which stake in any multilateral negotiations that will de- African agricultural production and trade regimes fine a new set of rules to govern global agricultural have been liberalized through both unilateral and production and trade regimes. A few numbers illus- multilateral initiatives. This section then goes on to trate this dependence. For instance, the agricultural ask what remains in the agenda of agricultural lib- sector contributes about 35 percent of the region's eralization in SSA countries and whether the multi- GNP, accounts for up to 40 percent of total export lateral process can assist African countries in earnings, and serves as the primary source of in- completing this agricultural reform agenda. In the come for as much as two-thirds of the population fourth section, analytical attention shifts away from of the typical African country. There are variations African domestic policy environment to a survey of (in some cases, quite wide) around these averages, extemal barriers facing African agricultural ex- of course. Most notably in several African coun- ports. Key among the issues discussed in this sec- tries, the mineral and mining sector challenges ag- tion are the main barriers in Africa's major markets riculture's dominance, particularly in relation to (especially the question of tariff peaks and tariff foreign exchange earnings. These exemptions not- escalation), the magnitude of the losses from pref- withstanding, the World Bank (1993) estimates that erence erosion, and the consequences for African a I percent growth in African agriculture tends to food import and food security of continued multi- generate a 1.5 percent growth in overall economic lateral liberalization of world agricultural produc- growth due to the sector's stimulating effects on tion and trade. Section five derives a range of African industry, transport, and other services. Based negotiating interests and options from the analysis of largely on this rather close link between the growth the domestic policy environment and external barriers performance of African agriculture and that of the against African agricultural exports. In doing this, it economy as a whole, another study (ADB 1998: p identifies some unfinished business of the UR and 31) argues that "transforming agriculture and ex- 12 Agriculture in the Millennium Round of Multilateral Trade Negotiations: African Interests and Options panding its productive capacity is a prerequisite, tural value-added as a proportion of GDP fell from possibly the most important precondition, for im- 18 to 16 percent in the developing countries be- proving living standards in Africa." tween 1980 and 1997. The corresponding regional But the transformation of African agriculture figures show a decline from 28 to 19 percent in the has not occurred. Hence, rather than stimulating East Asia Pacific region, and a fall from 38 to 27 overall economic growth, the agricultural sector percent in South Asia over the same period. The may have dragged it down in many African coun- Latin America and Caribbean region maintained tries, at least until very recently. The growth per- the same 10 percent proportion in both 1980 and formance of African agricultural production has 1997. But in the SSA region, the share of agricul- been basically unsatisfactory, having deteriorated tural value-added in the GDP actually increased steadily over the 1960-1990 period. During the from 22 to 25 percent over the 1980-97 period. first third of this period, the volume of agricultural This suggests that in spite of its apparent recovery production achieved an annual average growth rate in the late 1990s, African agriculture has not per- of 2.5 percent. This growth performance fell to an formed as well as that of the other developing re- annual average of 1.4 to 1.5 percent over the next gions and, most probably as a result, African two decades. Since the average production growth economies have failed to achieve the kind of struc- rates were below the rate at which African popula- tural transformation that seems to lie behind the tion expanded over this period, the average annual decline in the relative significance of agriculture in growth rate of per capita output fell from 0.2 per- the more rapidly growing economies of other re- cent during 1960-70 to -1.1 percent in 1970-80 gions of the developing world. and fell further to -5.1 percent between 1980 and The performance of African agricultural exports 1990. The output growth performance of African parallels, by and large, that of agricultural produc- agriculture compares rather poorly with those of tion. Thus, the volume of agricultural exports fell other developing regions over the 1960-90 period. from the early 1970s to the early 1980s; then it In particular, over the last decade of this period, picked up from around the mid-1980s. There was, average annual growth rate of agricultural produc- however, a steep rise in the unit value of agricul- tion in the East Asia and Pacific regions was as tural exports during the first half of the 1970s, high as 4.7 percent, that of South Asia was 3.0 per- which powered a fairly rapid increase in African cent, while the Latin America and Caribbean re- agricultural export earnings until 1977. But as the gion's corresponding average annual agricultural unit value fell back and export volume stagnated growth rate was 2.0 percent. Tentative evidence indicates, however, that the agricultural sector of many African countries has Table 2.1. Agricultural Value-Added/GDP been going through a recovery phase in the 1990s. Ratio (Percent) By Region Thus, many of these countries were able to achieve Country 1980 1997 real agricultural output average annual growth rates of over 2 percent during the first half of the 1990s, Developing countries 18 16 and during 1990-97, the growth rate of agricultural East Asia and Pacific 28 19 value-added in Africa was well in excess of 4 per- cent per year. But whether this apparent recovery Latin America and Caribbean 10 10 can be translated into rapid and sustainable growth South Asia 38 27 of the agricultural sector remains to be seen. Cer- tainly, the usually observed pattern of importance Sub-Saharan Africa 22 25 of agriculture in GDP as development proceeds has Source: World Bank, 1980-1997, World Development not occurred in Africa. As table 2.1 shows, agricul- Report. 13 Agricultural Trade Liberalization in A New Trade Round subsequently, the value of agricultural exports de- One might conclude from this heavy concentra- clined through mid-1980, until both resumed an tion on a narrow range of agricultural export crops upward trend in the early 1990s. that African's specialization would give the region Several characteristics of African agricultural an edge in world trade. But the reverse appears to exports deserve mention, since they underpin the have been the case. As table 2.3 shows, Africa suf- sector's fragility. First, Africa is more heavily de- fered dramatic market share losses in its key agri- pendent on agricultural exports than any other de- cultural export commodities between the early veloping country region. Second, African is also 1960s and the mid-1990s. Thus, the region's mar- the most heavily dependent on a narrow range of ket share for cocoa declined from 80 to 41 percent agricultural export commodities. Table 2.2 demon- or about half of its original share of the world mar- strates this historic and continuing lack of diversi- ket. Similarly, Africa's world coffee market share fication. This table shows that the same set of nine tumbled from 26 to 15 percent; while that of cotton commodities accounted for about 70 percent of the declined from 20 to 13 percent over the same pe- region's total agricultural export earnings between riod. But, of course, the most dramatic market 1970 and 1995. The top three of these (cocoa, cof- share loss was experienced by groundnuts, from 70 fee, and cotton) contributed about 55 percent of percent during 1961-63 to a mere 2 percent in total agricultural export eamings during 1970-79 1995. Of the nine commodities, tea showed the and accounted for roughly 44 percent in 1990-95. most gain in world market share, from 9 to 21 per- This level of export concentration places great cent; while sugar achieved a marginal increase strains on many African countries that are, as a from 5 to 7 percent over this period. result, quite literally at the mercy of world com- On the import side, food products, particularly modity price fluctuations (Oyejide 1993). cereals, have dominated Africa's agricultural imports. Africa's cereal imports increased at an average annual growth rate of almost 18 percent Table 2.2. Africa's Commodity Export Earn- ing as Percent of Total Value of Agricultural Exports Table 2.3. Africa's Share of World Trade (Per- Agricultural exports 1970-79 1990-95 cent) Banana 0.7 1.2 Agricultural exports 1961-63 1995 Banana I11 4 Cocoa 20.6 17.7 Coffee 24.7 14.4 Cocoa 80 41 Coffee 26 15 Cotton 9.2 11.8 Cotton ~~~20 13 Groundnut 2.4 4.3 Cotton Groundnut 70 2 Rubber 1.7 2.3 Rubber 7 5 Sugar 5.6 9.1 Tea 2.5 4.9 Sugar 5 7 Tea 9 21 Tobacco 3.1 8.9 Tobacco 12 12 Percent of total 70.4 70.7 Source: World Bank, 1997. African Development Bank, Source: African Development Bank, 1998. 1998. 14 Agriculture in the Millennium Round of Multilateral Trade Negotiations: African Interests and Options during 1975-80. This growth rate decelerated to ported food varieties, particularly wheat and rice 3.7 percent during the next five years, but rose (Teklu 1996). This suggests that the region may again to almost 5 percent in 1985-90 and to more experience even more rapid growth of food imports than double this rate over the next five years. In as incomes recover, given the typically high pro- addition, food aid receipts by African countries portion of income spent on food consumption at grew at an annual average rate of about 14 percent Africa's low income level. during 1975-80, rising to almost 20 percent in the The tentative recovery noted above with respect next five years before falling back to around 15 to Africa's agricultural production and exports in percent up to the mid-1990s. UNCTAD (1998) the late 1990s should be placed in perspective, par- shows that Africa's ratio of trade balance to total ticularly in relation to the underlying productivity trade in agricultural products fell systematically of the region's agricultural sector. While it may be from 51 percent in 1993-95 to only about 10 per- tempting to conclude, as Ingco and Townsend cent in 1996-98, and concludes that "this worsen- (1998: p 16) do, that "the reversal of the downward ing of the net agricultural export position of Africa trend for many crops is the result of world market was due to a rapid increase in food imports exceed- conditions, improved macroeconomic policies and ing the growth in earnings from export crops." But deregulation of many controlled domestic markets, the real driving forces behind this phenomenon are all resulting in an improved competitiveness for probably Africa's rapid population growth in the particular countries and crops in world trade," the face of sluggish food production growth. Table 2.4 importance of non-price factors for the sustain- shows that, compared to other developing-country ability of this reversal must be recognized. To the regions, Africa lags behind in food production. extent that low productivity remains the soft un- From a base of 100 in 1979-81, Africa's food pro- derbelly of African agriculture appropriate suppor- duction index rose to 143 in 1994-96, a figure that tive policy measures will be necessary. Tables 2.5 is well below the index of 169 achieved by all de- and 2.6 provide data to illustrate the relative pro- veloping countries and only two-thirds of the East ductivity of African agriculture. First, as table 2.5 Asia and Pacific region's achievement. There is shows, this region's average agricultural value- some evidence that, in addition to rapid population added per agricultural worker during 1994-96 was growth and urbanization that are fueling increased 85 percent of the average for the developing coun- demand for food generally, a shift is also occurring tries as a group and only 17 percent of that of East away from domestically produced foods to im- Asia and the Pacific region. Similarly, Africa's Table 2.4. Food Production Index (1979-81 Table 2.5. Agricultural Productivity by Region: = 100) by Region: 1994-96 1994-96 Country 1979-81 1994-96 Average value- Country 1979-81 1 994-96 Country addedper Developing countries 100 169 Developing countries 459 206 East Asia & Pacific 100 214 East Asia & Pacific 2292 116 Latin America & 100 144 Caribbean Latin America & Caribbean 383 519 South Asia 100 164 South Asia 392 68 Sub-Saharan Africa 100 143 Sub-Saharan Africa 390 67 Source: World Bank, 1998 - 1999, World Development Source: World Bank, 1998 - 1999, World Development Report. Report. 15 Agricultural Trade Liberalization in A New Trade Round average agricultural value-added per hectare of increased public and private investment on crop cropland was about a third of the average for all yield-enhancing measures such as agricultural re- developing countries and only 13 percent of that of search and development, reinvigorated agricultural the Latin America and Caribbean region. Along the extension services, and substantially improved ru- same lines, table 2.6 shows that in 1995, Africa ral infrastructure. An important part of the concerns utilized only 7 percent of land areas for cropping, of African countries in negotiating new rules on compared to 11 percent for all developing countries agriculture in the context of the Millennium round and as high as 45 percent for South Asia. In addi- should be the extent to which these rules permit tion, Africa's cropland is the least irrigated among them to use appropriate non-price support meas- all developing-country regions. The extent of Af- ures to facilitate the development of their agricul- rica's dependence on rainfed agriculture is demon- tural sector. strated by the fact that only 4 percent of this region's cropland was irrigated in 1994-96, com- pared to an average of 20 percent for all developing countries and as high as 35 percent for South Asia. Liberalization of African The increasingly erratic nature (in terms of quan- Agricultural Production tity, timeliness, and frequency) of rainfall in many parts of Africa and the increasing incidence of and Trade Regimes droughts suggest that Africa's near total reliance on rainfed agriculture cannot be part of a long-term The weak performance of African agriculture noted agricultural development strategy. As Larson and in the section above has attracted analytical studies Frisvold (1996) suggest, a substantial growth in the and policy attention. Although the contributory use of organic fertilizer could be a crucial part of factors identified and held responsible for African that strategy. In addition, there will be need for agriculture's unsatisfactory performance covers a wide spectrum, including such "usual suspects" as the risky natural environment, political and security Table 2.6. Agricultural Ltand Use by Region: problems, and land tenure system, the primary focus 1994-96 of policy attention has been the incentive structure generated by macroeconomic and sectoral policies. Cropland as Irrigated land As World Bank (1994: p 76) summarizes it: percent of as percent of land area cropland Country 1995 1994-1a996 African farmers have faced the world's heaviest rates of agricultural taxation.... Developing 11 19.9 African farmers were taxed explicitly countries through producer-price fixing, export East Asia & 12 n.a taxes, and taxes on agricultural inputs. Pacific They were also taxed implicitly through Latin America 8 11.1 overvalued exchange rates which reduced & Caribbean the prices they obtained for their exports, South Asia 45 35.1 and through high levels of industrial pro- tection, which raised consumer prices. Sub-Saharan 7 4.0 Africa The idea that much of the poor performance of Source: World Bank, 1998 - 1999, World Development African agriculture was due to excessive direct and Report. indirect taxation of farmers by African governments 16 Agriculture in the Millennium Round of Multilateral Trade Negotiations: African Interests and Options thus formed the basis of much of the policy meas- ... since the mid-1980s, most African ures designed to liberalize agricultural production countries have moved from complete or and trade regimes in Africa and implemented, with nearly complete government control over varying degrees of intensity and success, from the imports to more open systems, and have early 1980s. substantially reduced the number of im- The goal of these policy reform attempts was to ports subject to quantitative barriers. establish an agricultural production and pricing ... the greatest progress has been regime which would have at least three key ele- achieved in replacing quantitative restric- ments: unsubsidized and market-determined prices tions with lower and less dispersed tariff for all agricultural inputs and products; neutral levels; more than half the countries now taxation of agricultural and other sectors; and agri- have average tariff rates of 15-20 per cent cultural export crop prices set at border parity lev- with the highest rates set at 35-40 percent els, where these are determined on the basis of and the number of tariff categories re- market-clearing equilibrium exchange rates. While duced to 4-5. the movement toward this achievement has been un- even, both over time and across countries, it seems There is one major problem that this impressive clear that considerable progress has been made, and record of African trade policy reform leaves un- as a result Africa's agricultural production and trading solved. The tariff reductions that were achieved are regimes were more liberalized in the 1990s than they not "WTO-bound" and can therefore be changed. were in the previous two to three decades. In fact, accumulated evidence (for example, These liberalization efforts have been carried Oyejide, Ndulu, and Gunning, 1996) shows that out not in the context of a multilateral trade nego- African trade liberalization attempts were fre- tiation but through the mechanism of structural quently reversed. A review of the commitment of adjustment programmes (SAPs), a set of arrange- African countries under URAA should therefore ments within which African countries undertook to provide another perspective regarding the liberali- carry out agreed policy reforms in respect of which zation of the region's agricultural production and the World Bank (plus, in some cases, other donors) trade regimes. Table 2.7 shows ceiling binding tar- provided analytical and financial support. Since iffs, exceptions, and other duties and charges SAPs typically cover macroeconomic and sectoral drawn from the schedules of SSA countries with policy reforms, those implemented in many African respect to agricultural products. According to this countries have also included explicit trade policy table most SSA countries have selected ceiling components in the context of which a country's binding tariff levels in the range of 100-600 per- tariff structure (including both the agricultural and cent. Only five countries have set ceiling binding industrial components) was rationalized, com- tariffs in the range of 30-40 percent, while another pressed, and liberalized. Various assessments of set of 13 countries have opted for ceiling bound these trade policy reforms have noted significant rates of 60-99 percent. In addition to these already achievements. Nash (1993: p 38) shows that "pro- high ceiling binding tariff levels, many African tection of import substitutes by tariffs and non- countries have chosen to impose "other duties and tariff barriers in Sub-Saharan Africa as a whole has charges" that are as high as 100-250 percent. This declined." In particular, the average level of protec- table makes it clear that African ceiling binding tion fell by between 30 and 50 percent over the period tariff levels plus other charges are much higher from the mid-1980s to the early 1990s. Furthermore, than the tariffs that these countries actually apply to according to World Bank (1994: p 24): their import of agricultural products. In this sense, it is not unlike the situation in the 17 Agricultural Trade Liberalization in A New Trade Round more developed economies where "dirty tariffica- primary effect of damaging their own trade policy tion" has led to very high post-UR tariffs on certain credibility, that of the OECD countries actually agricultural products. There is an important differ- serves a protectionist purpose. ence, however. While the African practice has the In the end, though, a more realistic comparative Table 2.7. Schedule of Concessions on Agricultural Products of African Countries Country Agricultural Products Ceiling binding (percent) Exceptions Other duties & charges Angola 80 0.1 % of declared value of imported goods Benin 60 on 2 HS chapters bound at 100 % 19 percent Botswana 0-597 on 4 HS chapter bound at 20 % specific duties: RO.731T - R1421T Burkina Faso 100 50 percent Burundi 100 30 percent Cameroon 80 230 percent Central African Rep. 30 16 percent Chad 80 Congo 30 Cote d'Ivoire 15 on 9 HS chapter bound between 4 and 64 % Other duties and charges varied from zero percent to 40 percent, with scattered specific duties up to 4750F/kg Djibouti 40 on 5 HS chapters bound between 50 and 450 % 100 percent Gabon 60 200 percent Gambia 110 on 10 HS chapters bound between 20 and 85 % 10 percent Ghana 99 on 5 HS chapters bound at 40%, 50% 15% Guinea 40 2/-70% Guinea Bissau 40 25%, 50% Kenya 100 Lesotho 200 Madagascar 30 Malawi 125 on 2 HS chapters bound at 50%, 55%, 65% 20 percent Mali 60 50 percent Mauritania 25 on 17 HS chapters bound at 30%, 50%, 75% 15 percent Mauritius 122 on 8 HS chapters bound at 37%, 82% 17 percent Morocco 8-289 7.5%, 15% Mozambique 100 100 percent Namibia 0-597 specific duties: RO.73/T - R142/T Niger 50 on B HS chapters bound at 200% 50 percent Nigeria 150 80 percent Rwanda 80 Senegal 30 150 percent Sierra Leone 40 on 4 HS chapters bound at 300/0, 40%, 80% 20% sales tax, 30% excise tax - rice exempted South Africa 0-597 specific duties: RO.73/T - R1421T Swaziland 0-597 specific duties: RO.73/T - R142/T Tanzania 120 Togo 80 3% statistical tax, 4% stamp tax; 200 CFA/tonne maritime freight charges Uganda 80 on 16 HS chapter bound between 40% and 70% 10%, 12%, 30% Zaire 100 on 3 HS chapters bound at 15%, 20% Zambia 125 on 2 HS chapters bound between 45% and 60% Zimbabwe 150 on 4 HS chapters bound at 25% 15 percent Source: Compiled by Dickson Yeboah, April 1996, WTO Geneva. 18 Agriculture in the Millennium Round of Multilateral Trade Negotiations: African Interests and Options picture of the relative protection and support of element of URAA would appear to achieve signifi- agricultural products across different regions of the cant results (Oyejide 1997). While the tariff reduc- world emerges quite clearly from table 2.8. This tions URAA generates on agricultural products table shows that, after the implementation of the average 37 percent, tariffs facing African agricul- three key elements of URAA in 2005, the agricul- tural exports in the markets of the industrialized tural tariffs of SSA countries will average 13 per- countries world be down by 32-48 percent. In par- cent, which is much lower than the average of 20 ticular, average tariffs on tropical products would percent for all developing countries and only about have been reduced by 43 percent (including 25 a third of that of the OECD countries. Furthermore, percent reduction for cereals; 35 percent for cof- the SSA countries will continue to tax both agricul- fees, cocoa, and tea; 40 percent for oil seeds, fats, tural production and export, while the OECD coun- and oils; and 48 percent for cut flowers). But while tries will still provide positive and large support these reductions are impressive, they apply to levels for both. existing tariff rates that are already quite low and may not therefore be expected to have any signifi- cant positive impact on African export volumes. The post-UR multilateral trade regime poses External Barriers against problems for many African countries in several other African Agricultural directions. One of these concerns is the impact of -c U It U ra I liberalization on food import prices. To the extent Exports that agricultural export subsidies are effectively dis- ciplined, food import prices could rise and, in turn, Viewed nominally and from the African perspec- raise the food import bills of certain African coun- tive, a full implementation of the market access tries. According to Harold (1995) the negative im- pact of this is likely to be minimal-a roughly 0.15 Table 2.8. Post-Uruguay Round Tariffs, percent increase in the annual import bill of Africa's Production and Export Subsidies for Agri- net food-importing countries. It appears, however, culture: 2005 that this may be a gross underestimate. Greenfield, Production Export Nigris, and Konandreas (1996) present an assess- Tariff subsidy subsidy ment by the Food and Agriculture Association Region (N) (%) (/o) (FAO), which projects a price increase in the range of 0-10 percent for most agricultural commodities as a result of the market effects of URAA, and Developing 20 - 2 - 2 suggest the food import bills of developing coun- Countries tries could rise by as much as 62 percent between Southeast 19 - 3 - 3 1988 and 2000. This assessment further claims that Asia South Asia 19 0 0 Among the developing countries, the out- look for Africa raises some conern.... Latin America 12 - 1 - 1 The region relies on exports of a small Sub-Saharan 13 -1 -9 number of traditional crops, particularly Africa coffee and cocoa, the markets for which North Africa/ 24 - 4 0 are expected to grow at best steadily. At Middle East the same time, the region will continue to be a heavy net importer of basic food- stuffs, the prices of which would rise.... 19 Agricultural Trade Liberalization in A New Trade Round The net effect of these changes is an in- kets of the EU, U.S., and Japan; this exercise crease in the gross food import bill from shows that the value of African preferences in these US$6 billion in 1998 to US$10.5 billion markets will fall from US$675 million to US$509 in the year 2000, US$500 million of million, representing a 25 percent loss. In conclud- which would be ascribable to the UR.... ing, Yamazaki (1996: p 417) notes that "Africa's For the 43 low-income food-deficit losses measured against its pre-UR benefits could (LIFD) countries of this region ... (the as- be relatively small (25 percent), but not necessarily sessment projects) a rise in gross food im- so in absolute size, given the low income level of port bills from US$3.5 billion to US$6.3 many of the recipients." billion, with US$0.2 billion of the in- There is a second element of preference erosion crease due to the UR. that also affects several African countries. The pos- sible negative in this area would be the likely dis- The URAA recognizes this problem and makes placement of African producers (who currently explicit provisions for assisting the LIFD countries benefit from some commodity protocols in the EU to cope with the effects of implementing the market) by agricultural products from temperate- agreement on intemational food prices and the ef- zone countries as a result of the URAA's prohibition fects of reduced subsidies on the export of food of non-tariff barriers (NTBs) on agricultural products. from the industrialized countries. This assistance Prime examples of these African countries are Mauri- was to take several forms, including increased food tius and Swaziland (sugar), and Botswana and Na- aid, financial assistance to import food, and techni- mibia (meat). Exports of these African producers are cal assistance to improve agriculture productivity likely to suffer price declines in the EU market as infrastructure. But this WTO decision, while con- these protocols (associated with the Lome Conven- taining the explicit offer of assistance, fails to indi- tion) give way in the light of URAA provisions. cate what operational mechanisms and modalities An analysis of post-UR tariffs on agricultural would be used to deliver its promise. Meanwhile, products in the OECD countries reveals two other certain post-UR trends are now quite clear: food is areas in which African agricultural exports are steadily falling rather than increasing, the food likely to be constrained. First, tariff peaks (such as import bills of LIFD countries in Africa are rising, tariff rates above 12 percent) will remain high in and technical assistance to improve their agricul- these markets for many processed foods and food tural productivity and infrastructure has declined. products (UNCTAD 1997). Tariffs are in the range The erosion of trade preferences previously en- of 12-30 percent for many of these products which joyed by many African countries will also impose a are of particular export interest to African coun- strong negative impact on Africa. The estimates of tries. Furthermore, above-quota imports of many of the losses associated with preference erosion vary. these products attract tariffs that may be several Yeats (1994) suggests non-fuel export losses of multiples of the peak tariffs. Second, a substantial about US$160 million, which was considered more degree of tariff escalation has survived the UR than sufficient to leave Africa with net trade losses process. This may constitute a hindrance to those as a result of UR tariff cuts. Weston (1995) sug- African countries planning to diversify their agri- gests that losses associated with reduced preference cul-tural exports by branching into further process- margins will be experienced by many African ing of their agricultural commodities. In relation to countries and that, in total, these losses could be as the food industry, for instance, FAO (1997) finds large as 1.5 percent of their total export eamings. that agricultural exports of developing countries Yamazaki (1996) computes and compares the val- are largely concentrated in the first stage of food ues of African pre-UR preferential benefits with processing, while the most advanced food industry those derivable after the Round in three key mar- products make up 32.5 percent of the food exports 20 Agriculture in the Millennium Round of Multilateral Trade Negotiations: African Interests and Options of the industrialized countries. Tariff escalation in tries to cope with the situation. Operationalizing that the industrialized-country markets appears to be promise requires clear articulation regarding the mag- one of the major constraints to the vertical diversi- nitude and modalities of the assistance. fication of the agricultural exports of many devel- Preference erosion is another area of negative oping (including African) countries. The URAA impact on the basis of which many African coun- and its implementation have not solved the two tries can stake a claim for some compensatory problems of tariff peaks and tariff escalation; they compensation without attempting to block further may in fact have worsened them. global liberalization. But a more positive reaction would probably be to push for the realization of the proposal that all export products of the least devel- oped countries be allowed to enter the markets of African Negotiating industrialized countries free of duty and quota re- strictions. This special market access should ade- Interests and Options quately compensate the affected African countries without constituting a significant "burden" for the The URAA has imposed a limited set of obliga- industrialized countries. tions on most African countries. This result is due Beyond the negotiating interests that are di- to at least two reasons. First, the major agricultural rectly associated with the negative impact of policy distortions on which key elements of URAA URAA, African countries should be interested in focused (such as high import barriers, domestic further market access improvements that result in support, and export subsidies) are virtually absent the reduction of tariff peaks and elimination of in many African countries. Second, many of these tariff escalation, especially as they relate to agricul- countries are either "least-developed" or "develop- tural products. A more diversified agricultural sec- ing;" these are country categories covered by cer- tor in Africa that can generate exports of processed tain provisions of "special and differential agricultural products would be substantially as- treatment" which in effect limit, in certain ways, sisted by the reduction of tariff peaks and elimina- the type and extent of commitments they are re- tion of tariff escalation. quired to make as part of the negotiating process What could African countries offer in return? that produced URAA. In any case, part of the proc- While African countries have bound all agricultural ess of liberalization of production and trade re- tariffs as mandated by URAA, they have done so at gimes in Africa predated the UR, which therefore very high ceiling rates that are, in many cases, sev- had no direct influence on African liberalization. eral multiples of the applied rates. In addition, Af- Part of Africa's interests in the new multilateral rican agriculture could benefit from further negotiations on agriculture would obviously in- liberalization and rationalization of its domestic clude attempts to remedy those elements of URAA trade and pricing policies. Achieving this objective which have had negative impacts on the agriculture by bringing the ceiling binding levels closer to the and economies of many African countries. The applied rates in the context of multilateral negotia- consequence of the liberalization of world agricul- tions could be associated with two kinds of bene- ture for international food prices and the food im- fits. First, an offer to lower the ceiling binding port bills of Africa's many low-income and food- levels can be "exchanged" for some further conces- deficit countries is one of these areas. African ne- sions from the industrialized countries. Second, the gotiating interest in this context is clearly not to try adoption of a multilaterally negotiated and bound to reverse the liberalization trend, which is gener- liberalization process should enhance the credibil- ally desirable, but to hold the WTO to its promise ity of African trade policy and, hence, probably in respect of assistance to the affected African coun- 21 Agricultural Trade Liberalization in A New Trade Round elicit quicker and more robust output and export criteria that are also based on the same set of in- supply response. come and trade-competitiveness thresholds. As The development of an internationally competi- applied in the current UR agreement, transitional tive African agriculture requires a liberalized do- periods appear haphazard; the length of time speci- mestic pricing and marketing regime as well as fied in particular cases bears no clear relationship improved access to export markets. But it needs to either the adjustments required or the human and more than this; African agricultural production and institutional capacity building required for achiev- exports are also constrained by various structural, ing an appropriate level of readiness to carry out institutional, and environmental factors. The capac- the corresponding WTO obligations. Thus, an im- ity of African agricultural producers and traders to portant negotiating interest for African countries respond to favorable changes in the incentive struc- would be to redefine SDT and its provisions in the ture is held down by poor infrastructure, low pro- URAA so that they can permit the application of ductivity, inadequate research and training, and appropriate support systems to African agriculture, poor dissemination of knowledge about new pro- without which changes in the incentive structure duction technologies and crop varieties as well as would be largely ineffective. pest and disease control systems. Policy initiatives to deal with these constraints should attempt to involve as much private investment as possible but will inevitably involve increased public resources, Conclusion given that African agriculture is dominated by small farmers. Some of the necessary support will Agriculture has a pivotal role to play in the overall clearly be allowed under URAA, but some may development of many African economies. Part of also fall foul of the "law," especially if African the reform efforts aimed at reversing economic countries are held to the low levels of aggregate decline in Africa since the mid-1980s has been the measures of support already reported. Given the unilateral liberalization of agricultural production importance of this issue, African countries may and trade. The URAA may be seen, in certain re- need to find refuge in a rethinking of SDT and its spects, as a continuation of the ongoing agricultural provisions in the context of renegotiating the liberalization process in many African countries. URAA. This could have several elements. First is But the URAA only partially addresses the the need to classify countries into the "least- problems of African agriculture. Furthermore, cer- developed" and "developing" categories on the tain elements of the URAA may constitute con- basis of more objective development and trade- straints with respect to the choice of an appropriate related criteria. The Subsidies Agreement already long-term strategy for the development of the sec- recognizes the inadequacy of the United Nations' tor. There are therefore important interests at stake definition of "least-developed" countries by adding for African countries to protect in any future multi- the so-called Annex VII countries (with per capita lateral negotiation on agriculture. In a nutshell, income of US$ 1,000 or less) to the list of least- these should cover at least two key areas. One is to developed countries exempted from certain ele- secure enhanced market access for their agricul- ments of its obligations. A more objective set of tural and processed food exports in the industrial- criteria for identifying the least-developed coun- ized-country markets through the elimination of tries, based on some income and trade competi- tariff peaks and tariff escalation. The second is to tiveness threshold, would undoubtedly include ensure that the multilateral disciplines on agricul- most African countries. Second is the need to move ture enable African countries to provide the support away from the use of "transitional periods" and necessary for the long-term development of their towards the adoption of appropriate graduation agricultural sector. 22 Agriculture in the Millennium Round of Multilateral Trade Negotiations: African Interests and Options Notes Oyejide, T.A. 1993. "Effects of Trade and Macro- economic Policies on African Agriculture." In This paper was prepared for the Conference on Bautista, R.M., and A. Valdes, eds., The Bias Agriculture and the New Trade Agenda in the Against Agriculture: Trade and Macroeco- WTO 2000 Negotiations held in Geneva, October nomic Policies in Developing Countries. San 1-2, 1999. Francisco: ICEG/IFPRI, ICS Press. ____. 1997. "Africa's Participation in the Post- Uruguay Round World Trading System." PSID Occasional Paper, WTO Series No. 6. References The Graduate Institute of International Studies. Geneva. Africa Development Bank (ADB). 1998. African Oyejide, T.A., B.J. Ndulu, and J.W. Gunning. Development Report 1998. Oxford: Oxford 1996. "Introduction and Overview: Case Stud- University Press. ies of Trade Liberalization." AERC. Proc- Anderson, K., B. Hoekman, and A. Strutt. 1999. essed. Nairobi. "Agriculture and The WTO: Next Steps." Teklu, T. 1996. "Food Demand Studies in Sub- Workshop on New Issues in the World Trad- Saharan Africa: A Survey of "Evidence." ing System, CEPR, London, 19-20 February. Food Policy 21: 479-96. Food and Agricultural Organization (FAO). 1997. UNCTAD. 1997. "The Post-Uruguay Round Tariff "The Impact of the Uruguay Round on Tariff Environment for Developing Countries." Escalation in Agricultural, Products." ESCP (TD/B/COM/1/14), UNCTAD. Geneva. No. 3, FAD, Rome. . 1998. Trade and Development Report, Greenfield, J., M. de Nigris, and 0. Konandreas. 1998. New York and Geneva: United Nations. 1996. "The Uruguay Round Agreement on Weston, A. 1995. "The Uruguay Round-Costs Agriculture. Food Security Implications for and Compensation for Developing Countries." Developing Countries." Food Policy 21: 365- UNCTAD. Geneva. 76. World Bank. 1993. "A Strategy to Develop Agri- Harold, P. 1995. "The Impact of the Uruguay culture in Sub-Saharan Africa and a Focus for Round on Africa: Much Ado about Nothing?" the World Bank." Technical Dept., Africa Re- World Bank Conference on The Uruguay gion. World Bank. Washington, D.C. Round and the Developing Countries, Jan. 26- . 1994. Adjustment in Africa: Reforms, Re- 27, Washington, D.C. sults and the Road Ahead. World Bank. Wash- Ingco, M.D., and R. Townsend. 1998. "Experience ington D.C. and Lessons from the Implementation of Uru- . 1997. Commodity Trade and Price Trends. guay Round Commitments: Policy Options Washington, D.C. and Challenges for African Countries." World Yamazaki, F. 1996. "Potential Erosion of Trade Bank, Washington, D.C. Processed. Preferences in Agricultural Products." Food Larson, B.A., and G.B. Frisvold. 1996. "Fertilizers Policy 21: 409-18. to Support Agricultural Development in Sub- Yeats, A.J. 1994. "What are OECD Trade Prefer- Saharan Africa: What is Needed and Why." ences Worth to Sub-Saharan Africa?" Policy Food Policy 21:509-26. Research Working Paper 1254. World Bank. Nash, J. 1993. "Trade Policy Reform Implications Washington, D.C. in Sub-Saharan Africa: How Much Heat and How Much Light?" World Bank, Washington, D.C. Processed. 23 3. Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia Prema-chandra Athukorala This paper explores issues involved in the imple- Introduction mentation of the Uruguay Round Agreement on Agriculture (URAA) and policy options for the The Uruguay Round Agreement on Agriculture next round of multilateral trade negotiations, from marks an important turning point in the history of the perspective of the countries in South Asia. international trade negotiations.' Although the out- Given the nature of the political economy of agri- come of eight years of negotiations fell far short of cultural trade policy, it is unrealistic to assume that initial expectations, the agreement has succeeded in reforms in import-trade regimes will automatically laying a firm foundation for strengthening multilat- trigger reforms in other areas. Providing financial eral discipline in agricultural trade. Completion of support for the implementation of required social the unfinished agenda, with a view to ending the safety-net measures could play an important role in long-standing disarray in world agriculture, is a making comprehensive reforms politically palat- major challenge for the next round of multilateral able and feasible. From the South Asian perspec- trade negotiation. To prepare for this task it is im- tive, other policy options for the new round of portant to broaden our understanding of how trade multilateral trade negotiations include: policy is made in developing countries, and the constraints they face in their attempts to comply * Speedy reduction of bound tariffs to realistic with the commitments set out by the URAA. This levels, with a view toward providing an paper seeks to contribute toward this end through a effective anchor for the ongoing liberalization comparative case study of the four South Asian process; countries that have ratified the URAA: Bangladesh, * Providing more institutional support to enable India, Pakistan, and Sri Lanka.2 developing countries to make use of the WTO The paper begins with a stage-setting discus- dispute-settlement mechanism; and sion on the role of agriculture in the national econ- * Effective consultative efforts to improve the omy and agricultural trade patterns of the four capacity of developing countries to meet inter- countries. It also provides an overview of the his- national standards required under the Sanitary tory of trade policy since World War II, followed and Phytosanitary (SPS) Agreement. by an examination of the pre-Uruguay Round 25 Agricultural Trade Liberalization in a New Trade Round structure of agricultural trade protection. It exam- reflecting the role of free, universal education in ines URAA commitments and compliance, focus- placing women on an equal footing with men in ing on issues that emerged during the implemen- relation to employment choice. tation process, surveys recent assessments of the The share of agricultural products in total ex- impact of the URAA liberalization process on ports has declined significantly over the past two South Asian economies, and focuses on the decades in all countries (table A.3.2). By the mid- unfinished agenda-what remains to be done in 1990s agriculture accounted for 24 percent of total the next Millennium Round of multilateral trade exports in Sri Lanka, 16 percent in India, and 12 negotiations-in light of the South Asian experi- percent in Bangladesh and Pakistan. The decline, ence. The paper concludes with remarks on South measured in terms of gross export earnings, how- Asia's experience under URAA and direction for ever, overstates the diminishing importance of ag- future policy initiatives. ricultural imports in Sri Lanka and Bangladesh, as most manufacturing exports from these countries are based on simple domestic processing of im- ported inputs (garments, in particular). In terms of South Asian Economics: net foreign exchange earnings, agriculture is much more important than it appears when looking only The Role of Agriculture at gross export earnings. The data for Pakistan and Bangladesh seem to overstate the diminishing role The relative position of South Asia in the global of agricultural exports, because semi-processed economy declined dramatically during the post-war jute exports are classified as manufactured goods. era. In the early 1960s the region accounted for The decline in agriculture's share in total ex- over 3 percent of world gross domestic product ports in these countries cannot be explained solely (GDP) and 4.5 percent of world trade. By the mid- in terms of the rapid growth of manufactured ex- 1990s these shares had declined to 1.6 and 1.0 per- ports. There is considerable evidence that they have cent, respectively. The region's share of world lost market shares in a number of agricultural population, however, increased from 16 percent to product lines in which they have comparative ad- 20 percent during this period. vantage, owing to the significant anti-export bias India, with 75 percent of the region's popula- embodied in the incentive structures of these coun- tion, 65 percent of total GDP, and 75 percent of tries (Wolf 1982; Bhagwati 1993; Guisinger and agricultural GDP, is the dominant economic power Scully 1991; Athukorala 1991). Estimates of re- in the region (Appendix table A.3.1). All South vealed comparative advantage for major export Asian countries belong to the low-income country commodities provided in table A.3.3 are consistent category of the World Bank's country classifica- with this view. The index of revealed comparative tion, and Bhutan, Maldives, and Nepal are catego- advantage (IRCA) measures a country's export rized as least-developed countries. performance in a given commodity compared to all Despite more than five decades of policy com- of that country's exports and world exports. A de- mitment to industrialization, agriculture still consti- cline in the index points to deterioration in relative tutes one-third of regional GDP. It provides export performance in the global context. Except employment for over 35 percent of the labor force for a few products, there has been a general decline in Sri Lanka and over 50 percent in the other coun- in the index across all South Asian countries. tries, surpassing the contribution of all other sec- Table A.3.4 shows that South Asian exports ac- tors. More women than men work in agriculture in count for a significant share of world trade in only Bangladesh, India, and Pakistan. Agricultural labor five products: spices (13 percent), rice (20 percent), is shared more or less equally in Sri Lanka, perhaps tea (31 percent), oil seeds (46 percent), and jute (75 26 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia percent). In all other major internationally traded 1996; Henderson, Sheldon, and Pick 1996). The agricultural goods, South Asia is a small player, causes and determinants of this emerging trend in accounting for less that 4 percent of market share world trade, which is of immense significance for in all cases. market-oriented reforms in agricultural resource- The decline in the share of manufactured goods rich countries, are yet to be systematically studied. is prominent on the import side as well. This de- Some evidence suggests that it reflects the "inter- cline has persisted for a long time, and reflects nationalization of food habits"-the increased im- longstanding import-substitution policies in the portance of imported, processed items (such as four countries. This policy emphasis notwithstand- canned fruits and vegetables and breakfast cereal) ing, food imports constitute the major component in food-consumption patterns in industrialized of total agricultural imports. The data in table A.3.4 countries, as well as among large sections of the demonstrate that all countries in the region are populace in many developing countries. Factors small players in import markets. such as international migration, the communica- A noteworthy recent development in agricul- tions revolution, and international tourism have tural exports from the region is the rapid growth of contributed to this phenomenon. This significant processed-food exports, despite the observed gen- demand-side impetus to the growth of processed- eral decline in agriculture's share of total exports food exports seems to have been supported by im- (table A.3.6). Disaggregated data for this commod- portant supply-side developments, such as im- ity category (not reported in the table) suggest that provements in food technology, refrigeration the rapid growth of this export category was ac- facilities, and transportation, which have made companied by a remarkable shift in commodity processed-food items easily tradable across na- composition. Export growth in recent years has tional boundaries. Whatever the underlying reason, been driven largely by commodities that were rela- this emerging export line deserves special attention tively unimportant in the 1970s. The most promi- in the intemational policy debate on the global in- nent of the new, dynamic items is processed fish, tegration of agricultural production in developing whose share in total processed-food exports from countries. South Asia increased from 5.6 percent in 1970 to As can be seen in table A.3.6, Bangladesh, 38 percent in 1995. According to disaggregated Pakistan, and Sri Lanka are net food exporters. The data for individual countries, in 1995 processed degree of net food-import dependence (measured fish alone accounted for 70 percent of processed- by net food imports as a share of total imports), food exports in Bangladesh, 45 percent in India, 28 however, declined significantly in Bangladesh and percent in Sri Lanka, and 25 percent in Pakistan, Sri Lanka between the early 1980s and the mid- compared to an average share of 5 percent in the 1990s. Pakistan, in contrast, recorded a significant mid-1970s. The share of preserved fruit has also increase in the ratio during the same period. This is increased, although not as spectacularly as that of considered to be a reflection of decline in agricul- processed fish. But shares of "traditional" proc- tural productivity, which in turn is ascribed to de- essed-food items, such as sugar and molasses, ani- fects in the country's highly interventionist agricul- mal feeds, tobacco products, and vegetable oils tural policy (Khan 1997). India is a net food ex- have either fallen or fluctuated erratically over porter; net food exports as a share of total imports time. in India increased from 4 percent to 13 percent The emergence of processed food as a dynamic between 1980-81 and 1995-96. export line is not exclusively a South Asian phe- Bangladesh is the largest recipient of food aid nomenon. Rather, it is part of a trend toward the among the four countries, obtaining 9 percent of globalization of processed-foods markets (Athu- total food imports from that source in the mid-1990s korala and Sen 1998; Henderson, Handy, and Neff (table A.3.7). Food aid to Pakistan has never been 27 Agricultural Trade Liberalization in a New Trade Round significant; India and Sri Lanka fall somewhere in import specialization of the latter. Generally the between. The relative importance of food aid in measured degree of complementarity is very low, food imports for all countries declined significantly except for Sri Lanka's export trade with Pakistan. from 1990 to 1996, from 8 percent of total food Some improvement has taken place in trade- imports to less than 5 percent. Anderson's (1999) complementarity for Pakistan's trade with Bangla- view that the decline in food aid is a post-Uruguay desh and Sri Lanka. In sum, the overall trade pat- Round phenomenon (reflecting the subsidy-related terns of individual countries in the region are not food stocks held by industrialized countries) is not conducive to rapid, intra-regional trade expansion. consistent with the South Asian experience. The These trade patterns have been dictated by closed- decline was already well underway when the UR economy, import-substitution policies pursued by agreement was reached in 1994. these countries for many years. During the colonial Tables A.3.8 through A.3.11 present indicators era, however, when the four countries formed a on intra-regional trade in South Asia. Among the unified trading area, domestic food and other con- world's regional blocs, South Asia has perhaps the sumer-good requirements were met through re- lowest incidence of intra-regional trade. Only 3 to gional trade. Thus new trade complementarities 5 percent of total regional exports were destined to could emerge as part of the ongoing process of the regional market between 1970 and 1995. A unilateral trade liberalization. similar pattern can be observed on the import side. India's trade with other South Asian countries rep- resents less than 2 percent of its total trade.3 India is the dominant export destination and import source Trade Policy Trends for Bangladesh. Sri Lanka exports more to Pakistan than to India, but its imports, are mostly from India. During the first three decades of the post-war era, South Asia continued to remain the most inward- The relative importance of regional markets for oriented group of countries in the world outside the agricultural and other primary products has de- communist bloc. Sri Lanka led the way in breaking ctined relative to manufactured goods (table away from the protectionist past by embarking on a A.3.10). However, intra-regional trade is of greater decisive process of economic opening in 1977. importance for food trade compared to total agri- Following hesitant and sporadic attempts to dis- cultural trade, both on import and export sides. mantle trade barriers in the 1970s, other countries Intra-regional trade in textile fiber has increased in embarked on significant liberalization reforms be- recent years as a result of regional input procure- ginning in the late 1980s. While vast inter-country ment by rapidly expanding clothing industries in differences are evident in terms of the degree of Sri Lanka and Bangladesh. However, clothing, the liberalization achieved during the ensuing years, by commodity with the highest degree of export spe- the mid-1990s all four countries had entered into a cialization in all four countries, is generally not seemingly irreversible process of economic liber- traded within the region (Samaratunga 1999, Chap- alization. By the mid-1990s each country had ter 5). achieved IMF "Article VIII status," allowing the The observed pattern of low intra-industry trade full convertibility of national currencies on current- is consistent with the trade-complementarity indi- account transactions. Table A.3.12 provides a chro- ces reported in table A.3.11. The index of trade nology of major shifts in South Asian trade-policy complementarity (ITC) measures the extent to regimes. which a given country's export trade with a part- ner-country is relatively large or small, given the patterns of export specialization of the former and 28 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia Sri Lanka ranged between 52 and 77 percent during 1978-84, and declined continuously during the ensuing As a reaction to the dismal economic outcome of years. Only 40 percent of imports (in value terms) its inward-looking policy, Sri Lanka embarked on were subject to duties by the mid-1990s. The cov- an extensive economic liberalization process in erage of quantitative restrictions (QRs) in total 1977 (Cuthbertson and Athukorala 1991; Athu- imports was a mere 3 percent, in value terms, and korala and Rajapatirana 1999). The first round of the items covered by QRs accounted for only 2 reforms carried out during 1977-79 included sup- percent of domestic manufacturing value-added.4 planting quantitative restrictions on imports with Export taxes have been eliminated and state- tariffs, revising the tariff structure to achieve trading monopolies were largely dismantled. greater uniformity, reducing restrictions on foreign investment and private sector participation in the economy, exchange rate realignment, and offeringg incentives for nontraditional exports. The reform Trade liberalization in Bangladesh began in the process lost momentum in the early 1980s, first mid-1980s and gathered momentum during the because of an unfortunate shift in policy priorities early 1990s (Rahman 1997; World Bank 1995). toward more politically appealing, glamorous in- Since then quantitative restrictions have been abol- vestment projects, and later as a result of the onset ished and tariff rates reduced across the board, of ethnic conflict. There was however no retreat to leading to a significant reduction in the dispersion the old control regime. of tariff rates. Reduction of QRs and simplification In a decisive move to infuse momentum into of tariffs have been undertaken in the form of mov- the unfinished reform process, a significant "sec- ing items off the pre-announced Negative List and ond wave" liberalization package was implemented Restricted List. These two lists were combined in in. 1990. The package included an ambitious priva- 1989 to form a general "Restricted" list. By the tization program, further tariff cuts and simplifica- mid-1990s only 2 percent of imports (in value tion of the tariff structure, removal of exchange terms) were on the list. The number of Harmonized controls on current account transactions, and sev- System Code (HSC) items under QRs had been eral important changes to the foreign investment reduced to 25 percent by 1994. In 1990 maximum policy framework in line with an increasingly out- tariffs declined to 60 percent, followed by an in- ward-looking economic orientation. Following two crease in the minimum from zero to 7.5 percent in decades of reforms, Sri Lanka today stands out as 1992. The import-weighted import duty rate was 21 one of the most open economies in the developing percent in 1995, down from 47 percent a decade world (Williamson 1998). The reform process over ago. In Bangladesh, as in all other South Asian the past two decades has been successful in virtu- countries, liberalization of capital and intermediate ally eliminating quantitative restrictions and rein- goods moved faster than that of final goods. Nomi- forcing the role of tariffs as the central instrument nal tariff rates do not differ substantially between regulating Sri Lanka's merchandise trade. The ef- agriculture and manufactured goods. fective duty rate (total duty collection as share of total imports) declined continuously over the past Pakistan ten years, reaching 8 percent in 1995. All three end-user categories (consumer, intermediate, and Pakistan has a checkered history of trade liberaliza- investment goods) have experienced a consistent tion. As Guisinger and Scully (1991: p 205) put it: decline in duty incidence over the past ten years; "Compared with most developing countries that intermediate goods recorded the sharpest decline. have undergone trade liberalization, Pakistan is a The share of dutiable imports in total imports tortoise rather than a hare." Trade liberalization has 29 Agricultural Trade Liberalization in a New Trade Round made slow but steady progress since 1960. In 1970 from 93 percent to 66 percent. This share is Pakistan qualified for Article VIII status at the probably less that 10 percent of that in other South IMF, but even in the mid-1980s the country had a Asian countries (Pursell 1999: p 30). Thus, despite long way to go in terms of lifting QRs and substantial reforms beginning in 1991, the Indian reducing tariffs. Tl.e current phase of trade liberali- economy still remains the most protected in zation reforms began in 1989. The number of tariff South Asia. bands was reduced from 17 percent to 10 percent in The relative importance of initiatives in indi- 1995, and the tariff range was brought down to vidual countries, versus the role of "outside influ- between 0 and 150 percent, although tariffs on ex- ence," in recent reforms in South Asia remains empted goods (mostly luxury goods) had higher controversial. It is generally acknowledged that rates of 225 percent and 450 percent. By 1995 the impetus for the reforms was rooted in growing rec- maximum tariff rate had been reduced to 70 per- ognition by national policymakers that their inter- cent (with a few exceptions). The average un- ventionist, import-substitution policies had largely weighted rate came down further, to 58.2 percent, misfired (Pursell 1999: p 30; Bhagwati 1993: pp by 1994. In 1995 only 70 out of 5,464 products at 68-69). Commenting on the 1991 reforms in India, the HSC 8-digit level were on the restricted import Bhagwati (199: p 69) notes that "those who de- list. Export duties had been eliminated by 1995, nounced alien intrusion were in fact denying the except for a minor development surcharge on some credit to their own nationals." Sri Lankan officials exports. However, 251 items, including some items and others have observed that, given the dismal in which Pakistan has comparative advantage in economic record of the closed-economy era, even a international trade, were on the list of prohibited reelected, center-left government would probably exports. A few minimum-price requirements for have embarked on a similar reform process. Con- approval of certain exports were in effect. siderable discussion took place within government circles immediately prior to the election on the India need for liberalizing trade and foreign investment (Cuthbertson and Athukorala 1991). Despite liberalization attempts during the 1980s, by But the role played by the Bretton Woods insti- 1990 India was the most autarkic country in the tutions cannot be ignored. Most, if not all, liberali- world outside the communist bloc (Bhagwati 1993; zation packages formed a part of structural Joshi and Little 1996). In 1991 India embarked on adjustment packages designed with World Bank a major liberalization reform as part of a structural and Intemational Monetary Fund (IMF) involve- adjustment package designed to face a massive ment. The World Bank played a key role in design- balance of payments crisis. QRs were lifted and ing, implementing, and monitoring the tariff- tariffs gradually reduced on intermediate- and capi- reform process in Sri Lanka, through the provision tal-goods imports. Most imports undertaken of institutional support and expertise under policy- through state agencies were "decanalized," bring- related lending. When the momentum of reforms ing the private sector into those product sectors. initiated in 1977 began to wane in the second half But even by the mid-1990s most consumer-goods of the 1980s (owing to civil unrest and political imports (including most agricultural products) turmoil), the IMF and the World Bank played a key were still subject to licensing or outright prohibi- role in resuscitating the reform process, as part of a tion. Export controls were also gradually reduced; major structural-adjustment package implemented the number of export items under controls fell in 1991 (Cuthbertson 1998; Athukorala and from a pre-reform level of 439 to 215 in 1993. The Rajapatirana 1999). share of tradable GDP protected by QRs is thus still very high; between 1990-95 the share declined 30 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Optionsfor South Asia Pre-URAA Agricultural The Sri Lankan reforms were much more far- reaching on the export side. Export duties on all Trade Policy plantation crops were abolished in 1992. After that year taxation of agricultural and other exports was Liberalization of agricultural trade in South Asian limited to various surcharges and "cesses" (minor countries has been less far-reaching and intense taxes levied to finance export-development pro- than that of overall trade liberalization. This patern jects), which were applied at rather moderate rates. can be seen more vividly by comparing South The share of export taxes (duties + cesses + other Asia's liberalization trends and patterns with those surcharges), which reached 25 percent in the early of Latin America. Latin American agricultural trade 1980s, declined to 0.05 percent in 1993. No quanti- reforms have, by and large, received equal weight tative restrictions were applied to exports, apart in the liberalization process (Valdes 1999; Edwards from a licensing requirement on a limited number 1997). of minor items on grounds of cultural value and health implications. Subsidies for non-plantation Sri Lanka exports amounted to less than 1 percent of export earnings from these products. Production subsidies When the URAA was signed in January 1995, high on plantation crops as a percentage of total produc- tariffs and quantitative restrictions still constituted tion amounted to 0.6 percent for rubber, 0.4 percent important deterrents to import-trade in Sri Lanka for coconut, and 0.5 percent for tea. for a number of key agricultural commodities According to a number of recent studies, by in- (Athukorala and Kelegama 1998, table A.3.5). Im- ternational standards Sri Lanka is a high-cost pro- port duties on eight-digit HSC items varied ducer of rice and subsidiary food crops. Thus both sharply-between 5 and 100 percent-and most continuation and further increases in produc- essential food crops clustered at the upper end of tion-unless brought about by productivity im- the distribution. The importation of rice, the main provements-would impose high costs on the staple and prime target of import-substitution at- economy. Moreover, the opportunity costs of in- tempts in agriculture, was subject to licensing and a vestment in irrigation would increase over time, as tariff of 35 percent. Import quantities for chilies, all long-term rice projections suggest a decline in onions, and potatoes were decided at a weekly real international prices. At the same time the con- "Food Security" meeting involving the Department trol regime does not seem to have achieved its de- of Census and Statistics, the Food Commissioner, clared objective of cushioning domestic consumers Ministry of Agriculture, and Controller of Imports and producers from excessive fluctuations in and Exports. While no licensing or other non-tariff world-market prices. On the contrary, convincing restrictions were placed on sugar imports, the tariff empirical evidence indicates that there were far on sugar was set by the government according to a fewer seasonal price fluctuations in international special arrangement with the chief domestic sugar- markets for these products than occurred in Sri producer (Pelwatta Sugar Company, a subsidiary Lanka's domestic market. Overall the economic company of the sugar giant, Booker International). arguments for removing non-tariff barriers with a The aim was to guarantee a certain rate of return to view to diverting resources to alternative uses ap- the company, as had been agreed in the original pears to be very strong (Bhalla 1991; World Bank investment agreement. The government-owned 1995a). Cooperative Wholesale Establishment held a mo- India nopoly over the importation of wheat and wheat flou, whch tgeter acouned fr oer 7 perent The significant liberalization reforms initiated in flour, which together accounted for over 70 percent India in 1991 were largely confined to the indus- of total food imports. 3 1 Agricultural Trade Liberalization in a Newv Trade Round trial sector. All basic agricultural commodities and of all agricultural products are largely determined processed foods (in the latter case most HSC tariff by trade controls-to the disadvantage of local lines covered by chapters 16 to 24 of the tariff producers-provision of subsidies to ensure the code) fell under the general ban on consumer viability of domestic agriculture has become an goods. In addition India continued to control agri- important (and politically sensitive) function of the cultural imports and exports through government Indian government. As already noted, prices of trade monopolies. Despite significant dismantling rice, wheat, coarse grains, and cotton have been of government monopolies in import trade during held below world-market prices in most years by 1991-95, all "bulk" imported food items (oil seeds, controlling exports. At the same time high levels of onions, most edible oils, and cereals) could be im- industrial protection means that, except for fertil- ported only by a government monopoly. Within izer, farmers have had to pay more than world agriculture the cereals group remained largely insu- prices for inputs. In contrast some crops, particu- lated from world markets. Tariff rates on a number larly sugar and edible oils, are protected; but this is of food items were zero, but they were only of counterbalanced by lack of protection for cereals symbolic value, as controls, not tariffs, limited im- and cotton in determining the net incentive bias ports. Despite the declared policy emphasis on ex- against agriculture. On balance agriculture is still port promotion, quantitative export restrictions on a relatively less protected, and this, in turn, has pro- number of products remained intact. The Indian vided the setting for continued massive, economi- government's approach to agricultural trade was cally inefficient domestic subsidies.6 basically to "allow imports if there was a net deficit and allow exports if there was a comfortable sur- Pakistan plus" (Gulati 1998). In the cereals sector the crucial consideration Pakistan's pre-URAA agricultural trade regime was governing continued protection has been food secu- a mirror image of India's. Agricultural crops were rity and to prevent domestic food prices from rising severed from developments in global trade by a with world prices. On these grounds the prices of mixture of tariff and non-tariff barriers (Khan cereals-rice, wheat, and coarse grains-were held 1997, p. 450). Officially established minimum ex- below world prices in most years by controlling port prices were coupled with export duties and a exports. Similar controls were maintained on agri- quota system affecting the main export crop, cot- cultural raw material, to keep local raw-material ton. These restrictions were aimed primarily at prices low and thus protect domestic industry. Cot- protecting the domestic textile industry. ton, timber, hides, skins, and leather are the main On the domestic front, for many years a sup- products for which restrictions continue to be im- port-price program (SPP) had been in operation for posed for this reason. Some crops, notably sugar all major crops, with the aim of providing stable and edible oil, in which India does not have a com- prices to farmers. Under the program when market parative advantage in international production, prices fell below the guaranteed minimum price were protected purely on grounds of "self- (GMP), the government would absorb the excess sufficiency" (Joshi and Little 1996, pp. 69, 249). supply at the GMP. A longstanding system of sub- Massive agricultural subsidies have long been sidies for farm inputs-fertilizer, seeds, tube-wells, an essential part of India's overall agricultural sys- canal water, electricity and fuel, pesticides, and tem. According to estimates by Pursell and Gulati farm credit-was also in place. These subsidies (1995), during 1993-94 total subsidies for fertil- (first introduced in 1960) rose from less than 1 izer, irrigation, electricity, and agricultural credit percent of the value of agricultural output in 1961 amounted to 2.7 percent of total GDP, or 11 percent to about 3 percent by the rnid-1990s (Khan 1997; of agricultural GDP.5 In a context in which prices Chaudhry and Sahinzada 1995). 32 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia Bangladesh The resultant tariffs are to be "bound" and reduced over a period of six years (the timeframe is ex- In Bangladesh import duties on key agricultural tended to 10 years for developing and "least- products have dropped significantly since the late developed" countries).7 Industrial countries will 1980s. By the mid-1990s operative rates on major reduce tariffs by 36 percent over six years, and imports (rice, wheat, pulses, and oilseeds) were 15 developing countries will do so by 24 percent over percent, while the rates for other items (such as 10 years. The conversion of NTMs into tariffs edible oil, diary products, vegetables, and potatoes) ("tariffication") is based on the actual difference varied between 30 and 70 percent. The percentage between internal and external prices during the of imports under licensing had declined below 5 years 1986-88. For developing countries whose percent. The involvement of state-trading monopo- tariffs had not been previously bound under the lies in import trade has been steadily rolled back GATT, there is no limit on the level of bindings and over the years. The private-sector share in total no obligation to reduce them during the ten-year imports increased from a mere 5 percent in 1978 to phase-in period. In other words these countries are over 97 percent by 1992. As of July 1995 state permitted to "tariffize" existing NTMs and set their trading was abolished for all agricultural commodi- own bound rates (regardless of the degree of pro- ties except rice, wheat, coarse grain, and oilseeds. tection embodied in the tariff regime during Even for these items, no restrictions exist on im- 1986-88). ports by private traders (Chowdhury and others 1999, p. 162). Tariff Binding Commitment under the Table A.3.13 provides a summary of URAA tariff binding by South Asian countries. Detailed data at Uruguay Round the individual commodity level on bound rates, current effective tariff rates, and the nature of QRs URAA trade-reform provisions fall under three (including state trading) are provided in table main categories: market access, domestic support, A.3.14. South Asian countries had not previously and export subsidies; export-subsidy provisions are bound agricultural tariffs under the GATT, and are applicable only to industrialized countries. Existing not obliged to reduce tariffs from the bound level production subsidies in South Asia are consistent (50 percent) during the 10-year phase-in period. with WTO domestic-support provisions, and thus The bound rate is therefore important only as an do not require further policy adjustments. South upper limit on possible future tariff adjustment. Asia's commitments to the URAA, therefore, relate A sharp contrast exists between Sri Lanka, only to market-access provisions. The URAA re- which bound tariffs at relatively low levels, and the quires that participant countries convert all non- other three countries, which chose to bind tariff at tariff measures (NTMs) affecting agricultural im- exceedingly high levels. Sri Lanka's import- ports into ad valorem, or specific, tariffs as soon as weighted average tariff (37 percent) was lower than the agreement enters into force. In regard to NTMs, the uniform bound rate (50 percent) which prevailed specific mention has been made of quantitative at the time of signing the URAA. Bangladesh import restrictions, variable import levies, mini- announced a uniform bound rate of 200 percent, mum import prices, distortionary import licensing, while Pakistan set bound rates in the range of 100 and non-tariff measures maintained through state to 150 percent. India had submitted very high bind- trading enterprises and voluntary export restraints. ings of 100 percent, 150 percent, and 300 percent 33 Agricultural Trade Liberalization in a New Trade Round for most products, coupled with zero or low (be- Payments Clause (Article XVIII (B)) of the tween 10 and 40 percent) rates for a few products GATT/WTO.8 Sri Lankan officials, however, made imported solely by state trading enterprises. In all it clear that the motive behind the request was to three countries bound rates are much higher than provide protection to domestic farmers until they those that previously applied. become sufficiently competitive, through the adop- Bangladesh, India, and Pakistan are among the tion of improved farming techniques and crop di- WTO members with the highest bound rates. In versification. They further mentioned that taking Latin America, Colombia announced the highest appropriate steps toward this end had been ham- bound rates, but these rates are, on average, much pered by the country's ongoing civil war. After lower than those announced by India, Bangladesh, considering this case, the WTO informed the Sri and Pakistan. Only Chile and Uruguay have lower Lankan government in early 1996 that there was no bound rates than Sri Lanka. basis for retaining import restrictions on a few se- Tariff binding by Bangladesh, India, and Paki- lected products on balance of payments grounds. stan seems to embody a significant element of The WTO, however, pointed out that Sri Lanka "dirty tariffication." The base-tariff equivalents would be able to obtain alternative temporary cover observed for these countries are considerably for these restrictions under GATT's Security higher than the actual tariff equivalent measure Clause (Article XXI) (WTO 1996: p 10). available for those years. Pursell (1999) provides a Following this WTO ruling, Sri Lankan comparison of base-period reference prices re- authorities abolished import licensing on potatoes, ported in Indian supporting tables (AGST) against chilies, onions, and rice in July 1996. This step was his own estimates for 10 key commodities. He con- followed by a reduction of import duties on pota- cludes that official rates are marginally lower than toes, chilies, and onions from 35 to 20 percent in the alternative estimates in two cases (soybeans November 1996. In introducing these tariff reduc- and gram). For the other eight commodities, offi- tions Sri Lanka went beyond its Uruguay Round cial rates were, on average, 70 percent higher than commitments. As mentioned earlier, once licensing alternative (presumably more reliable) estimates. is abolished developing-country members are re- Similar comparisons have not been made for quired to reduce tariffs from the bound level (50 Pakistan and Bangladesh. But the inference based percent in the Sri Lankan case) by only 24 per- on the Indian case appears to be equally valid, be- cent-and this reduction is to be achieved over 10 cause there is no evidence to suggest that their pre- years. A plausible interpretation of this decision is URAA trade regimes were significantly more re- that Sri Lankan authorities wanted to make use of strictive than India's. The fixing of high bound the WTO ruling under the URAA to effectively rates by these countries appears to have been moti- counter the protectionist lobby, in order to achieve vated by the desire to leave themselves plenty of further tariff cuts in line with the country's com- space for future maneuvering and bargaining in the mitment to unilateral trade liberalization. Recall tariff negotiation process. In contrast, Sri Lankan that reducing and harmonizing tariffs toward a policymakers seem to have made use of the win- two-pronged tariff structure of 10 and 20 percent in dow of opportunity provided by the URAA com- the medium-term, and subsequently a single (uni- mitments to lock in the ongoing trade-reform form) rate of 15 percent, is the declared policy of process in the country at low duty levels. the Sri Lankan government (Athukorala and Kele- Implementation In September 1999 licensing of wheat and During WTO consultations on the URAA in No- wheat flour was the only stumbling block impeding vember 1994, Sri Lanka requested temporary cover Sri Lanka's full compliance with URAA provi- for NTM-restricted items under the Balance of sions. Impediments to import-liberalization for 34 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia these two commodities are firmly rooted in the (Chishti 1997). The United States has filed a dis- country's past foreign investment policy. In both pute, and the settlement process is currently un- cases trade-related conditionality was written into derway in the WTO. investment agreements signed with the company As a least-developed country, Bangladesh has involved (Prima Ltd.), without giving due consid- no obligation to remove QRs or to reduce bound erations to future developments in related com- tariffs during the 10-year URAA phase-in period. modity markets and the invariable implications for However, as discussed, Bangladesh continued to overall trade policy of a country rushing to entice move ahead with its unilateral trade liberalization foreign investment. The govermnent has pledged to process. At present there are no quantitative restric- the WTO that it will abolish licensing when the tions on agricultural imports. Following the signing investment agreement expires in 2004. of the URAA, state trading was removed from all A 20-percent import duty on milk products and agricultural products except rice, wheat, coarse a specific tariff of 3.50 rupees per kilogram (ad grains, and oilseeds. In these product categories valorem equivalent of about 30 percent at current state trading is carried out in competition with the market prices) represent two other anomalies of Sri private sector. Lanka's current import policy. Like the sugar mo- Pakistan has not yet developed a plan for com- nopoly, both duties are aimed at protecting import- pleting its market-access commitments. But, unlike substituting multinational subsidiaries encouraged India, Pakistan has only a small number of agricul- to establish production facilities under the govern- tural products (edible oil, coarse, meat) under ment's campaign to promote foreign direct invest- quantitative restrictions and state trading. ment (Athukorala and Kelegama 1998). These tariffs, however, are not inconsistent with WTO guidelines, because imports still account for the overwhelming share of domestic consumption of The Impact of Global these products (60 percent for milk products, 80 Trade Liberalization on percent for sugar). India has not made firm commitments regard- South Asia ing market access or reduction of subsidies or tar- iffs. Quantitative restrictions on imports are Results of some recent, model-based simulations of currently maintained on balance of payments the long-term, economy-wide effects of agricultural (BOP) grounds for around 2,300 tariff lines, in- trade liberalization under the Uruguay Round are cluding most agricultural commodities at the eight- summarized in table A.3.15. Although these esti- digit level. In view of improvement in the balance mates are not strictly comparable because of under- of payments over the recent years, the WTO Com- lying methodological differences,9 they are mittee on BOP Restrictions requested in late 1996 unanimous in finding a relatively low impact on that the Indian government undertake gradual phas- India and South Asia, compared to other industrial- ing-out of these QRs. A meeting on this topic be- ized countries. The estimates have been widely tween India, the WTO, and the IMF on January 8, quoted by opponents of further liberalization in 1997, ended without an agreement. Based on sub- South Asia and other developing countries, without sequent consultations, India has been attempting to a clear understanding of (or, perhaps, ignoring) the address the issue through bilateral negotiation. In benefits/costs they actually capture. agreements signed with Australia and Estimates of a minimal real-income (welfare) the European Union in November 1997, India effect are, however, not surprising given the partial agreed to phase out QRs on 2,700 products over a nature of the reforms decided upon in the URAA. period of six years, beginning in April 1997 As far as developing countries are concerned, the 35 Agricultural Trade Liberalization in a New Trade Round agreed liberalization initiatives cover only protec- were cut by an average of 43 percent. Tariffs on tion in the form of border measures. Thus the table spices, flowers, and plants were reduced by 52 per- A.3.16 estimates do not fully capture domestic cent and those on tropical fruits and nuts by 37 distortions that impact on trade and export taxes or percent (Anderson 1999; Siamwalla 1997). other restrictions that hinder performance in these These tariff cuts are likely to have another countries. Moreover, given the remaining non-price beneficial effect: considerable reduction in the de- distortion in import-trade regimes, even the poten- gree of price escalation affecting individual prod- tial effects of import tariff reductions may not be ucts within product categories such as rubber, accurately reflected in these estimates. oilseeds, spices, tobacco, and wood. In these prod- There is systematic evidence that in India the uct categories tariffs on raw (primary) and semi- lack of protection in the form of various domestic processed products have historically been lower supports and export taxes and prohibitions is just as than those on more highly processed products. Ac- harmful as-and perhaps even more harmful cording to the agreement, tariff cuts in the latter are than-border protection of import-competing pro- to be reduced much more than the former (Siam- duction. Based on these estimates, Joshi and Little walla 1997, table 3.7). The resultant reduction in (1996: pp 89-90) vividly map out the likely out- tariff escalation could have the beneficial effect of come of a comprehensive, all encompassing, liber- encouraging further processing of primary tropical alization as follows: products in developing countries. In sum, South Asian developing countries will benefit from tariff Agricultural incentives (removal of export reductions on tropical products, both through direct taxes and prohibition, irrigation charges, export expansion and expanded processing activi- and other subsidies) would be changed in ties in their own countries. such a way as to greatly improve the effi- ciency of production and the value of out- put. Cereal and cotton production would rise, and their production and export Policy Options would increase. Exports of many minor agricultural products would also rise. The The URAA was concluded at a time when all South major sufferers would be overprotected Asian countries had already embarked on a signifi- oilseeds and sugar where India has a com- cant process of unilateral trade liberalization. The parative disadvantage. Resource shift indications are that South Asian countries have not away from sugar (a capital-intensive yet benefited directly from the URAA in the ongo- product) to cereal and cotton will increase ing liberalization process, except for Sri Lanka, labor intensity of agricultural production. which had already reached an advanced stage of economic opening. How can a future round of mul- Another facet of import liberalization usually tilateral trade negotiation better serve the liberali- overlooked in the discussion of the results of the zation processes in these countries? The South Uruguay Round (and perhaps not captured in the Asian experience suggests at least four areas where simulations reported in table A.3.16) is the straight- fruitful contributions can be made. forward reductions in tariffs on a number of tropi- Perhaps the most important issue requiring im- cal products. In this area governments of mediate attention is a review of bound tariffs. The industrialized countries naturally do not have to intended purpose of binding tariffs was to set a contend with domestic farm lobbies. Almost all "benchmark against which future liberalization can non-tariff barriers on tropical-product imports in be undertaken." Nonetheless the bindings eventu- industrialized countries were removed, and tariffs ally agreed upon have turned out to be extremely 36 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Optionsfor South Asia high-even higher than the levels of protection at taneous reform of import and export trade regimes, the time the agreement was signed. Such high rates and domestic subsidies.'" These are intricately cannot serve as useful benchmarks for further tariff linked; restrictive trade regimes with an in-built reduction. In addition high tariff bounds can be bias against agriculture have provided the rationale counterproductive for several reasons. (and lobby-group pressure) for domestic subsidies. A major gain expected from a transition from Yet massive subsidy commitments dictate the con- QRs to tariffs is a reduction in the volatility of tinuation of trade controls, including extensive world market prices. However when tariffs are involvement of state enterprises in foreign trade. bound at very high levels, significant fluctuations The removal of input-subsidies and freeing of in- below the bound level are possible.'0 A country temational trade need to be combined. with very high bound tariffs can set the operative tariff below the upper bound and vary it to influ- ence domestic market prices. Prolonged retention of high bound tariffs can Social Safety-Net Support harm the ongoing process of unilateral liberaliza- tion by strengthening the protectionist lobby. High Whatever the long-run benefits of freeing agricul- bound tariffs could become a potential target in the ture, these changes are likely to cause considerable clamor for high protection. The Sri Lankan experi- socioeconomic disturbance, and a good many peo- ence suggests that a formal intemational commit- ple might suffer, or fear that they will suffer. It is ment in the form of relatively low bound tariffs important to deal with these transitional problems could be helpful in taming the protectionist lobby. as part of a rapid, planned move toward redressing deep-rooted disarray in domestic agriculture. In particular, effective measures are needed to protect the poorest sectors of the population from intense, Going Beyond Borders temporary rises in cereal prices. Put simply, it is not politically feasible to undertake comprehensive In its effort to restore orderly conditions for world agricultural liberalization without considering the trade, the URAA goes beyond the border measures effect of consequent price rises on poor people. that have traditionally been the targets of GATT The removal of current, high agricultural subsi- discipline, focusing instead on the distortionary dies would free up resources for social safety-net effects of domestic supports and export subsidy activities needed to cushion the poor against the measures. However developing countries are ex- price-raising effects of market reforms. But this empt from these commitments, or in some cases cannot happen quickly. Therefore providing finan- have been provided with ample loopholes for evad- cial support for implementing social safety-net ing implementation of required reductions. Least- measures can play an important role in making developed countries are not required to make any these reforms politically palatable and feasible. reductions. Moreover export taxation and other Some initiatives have already been taken, as restrictive measures impinging on export markets part of the completion of URAA, to provide food- are largely ignored for all countries. Export taxes security support for net food importers to cushion and restrictions are virtually absent in industrial- them against increases in world food prices result- ized countries, but are still important distortionary ing from the reduction of production support in measures in many developing countries. In South industrialized countries. These supports are rele- Asia, India and Pakistan are prime examples. vant for net-food-importing countries like Bangla- To be effective, planning for liberalization re- desh, Pakistan, and Sri Lanka. However providing forms in countries like India should involve simul- food-security support for food-deficient countries 37 Agricultural Trade Liberalization in a New Trade Round is simply an attempt to deal with the symptom, not of course, depend heavily on the nature of related the cause, of the problem. Net food dependence dispute-settlement procedures. and weak economic status (which make it difficult To facilitate implementation of these agree- for these countries to withstand reform-induced ments and related legislation, the GATT's role in price increases) are the result of the longstanding resolving trade disputes was strengthened under a distorted agricultural trade policy regime. So newly established Dispute Settlement Board. The safety-net support should be linked to syste- new procedures are faster and more automatic, and matic policy efforts to address the problem at also more binding. New institutional arrangements, the root, not simply to cope with current food- including stronger dispute-settlement procedures, deficit situations. will have an impact on developing country trade- policy choices (Anderson 1999). But practical ob- stacles prevent developing countries from making full use of these new institutional arrangements. Facilitating Developing- Even with assistance from the WTO Secretariat, initiating the prosecution of a case is burdensome Country Participation in for many developing countries, both in terms of the Dispute Settlement financial commitment and availability of required expertise (Michalopoulos 1998). Mechanism Quite apart from helping countries in case of a dispute, there seems to be a great need for intema- A legitimate fear in policy circles is that the re- tional initiative to educate developing country ex- markable success of the Uruguay Round in outlaw- porters and policymakers about the new legislation ing non-tariff barriers may intensify the pressure on and how to comply with internationally adopted other routes to protection, such as increased re- food standards. Dawson (1999: p 105) sums up the course to the use of anti-dumping legislation and policy challenges in this area as follows: Sanitary and Phytosanitory safeguard mechanisms. WTO Agreements on safeguards, anti-dumping, With the SPS becoming a reality there re- subsidies and countervailing measures, and SPS mains a lot of work that must still be done were designed as a guard against this potential by many countries. Certainly strengthen- threat. ing export control systems for food must The SPS Agreement is of particular signifi- receive a very high priority. National sys- cance for South Asian countries, given the emer- tems of control also must be improved and gence of processed-food exports as a dynamic transparency ensured. These are very le- export line. Implementation of sanitary regulations gitimate concems facing all countries. It is is far more contentious in the case of processed a fact that some countries of the South food than in that of primary agricultural products. Asia region are indeed not yet capable of The new SPS Agreement is a considerable im- ensuring that food products produced provement over the GATT Article XX in terms of within their borders meet the established the requirement of transparency, the priority of Codex standards,12 or are even produced intemational standards, the concept of equivalence, according to the codes of practice or and the requirement to assess risk. The agreement guidelines of Codex. subjects SPS measures to greater discipline and transparency. Its effectiveness in providing a just and transparent setting for the expansion of proc- essed-food exports from developing countries will, 38 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Optionsfor South Asia Conclusions restrictions on exports are prominent elements of continuing disarray in agriculture in India and Paki- In terms of the reform measures undertaken to date stan. Despite significant import and export liberali- under the U1RAA, Sri Lanka is unique among the zation, various distortionary domestic-production four South Asian WTO member countries. Sri supports are a continuing feature of the agricultural Lanka has bound all tariffs on agricultural goods at landscape in Bangladesh and Sri Lanka as well. a uniform rate of 50 per cent, and subsequently To be effective, planning for freeing up agricul- removed quantitative restrictions on all agricultural ture in India and Pakistan should involve simulta- products except wheat and wheat flour. In compli- neous reforms of import and export regimes and ance with URAA commitments Sri Lanka has also domestic production support mechanisms. It is taken the initiative of dismantling import licensing unrealistic to assume that reforms in the import- and reducing tariffs on agricultural imports. In con- trade regime will automatically trigger reforms in trast, the other South Asian countries (and most other areas. Having evolved over a long period of developing countries) have set very high (mostly at time, mostly as a political response to various so- or above 100 per cent) tariff bindings, which also ciopolitical forces emerging in fragile democracies, vary considerably across commodities. Moreover, these elements of the incentive structure are inex- India and Pakistan have not yet taken steps to abol- tricably linked. ish NTMs applicable to these commodities. Providing financial support for implementing It appears that the establishment of high bound required social safety-net measures can play an rates in Bangladesh, India, and Pakistan was moti- important role in making such comprehensive re- vated by the desire to leave adequate space for fu- forms politically palatable and feasible. While ture maneuvering and bargaining in the tariff- overloading the WTO with matters that fall beyond negotiation process. In a significant departure from its purview may be counterproductive, there is cer- this general South Asian policy response, Sri Lankan tainly a case for a coordinated approach involving policymakers have made use of the window of op- the WTO and international development finance portunity provided by the URAA to lock in the on- institutions, including regional development banks, going trade-reform process at low duty levels, in this sphere. A unified approach that focuses si- and to remove NTMs and reduce tariffs on agricul- multaneously on all significant trade and produc- tural imports. tion distortions is the only effective way to end The explanation for Sri Lanka's unique policy disarray in domestic agriculture in South Asia (and response seems to lie in the country's recent trade- perhaps in many other developing countries). policy history. Economic gains from the dramatic, Based on the South Asian experience, the other unilateral move to replace quantitative restrictions policy options for the new round of multilateral with tariffs as the prime tool of trade policy in trade negotiations include: 1977, and subsequent tariff reductions, have beun * Speedy reduction of bound tariffs to realistic substantial. There is thus an unpreccaented consen- levels, with a view to providing an effective sus across mainstream political groups in the coun- anchor for the ongoing liberalization process; try over the desirability of further moves towards * Providing developing countries with more trade liberalization. The upshot is that significant institutional support for making use of the initial liberalization facilitates further reform, mak- WTO dispute-settlement mechanisms; and ing gains from liberalization clearly visible to the * Effective consultative efforts to improve the public in a short period and thus weakening the capacity of developing countries to meet inter- protectionist lobby. national standards required under the Sanitary In addition to stringent border controls, domes- and Phytosanitory agreements. tic support measures, export taxes, and quantitative 39 Appendix Tables Table A.3.1. South Asia: Key Economic Indicators: 1997 Sri Bangladesh India Nepal Pakistan Lanka South Asia Low income Surface area ('000 sq. krm.) 144 3288 147 796 66 4441 31244 (3.3) Population (millions) 123.6 962.4 22.3 128.5 18.6 1255.4 2036 (21.6) GNP (US$ billion) 44.1 357.4 4.9 64.6 14.8 485.8 712 (1.6) GNP per capita (US$) 360 370 220 500 800 387 350 (7.5) GNP per capita - PPP (US$) 1090 1660 1090 1580 2460 1600 1400 (4.4) Structure of output Agriculture 24 25 41 25 22 25 28 Industry 27 30 22 25 26 29 28 Manufacturing 17 19 9 17 17 18 17 Service 49 45 36 50 52 46 43 Employment, by economic activity (1997*) Agriculture: Male 53 59 91 44 36 57 61 Agriculture: Female 76 74 98 65 32 69 75 Industry: Male 35 17 0 18 18 18 15 Industry: Female 21 15 0 10 17 13 10 Services: Male 33 24 9 34 37 27 25 Services: Female 11 11 2 15 31 14 14 Percentages of total world figures in brackets. * Distribution of male and female labor force by activity. Data are for 1997 or the most recent year available. Source: World Bank, 1999, World Development Indicators. 40 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia Table A.3.2. South Asia: Commodity Composition of Foreign Trade: 1980-81 and 1995-96 (Per- centage Shares) Exports Imports Country 1980-81 1995-96 1980-81 1995-96 Bangladesh 100.0 100.0 100.0 100.0 Agriculture 31.2 13.5 29.6 18.0 Food 12.5 11.6 23.7 15.4 Cereal 0.0 0.0 11.8 5.8 Processed food 7.1 11.2 10.6 6.3 Agricultural raw materials 18.7 1.9 5.9 2.6 Other primary products 0.0 0.4 18.8 13.1 Manufactured products 67.7 86.2 51.6 68.8 Clothing 0.2 69.1 0.0 0.7 India 100.0 100.0 100.0 100.0 Agriculture 33.3 16.0 10.9 10.0 Food 28.2 14.8 9.1 5.8 Cereal 2.5 1.5 0.7 0.0 Processed food 11.1 7.1 7.0 3.1 Agricultural raw material 5.1 1.2 1.8 4.2 Other primary products 8.5 8.8 56.5 35.7 Manufactured products 57.8 74.3 32.5 48.7 Clothing 8.1 16.2 0.0 0.0 Pakistan 100.0 100.0 100.0 100.0 Agriculture 44.0 11.6 50.1 47.2 Food 23.5 9.5 13.2 15.8 Cereal 17.1 4.2 13.0 2.8 Processed food 4.4 5.1 8.3 11.1 Agricultural raw material 20.5 2.1 3.5 5.8 Other primary products 7.2 0.2 0.8 0.6 Manufactured products 48.7 87.2 25.5 28.7 Clothing 4.1 24.1 0.0 0.0 Sri Lanka 100.0 100.0 100.0 100.0 Agriculture 65.5 24.1 21.7 16.6 Food 47.1 20.8 20.6 14.8 Cereal 0.0 0.2 0.0 0.2 (Table continued on next page) 41 Agricultural Trade Liberalization in a New Trade Round Table A.3.2 continued Exports Imports Country 1980-81 1995-96 1980-81 1995-96 Processed food 3.0 5.2 12.7 9.3 Agricultural raw materials 18.4 3.3 1.1 1.8 Other primary products 15.8 0.7 29.1 10.6 Manufactured products 18.7 74.1 49.1 74.1 Clothing 10.5 45.6 0.0 0.8 South Asia 100.0 100.0 100.0 100.0 Agriculture 38.3 15.3 14.5 13.6 Food 27.8 13.8 12.2 9.5 Cereal 5.4 1.8 2.1 1.2 Processed food 8.8 6.7 8.0 5.2 Agricultural raw material 10.5 1.5 2.3 4.1 Other primary products 8.8 5.5 45.7 28.8 Manufactured products 52.8 77.7 39.8 53.7 Clothing 6.8 23.4 0.0 0.3 Source: World Bank, 1999, World Development Indicators. 42 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia Table A.3.3. South Asia: Revealed Comparative Advantage in Commodity Exports 1970 1980 1990 1995 Bangladesh 264 Jute n.a. 1768.0 1470.0 1002.0 031 Fish, fresh and simply preserved n.a. 9.9 13.0 11.6 074 Tea n.a. 61.2 29.3 10.3 032 Fished canned n.a. 0.01 0.73 0.93 India 074 Tea 44.8 62.4 41.1 21.5 075 Spices 27.6 43.4 14.9 14.4 042 Rice 0.76 9.35 12.6 9.8 081 Animal feeding stuffs 5.2 4.1 4.1 4.8 031 Fish fresh and simply preserved 3.2 10.0 3.5 4.8 071 Coffee 1.4 5.4 3.2 3.9 051 Fruit, fresh 4.4 5.2 3.0 3.2 422 Fixed vegetable oil 1.9 1.7 2.1 3.1 292 Crude vegetable material 6.1 7.2 2.8 2.2 551 Essential oil 2.0 1.5 2.1 1.5 221 Oil seeds 0.5 0.8 1.5 1.1 264 Jute 5.9 2.6 8.4 1.0 263 Cotton 1.54 6.2 10.2 0.9 061 Sugar 1.4 0.6 0.4 0.3 Pakistan 042 Rice 10.5 73.4 38.9 29.0 052 Dried fruit 0.7 2.2 11.3 10.1 061 Sugar 1.3 0.9 2.7 6.8 263 Cotton 10.1 47.2 34.1 5.8 075 Spices 3.6 10.2 5.7 4.2 031 Fish, fresh, simply preserves 4.8 3.2 2.2 2.2 292 Crude vegetable material 3.5 5.0 2.3 1.8 062 Sugar 0.3 0.5 0.5 1.3 Sri Lanka 074 Tea 260.3 370.1 327.5 240.0 (Table continued on next page) 43 Agricultural Trade Liberalization in a New Trade Round Table A.3.3 continued 1970 1980 1990 1995 265 Vegetable fibre 33.9 98.1 81.5 37.7 075 Spices 27.5 61.3 50.9 33.6 231 Rubber 30.5 32.1 15.2 9.1 121 Tobacco, unmanufactured 0.3 0.2 1.4 8.2 051 Fruit, fresh 5.9 9.2 4.8 2.9 031 Fish fresh, simply preserved 0.5 2.7 1.4 2.2 South Asia' 264 Jute 72.8 122.5 94.2 77.6 074 Tea 57.6 75.2 51.8 34.3 075 Spices 22.1 35.3 14.9 13.1 042 Rice 3.5 21.9 16.3 11.8 652 Fish fresh, simply preserved 3.2 5.3 3.6 4.6 081 Animal feeding stuffs 3.63 2.8 2.8 3.2 265 Vegetable fibre 4.2 8.7 5.7 3.1 071 Coffee 0.9 3.4 2.1 2.6 422 Fixed vegetable oil 4.4 1.2 1.6 2.1 052 Dried fruit 0.3 0.5 2.4 2.1 292 Crude vegetable material 4.9 5.7 2.5 1.9 121 Tobacco, unmanufactured 3.8 7.3 2.9 1.9 263 Cotton 3.3 14.1 13.7 1.6 061 Sugar 1.2 0.7 0.8 1.5 551 Essential oil 1.6 1.1 1.5 1.0 231 Rubber 3.3 2.8 1.1 0.8 054 Vegetables, fresh 1.0 1.5 0.8 0.7 Notes: 1. All commodities with an IRCA of greater than one for at least one of the reporting year are included in the listing IRCA, Xic Xj where IRCA , = index of revealed comparative advantage of country I in commodityj; Xq = country i's export of commodity j; Xq = word exports of commodity J; EY(= total exports of country i; ZX, = total world exports. Includes Nepal, in addition to the above four countries. Source: Samaratunga 1999. 44 Table A.3.4. South Asia's World Trade in Selected Commodities: Share in World Exports/Imports and Own Exports/Imports: 1995-96 (Per- cent) Sri South Sri South Bangladesh India Pakistan Lanka Asia Bangladesh India Pakistan Lanka Asia Exports Share in world exports Share in own total merchandise exports 041 Wheat - 0.7 - - 0.7 - 0.4 - - 0.3 042 Rice 0.9 17.3 2.7 0.1 20.1 0.1 3.6 2.4 0.3 2.7 043-45 Coarse - 0.1 - - 0.1 - 0.0 0.0 - - grain 061 Sugar - 1.4 1.0 - 2.4 - 0.6 2.0 - 0.7 071 Coffee - 2.6 - - 2.6 - 2.5 - 0.1 1.6 074 Tea 0.7 16.3 - 14.0 31.1 0.4 1.0 - 9.3 1.3 075 Spices - 10.2 0.6 1.9 12.7 - 0.6 0.1 1.2 0.5 b 221 Oil seeds 2.7 23.6 0.3 19.0 45.6 1.2 1.3 0.1 10.7 1.6 231 Rubber - 0.1 - 0.6 0.6 - 0.0 - 3.9 0.3 263 Cotton - 1.5 2.8 - 4.3 - 0.5 3.7 - 0.8 264 Jute 72.0 3.0 0.1 0.2 75.3 1.2 0.0 - - 0.1 421 Fixed - 1.1 - - 1.1 - 0.6 - 0.2 0.4 vegetable oil Imports Share in world imports Share in own total merchandise import 041 Wheat 0.9 - 1.7 0.3 2.9 3.1 - 3.9 1.5 1.1 042 Rice 2.4 - - - 2.4 3.0 - - - 0.3 043-45 Coarse - - - 0.1 0.1 - - - 0.4 - 061 Sugar 0.1 0.3 0.2 0.5 1.1 0.3 0.1 0.4 2.2 0.3 071 Coffee - - - - 0.0 - - - 0.1 - 074 Tea -- 1.5 0.1 1.6 0.4 - 0.1 (Table continued on next page) Agricultural Trade Liberalization in a New Trade Round Table A.3.4 continued Sri South Sri South Bangladesh India Pakistan Lanka Asia Bangladesh India Pakistan Lanka Asia Exports Share in world exports Share in own total merchandise exports 075 Spices 0.8 0.9 0.7 0.3 2.7 0.3 0.1 0.2 0.2 0.1 221 Oilseeds - 0.1 6.4 - 6.5 - 0.0 1.4 - 0.2 231 Rubber - 1.0 0.4 - 1.4 0.1 0.7 1.1 0.2 0.6 263 Cotton 0.6 0.8 0.7 0.1 2.2 1.3 0.2 0.9 0.4 0.5 264 Jute - 0.1 - 0.1 0.2 - - - - - 421 Fixed 1.0 4.0 3.8 0.1 8.9 3.6 2.3 8.9 0.7 3.4 vegetable oil Note: - means zero or less than 0.005 percent. Source: Compiled from U.N. Comtrade database. Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Optionsfor South Asia Table A.3.5. Exports of Processed Food as a Share of Total Agricultural Exports Bangladesh India Pakistan Sri Lanka South Asia 1980 19.7 31.5 8.6 3.4 21.0 1981 25.7 35.1 12.5 5.8 25.2 1982 33.7 42.0 17.1 8.2 32.0 1983 32.3 41.9 12.4 6.9 29.6 1984 31.8 33.3 18.7 4.5 24.9 1985 38.6 31.9 13.9 8.9 24.9 1986 50.3 33.3 14.5 10.1 27.3 1987 51.6 31.5 16.7 6.4 26.1 1988 44.0 37.5 14.6 6.7 27.3 1989 59.9 36.6 12.0 9.9 28.8 1990 54.5 35.7 16.5 7.0 29.3 1991 54.3 42.8 14.3 7.7 32.8 1992 56.7 51.4 17.3 14.7 39.7 1993 63.3 51.0 32.0 16.3 44.7 1994 79.1 51.9 35.8 18.0 47.3 1995 80.7 44.3 42.8 17.7 44.2 1996 84.5 45.3 43.2 25.2 42.9 Note: Commodities belonging to ISIC 3. See Athukorala and Sen (1998) for details on the procedure used to match ISIC and SITC classifications. Source: Compiled from U.N. Comtrade Database. Table A.3.6. South Asia: Food Trade Specialization and Food Aid Gross food imports as percent Net food imports as percent of total merchandise imports of total merchandise imports 1 980-81 1995-96 1980-81 1995-96 Bangladesh 21.8 24.1 11.7 6.7 India 8.7 4.5 -4.0 -13.1 Pakistan 13.5 16.9 1.8 10.2 Sri Lanka 20.0 13.0 17.8 8.8 SouthAsia 11.8 8.2 -1.1 -6.3 Source: Compiled from U.N. Comtrade Database. 47 Agrcultural Trade Liberalization in A New Trade Round Table A.3.7. Food Aid to South Asia, 1992-96 1991 1992 1993 1994 1995 1996 Bangladesh Food aid, US$ million 165.2 132.9 53.3 45.1 49.6 43.6 Percent of total net ODA 7.2 6.8 3.6 2.8 5.8 3.6 Percent of food imports 23.1 21.0 9.5 7.2 5.0 9.1 India Food aid, US$ million 84.3 80.3 125.7 6.9 104.5 120.8 Percent oftotal net ODA 3.1 2.4 14.3 0.4 4.4 4.5 Percent of food imports 9.2 8.7 17.4 0.4 6.7 9.8 Pakistan Food aid, US$ million 18.1 17.4 41.7 3.4 2.0 2.7 Percent of total net ODA 1.8 1.7 3.8 0.4 0.5 0.3 Percent of Food imports 1.3 1.2 3.0 0.2 0.1 0.2 Sri Lanka Food aid, US$ million 33.2 34.2 54.4 2.5 5.4 0.2 Percent of total net ODA 6.1 6.3 9.9 0.5 1.3 0.0 Percent of Food imports 5.9 6.2 10.5 0.4 1.5 0.0 South Asia Food aid, $ million 363.2 264.8 275.1 57.9 161.5 167.3 Percent of total net ODA 4.1 3.9 6.8 1.1 4.0 3.2 Percent of food import 7.7 7.5 8.6 1.3 3.7 4.9 Source: OECD, "Geographical Distribution of Financial Flows to Aid Recipients," Paris. 48 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia Table A.3.8. Matrix of Bilateral Trade Shares, 1995-97 Country Bangladesh India Nepal Pakistan Sri Lanka Exports Bangladesh - 43.6 13.0 31.1 32.2 India 64.1 - 7.0 4.7 24.2 Nepal 13.4 86.6 - - - Pakistan 60.1 15.5 1.1 - 22.1 SriLanka 11.2 37.8 - 51.0 Imports Bangladesh - 87.0 0.6 11.5 1.5 India 43.6 - 14.6 20.8 21.0 Nepal 8.1 88.6 - 3.3 Pakistan 21.1 48.6 2.9 - 28.4 Sri Lanka 3.3 84.2 - 12.5 Note: - means negligible (less than 0.05 percent). Source: Compiled from IMF, Direction of Trade (various issues). Table A.3.9. Intra-Regional Trade: South Asian Countries (Percent of Intra-Regional Trade in Total Trade) 1970 1980 1990 1995 Exports 3.7 4.8 3.1 3.9 Bangladesh n.a 9.1 3.6 2.7 India 3.9 3.5 2.7 5.0 Nepal 61.9 38.1 6.9 7.6 Pakistan 1.5 6.3 4.0 3.1 Sri Lanka 3.2 6.8 3.1 2.4 Imports 3.3 2.3 1.8 3.6 Bangladesh n.a 3.7 7.0 17.7 India 1.4 1.0 0.4 0.5 Nepal 73.6 48.0 11.5 17.5 Pakistan 0.5 2.1 1.6 1.5 Sri Lanka 12.4 6.3 6.6 8.4 Trade 3.5 3.2 2.4 3.7 Bangladesh n.a 4.9 5.9 12.8 India 2.7 1.9 1.4 2.6 Nepal 70.3 45.7 10.0 14.9 Pakistan 0.9 3.5 2.6 2.2 SriLanka 8.1 6.5 5.1 6.1 Note: n.a. means not applicable. Source: Samaratunga 1999, based on IMF, Direction of Trade. 49 Agricultural Trade Liberalization in A New Trade Round Table A.3.10. intra-Regional Trade by Commodity Categories 1970 1980 1990 1995 Exports 3.7 4.8 3.1 3.9 Primary products 4.0 6.0 4.5 5.9 Agricultural product Food 5.5 4.0 4.1 5.9 Cereals 20.0 4.7 2.7 8.5 Agricultural raw material 1.2 5.6 7.5 12.3 Other primary products 36.9 32.0 4.6 12.8 Manufactured goods 3.4 3.7 2.7 3.5 Chemicals 7.8 7.3 3.4 6.9 Basic manufactures 2.7 3.1 3.2 4.4 Textiles 2.8 3.0 4.7 5.9 Machinery and equipment 10.6 14.1 10.2 14.0 Other manufactures 1.7 0.6 0.3 0.3 Clothing 0.8 0.1 0.1 0.1 Unclassified 7.5 4.4 1.5 1.9 Imports 3.3 2.3 1.8 3.6 Primary products 3.3 1.8 2.43 2.8 Agricultural product Food 5.0 5.6 6.9 6.9 Cereals 1.7 7.4 2.9 10.3 Agricultural raw material 2.1 14.5 9.4 4.1 Other primary products 4.6 0.6 1.4 3.1 Manufactured goods 2.5 2.1 2.6 4.6 Chemicals 0.9 0.8 1.8 2.5 Basic manufactures 4.1 2.3 3.4 8.1 Textiles 31.7 10.8 10.5 18.7 Machinery and equipment 1.1 2.1 1.9 2.7 Other manufactures 2.8 1.0 1.5 1.8 Clothing 34.5 4.7 4.5 3.8 Source: Samaratunga 1999, tables 5.6 and 5.7 (compiled from U.N. trade data tapes). 50 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Optionsfor South Asia Table A.3.1 1. South Asia: Trade Complementarity Index Partner country Year Bangladesh India Pakistan Sri Lanka Bangladesh 1975 0.43 4.48 0.10 1980 1.13 3.68 0.24 1990 1.20 3.23 0.36 1995 India 1975 0.04 0.16 0.10 1980 0.04 0.23 0.70 1990 0.19 0.34 1.04 1995 0.18 0.50 0.17 Pakistan 1975 0.12 0.07 1.07 1980 0.98 0.07 6.89 1990 0.16 0.39 8.11 1995 0.23 0.83 4.91 Sri Lanka 1975 0.33 0.64 12.02 1980 0.12 1.24 2.63 1990 1.18 1.64 2.81 1995 0.39 1.98 4.12 Note: Data are presented by column; figures show trade complementarity of country listed in row I with each country listed in column 1: ITC. _ iw * WW- Miw *MW k Xtw MW -Mk M where X= Exports; M = Imports; i =Given (importing/exporting) country;j = Trading partner country; w = World; k = Commodity. Source: Compiled from U.N. Comtrade Database 51 Agricultural Trade Liberalization in A New Trade Round Table A.3.12. Trade Policy Shifts in South Asia: A Chronology Bangladesh 1971-79 Trade restrictions tightened 1980 Import duty reduction begins 1985 Reduction in QRs begins 1986 Tariff simplification begins 1991 Movement toward uniform tariff structure with low tariff rate begins 1994 Achieved IMF Article VIII status India 1947-52 Liberal trade regime 1942-65 Consolidation of control regime 1966-71 Currency devaluation and reduction of some tariffs and subsidies 1972-74 Import controls tightened in response to first oil shock 1975-79 Selective liberalization of investment good imports 1980-82 Import controls tightened in response to second oil shock 1983-85 Liberalization of some investment and intermediate imports; tariff increases 1986-90 Tightening of import controls and introduction of new export incentives in response to worsening balance of payments 1991 Beginning of major trade liberalization with simplification and unification of tariffs, while retaining most consumer-good imports under strict control 1994 Achieved IMF Article VIII status Pakistan 1947-52 Liberal trade regime 1952-59 Import controls tightened in response to balance of payments crisis 1959-65 Partial import liberalization and selective export incentives 1966-71 Import controls tightened 1972-75 Partial import liberalization 1974 Achieved IMF Article VIII status 1977-88 Import controls tightened and new export incentives introduced 1988 Gradual move toward liberal trade regime Sri Lanka 1948-55 Liberal trade regime 1956-67 Consolidation of trade controls 1968-69 Partial import liberalization with export incentives 1970-77 Revering liberalization and tightening controls 1977-89 Fist phase of trade liberalization; elimination of QRs and gradual reduction of tariff, with new ex- port incentive 1989 onward Second phase of liberalization; further tariff cuts, elimination of export duties, combined with other market oriented reforms 1994 Achieved IMF Article VIII status Sources: Athukorala and Rajapatirana (1999); Cuthbertson and Athukorala (1991); Bhagwati (1993); Dean, Desai, and Riedel (1994); Joshi and Little (1996a); Guisinger and Scully (1991); Bandara and MeGillivary (1998); Yilmaz and Varma (1994); and IMF (1998)," Exchange Arrangements and Exchange Restriction." Annual Report 1997 IMF Washington, D.C. 52 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Optionsfor South Asia Table A.3.13. Uruguay Round Tariff Bindings in South Asia (Agricultural Schedule Tariff Lines) Distribution of 673 HSC Lines Bangladesh India Pakistan Sri Lanka Specific tariffs 0.3 0.0 0.0 0.0 300% 3.9 0.0 0.0 0.0 200% 0.0 0.1 0.0 0.0 150% 33.1 1.2 98.1 0.0 100% 46.5 98.0 0.0 0.0 < 100% 16.2 0.7 1.9 100 Total 100 100 100 100 Simple average bound rate 114.8 199.5 197.1 50.0 Average of rates < 100% 39.3 30.0 50.0 50.0 Note: In calculating the percentage of bound lines in Pakistan, Bangladesh, and Sri Lanka, it is assumed that the total number of lines (both bound and non-bound) is the same as the total number in India. Source: Pursell (1999) (based on WTO, The Uruguay Round Country Schedule Part 1: Agricultural Products). 53 Table A.3.14. Import Trade Policy in South Asia: Qrs, Tariffs and Tariff Bindings under Uruguay Round Agreement on Major Import Commodities' India, April 1997 Pakistan, April 1997 Bangladesh, June 1999 Sri Lanka3- June 199 Operative Bound Operative Bound Operative Bound QR Operative Bound QR status tarif tariff QR status tarJif tariff QR status tarif tariff status tariff tarif Paddy QR-ST 0 0 F 25 100 F 0 50 F 35 50 Common rice QR-ST 0 0 F 25 100 F 0 200 F 35 50 Basmati rice QR-ST 0 0 F 25 100 F 0 200 F 35 50 Soft wheat QR-ST 0 100 F 0 150 F 7.5 200 QR-ST 0,20 50 Hard wheat QR-ST 0 100 F 0 150 F 7.5 200 QR-ST 0,20 50 Wheat flour QR 32 150 F 10 100 F 15 200 QR-ST 0,35 50 Oilseeds QR-ST 42 100 F 10,25,40 100 F 7.5,22.5 200,50 F 35 50 Edible oils F, QR-ST 22,32 45,300 QR-ST, F 45,5,25 100 QR,F, 30,35 200 F 10,20 50 Oil cakes/meals QR-ST 42 150 F 25 100 F 15 200 F 10 50 Non-edible oils QR-ST 32 300,100 F 0 100 F 45 200 F 35 50 from seeds Coarse grains QR-ST 0 0,100 F,QR 25 100 F 0 200 F 35 50 Coarse grain QR 42 150 F 10 100 F 15 200 F 35 50 flower Pulses F 7 100 F 0 100 F 45 200 F 35 50 Live animals QR,F 0,22,42 100 QR 25,10,15,45 100 QR,F 7.5,30 200,50 F 10,0,35 50 Meat QR 12 55,150 QR 15,45 100 QR,F 30 200 F 30 50 Hides and skins F 0 25 F 0,10 100 F 7.5 200 F 10 50 Leather F 0 25 F 15,10 100 F 7.5 200 F 10,20 50 (Table continued on next page) Table A.3.14. continued India, April 1997 Pakistan, April 1997 Bangladesh, June 1999 Sri Lanka3- June 199 Operative Bound Operative Bound Operative Bound QR Operative Bound QR status tariff tariff QR status tariff tariff QR status tariff tariff status tariff tariff Milk and cream QR 0,32 100 F 0-45 100 QR,F 45 200 F 30,20,5 50 Other dairy F,QR 32 0,40,100, F 35,0 100 F 45 200 F 30 50 products ~~~~~~~150 Vegetables QR 12 100,35 F 35,0 100 F 0,15,30, 200 F 35 50 45 Fruits QR 42,32 100,30, F 45,0 100 F 30,45 200 F 35,5 50 55 Sugar F 0 150 F 10 150 F,QR 30 200 F Rs3.50kg 50 Cotton F 0 150 F 10 100 F 0 200 F 10 50 Woodandwood F 0-32 25,40 F 10 100 F 0 200 F 10 50 products2 Fish and marine QR 12 NB F 35,45 NB F 0,30 NB, 50 F 0,10 50 products2 Spices: cassia, QR-ST 32 100,150 F 35 100 F 30,45 200 F 35 50 cinnamon, cloves Spices: all other QR 32 150,100, F 0-45 100 F 45 200 F 35 50 35 Tea QR 12 150 F 45 150 F 45 50,200 F 35 50 Raw tobacco QR 42 100 F 45 100 F 15 200 F 75 50 Natural rubber2 QR 22 25 F 10 NB F 22.5 NB F 10 NB Coffee beans, QR 12 100,150 F 45 100 F 45 200 F 35 50,NB processed coffee Cocoa beans, QR-ST, F 42,32 100,150 F 25,35,45 100 F 22.5,45 200 F 30 50,NB processed cocoa (Table continued on next page) Table A.3.14. continued India, April 1997 Pakistan, April 1997 Bangladesh, June 1999 Sri Lanka3- June 199 Operative Bound Operative Bound Operative Bound QR Operative Bound QR status tariff tarif QR status tariff tarif QR status tariff tariff status tariff tariff Jute F 0 40 F 25 NB F 30 50 F 10 NB Sisal, coir F,QR 32 40 F 25 NB F 30 200 F 10 50 Flax, hemp F 22,32 100 F 25 100,N F 30 200 F 10 50 B Greasy wool F 12 25 F 10 30 F 0 200 F 10 50 Raw silk QR 32 100 F 25 100 F 0 200 F 20 50 QR = There is some form of quantitative restriction. QR-ST = The restriction has been judged to fall under the UR definition of state trading usually in the form of a parastatal import monopoly or in a few cases a private import monopoly enforced by the government. F = Trade is free of QR NB = Not bound. R Tariff binding is being negotiated. Notes: The products in this table account for more than 90 percent of rural GDP in each of the five countries. They are listed in approximate order of the values of their products in India. When some products under a general heading are subject to QRs and some are free, the status of the most important is indicated first. Tariffs are indicated following the same principle. Tariffs separated by commas indicate the rates for different tariff lines under s general heading. Tariffs separated by hyphen indicate a number of tariffrates between the indicated minimum and maximum. Tariffs shown are for imports intended for consumption, not for imports of seeds or cuttings (which are normally duty free). Products not covered by UR Agricultural Agreement: In Sri Lanka rice imports are subject to a tariff-quota scheme under which licenses are allocated to traders allowing them to import at tariffs below the reported level. The zero rates for wheat and wheat flour are those applied to imports under a de facto state trading arrangements for these products. Sugar and milk imports are subject to a variable tariff aimed at maintaining "remunerative" domestic prices (Athukorala and Kelegama 1998). Apart from this arrangement none of the four countrics has listed tariff quotas in their UR schedules. Source: Pursell 1999, updated using Dowlah 1999 and IPS 1999. Table A.3.15. Differing Estimates of Annual Welfare (Real Income) Gains from Agricultural Trade Liberalization South Asia India South as % of Author(s) (US$ billions) Asia World world Francois, McDonald, and Nordstrom (1996) (Gains from UR agricultural reforms) Market structure Constant returns to scale (CRTS) - -0.22 4.65 -4.73% Increasing returns to scale (IRTS) - -0.06 0.02 -300% Harrison, Rutherford, and Tarr (1995) (Gains from UR agricultural reforms) Market structure Constant retums to scale (CRTS) - static - 0.1 58.3 0.17% Increasing returns to scale (IRTS) - static - 0.3 48.7 0.62% Increasing returns to scale (IRTS) - steady state - 0.2 49.8 0.40% Yang (1997) (Gains from UR agricultural reforms) - 0.05 31.8 0.16% Government of Australia, Department of Foreign 1.1 - 90.0 1.2% Affaires and Trade (1999) (Gains from a 50 percent cut in agricultural protection) Source: Pursell 1999, updated using Dowlah 1999 and IPS 1999. 57 Agricultural Trade Liberalization in A New Trade Round References stan: Nature and Impact." 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Developing Countries and Assessment of the Uruguay Round with Trade- the Multilateral Trading System: From GATT Related Externalities." In David Robertson, to the Uruguay Round and the Future. Delhi: ed., East Asian Trade after the Uruguay Oxford University Press. Round. Cambridge: Cambridge University Srinivasan, T.N., and G. Canonero. 1995. "Prefer- Press. ential Arrangements in South Asia: Theory, Yilmaz, K., and S. Varma. 1994. 'Trade Policy Empirics and Policy." Yale Growth Center, Reforms in Bangladesh." World Bank Work- Yale University, New Haven. ing Paper 28, South Asia Department. Wash- Valdes, Alberto. 1999. "Overview of the Global ington, D.C. Impact of the Uruguay Round and Lessons 60 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Interests and Policy Options for South Asia Notes could simultaneously be members of GATT and employ restrictive trade practices. Under Srinivasan (1998) provides a comprehensive dis- the WTO, there is still a balance of payments cussion of the Uruguay Round trade negotia- exception to the requirement that quantitative tions from a historical perspective, with restrictions be eliminated, but the conditions emphasis on their implications for developing under which it may be invoked are far more countries. stringent, and countries using it will be subject 2 The other three countries in the region (Bhutan, to more frequent and critical surveillance. (See Maldives, and Nepal) were not required to sign Krueger 1995, chapter 2 for details.) the agreement given their "'least-developed 9 For a succinct discussion of the rationale behind country" status. Bangladesh also falls into this the use of economy-wide and global modeling country grouping, but it opted to become a for measuring welfare gains from trade, and signatory. the methodological differences across various 3 Trade links between Pakistan and India are un- studies that impinge on the comparability of derstated in published trade data because of il- results, see Srinivasan 1998, pp. 41-44. legal cross-border trade and trade through third 10 An interesting parallel is domestic price manipu- countries, particularly Bangladesh and Sri lations carried out by the EU in the past, under Lanka. its system of variable import levies and subsi- 4 In this paper, the two terms, QRs and NTM, have dies levies (Anderson 1999). been used interchangeably to imply all non- 'l This and the next paragraphs draw heavily on tariff restrictions. Joshi and Little (1999), section 3.10. 5 The percentage distribution of the total subsidy 12 The Codex Alimentarius, simply know as 'CO- (2.2 billion rupees) was as follows: fertilizer DEX' in common usage, is a collection of in- 23 percent, irrigation 45 percent, electricity 18 temationally adopted food standards presented percent, and credit 14 percent. Fertilizer subsi- in a uniform manner prepared by the dies were the responsibility of the central gov- WHO/Codex Alimentarius Commission. emnment, while the other subsidies were provi- ded by state governments. 6 The ratio of nominal protection in agriculture to that of manufacture was 0.6 in the 1970s, and declined to 0.4 in the early 1990s (Pursell and Gulati 1995). According to estimates by Pursell and Gulati (1993), under a coordinated liberalization of this nature, agricultural output prices in India might rise by 15 to 20 percent, which would be more than enough to compensate for the loss of subsidies to farmers. 8 Article XVIII (B) of the GATT permitted the use of quantitative restrictions on imports by de- veloping countries whenever a threat of bal- ance of payment difficulties was perceived. By resorting to this article developing countries 61 4. East Asia: Economic Recovery and Agricultural Trade Reform Malcolm Bale Intemational trade and open world markets are tries. Finally, we offer some conclusions and sug- vital for long-term growth in East Asian econo- gest ideas for future policy. mies. Although regional commitment to open-trade policy remains strong, the recent financial crisis in East Asia has raised serious questions about the role of open markets in promoting sustainable eco- The Importance of nomic growth. While the case for trade liberaliza- tion continues to be made by international institu- East Asia tions, East Asian countries are more equivocal on free trade than they were prior to the crisis. An Financial markets have recently given the world, inclusive and successful round is needed to restore and East Asia in particular, a lesson in the conse- their confidence in the efficacy of open markets. quences of globalization. The blinding speed at This paper covers six topics regarding the re- which financial markets lost confidence and pun- cent East Asian experience and their likely interest ished many countries of the region, coupled with and role in the upcoming trade round. First, to pro- subsequent capital flight from East Asian countries, vide some perspective, we review the importance surprised most economists. Within a few months, of East Asia in the global trading complex. Second, East Asia went from a high-growth region to reces- we examine the East Asian crisis, recovery from sion, to financial crisis, and then, in some cases, to the crisis, and what the crisis has meant for agricul- political crisis. The effects are only now being fully ture. In the third section we look at those aspects of played out. While East Asia is clearly on the mend, trade negotiation that are likely to be of particular as balance of payment pressures have eased and all interest and concern to East Asian countries-the macroeconomic indicators have shown signs of aspects most likely to keep them fully engaged as recovery, there is still a long way to go. equal participants in the negotiations. Sections four In this section we provide details on the struc- and five examine the supporting role and contribu- ture and size of the countries of East Asia, particu- tions of the World Bank and the Asia-Pacific Eco- larly with respect to agriculture, and argue that the nomic Cooperation (APEC) group, respectively, in region is key in a trade round in which develop- advancing the trade interests of East Asian coun- ment and agriculture may play a major role. 63 Agricultural Trade Liberalization in A New Trade Round Agriculture is Declining Figure 4.2. Share of Agriculture to GDP, but Important Percent Thailand _ The importance of agriculture has been declining over the last two decades in many countries in the Indonesia region, in terms of both its share of output and trade.' But the sector remains a significant source hji of employment, income, and economic activity. In most low- and middle-income countries in the re- Cook Islands gion, about 64 to 70 percent of the labor force is dependent on agriculture (figure 4.1). The share of Vietnan agricultural gross domestic product (GDP) to total _ GDP ranges from 10 to 55 percent (figure 4.2). For Canbodia many countries-Thailand, Malaysia, and the Re- _ public of Korea-this represents a decline of about Lao PDR R _ one-half from agriculture's share 20 years ago. But 0 10 20 30 40 50 60 these numbers understate the importance of the sector; agriculture represents only part of the rural Source: World Bank data. economy. Rural GDP is about double that of agri- tries. Yet poverty remains widespread, and most of cultural GDP in most countries of the region due to the poor live in rural areas. The incidence of pov- agroprocessing, agricultural input services, and erty in rural areas (that is, the percentage of people other value-added activities such as rice milling, below the poverty line) is estimated to range from product storage, and sawmilling. about 14 percent in China to over 80 percent in Lao Rapid economic growth has led to a marked PDR.2 Thus the irony of the rural sector in this re- decline in poverty in a number of East Asian coun- gion is that it provides a dominant share of em- ployment and income, yet at the same time is the Figure 4.1. Labor Force in Agriculture and largest source of unemployment, under- Rural Poverty Incidence employment, and poverty. Percent 100 90 =3 Labor Force inAgriculture D T P 80 :: * Rural Poverty Incidence Diverse Trade Patterns 70 60 About 26 percent of the region's agricultural output 50 i >e_ _ 40 is exported; Thailand and Malaysia account for 65 30 percent of exports, and Indonesia comes in third. 20 Agricultural exports were almost matched by agri- 10 cultural imports. Korea and Malaysia are the big- 0S> XqF ,) . , 9F 9 gest importers. Products exported include natural Gv' o,+rubber, palm oil, rice, and fruits and vegetables (mainly to the United States, Europe, and Japan); Source: East Asia and Pacific Region, imports are chiefly cereals, dairy products, and Rural Development Unit, World Bank. fibers (mainly from the United States and Europe). 64 East Asia: Economic Recovery and Agricultural Trade Reforn Given the importance of agricultural trade to the growth-although more slowly than hoped in some economies of these countries (figure 4.2), and the cases. Since the first quarter of 1999 East Asia has key role of the rural sector as a source of employ- experienced some recovery in economic activity. ment, East Asia has a significant stake in participat- During the first quarter of 1999 East Asia grew at ing in a round of negotiations that would open trade. 4.8 percent, compared to I percent growth during the fourth quarter of 1998. Korea, with a 1999 first- quarter GDP growth rate of 4.6 percent, and 9.8 percent for the second quarter, leads the recovery Recovering from the Asian (table 4.1). Singapore, Malaysia, the Philippines, and Thailand follow Korea, in that order. During Crisis the first quarter, Hong Kong and China continued to contract by 3.4 percent, while Malaysia's eco- The financial crisis that began in Thailand in July nomic growth shrank by 1.3 percent. Growth in 1997 plunged East Asian countries into a deep re- China is still high, although it slowed from a first- cession. After achieving 4 percent growth in 1997, quarter growth rate of 8.3 percent to 7.1 percent in the region's GDP contracted by about 7 percent in the second quarter of 1999. 1998. More than US$30 billion fled Indonesia, East Asian economies are clearly on the mend, Malaysia, the Philippines, and Thailand during but difficult work remains to be done. While strong 1997 and 1998. Indonesia bore the brunt of the growth is taking place in several countries, and crisis, as exports and investment collapsed, reduc- stabilization has occurred in all, it is too early to ing output by 13 percent in 1998. Thailand imple- say that the crisis is over. Many of the needed re- mented a series of financial reforms, but still suf- forms revealed by the crisis are still being ad- fered a 9 percent contraction. Capital outflows in dressed and implemented, and there is now the Malaysia in 1997 brought GDP growth down from added need to ensure that the momentum of reform 7.7 in 1997 to negative 7.5 percent in 1998 (table continues as the worst pain of the crisis recedes. 4.1). In the Philippines tight monetary policy con- The hardest hit countries, the so-called "East strained investment demand, while poor agricul- Asia Five" (Indonesia, Korea, Malaysia, the Phil- tural performance (caused by bad weather) limited ippines, and Thailand) have rushed to recover from growth from the supply side. the economic downslide that spread through the In terms of trade, the Asian crisis was equally region, leaving local currencies at a fraction of catastrophic. Export growth rates went from high their former value and plunging millions of people positive to high negative numbers, while merchan- back into poverty. Unemployment, a major prob- dise imports fell even further, as buying power was lem in Korea, is down to 6.5 percent from a peak of reduced by adverse exchange-rate movements (ta- 8.7 percent in February 1999. In Indonesia, the bles 4.2 and 4.3). Philippines, and Korea, government spending on education has either increased or remained at pre- crisis levels. The World Bank has played an impor- tant role in the positive developments of the past Recovery in Sight? two years, and will continue to work to assist these countries to build a stronger East Asia. Lending As we enter the third year since the start of the East rose from $4.9 billion in fiscal 1997 to nearly Asian economic collapse, the region's economies US$10 billion in fiscal 1999. are rebounding and showing strong, steady signs of 65 Agricultural Trade Liberalization in A New Trade Round Table 4.1. GDP Growth Rate (Annual Percent) 1996 1997 1998 Newly industrialized economies 6.3 6.0 -1.6 Hong Kong, China 4.5 5.3 -5.1 Korea, Republic of 7.1 5.5 -5.8 Singapore 6.9 7.8 1.5 Taiwan, China 5.7 6.8 4.8 China 9.6 8.8 7.8 Southeast Asia 7.0 3.7 -7.4 Indonesia 7.8 4.9 -13.2 Malaysia 8.6 7.7 -7.5 Philippines 5.8 5.2 -0.5 Thailand 5.5 -1.3 -9.4 Vietnam 9.3 8.2 4.4 Source: World Bank; World Development Indicators, 1999. But the economic recovery is fragile. New in- and financial assistance programs for health care. The vestment is low, and most sectors are faced with Bank has also funded public works programs, social structural gluts (when production capacity exceeds investment funds with substantial work components, demand), especially in real estate, cement, steel, and targeted subsidies to help those who lost their automobiles, and textiles. This excess capacity means jobs as a result of the economic crisis. that new jobs are not created, private consumption is Countries in the region also focused on struc- slow to revive, and sustainable recovery remains elu- tural and institutional reforms to strengthen their sive. The reform agenda is at the beginning of a long economies and guard against future shocks that and difficult process. It is possible that the imperatives may emerge as the global market widens. Korea of domestic reform and recovery will crowd out atten- has led the way in market recovery, followed by tion to multilateral trade reform. Thailand, the Philippines, Malaysia, and Indonesia. The balance of payments position for the East Asia Five has strengthened. Finally, the Asian crisis exposed the fragility of The Social Dimension natural-resource management systems. The forest fires that plagued East Asia during the crisis and the The social crisis emerged as an urgent issue for coun- floods in China showed that environmental and finan- tries that saw families strapped by currencies sud- cial problems have common roots: growth without denly worth only one-fifth, in the case of Indonesia, proper safeguards, unsustainable management prac- of their former value. Food, schooling for children, tices, institutional failures, and lack of transparency. and other basic necessities were suddenly out of reach. East Asia's impressive economic performance prior to Interventions included short-term measures to address the crisis has had its enviromnental costs, and the school dropouts, malnutrition, and disease. Long-term region has faced some of the most severe environ- actions have included upgrading health care systems mental problems in the developing world. 66 Table 4.2. Growth Rate of Merchandise Imports (Annual Percent) Economy 1996 1997 1998 Newly industrialized economies Hong Kong, China 3.0 5.1 -11.6 Republic of Korea 12.3 -2.2 -36.1 Singapore 5.4 0.1 -9.0 Taiwan, China -0.1 9.7 -5.6 China 19.5 3.8 -1.5 Southeast Asia Indonesia 10.4 -6.8 -28.2 Malaysia 1.7 7.0 -26.8 Philippines 20.8 14.0 -18.8 Thailand 0.6 -13.4 -33.8 Vietnam 38.9 0.8 -2.1 Source: World Bank, 1999, World Development Indicators. Table 4.3. Growth Rate of Merchandise Exports (Annual Percent) 1996 1997 1998 Newly industrialized economies Hong Kong, China 4.0 4.0 -7.5 Republic of Korea 4.3 6.7 -4.9 Singapore 6.4 -3.1 -5.6 Taiwan, China 3.8 5.4 -9.4 China 17.9 20.9 0.5 Southeast Asia Indonesia 9.0 7.9 -14.0 Malaysia 7.3 6.0 -7.8 Philippines 17.7 22.8 16.9 Thailand -1.9 3.8 -6.8 Vietnam 41.0 26.5 1.0 Source: World Bank, 1999, World Development Indicators. 67 Agricultural Trade Liberalization in A New Trade Round Despite signs of early recovery, the process has acted as a safety net for millions of recent peri- only really just begun. Countries in the region still urban migrants, who returned to their rural com- face structural problems. Broad-based policy re- munities in search of food and employment. Anec- form, both domestic and international, has not dotal evidence indicates that as many as 700,000 taken place in most East Asia countries. Instead, workers in both Bangkok and Jakarta may have reforms have been partial and selective. While rec- returned to their rural homes. These workers pro- ognizing the significant progress made in financial- vided cheap family labor at a time when returns for sector restructuring, resolving the bad assets of farm products were increasing. Overall, it appears weak financial institutions, and tightening banking that labor markets of many different kinds func- regulations, corporate restructuring has moved tioned with enough flexibility to cushion the worst more slowly than is desirable. Governance of fi- long-term effects of the sharp drop in demand for nancial institutions remains weak throughout the labor. Unemployment levels were relatively low, and region, and the cost of financial-sector restructur- the harmful effects of extended periods of jobless- ing is not entirely known. In general, the judicial ness on employability appear to have been minimal. systems in most countries have been slow to re- A second lesson is that the focus on investing in spond to the needs of corporate restructuring. Re- human capital and putting in place social safety form of these sectors will determine whether the nets was effective, and will serve to underpin the region grows out of the crisis on a sustained, high- ability of the poor to benefit from future growth. growth path, or whether it remains vulnerable to The emphasis on keeping children in school, main- future, sudden shifts in market conditions. Thus the taining health expenditures, and developing feed- Asian crisis may not be a one-time event, but rather ing programs was wise and well executed, given a a glimpse of the future. context of fragmented authority, weak institutions, and a dearth of effective government programs capable of rapid expansion. Finally, we learned that the speed of recovery Lessons from the Crisis of East Asia has, in large part, been a result of the openness and incredible absorptive capacity of the Many lessons can be learned from the Asian Crisis. U.S. economy, which played a pivotal role as a From the perspective of trade, the most obvious destination for East Asian exports. Japan, to a lesson is that in boosting returns to the tradables lesser extent, played a similar role. sector, devaluation cushioned the impact of the crisis on the rural poor. Valued in domestic cur- rency, export prices of tree-crop products-rubber, vegetable oils, and even tea and coffee-rose by Securing the Interest of several orders of magnitude. And the increase in price of imported agricultural products, such as East Asian Countries wheat and flour, or rice in Indonesia, made domes- tic production of those products and their substi- The United Kingdom's Secretary of State, Clare tutes more profitable for small farmers. Short, and the Director General of the World Trade Initially the urban poor did not fare so well; we Organization, Mike Moore, have both expressed have seen that urban unemployment increased the view that the next round of trade negotiations dramatically. But an important lesson can be should be a "development round." Meaning that learned from the role played by the rural sector in the new round of multilateral negotiations must put cushioning urban unemployment. Considerable developing-country issues at center stage: the evidence points to the fact that the rural sector agenda and process must fully reflect their con- 68 East Asia: Economic Recovery and Agricultural Trade Reform cerns, capacities, and interests. It must also focus Unilateral Liberalization on the sectors in which developing countries are competitive, and agriculture clearly falls within this categry-epecialy i EastAsia wher agrcul- East Asian countries also want credit for the unilat- category--especially in East Asia, where agricul- eral liberalization they have undertaken. World ture and agriculture-based products represent a stal partizatin in have diake With large share of exports. Bankc staff participating in policy dialogue with Developing countries comprise more than two- trade counterparts in East Asian countries often run thirds of the WTO membership; East Asian mem- into resistance to trade reforms: the argument is bers represent a disproportionate share of develop- that if a country liberalizes unilaterally now, it will ing-country trade. Many are having trouble fulfill- be asked to do even more at the multilateral trade ing their Uruguay Round commitments, and are round. Advising them that unilateral liberalization is cautious about being drawn into further negotia- in their own interest, regardless of what others do, is tions. Others are preoccupied with domestic policy not always persuasive. A means to provide credit for and restructuring following the Asian crisis. Thus liberal policy changes needs to be found. A protection those designing the process leading to the new balance sheet has been proposed, and would be help- round must proceed with caution and sensitivity if ful. East Asian countries need to receive credit for the they wish to achieve full and equal participation tough commitments and actions on trade reform that from East Asia. What issues are attractive and in- they have undertaken unilaterally. teresting to East Asian countries? With the possible exception of Indonesia, the economies of East Asia are small when compared to the United States and the EU.3 They trade a lar- Restricted Agricultural ger share of their GDP, mostly in primary products Markets (or products processed from primary products), and therefore have an interest in a rules-based system of international trade and in a round that includes Agricultural protection remains considerably agriculture. If the U.S. and the EU have a trade higher than industrial protection in the region. Tar- dispute, they can exercise mutual influence to iffs and market access are important issues to East achieve resolution. But if Thailand has a dispute Asian exporters. With respect to agriculture, East with the U.S., for example, the outcome is much Asian countries are interested in continuing and different. Thus a rules-based system becomes more strengthening the approach taken in the Uruguay important, and is of strong interest to East Asia in Round-further cuts in bound tariffs, tighter con- the outcome of the next round. Furthermore East trols on export subsidies, stronger commitments on Asian countries have an interest in ensuring that domestic policies, and deepening the protocols on the commitments undertaken in the Uruguay sanitary and phytosanitary arrangements, with rules Round with respect to agriculture are implemented. designed in collaboration with East Asia, not im- It is not only developing countries that are behind posed by Western countries. on implementation, but some industrialized coun- Many East Asian countries see the OECD coun- tries as well. tries as duplicitous. They interpret the attitude of some OECD countries as being "play by our rules." Then, while allowing developing countries certain "special and differential treatment" in the applica- tion of the rules, industrial countries bend the intent of the rules to get around changes. It is not lost on East Asian countries that subsidies paid to agricul- 69 Agricultural Trade Liberalization in A New Trade Round ture in OECD countries are currently higher than ity of many OECD countries to be high in the eyes they were at end of Uruguay Round (see table 4.4), of East Asian countries. and with falling commodity prices in 1999 it is reasonable to expect that 1999 expenditures will be substantially higher. How such an outcome can emerge from a round of liberalization severely tests Implementation Issues faith in the system. This outcome was, of course, brought about by Implementation of the agreements made under the the "dirty tariffication" of the Uruguay Round, iden- Uruguay Round, and implementation capacity for tified by Ingco (1996). Both the EU and the U.S. future commitments, are important issues for East bound their tariffs well above the tariff equivalents Asian countries. Policymakers in many East Asian for 1989-93. For the EU the final bindings for 2000 countries have little knowledge of commitments made are two-thirds higher than the actual tariff equivalent under the Uruguay Round and no appreciation of the for 1989-93, and for the United States they are 2000 deadline. And where there is knowledge, there is three-fourths higher. This behavior has been inter- frequently a lack of govemance capacity to imple- preted by some East Asian members as representa- ment. Several related aspects must be explored. tive of industrial countries using their superior First, East Asia has an enormous domestic re- knowledge and power to bend the system in their form agenda. Given the limited capacity to design favor. To rub salt into the wound, binding tariffs at and implement reforms, pressing domestic reforms such a high rate has allowed these countries to set essentially crowd out trade reforms, other than actual tariffs below the ceiling, but to vary them to those undertaken unilaterally as part of macroeco- stabilize domestic markets-in a way very similar nomic or sectoral reforms. to the variable tariffs that the Uruguay Round Second, time and political will are required to sought to replace (Hoekman and Anderson 1999). implement govemance measures to minimize cor- If OECD countries seriously want to bring de- ruption. Corruption remains endemic in the region, veloping countries in as full partners, they will and the most corrupt agency, according to survey need to forgo this type of behavior. The benefits after survey, is Customs. Awareness of this issue that East Asian traders were to receive in agricul- has been heightened in the region, and many coun- ture from industrial countries, in return for their tries are putting in place anti-corruption strategies commitment to trade rules, is still more a promise supported by World Bank. If a tariff schedule is not than a reality. So we should not expect the credibil- published, if there is no codified valuation system, and if customs posts lack telephones, then official Table 4.4. OECD Total Transfers/Support tariffs-even new commitments negotiated in a Provided to Agriculture trade round-have no meaning. Corrupt customs officers can impose any "tariff" they wish, with Year US$ (billions) little fear of sanctions. So strengthening governance 1986-88 279 and ethics in the civil service, by diagnosing the 1990-92 327 causes of corruption, is an important and necessary source of assistance that can be provided by industrial 1994 328 countries. Even more helpful would be to alter the aid- 1996 297 ing and abetting behavior of some industrial-country 1998 335 firms that are only too happy to fall in line with local customs of demanding "facilitation payments." Source: OECD 1999. Third, even when countries are willing, it is very costly to install the needed infrastructure. East 70 East Asia: Economic Recovery and Agricultural Trade Reform Asian countries are very interested in being able to nets that once served to stabilize prices for domes- meet sanitary and phytosanitary (SPS) standards so tic consumers and farmers. Thus the latter are faced they can secure increased access for their high-value with greater price swings and food insecurity than rural products, but they do not always have the before. New instruments are needed, and East development budget to finance needed improve- Asian countries are asking what market instru- ments. To gain acceptance for its meat, vegetable, ments are available as a substitute for past and fruit exports in industrial country markets, Ar- interventions. They are looking for advice and gentina spent more than US$80 million for higher assistance in establishing futures markets, sanitation standards; Hungary spent US$40 million warehouse receipts systems, and other market to upgrade its slaughterhouses. China invested mechanisms to stabilize prices. The World Bank US$10 million in animal and plant quarantine up- and some bilaterals are assisting in this area, but grading (Finger and Schuler 1999). Finger has es- official recognition of the issue during the WTO timated that the total cost to developing countries negotiations would provide considerable comfort to of implementing Sanitary and Phytosanitary (SPS) countries struggling with commodity price swings. and Intellectual Property Rights (IPR) obligations of the WTO is equivalent to more than half of their total, annual development budget. So implementa- tion is expensive and represents a long-term in- Role of the World Bank vestment decision. Toward the close of the negotiations, industrial and the WTO countries recognized the high cost to developing countries of implementing the Uruguay Round The Ministerial meeting in Marrakech, approving agreements, and that implementation of commit- the Uruguay Round of talks, discussed the role of ments under the UR would be limited by their gov- multilateral institutions and requested "greater co- emance capacity. To rectify this there was some herence" between the WTO, the International discussion of technical and financial assistance Monetary Fund, and the World Bank.4 While there from OECD countries. But, with few exceptions, are clear linkages between global trade and the bilateral assistance has been limited. In essence, ability of developing countries to "grow out" of developing countries gave bound commitments for poverty, the role and approach of the three institu- tariff reductions in return for unbound promises for tions are fundamentally different and not immedi- assistance from industrial countries. ately conducive to a one-to-one coherence. Even the World Bank and IMF-relatively similar and located in close proximity to one an- other-sometimes have difficulty agreeing on is- Commodity Price sues, as shown by recent experience during the East Asian crisis-although they usually agree on Stabilization trade issues. Let us look at how these entities oper- ate, and compare behaviors and outcomes. Another concern of East Asian countries relates to Both the World Bank and the WTO have made the greater commodity price instability that many significant contributions to integrating developing of the region's countries face as a result of under- countries into the global trading system. But they taking unilateral domestic policy reforms. The are fundamentally different institutions with differ- opening of domestic markets-by removing state ent mandates, different modes of operation, and buying, guaranteed prices, import monopolies, and different perspectives. Table 4.5 compares the export taxes-eliminates the commodity safety- characteristics of the two organizations. The major 71 Agricultural Trade Liberalization in A New Trade Round Table 4.5. Comparison of the World Bank and the WTO Dimension World Bank WTO GoalUmission Reduce poverty Reduce trade barriers Main instrument Lending/country assistance strat- International trade policy egy Workspace Individual countries Trading system Key relationship The Bank with each country One member with another member, and in multilateral negotiations Mode Supporting and influencing coun- Determining collectively what all try decisions members will do Country attitude encouraged by Take charge of your own devel- Follow the rules; use them to ad- the institution opment responsibilities vance your own interests Source: World Bank, 1999, World Development Indicators. difference between the Bank and the WTO is that Since 1995 some 54 World Bank adjustment loans the relationship of the latter to its members is de- (65 percent of all adjustment operations) have sup- termined multilaterally, while the relationship be- ported exchange-rate and trade-policy reform. tween the World Bank and its client countries is World Bank investment lending for trade-related determined bilaterally and often within the country, activities accounted for 26 percent of the Bank's rather than from headquarters in Washington, D.C. lending between 1994 and 1999, and involved The WTO's policy position with regard to a some US$26 billion of disbursements. given country is expressed through a WTO agree- From the beginning of World Bank policy- ment. The World Bank has no similar statement of based lending (1981) until the end of the Uruguay standards. Rather each Bank loan contains per- Round (1994), the Bank made 238 loans, totaling formance conditions specific to that project. The over US$35 billion, that included trade- or ex- Bank's Country Assistance Strategy (CAS) for change-rate policy. These reforms affected imports each country expresses the joint understanding of of over US$500 billion in 1993 dollars. At the the Bank and the country on the country's devel- Uruguay Round developing countries agreed to opment priorities and the role the World Bank will tariff reductions that affected US$393 billion of play to support them. CASs are produced and dis- their merchandise exports (1993 values). Thus it cussed every two or three years, and emphasize, can be argued that working unilaterally, with World directly and indirectly, poverty reduction-the Bank support, developing countries made greater Bank's central goal. trade changes than they did under the WTO multi- One of the indirect poverty-reduction strategies lateral negotiation framework. recommended universally by the World Bank in its discussions with individual countries is the adop- tion of an enabling environment for international trade. This recommendation is embodied in struc- The Role of APEC tural and sectoral adjustment lending, as well as in lending for institutional strengthening of customs The Asia Pacific Economic Cooperation (APEC) services, export development loans, and financing group is also playing a role in establishing an envi- of infrastructure to facilitate international trade. ronment for freer trade in the region, especially for 72 East Asia: Economic Recovery and Agricultural Trade Reform agricultural trade. APEC is a loose association of exists within the WTO, it means that countries can 21 Pacific Rim countries, established in 1989 in be included that are not part of the WTO (such as response to the growing interdependence of the China and Vietnam), and discussions can occur and Asia-Pacific economies. Its goals are to strengthen agreements can be made that are not possible under the capacity of regional economies and firms to the WTO framework. For example, China and the manage the challenges of globalization in a way United States agree on APEC's trade-policy principles, advantageous to consumers, businesses, and em- but cannot agree on conditions for WTO accession. ployers. After an initial meeting in 1993, APEC Third, businesses are formal partners in the pro- members agreed in their 1994 Bogor Declaration to cess through regionwide private-sector networks and the goal of free trade and investment in the Asia- the APEC Business Advisory Council (ABAC). Pacific region by 2010 for industrialized members Politicians no longer must return to their capitals to and by 2020 for developing members. Between "sell" reforms to the business community. Rather, them, the countries involved represent one-half of businesses advise politicians and embolden them to the world's population, output, and trade. Thus take decisive action. Viewed in light of these mo- decisions reached and actions implemented by this dalities, it is easier to understand both the success of forum make a difference globally. It is therefore APEC and the questionable (or equivocal) sense of instructive to examine the modality and experience ownership of East Asian countries to commitments of this forum with respect to trade issues. made during the last WTO round. Different Modalities Different Outcomes Three features stand out in regard to modalities. APEC's experience in moving toward globaliza- First, heads of state play an important role in the tion, especially liberalization in agriculture and organization and attend annual APEC Leaders foods, is notable. From the outset there have been Meetings, lending prestige and authority to agree- disagreements with respect to agriculture and natu- ments made. ral-resource-based industries. Japan and the Korea Second, APEC is different from the WTO in wanted agriculture to be excluded from the liber- that members commit themselves to broad liberali- alization program, but eventually agreed to "com- zation and reform goals, and then work out the best prehensiveness" as a principle of APEC liberaliza- means to achieve these goals for each member. tion, in return for the principle of "flexibility." The Those agreeing to voluntary unilateral liberaliza- latter allows countries to delay agricultural reform tion submit annual "Individual Action Plans" beyond that of other sectors (but within agreed (IAPs) detailing measures they intend to undertake overall timeframes). to meet their Bogor commitments. The IAPs are ABAC recently proposed the establishment of subject to review, discussion, and peer pressure an "APEC Food System" (AFS). The proposal from other members.5 Thus it appears that APEC is calls for a comprehensive approach to food and built on the realization that market opening and agriculture policy, including facilitation measures, reform principally benefit those carrying out re- such as harmonization of standards and improving form.6 Contrast this to the principle of reciprocity rural infrastructure. Using a Comparative and Gen- that guides the WTO. Furthermore APEC operates eral Equilibrium (CGE) model and the Global through the domestic policy actions of members, Trade Analysis Project-4 (GTAP-4) data, Scollay not through binding rules like the WTO. While this and Gilbert (1999) show that most APEC countries may be seen as a sign of weaker discipline than would achieve substantially higher welfare by 73 Agricultural Trade Liberalization in A New Trade Round implementing the proposal, and that the results are tions. First, they frequently do not have the techni- invariant to the effects of the Asian crisis. cal expertise to analyze proposals and suggest al- APEC represents far more than a process to re- ternatives. Second, they are absorbed with domes- duce tariffs. It deals with a wide range of barriers tic reforms in the wake of the Asian crisis. And to trade. For example, APEC plans to institute pa- third, they cannot afford the high cost of participat- perless trading throughout the region by 2005 for ing in a trade round spread out over many years. industrialized countries and 2010 for developing Maintaining an eight-to-ten person trade mission in countries. Standardized accounting, auditing, and Geneva is a fixed cost, but represents a much larger legal frameworks are under discussion. APEC also proportional burden for small, developing countries spawns other interesting ideas, such as the proposal than for most OECD countries. The inability to of a "Pacific 5," a free trade area composed of Aus- bear this cost, or to get good technical assistance to tralia, Chile, New Zealand, Singapore, and the underpin policy positions, has often limited the United States. effectiveness of East Asian participants. So what is the bottom line for East Asian coun- tries as they enter this round on agriculture? East Asian countries are emerging from a period when Conclusion their economies were rocked by financial crisis. The crisis spilled over onto the agricultural sector; East Asian countries are no longer simply observ- some countries faced the issue of food insecurity ers or free riders in the trade negotiations, but they for the first time in many years. Moreover many of do not feel that they are full and equal partners. the countries feel that the benefits to agriculture of They still get differential treatment and are given the last round are more illusory than real and that, take-it-or-leave-it offers from industrialized coun- with the maturing of APEC, they now have a viable tries, which also usually drive the agenda. The alternative. As a result, East Asian countries are membership of several East Asian countries in the likely to approach the upcoming negotiations with Cairns Group (another trade grouping) has helped a great deal of caution-if not skepticism. If indus- them, as has APEC. These forums have given trial countries are to overcome this and draw East many East Asian countries the confidence to act Asian countries fully into the process of liberaliza- together as they enter into WTO negotiations. But tion, they must be prepared to take the time to un- more importantly, these forums have given East derstand the legitimate concerns of these countries Asian countries a viable alternative to the WTO, in and respond to them in a genuine and sympathetic which to seek trade reform on their terms. manner. Like most developing countries, those of East Asia are at a disadvantage in the WTO negotia- 74 East Asia: Economic Recovery and Agricultural Trade Reform References Notes Centre for International Economics. 1998. "Asia's ' The share of agriculture and agricultural trade Meltdown and Agriculture." CIE: Canberra, has actually increased during the last two years, as Australia. a result of contraction of the industrial sector fol- Finger, J.M., and P. Schuler. 1999. "Implementa- lowing the Asian financial crisis. We regard this as tion of the Uruguay Round Commitments: The a variation from the trend. Development Challenge." Draft. 2 Poverty is defined as income of less than one Hoekman, and Anderson. 1999. "Developing U.S. dollar (in purchasing-power equivalent terms) Country Agriculture and the New Trade per person per day. Agenda." World Bank Policy Research Work- 3 China is another exception, but is not yet a ing Paper 2125. Washington, D.C. member of the WTO. Ingco, M.D. 1996. "Tariffication in the Uruguay 4 This section draws heavily on the work of Round: How Much Liberalization?" The World Bank economist Michael Finger, presented World Economy 19(4): 425-46. at a seminar at the Cordell Hull Institute, Washing- Organisation for Economic Co-operation and De- ton, D.C., September 16, 1999. velopment (OECD). "Agricultural Policies in 5A more recent approach is fast-tracking liber- OECD Countries: Monitoring and Evalua- alization in certain sectors through an Early Volun- tion." Various issues. tary Sector Liberalization scheme. Scollay, Robert, and John Gilbert. 1999. "An 6 Thus Japan, for example, can (and did) slow APEC Food System: Trade and Welfare Im- its efforts to liberalize a number of major sectors plications by 2005." Paper prepared for the without retaliation from other members. In the New Zealand Treasury, .New Zealand Treas- APEC context this is viewed as having a greater ury, NZ. cost to Japan than to the rest of APEC. 75 5. Interests and Options in the WTO 2000 Negotiations: Latin America and the Caribbean Julio Paz Cafferata and Alberto Valdes While the authors envision that the forthcoming time of inception of the UR, so the region came out round of negotiations will be of great importance to of the negotiations with relatively few mandated Latin America and the Caribbean (LAC), they also policy changes. Unilateral reforms have proceeded anticipate considerable diversity among countries further than required by the UR; in many instances in terms of both priorities and positions. Five key reforms had been initiated prior to the agreement. factors determining this cross-country heterogene- As is the case for any trade reform, winners and ity characterize the differences among LAC coun- losers emerged within the domestic agricultural tries: (1) net trade position, (2) participation in re- sector. Several LAC countries have experienced a gional trade groups, (3) composition of agricultural rapid growth of agricultural exports; especially exports, (4) level of economic development, and noteworthy is the growth in nontraditional exports (5) agricultural export potential. such as horticultural products. Today, in more than half of LAC countries horticultural exports repre- sent more than 20 percent of all agricultural export revenues; the percentage is much higher for Chile, Introduction Costa Rica, Peru, and others. In contrast, sectors producing traditional importables (such as cereals For the Latin American and Caribbean region, the and dairy products) now face lower levels of pro- forthcoming round of trade negotiations will be tection, and lower border prices have further much more politically complex than the Uruguay eroded their margins. Finally, almost immediately Round (UR) Agreement negotiations. This is so following trade reforms, several countries experi- principally because domestic policymakers and enced significant appreciation of their currency, lobbying groups will vigorously scrutinize the ne- which reinforced domestic farm-lobby criticism of gotiating agenda. Far less domestic pressure was "apertura" ("opening," or reduced trade barriers) exerted during the UR negotiations than can be for farm-product imports. Thus the problems and anticipated during the forthcoming sessions. tensions that occurred during the process of adjust- A bold program of agricultural trade liberaliza- ing to trade liberalization were associated more tion had already occurred in LAC countries at the with unilateral and structural adjustment reforms 77 Agricultural Trade Liberalization in A New Trade Round than with the General Agreement on Tariffs and On the export product-mix side we see that: Trade (GATT) negotiations. Adding to this political complexity is the highly * The exporters of tropical products are concen- heterogeneous nature of interests-and thus nego- trated in Central America and the Caribbean, tiating positions--within domestic agricultural whereas temperate-zone export products are communities, among individual countries, and be- dominated by MERCSUR members. The case tween trade groups with LAC country- of sugar, which is exported primarily by tropi- membership. cal regions but faces intense competition from Furthermore, LAC countries will arrive in Seat- subsidized producers in Europe and North tle with several years of ongoing intra-regional America, is unique; and trade negotiations (MERCOSUR, the Andean * The importance that fruit and vegetable ex- Group, the Central American Common Market, or ports are acquiring within the product-export CACM) under their belt, and almost immediately composition of several otherwise heterogene- following the submission of negotiating proposals ous countries across the region is striking- under the auspices of the Free Trade Area of the from Chile in the south, to Costa Rica and Pa- Americas (FTAA). nama in the center, to St. Lucia and Dominica in the Caribbean, and Mexico in the north. Despite the fact that traditional fruit and vege- Patterns of Agricultural table exports continue to be important (bananas for Trade inFthe.LCReg nEcuador, Costa Rica, and Panama), non-traditional Trade in the LAC Region sector exports have grown substantially (for exam- ple, asparagus in Peru and tomatoes in Mexico). Appendix table A.5.1 characterizes LAC countries To summarize, on the net-exporters side, a sub- according to: (a) the ratio of agricultural imports to set of countries exporting temperate-zone products agricultural exports (a proxy for import-versus- is associated with the position of the Cairns Group, export orientation); (b) identification of the princi- including MERCOSLJR. Two other subsets of pal agricultural exportables; and (c) the initial dates countries typically export tropical products, either of unilateral trade reforms and the current intensity with (such as the Caribbean), or without, preferen- of this process. The export to import ratios permit tial arrangements. us to highlight a few salient features: Other key issues in which we anticipate strong interest on the part of LAC countries-due to the * The dominant net export position of MERCO- increasing importance of fruit and vegetable ex- SUR and CACM (1996-97) member-countries ports in several countries-are the Sanitary and contrasts sharply with the high import-depen- Phytosanitary (SPS) agreement and the Technical dence of all (but one) Caribbean countries; Barriers to Trade (TBT) arrangements. In addition, * The Andean region is characterized by three Caribbean countries face a potentially difficult strong, export-oriented countries; however, situation because, under trade liberalization, they two (Peru and Venezuela) are net agricultural would be squeezed between potentially higher im- importers; and port prices on the one hand, and lower prices on * Of 28 countries in the region, 13 are net im- their trading partners' domestic markets for their porters (10 of which are Caribbean countries), exports on the other. Finally, the Caribbean region and comparing 1992-93 and 1996-97 ratios, has undergone very little, if any, domestic reform. we observe that 11 countries are characterized The rest of Latin America has been through a sus- by increased export/import ratios. tained and comparatively intensive process of trade 78 Interests and Options in the WTO 2000 Negotiations: Latin America and the Caribbean liberalization in the overall economy, including . When comparing average overall tariff rates to agriculture. the rates applied to agricultural products, we Table A.5.2 presents patterns of agricultural and observe that agricultural tariffs are higher. nonagricultural trade between the principal trade Note that the overall average includes agricul- groups in the LAC region. The table indicates that, tural products, implying that, in relation to ag- in absolute terms, the share of extra-regional ex- riculture, tariffs on industrial goods have fallen ports dominates in LAC as a whole and in each of substantially. the regions. Thus gains in extra-regional market access remain a critical objective for all LAC trad- The gap between applied and bound tariffs ing groups. However we can also see that, except does not necessarily reflect the "water" in the for the CACM, the rate of growth in the share of bound tariff (that is, the average tariff reductions intra-regional trade has been accelerating even that could be made without affecting "real" more rapidly (albeit from a lower base) than that of protection), because the applied tariffs listed omit extra-regional trade. surcharges associated with price-band schemes in place for some products in several LAC coun- tries. Thus the average "equivalent" tariff on agricultural products is higher than the applied Status of Agricultural tariff listed. Table A.5.4 presents applied MFN tariffs by Reforms in the LAC Region countries across four product categories. Some important deductions from the table include the To provide a complete overview of agricultural following. The large gaps between the minimum trade reforms in the LAC region would be a formi- and maximum applied tariff in each agricultural dable task, and is beyond the scope of this paper. subsector hint at the existence of substantial varia- Other studies have already presented thorough re- tion around average tariffs. For example, the tariffs views of the reform process in LAC, detailing the Ecuador applies on livestock products range from substantial reforms in the removal of non-tariff 0.5 to 50.5 percent, and in Mexico the variation is barriers (NTBs), and describing the significant between 0 and 198 percent on crops. reduction in the importance of state-trading in agri- However, at this level of aggregation we were culture (for example, Valdes 1998). However, by unable to detect significant patterns within the sub- focusing on a few distinct indicators we hope to sectors or across countries. Nonetheless, because of convey at least a rough outline of the current state the widespread use of these tariff peaks on several of affairs. First we address the current status of agricultural products, reducing the variation would tariffs, followed by a brief overview of NTBs in the represent a substantial step toward furthering the LAC region. trade-liberalization process. Table A.5.3 presents the average applied and Table A.5.5 provides an overview of MFN tar- bound tariff rates for total and agricultural imports. iffs (applied and bound) for 10 sensitive agricul- We observe that: tural products in six Central American countries. It reveals that: * In each case the applied average tariff is set below the average bound; * Within each country, even ignoring poultry * In the case of agricultural importables, the (which represents a special case) we can ob- bound tariff rate is, on average, three times serve an ample dispersion among different ag- larger than the applied tariff rate; and ricultural products; 79 Agricultural Trade Liberalization in A New Trade Round * Except to some extent in Nicaragua and Hon- ate anti-dumping investigations. On the positive duras, the common external tariff is not being side, the evaluation process was conducted in a effectively implemented; and remarkably rigorous and disciplined fashion- * When comparing actual with bound tariffs we resulting in a 58 percent rejection rate. can observe that for a few products the actual Appendix table B.5.1 further disaggregates the rates are greater than the bound tariff in a number number of adopted anti-dumping measures across of countries, but overall the reverse is true. major countries. We see that 22 percent (44 of 199) of the anti-dumping measures adopted by LAC Table A.5.6 summarizes the status of non-tariff countries during 1987-97 were against other LAC measures affecting agricultural and non-agricultural countries. Also striking is the fact that relatively products in 13 LAC countries. The table indicates that: few measures were adopted by LAC countries against the EU, the United States, and Japan; Mex- * The incidence of import bans, quotas, and im- ico was the brave and notable exception. port licenses was quite low from 1995-98; * Four countries (Bolivia, Chile, Paraguay, and Uruguay) have virtually eliminated NTBs; * What remains in terms of NTBs (other than Market Access for SPS-related measures) are tariff quotas, vari- Agricultural Exports able levies (surcharges), and non-automatic li- censes; and from the Region * Remaining NTBs are applied predominately in Brazil, Colombia, Mexico, and Venezuela. LAC exporters to industrial countries face three major problems. These are: (1) tariff peaks, the Table A.5.7 presents the number of anti- result of tariffication in highly protected products, dumping cases initiated and adopted by LAC coun- exacerbated by so-called "dirty tariffication;" (2) tries during 1987-97. It can be observed that: contingency measures (such as anti-dumping, safe- guards, and countervailing duties), which are * Of 469 investigations initiated, 60 were in sometimes applied in a way that results in a de agriculture; of the total number of investiga- facto additional trade barrier (to tariffs); and (3) tions initiated only 199 were adopted, of which SPS regulations, quality norms, and standards. a mere 3 were in agriculture; Table A.5.8 presents a profile of bound tariffs in * Three countries (Argentina, Brazil, and Mex- the United States, the EU, and Japan for major ag- ico) initiated 87 percent (408 of 469) of all ricultural exports from Latin America and the Car- anti-dumping investigations; in agriculture ibbean. Tariff levels for cereals, sugar, and dairy these three countries initiated 88 percent (176 and meat products continue at high levels. This is of 199) of all cases; and particularly harmful for countries such as Uruguay * However, while overall 42 percent of the investi- and Argentina (for which cereals and meat repre- gations led to the adoption of anti-dumping sent 75 percent and 35 percent of agricultural ex- measures, only 5 percent of the requests in agri- ports, respectively). The impact is broader for culture were adopted at the country level. sugar: for nine of the 28 LAC countries considered in the table, sugar represents more than 10 percent In light of the extremely low proportion of re- of agricultural exports; the figure is higher than 35 quests adopted, we are hard pressed not to con- percent in four Caribbean countries. Fruits and clude that national conmmissions may have been vegetables also represent a relevant case of tariff applying too little scrutiny when agreeing to initi- escalation (higher tariffs on processed and semi- 80 Interests and Options in the WTO 2000 Negotiations: Latin America and the Caribbean processed products), one of growing importance to ing negotiations, given the considerable diversity in LAC exporters. the composition of agricultural exports, net trade The situation for LAC countries that currently position (net importers versus net exporters), level receive preferential market access is, of course, of development, and agricultural export potential different. MFN tariff cuts by the industrial coun- within the LAC region. tries, including a reduction of tariff peaks, will reduce From net agricultural exporters, we can expect the value of preferential market access; for example, a strong push for further liberalization of border for Caribbean bananas exported to the EU and Mexi- measures, reduction of domestic supports, and re- can sugar exported to the United States. duction of export subsidies in industrial countries. As a proxy for the intensity of contingency They are likely to insist on: measures implemented against LAC-region ex- ports, we focus here only on anti-dumping initia- * Substantial reduction of tariff peaks, through tives. As summarized in appendix table A.5. 1, dur- tariff-cut formulas that imply a larger reduc- ing 1987-97 a total of 121 anti-dumping measures tion on high-tariff items; were adopted against LAC countries in both agri- * Continuation of tariff reductions during the cultural and non-agricultural products. Of these, 36 negotiations period (beyond 2000) at a pace percent were implemented by other LAC countries, similar to that agreed on for the period 32 percent by the United States, 11 percent by the 1995-2000; EU, none by Japan, and 21 percent by the rest of * Significant reductions of export subsidies, the world. Table A.5.9 shows that of 191 investiga- elimination of the possibility of utilizing un- tions initiated, 121 were in agriculture; of the total used export limits from year-to-year (Article investigations initiated only 13 were adopted, but 9.2b of the URAA), and restrictions on the use 11 (85 percent) of these were in agriculture (in of subsidized export credit; sharp contrast to the 60 adopted by LAC countries, * Continuing expansion of tariff quotas, perhaps of which only three were in agriculture. at 10 to 15 percent annually; Interestingly, the same three LAC countries- * Elimination of the Special Safeguard (article 5 Argentina, Brazil, and Mexico-that initiated most of the URAA) at the end of the transition investigations against exporters were the main period; LAC countries affected by investigations initiated * Further reduction of domestic-support meas- against their exports. Specifically, the three coun- ures in the amber box, elimination of the blue tries were subjected to the exact same 87 percent box, revision of the green box, and a reduction (408 of 469) of all anti-dumping investigations. of"de minimis" levels; and This suggests a tit-for-tat situation: if you investi- * Specification of tariff and support-reduction gate me, I'll investigate you. commitments at a six-digit level of the tariff The bottom line for agriculture appears to be nomenclature (Harmnonized System), to reduce lower than is commonly assumed, since only 9 undue concentration of protection on sensitive percent of the total number of measures taken were products. in agriculture. From net agricultural-importing countries we an- ticipate emphasis on: Conclusion . Maintaining the Special Safeguard, and press- ing for its extension to LAC countries that had We anticipate a highly diverse set of priorities unilaterally applied tariffication prior to the among the various LAC countries in the forthcom- UR Agreement; and 81 Agricultural Trade Liberalization in A New Trade Round Allowances for continuing use of the "price- of the negotiations. They might also call for techni- band" scheme that applies on some import- cal and financial assistance both to implement SPS ables in all Andean countries, Chile, and some and for an adjustment program to promote eco- others countries. This is essentially a variable nomic diversification of their economies. levy system based on a moving average of In summary, the following factors should be border prices, and is not linked to a domestic underlined: target price. If applied in a nondiscriminatory fashion and unlinked from "minimum import * The great importance of this forthcoming prices," and if basic tariffs plus the surcharge round of negotiations for the LAC region; do not exceed the bound tariff, these countries a The higher political visibility of these negotia- are liable to argue that such an instrument tions within LAC countries' domestic scene, could remain WTO-legal. particularly on policies that affect import- competitive activities; Exporting countries under special and preferen- * The considerable differences of priority among tial treatment for selected agricultural products net exporters and net importers in the LAC re- include relatively small island economies and the gion; and only "least-developed country" in the region, Haiti. * The special situation of the poorest countries Considering the potential erosion of these prefer- in the region, particularly regarding market ac- ences, these nations could press for compensation cess (those receiving preferential market ac- in the form of temporary, duty-free access for their cess) and technical and financial assistance to exports starting immediately after the completion implement the URAA. 82 Appendix A Table A.5.1. Agricultural Trade in Selected Latin American Countries Export/import Agricultural trade ratio Principal exports reform Country 1992-93 199697 (of total agricultural exports) Start date Intensity Mexico 0.55 0.78 Fruits and vegetables (46), coffee (13), sugar (8) 1992 Substantial Chile 2.32 2.01 Fruits and vegetables (60), grains (5) 1984 Substantial Panama 1.47 1.03 Fruits and vegetables (70), sugar (8), coffee (6) 1992 Low MERCOSUR Brazil 3.28 2.39 Fruits and vegetables (13), sugar (12), coffee (12), meat (11) 1989 Moderate Argentina 7.11 7.27 Grains (23), fruits and vegetables (11), meat (9), oilseeds (9) 1989 Substantial Uruguay 3.14 2.86 Grains (32), meat (32), milk products (13) 1990 Moderate Paraguay 2.83 1.15 Oilseeds (41), textile fibers (24), meat (6) 1989 Substantial 00 ANDEAN Bolivia 0.97 2.31 Oilseeds (24), fruits and vegetables (12), textile fibers (9), sugar (8) 1987 Substantial Colombia 2.68 2.06 Coffee (50), fruits and vegetables (16), sugar (8) 1990 Moderate Ecuador 4.65 3.94 Fruits and vegetables (64), coffee (8), Cocoa (6) 1998 Moderate Peru 0.37 0.52 Coffee (35), fruits and vegetables (33), textile fibers (7), sugar (6) 1990 Substantial Venezuela 0.24 0.33 Tobacco (19), grains (14), fruits and vegetables (11), coffee (9) 1989 Moderate CENTRAL AMERICA Guatemala 2.78 2.76 Coffee (37), fruits and vegetables (20), sugar (18) 1993 Moderate Honduras 3.64 1.46 Coffee (49), fruits and vegetables (40) 1990 Substantial Nicaragua 0.90 1.67 Coffee (39), meat (13), sugar (11), fruits and vegetables (10) 1990 Substantial El Salvador 1.15 1.16 Coffee (67), sugar (11) 1989 Substantial (Table continued on next page) Table A.5.1 continued Export/import Agricultural trade ratio Principal exports reform Country 1992-93 1996-97 (of total agricultural exports) Start date Intensity Costa Rica 5.30 4.81 Fruits and vegetables (53), coffee (22) 1986 Moderate CARIBBEAN Bahamas 0.16 0.26 Fruits and vegetables (22) Low Barbados 0.53 0.64 Sugar (35), grains (6) 1992 Moderate Cuba 1.74 1.43 Sugar (86), tobacco (7), fruits and vegetables (5) Low Dominica 1.36 0.63 Fruits and vegetables (92) Low 00 Grenada 0.40 0.32 Fruits and vegetables (33) Low Haiti 0.08 0.09 Coffee (63), fruits and vegetables (22) Low Jamaica 0.92 0.82 Sugar (35), fruits and vegetables (27), coffee (1%) 1987 Substantial St. Lucia 1.07 0.66 Fruits and vegetables (90) Low Dominican Republic 0.81 0.72 Sugar (39), coffee (15), fruits and vegetables (12), tobacco (11) 1990 Moderate Suriname 0.70 0.69 Fruits and vegetables (22) 1994 Moderate Trinidad & Tobago 0.52 0.70 Sugar (18), grains (16), fiuits and vegetables (6) 1989 Substantial Sources: FAO statistics and authors. Agricultural Trade Liberalization in A New Trade Round Table A.5.2. Exports of Agricultural and Non-Agrcultural Products: Total LAC and Intra-Regional (Billions of US$) Annual growth Trade group 1992 1993 1994 1995 1996 1997a rate%d MERCOSUR Intra-subregional 7.2 10.0 12.0 14.4 17.0 20.0 22.7 World 50.5 54.2 62.1 70.3 75.0 82.3 10.3 Mercosur/world (%) 14.3 18.5 19.3 20.5 22.7 24.3 Andean Community Intra-subregional 2.2 2.9 3.5 4.8 4.7 5.4 19.7 World 28.3 29.8 34.8 40.2 44.7 48.2 11.2 AndeanGroup/world(%) 7.8 9.7 10.1 11.9 10.5 11.2 Central American Common Market * Intra-zonal 1.0 1.1 1.2 1.5 1.6 1.6 -2.4 World 4.6 5.1 5.5 6.9 7.3 8.2 13.8 CACM/world(%) 21.7 21.6 21.8 21.1 21.2 19.6 CARICOMb Intra-zonal 0.2 0.3 0.5 0.7 0.8 n.a 9.9 World 3.7 3.7 3.7 4.5 4.6 n.a 12.3 CARICOMIworld (%) 6.1 7.9 14.0 15.4 16.7 n.a LACc Intra-regional 24.5 29.3 35.2 42.8 46.5 n.a 41.4 World 146.1 156.4 177.3 216.1 242.0 n.a 5.6 LAC/world (%) 16.8 18.7 19.8 19.8 19.2 n.a. (a) Preliminary data. (b) Includes Barbados, Guyana, Jamaica, and Trinidad & Tobago. (c) Includes the Central American Common Market (CACM), Barbados, Guyana, Jamaica, Trinidad & Tobago, Bahamas, Belize, Haiti, Panama, Dominican Republic,and Surinam. (d) Mercosur, Andean Group, LAIA and CACM (Average annual rate 1992-97). CARICOM-Latin America and the Caribbean (*Average annual rate 1992-96) *Refers to Central American Common Market. Source: Economic Comrnission for Latin America, based on official data. 86 WTO 2000 Negotiations: Latin America and the Caribbean Table A.5.3. Applied and Bound Tariffs in Latin American Countries (Percent Ad Valorem CIF) Total products Agriculturalproducts Index (2) Country Applied Bound Applied Bound B/A Argentina 14.0 35.0 4.5 30.4 6.8 Bolivia 10.0 40.0 10.0 40.0 4.0 Brazil 12.0 32.0 11.0 36.0 3.3 Chile 11.0 25.0 11.0 32.0 2.9 Colombia 13.0 52.0 14.0 85.0 6.1 Costa Rica 12.0 44.0 17.0 44.0 2.6 Dorninican Republic 20.0 40.0 21.0 40.0 1.9 El Salvador 10.0 37.8 14.0 47.0 3.4 Jamaica 19.6 38.0 29.7 95.6 3.2 Mexico 14.0 49.0 22.0 47.0 2.1 Paraguay 11.0 35.0 10.0 35.0 3.5 Peru 19.0 32.0 18.0 38.0 2.1 Uruguay 12.0 31.0 13.0 35.0 2.7 Venezuela RB 14.0 39.0 15.0 50.0 3.3 Average 13.7 37.8 15.0 46.8 3.1 (1) Corresponds to simple averages of applied and bound tariffs for total and agricultural products (applied in both cases). (2) Ratio of bound-to-applied agricultural tariffs. Sources: C. Michaloupolos "Trade Policy and Market Access Issues for Developing Countries, Working Paper 1999;" for Jamaica, M. Finger and others, 1996 The Uruguay Round: Statistics on Tarif Concessions Given and Received, Washing- ton, D.C.: World Bank. 87 Table A.5.4. Tariffs in LAC Countries in 1998, by Section of the 1996 Harmonized System* (Percent Ad Valorem CIF) Livestock products Crops Oilseeds Processedfoods/tobacec Countries Min. Max. Average Min. Max. Average Min. Max. Average Min. Maxc Average Mexico 0.0 260.0 32.7 0.0 198.0 14.5 0.0 260.0 211 0.0 141.0 19.3 Chile 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 MERCOSUR Brazil 0.0 27.0 11.9 0.0 21.0 10.2 7.0 15.0 12.2 5.0 36.0 18.1 Argentina 0.0 19.5 12.3 0.0 17.5 10.6 7.5 15.5 12.9 5.5 23.5 18.3 Uruguay 0.0 24.0 11.8 0.0 17.0 10.4 6.0 16.0 12.1 3.0 23.0 17.9 Paraguay 0.0 22.0 9.9 0.0 20.0 8.1 4.0 20.0 10.4 2.0 30.0 14.6 ANDEAN Bolivia 5.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Colombia 5.0 20.0 16.9 5.0 20.0 12.8 5.0 20.0 17.0 5.0 20.0 18.2 Ecuador 0.5 50.5 17.2 0.5 20.5 12.8 5.5 20.5 17.2 5.5 20.5 18.6 Peru 12.0 25.0 16.0 12.0 25.0 17.2 12.0 12.0 12.0 12.0 25.0 17.3 Venezuela 5.0 20.0 16.7 5.0 20.0 12.9 5.0 20.0 16.9 5.0 20.0 18.1 CARIBBEAN Antigua and Barbuda 0.0 40.0 19.2 0.0 40.0 16.2 0.0 40.0 23.2 0.0 45.0 16.2 Barbados 0.0 45.0 21.1 0.0 40.0 18.9 0.0 40.0 24.7 0.0 40.0 15.2 Belize 0.0 45.0 27.4 0.0 45.0 18.8 0.0 40.0 22.5 0.0 45.0 19.5 Dominica 0.0 40.0 19.9 0.0 40.0 19.1 0.0 40.0 24.7 0.0 40.0 15.3 Grenada 0.0 40.0 23.7 0.0 40.0 19.4 0.0 40.0 24.7 0.0 40.0 19.4 Guyana 0.0 45.0 26.1 0.0 40.0 19.0 0.0 40.0 24.7 0.0 100.0 24.2 Jamaica 0.0 40.0 24.2 0.0 40.0 18.9 0.0 40.0 24.7 0.0 0.0 40.0 St. Lucia 0.0 40.0 19.9 0.0 40.0 19.6 0.0 40.0 24.7 0.0 45.0 19.6 Suriname 0.0 40.0 22.5 0.0 40.0 18.7 0.0 40.0 24.7 0.0 50.0 18.9 Trinidad and Tobago 0.0 40.0 23.7 0.0 40.0 18.6 0.0 40.0 24.7 0.0 40.0 15.7 *Corresponds to Sections I through IV of the 1996 Harmonized System. Source: IDB IIDB 1999, with data from the Statistics and Quantitative Analysis Unit of the LAIA Secretariat and CARICOM. Table A.5.5. Applied and Bound Tariffs of Central Amencan Countries for Selected Agricultural Products (Percent Ad Valorem CIF) Costa Rica El Salvador Guatemala Honduras Nicaragua Panama Product CET Applied Bound Applied Bound Applied Bound Applied Bound Applied Bound Applied Bound Crushed rice 20.0 35.0 35.0 35.0 40.0 55.0 90.0 21.5 45.0 20.0 60.0 90.0 90.0 Rice grains 20.0 20.0 35.0 20.0 40.0 55.0 90.0 21.5 45.0 20.0 60.0 90.0 90.0 Beans 20.0 1.0 45.0 20.0 30.0 20.0 110.0 21.5 35.0 20.0 60.0 80* 78* White corn 20.0 5.0 35.0 1.0 40.0 20.0 75.0 21.5 50.0 20.0 60.0 70.0 40.0 Yellow corn 20.0 1.0 15.0 1.0 78.0 55.0 75.0 21.5 45.0 20.0 60.0 70.0 40.0 Sorghum 20.0 20.0 45.0 20.0 40.0 20.0 90.0 21.5 45.0 20.0 60.0 50.0 30.0 Beef 20.0 20.0 45.0 20.0 79.0 20.0 63.0 21.5 20.0 480.0 60.0 20.0 30.0 Liquid milk 15.0 109.0 94.0 15.0 45.0 15.0 103.0 15.0 35.0 15.0 75.0 40 Whole poul- 20.0 54.0 45.0 20.0 164.0 45.0 257.0 35.0 35.0 250.0 40.0 50.0 30.0 try meat Chicken 20.0 270.0 233.0 20.0 40.0 45.0 257.0 80.0 35.0 250.0 200.0 320.0 260.0 parts * For green and other beans it is 40 percent and 30 percent. Note: The WTO bound tariffs are those agreed upon at the end of the reduction period. Source: Arnaldo Chibarro, 1997 "Las politicas comerciales agroalimentarias y el cumplimiento de las disciplinas agricolas de la WTO en Centroamdrica," paper presented at a workshop on "Subsidio y Ayudas al sector Agroalimentarios en el flemisferio Americano," IICA, San Jose, Costa Rica. Table A.5.6. Non-Tariff Measures in Selected LAC Countries (Percent of Total Number of Tariff Categories in the Harmonized System In- cluded in the Measure) Non-automatic Variable tariffs and licenses Prohibitions Quotas Tariff quotas Import registration minimum prices Country 1989-94 1995-98 1989-94 1995-98 1989-94 1995-98 1989-94 1995-98 1989-94 1995-98 1989-94 1995-98 Argentina 3 1 0 0 2 1 0 0 0 0 0 1 Bolivia 0 n.a. 0 n.a. 0 n.a. 0 n.a. 0 n.a. 0 n.a. Brazil 10 11 7 11 0 1 0 0 100 0 0 1 Chile 0 0 1 1 0 0 0 0 0 0 5 4 Colombia 55 6 7 1 3 0 0 0 0 0 0 6 Costa Rica n.a 6 n.a 0 n.a. 0 n.a. 6 n.a. 0 n.a. 0 Dominican Republic n.a. 5 n.a I n.a. 0 n.a. 0 n.a. 1 n.a. 0 El Salvador n.a. 5 n.a I n.a. 1 n.a. 0 n.a. 0 n.a. 0 Mexico 28 6 0 1 2 0 0 7 0 0 2 0 Paraguay n.a. 0 n.a 0 n.a. 0 n.a. 0 n.a. 0 n.a. 0 Peru 0 n.a 0 n.a. 0 n.a. 0 n.a. 0 n.a. 6 n.a. Uruguay 0 0 0 0 1 0 1 0 0 4 31 0 Venezuela RB n.a. 2 n.a 3 n.a. 0 n.a. 0 n.a. 0 n.a. 13 n.a. =not available Source: C. Michaloupolos, 1999 "Trade Policy and Market Access Issues for Developing Countries," Washington, D.C.:World Bank and WTO, June. WTO 2000 Negotiations: Latin America and the Caribbean Table A.5.7. Antidumping Cases in LAC Countries 1987-97 Investigations Measures taken Countries Total Agricultural Total Agricultural Argentina 123 2 48 0 Brazil 97 13 32 1 Chile 9 2 5 1 Colombia 20 2 8 0 Costa Rica 5 3 0 0 Guatemala 1 0 0 0 Mexico 188 35 96 0 Peru 14 3 6 1 Venezuela 12 0 4 0 TOTAL 469 60 199 3 Source: R. Miranda, R.Torres, and M. Ruiz, "The International Use of Antidumping: 1987-1997," Journal of World Trade 32(5). Table A.5.8. Select Developed Countries: Tariffs for Main LAC Agricultural Exports (Percent Ad Valorem CIF) European Union United States Japan Export Item 1995 2000 1995 2000 1995 2000 Wheat 170 82 6 4 240 152 Sugar 297 152 197 91 126 58 Dairy products 289 178 144 93 489 326 Meat 96 76 31 26 93 50 Vegetables Fresh and frozen 15 6.9 3.4 Processed 15 5.5 18 Fruit Fresh and frozen 16.2 4.5 7.4 Fruit juices 42.7 11 21.9 Processed 17.9 9 15.3 Sources: OECD 1997; Hathaway and Ingco 1995; World Bank 1996. 91 Agricultural Trade Liberalization in A New Trade Round Table A.5.9. Antidumping Cases against LAC Countries 1987-97 Investigations Measures taken Countries Total Agricultural Total Agricultural Argentina 20 1 7 1 Bolivia 1 1 0 0 Brazil 105 1 65 2 Chile 8 3 3 1 Colombia 8 1 3 2 Cuba 2 0 0 0 Ecuador I 1 2 2 Guatemala 1 1 0 0 Mexico 35 3 21 3 Nicaragua 1 1 0 0 Paraguay 2 0 1 0 Peru 1 0 0 0 Trinidad and Tobago 4 0 1 0 Uruguay 2 0 1 0 Venezuela RB 0 0 17 0 TOTAL 191 13 121 11 Source: R. Miranda, R Tores, and M. Ruiz, "The Intemational Use of Antidumping: 1987- 1997," Journal of World Trade 32(5). 92 Table B.5.1. Measures Taken: Implementing Country Versus Affected Country 1987-97 Implementing country Industrial countries Affected country Argentina Brazil Chile Colombia Mexico Peru Venezuela Subtotal US. EU Japan Other Total Argentina 0 1 1 0 0 0 0 2 4 0 0 1 7 Brazil 14 0 0 0 12 1 0 27 14 7 0 17 65 Chile 1 0 0 0 0 1 0 2 1 0 0 0 3 Colombia 1 0 0 0 0 0 0 1 2 0 0 0 3 Ecuador 0 0 0 0 0 0 0 0 2 0 0 0 2 Mexico I 1 0 0 0 1 0 3 8 5 0 5 21 Paraguay 1 0 0 0 0 0 0 1 0 0 0 0 1 Trinidad & 0 0 0 1 0 0 0 1 0 0 0 0 1 Tobago Uruguay 0 1 0 0 0 0 0 1 0 0 0 0 1 Venezuela RB I 0 1 0 4 0 0 6 8 1 0 2 17 Subtotal 19 3 2 1 16 3 0 44 39 13 0 25 121 United States 2 6 0 4 25 0 0 37 0 6 0 50 93 EU 0 0 0 0 0 0 0 0 0 0 0 1 1 Japan 2 0 0 0 2 0 0 4 39 21 0 19 83 Other 25 23 3 3 53 3 4 114 191 145 2 284 736 Total 48 32 5 8 96 6 4 199 269 185 2 379 1034 Source: R. Miranda, R.Torres, and M. Ruiz. 1998. "The International Use of Antidumping: 1987-1997," Journal of World Trade 32(5). 6. CEEC Interests and Options in the WTO 2000 Negotiations NatalEja Kazlauskiene and William H. Meyers The Uruguay Round (UR) made a clear distinction of the state, privatization and restructuring of the between two groups of countries, centered around national economy, and the creation and nurturing economic development levels, commitments to be of new institutions. It also requires building the undertaken, and ability to implement UR decisions human capital base needed in both the private and and disciplines. Recognizing the specific condi- reoriented public sectors. tions affecting developing countries, provisions The upcoming "Millennium Round" of WTO were crafted to enable less developed countries to multilateral trade negotiations will see a number of comply with the main commitments more gradu- new WTO members as negotiating partners, and ally and on a slower timetable, but with the same for the first time will involve a sizeable group of discipline as industrialized countries. Thus coun- countries with "economies in transition" that will tries that choose to be treated as "developing" op- bring their own dynamic to the negotiating table. erate under more lenient modalities when undertak- An important subgroup of these transition econo- ing UR commitments. While the UR negotiations mies are the Central and East European Countries were underway, a new group of countries entered (CEECs). Often considered as a group with similar the international scene-a group that continues to development levels and problems, CEECs at the grow both in numbers and in share of world trade. same time differ in many respects, including their They are known as the "transition economies," and starting positions for the next WTO negotiations. have features in common with both industrialized These differences include the speed and degree of and developing country groups, as defined by the economic and policy reforms under implementa- UR. tion, existing national policies, the character of However, this group of countries also has spe- government economic and monetary management, cific features and limitations with regard to imple- and the place of agriculture in the national econ- menting UR commitments. Their situation should omy, as well as significant differences in the types be taken into account when designing the format of and levels of current WTO commitments. Differing the upcoming negotiations and establishing the past and present experiences and decisions, as well starting point for different groups of countries. as common goals and objectives, are likely to be Transition from a centrally controlled economy to a reflected in national negotiating positions. To ana- market-oriented economy is a lengthy process re- lyze the potential interests and positions of CEECs quiring, among other things, redefinition of the role in the next round, we first look at the features of 95 Agricultural Trade Liberalization in A New Trade Round possible informal country groupings within short run. Given that such a path is within view, CEECs, and then evaluate how their similarities they tend to share the common goal of the other 10 and differences may lead to differing interests and countries. priorities during the negotiations. Differences among the countries are also important to any assessment of their interests in the next round of WTO negotiations. For example, there are differences in levels of development and a Similarities and Differ- wide disparity in the degree of importance of agri- culture and food to their economies and trade. ences among CEECs Nominal per capita gross national product (GNP) in 1997 ranged from less than US$800 in Albania A discussion on similarities among CEECs could to nearly US$10,000 in Slovenia (figure 6.1). Us- go back to the prewar period and beyond, when ing the purchasing-power-parity measure of in- these countries were part of mainstream Europe. come per capita narrows this gap somewhat, but However the more recent common experience is does not alter the ranking by per capita income that of making up for 50 years of "lost time," by noticeably, except for Poland. The importance of transforming state-owned and -controlled econo- trade to the economies also varies significantly; mies into market economies with sufficient private trade as a percent of gross domestic product (GDP) ownership, market infrastructure, and maturity to ranged from 50 percent in Albania to over 100 per- be competitive in broader European and global cent in more than half the countries (figure 6.2). markets. Although the countries in the group have Although it has been changing over time in chosen different means and are at different stages most countries, the 1997 share of employment in of this process, all have clearly embarked on this agriculture ranged from 4.2 percent in the Czech path and even the most advanced have a long way Republic to 64 percent in Albania (similar to many to go. In regard to agricultural policy, countries are at various stages of developing and implementing national policies, but none has formulated a consis- Figure 6.1. 1997 GNP and PPP GNP Per tent, transparent, long-term policy on agriculture. Capita, $US As a result of decades of institutional atrophy Dollars under central planning, all CEECs suffer from weak market and policy institutions; this would 12,500 take time to remedy even under the most favorable conditions. Both the public and private sectors suf- 10,000 - fer from human- and physical-capital deficits. One feature common to most of these countries, which 7,500 promises to speed up progress in these areas, is their path toward membership in the European Un- 5,000 ion (EU). This provides not only a common goal, but also a framework for legal and institutional 2,500 development that can only hasten the transition to competitive market structures and competent regu- latory frameworks. Among the 12 countries that are l & 02 S> > Q9 Aq?Q 85 the focus of this paper, only Croatia and Albania do 'RP #q d0'#t Zfl,Ps qP not yet have Association Agreements with the EU, 9 although they would be obvious candidates in the GN P P PGNPU Source: World Bank 1999. 96 CEEC Interests and Options in the WTO 2000 Negotiations Figure 6.2. 1997 Trade as a Share of GDP creased during the transition, although in the long run it can be expected to decline. In other coun- Percent tries, especially those that had lower agricultural 175 - employment shares in 1992, significant numbers of 150 workers have already shifted from agriculture to other sectors of the economy. The contribution of 125 agriculture to GDP also varies greatly, although in 100 all but Albania it was below 20 percent in 1997, and in most it was less than 10 percent (figure 6.4). Here 50 - _ | | | * | * * * | | too, significant change has occurred in many coun- tries over the last several years, usually in the direc- 25 - tion of a declining share of agriculture in GDP. The share of agriculture and food products in st<0b -0, ,099 , 9 ZP ' Atotal exports varies considerably across countries, C 9Zd p although most trade patterns are still in transition. For the Czech Republic, Romania, the Slovak Re- Source: World Bank 1999. public, and Slovenia, export shares of agriculture and food products have been near or below 5 per- developing countries), as described in figure 6.3. In cent in most recent years, while in the remaining some countries agriculture has served as a buffer eight countries the share was in the 10 to 15 per- for underemployed workers during the restructur- cent range, and occasionally was even higher (fig- ing, so the share of workers in agriculture has in- ure 6.5). In regard to imports, only Albania imports more than 20 percent of its food and agricultural products, while the Baltics and Croatia range from Figure 6.3. Agricultural Employment Figure 6.4. Agricultural Share in GDP Percent of total Percent of total 80 70 70 60 60 50 60 i 40 40 30 30 20 20 ~~~~~~~~A10 10 10 .0 20 E-992 l*199711 1110 M l II l o iAjo ff "P;:Wa *13 1992 * 19971992 * 1997 Source: OECD 1999. Source: OECD 1999. 97 Agricultural Trade Liberalization in A New Trade Round Figure 6.5. Share of Agriculture and Food in Total Exports Percent 25 20 15 10 5 0 E=1995 E 1996 01997 011998 Source: OECD, 1999. 10 to 15 percent, and the rest import less than 10 and food products in 1995, by 1998 only Hungary percent (figure 6.6). While four of the eight coun- and Bulgaria were net exporters, and Bulgaria's tries analyzed were still net exporters of agriculture positive balance was declining rapidly (table 6.1). Figure 6.6. Share of Agriculture and Food in Total Imports Percent 60.0 50.0 40.0 -- 30.0- 20.0- 10.0 0'.0 mNJ C) & 01995 01996 01997 01998 Source: OECD, 1999. 98 CEEC Interests and Options in the WTO 2000 Negotiations The situation was exacerbated in 1998 by the exports from the Czech Republic, Hungary, Poland, Table 6.1. Net Exports of Agricultural and Food Products, By Country and Region ($US Mil- lion) 1995 1996 1997 1998 Albania -192 -292 -158 -194 Bulgaria 719 518 213 127 Croatia -423 -399 -478 -328 Czech Republic -471 -802 -645 -585 Estonia -60 -173 -245 -293 Hungary 1923 1806 1769 1573 Latvia 27 -66 -135 -228 Lithuania 8 -24 -7 -129 Poland -476 -1232 -470 -743 Romania -364 -81 -99 -482 Slovak Republic -208 -396 -393 -433 Slovenia -523 -479 -452 -414 CEFTA total** 600 -666 -77 -957 BFTA total* -25 -263 -387 -650 CEECs total -40 -1620 -1100 -2129 * Includes all current members in all years (Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovak Republic, and Slovenia) ** Includes Estonia, Latvia, and Lithuania Source: OECD, 1999. global market glut and the Russian financial crisis, and Romania (table 6.2). Romania's unusual situa- for which the CEECs were less equipped than more tion was a result of the loss of markets in the CIS mature market economies to find alternative mar- and other markets. kets or compete with the subsidized exports of CEEC countries are even more interdependent some OECD countries. in trade with the EU and each other in regard to Although the Commonwealth of Independent imports. In 1997 and 1998, one-half or more of States (CIS) countries are still a very important imports came from either the EU or other CEECs; export market for the Baltics, Bulgaria, and Poland, for most countries the share was two-thirds or their importance has been declining over time. Be- more. These high interregional trade figures are cause of the Russian financial and economic crisis related in part to proximity, but also to trade pref- of 1998, the share of exports to the CIS declined erences between the EU and the Associated Coun- significantly, especially for these five countries. In tries, and within the regional trade areas, CEFTA 1998 trade with the EU and other CEECs ac- (Central European Free Trade Agreement) and counted for more than 80 percent of Albanian and BFTA (Baltic Free Trade Agreement). Moreover, Slovakian exports and more than 50 percent for fledgling CEEC food and trade enterprises still 99 Agricultural Trade Liberalization in A New Trade Round have limited international marketing expertise, and tions, are differences in their current WTO com- thus cannot yet fully exploit opportunities in other mitments. The 12 countries fall into two main Table 6.2. Agricultural and Food Exports (By Destination) and Imports (By Source), 1998 (Percent) EU Other OECD CEECs NIS Other EU, CEECs Exports Albania 86 4 2 0 8 88 Bulgaria 27 12 10 34 17 37 Croatia 14 5 22 2 57 36 Czech Republic 31 4 38 17 10 69 Estonia 16 4 19 61 0 35 Hungary 44 8 13 18 17 57 Latvia 20 1 22 47 10 42 Lithuania 23 11 17 47 2 40 Poland 43 6 14 32 5 57 Romania 61 14 7 5 13 68 SlovakRep. 20 0 61 11 8 81 Slovenia 40 6 3 3 48 43 Imports Albania 75 5 11 4 5 86 Bulgaria 37 14 10 2 37 47 Croatia 43 6 22 0 29 65 Czech Republic 50 8 20 0 22 70 Estonia 49 23 10 5 13 59 Hungary 42 7 8 1 42 50 Latvia 51 8 29 4 8 80 Lithuania 53 12 25 8 3 78 Poland 48 11 9 3 29 57 Romania 41 16 23 4 16 64 Slovak Rep. 39 3 43 0 15 82 Slovenia 50 7 13 2 28 63 Source: OECD, 1999. markets. groups: those that belonged to the GATT during the Possibly the most important differences among UR negotiations (pre-UR members), and those that CEECs, in terms of impact on negotiating posi- joined the WTO after the UR negotiations (post- 100 CEEC Interests and Options in the WTO 2000 Negotiations UR members). The first group includes the Czech generally having the highest bindings in the post- Republic, Hungary, Poland, Romania, and the UR accession group, generally has lower bindings Slovak Republic, which made a commitment as than in Romania and Poland and little if any differ- part of the UR. The second group includes two ence between actually applied and bound rates. For countries that joined after the completion of the UR many products, the high bound rates in Poland and (Bulgaria and Slovenia), four that have already Romania mean that they have large differences completed accession negotiations (Estonia, Latvia, between bound and applied rates, while most of Lithuania, and Croatia), and one that still hopes to the other countries in the region have applied rates complete negotiations in time to participate in the that are equal to and declining annually with the next negotiating round (Albania). The remaining bound rates. Balkan countries are not included in our analysis, Given the differences between the two groups, but would fall into a later accession group, along and even within each group, the levels of bound with most of the CIS region. tariffs for CEECs differ considerably for major, Pre-UR members of the GATT generally suc- tradable, sensitive commodities. The range can be ceeded in binding their commitments on import seen below; except for cheese, the lowest bindings tariffs, market access, and export subsidies at rela- are usually in post-UR member-countries: tively high levels. Post-UR newcomers, however, faced protracted bilateral and multilateral negotia- * Wheat: 21 percent (Czech Republic and the tions to set these commitments according to a Slovak Republic); 240 percent (Romania); much tighter schedule, and generally had far less * Oilseeds: 0 percent (Estonia, Hungary, and flexibility. As a result there tends to be considera- Slovenia); 160 percent (Romania); bly more "water" in the pre-UR member bindings, * Sugar: 40 percent (Estonia); 180 percent and thus more room for "painless" cuts. For exam- (Romania); ple, the highest tariff bindings among two groups * Butter: 35 percent (Estonia); 200 percent of CEECs are in Romania and Bulgaria (table 6.3). (Romania); Romania chose "developing country" status and . Skimmed milk powder: 30 percent (Estonia, "tariffied" its import restrictions in a way that pro- Latvia, and Lithuania); 248 percent (Romania); duced astounding tariff bindings. Bulgaria, though * Cheese: 9 percent (Czech Republic and the Table 6.3. Applied and Bound Tariff Levels for Major Commodities in Bulgaria and Romania (Percent) Romania 1997 Bulgaria 1997 Product Applied rate Bound rate* Applied rate Bound rate** Wheat 25 240 50 50 Oilseeds 5 160 50 50 Sugar 50 180 128 100 Butter 60 200 120 60 Cheese 60 270 135 96 Beef 50 288 162 99 Pork 60 333 120 120 Poultry 60 96 96 96 * 2004, **2000 Source: European Commission, 1998. 101 Agricultural Trade Liberalization in A New Trade Round Slovak Republic); 270 percent (Romania); Bulgaria was the only country that, for political * Beef: 33 percent (Estonia): 288 percent reasons (a United Nations embargo on trade with (Romania); the former Yugoslavia), succeeded in joining the * Pork: 33 percent (Estonia); 333 percent (Roma- WTO with non-zero export-subsidy commitments nia); and for its main exports, including cereals, oilseeds, * Poultry: 21 percent (Slovenia); 99 percent (Po- cheese, beef, pork, and poultry. land). It is too early to draw conclusions regarding differences in WTO commitments of Albania and To get a sense of the patterns of differences be- Croatia, since Albania is still negotiating, and the tween bound and applied rates and how the bound results for Croatia are not yet available. One fact is rates compare to the bindings of the EU, we com- clear: except for Estonia, which had free-trade pare a group of the most sensitive commodities in policies before accession, experience of other post- the 12 countries. The bound rates for pre-UR coun- UR accessions shows that these countries are not tries are for the year 2000, except for Romania, likely to have WTO commitments that provide which opted for developing country status and has levels of support or protection significantly higher till 2004 to implement commitments. Among the than those that currently exist. post-UR members, the final year for the implemen- Many of the differences in current commit- tation of commitments in Bulgaria and ments relate to differences between GATT- and Slovenia are for the year 2000, while for Estonia, WTO-accession negotiating positions. Countries Latvia, and Lithuania the pattern of reductions and that were members of the GATT prior to the Uru- the final year (often later than 2000) vary depend- guay Round were, in many cases, conducting more ing on the product. Unlike for the pre-UR distorting, more protectionist, less transparent poli- members, the amount and timing of tariff reduc- cies and were able in the course of negotiations to tions were often negotiated product by product. replace them with more transparent, although still Also, for the most recent accessions, the 2000 relatively high, market-protection measures. The bound rates are the beginning rather than the end of base period for reduction commitments of this tariff adjustments, so there is the peculiar situation group was prior to 1990, when production was still that reduction commitments continue well into high, support for agriculture was quite strong, and the period to be covered by the next round of the use of non-tariff measures (NTMs) was exten- negotiations. sive. Countries that joined the WTO after the Uru- Both applied and bound rates vary greatly guay Round or are still negotiating their member- across countries. However, the applied rates vary in ship already had as a starting position more liberal, a smaller range than do the bound rates, because less distorting, and more transparent policies. These the countries with the highest bound rates also tend policies resulted from post-1990 policy reforms, as to also have the largest difference between bound well as the conclusion and implementation of a and applied rates. Only Poland and Romania have number of multilateral and bilateral trade agree- bound rates that are consistently as high or higher ments and economic memoranda with international than those in the EU. For most of these sensitive financial institutions (such as the International products, the EU tends to have higher bound rates Monetary Fund and the World Bank). The base pe- than most of these countries. Only for oilseeds, riod for commitments of this group was the mid- to pigmeat, and poultry are EU bound rates as low or late-1990s, when production was already consid- lower than those in CEECs. erably lower than in the pre-1990 period, and struc- Pre-UR WTO members were also able to nego- tural, institutional, and policy reforms were already tiate non-zero commitments on export subsidies for well underway. Since tariff bindings are generally major commodities. Among the post-UR group, lower for the post-UR accession group, there are 102 CEEC Interests and Options in the WTO 2000 Negotiations also relatively few products in these countries for access, non-tariff measures, export competition, safe- which TRQs are included in the commitments. guard provisions, and state trading. A final indicator of differences among CEEC countries is the producer subsidy equivalent meas- Domestic Support ure (PSE), as calculated by the Organization of Economic Cooperation and Development (OECD). The main issues of concern relative to domestic Given the PSE methodology, these figures reflect support are likely to be the status of green box and not only intervention measures, but also the stage blue box categories of support. As prospective of market-price adjustments during transition. Dur- members of the EU, Central and East European ing the last four years, PSEs in all countries have countries are trying to enhance support for rural fluctuated, but are uniformly rather low compared development and environmental measures that of- to EU and OECD averages. PSEs for the countries ten form part of restructuring efforts and the devel- reported ranged from 13 to 26 percent in 1998 opment of alternative employment for workers (from 15 to 25 percent in 1999), and policy studies leaving agriculture. These measures are also con- in Albania and Bulgaria indicate that they are at or sidered to be forward-looking and more efficient below the lower end of this range. Note also that from the perspective of better use of limited budget over time, these differences in PSEs among the resources. The preservation of the blue box, or a CEECs are diminishing. somewhat redefined but similar category, for par- tially decoupled support is important as an incen- tive for governments to use less distorting support measures during a transition period when fully Potential Agenda for decoupled programs may not be possible to imple- Agric ulture N egotiations: ment because of political and structural constraints. In many CEECs, output-based supports are being CEEC Perspectives replaced by partially decoupled supports, such as headage and area payments. However, if the blue The common goal of a future within the EU has a box were eliminated or highly restricted, countries significant bearing on CEEC perspectives on the lacking adequate human capacity and institutional upcoming WTO negotiations, although some of infrastructure to implement fully decoupled pro- their differences (such as status and initial condi- grams would be at a disadvantage, relative to more tions) are also likely to influence their positions. developed economies, in meeting WTO require- Without knowing or trying to ascertain what posi- ments. Similarly, if agricultural marketing service tions or strategies are actually being developed by (AMS) commitments were shifted from aggregate specific countries, we have tried to infer from the to product-specific commitments, it would require similarities and differences in starting points the a more advanced level of institutional infrastructure issues likely to be most important to countries in than currently exists in many of the transition coun- this region. Though these inferred national interests tries. This would also increase the sensitivity of the may very well be overpowered by their common issue for the post-UR countries, which based their perspective as future members of an enlarged WTO commitments on a post-1990 base period. European Union, we try to set that consideration A way to see the significance of these different aside so that potential differences can be accentuated. base periods is to look at AMS commitments com- In many ways the list of issues is similar to those of pared with actual AMS notifications. Though the many other WTO members, including changes in data is incomplete, due to lack of notifications for modalities or disciplines on domestic support market some countries, the comparison in table 6.4 pro- vides an example of this difference. The Czech 103 Agricultural Trade Liberalization in A New Trade Round Republic and Poland still have a lot of "water" in products), market access for commodities produced their AMS commitments as of 1998. The Slovak in the region continues to be problematic. Even the Republic has used 60 to 70 percent of its limit, preferential access provided for limited quantities of partly because it's AMS commitment was in na- goods in the Europe (Association) Agreements with Table 6.4. Total Aggregate Measures of Support (AMS) Commitments and Actual Notified AMS for Some CEECs in 1996 and 1998 1996 1998 % of % of Total AMS Actual ceiling Total AMS Actual ceiling ceiling AMS used ceiling AMS used Czech Rep. (CKr millions) 15880 1689 10.6 14746 1013 6.9 Poland ($US millions) 3883 226.5 5.8 3606 300.6 8.3 Slovak Rep. (SKr millions) 11830 6982 59.0 10985 7710 70.2 Slovenia (ECU millions) 72153 69239 96.0 66999 65991 98.5 Source: European Conmmission, 1998. tional currency and that has depreciated over time. the EU is often not fully utilized, due to lack of suf- By contrast, Slovenia, an early post-UR accession ficient quantities that meet quality standards and country, has been nearly at the limit of its AMS complicated producer certification procedures. commitment from the very beginning. For this rea- With privatization and restructuring of the food son, a commitment for further reductions in AMS industry, development of marketing infrastructure, during the next round of negotiations will be politi- and efficiency improvements in the marketing cally more difficult for Slovenia (and similarly for chain, this situation could change. However, these other post-UR members) than for the pre-UR changes will take time. Moreover, while going members of WTO. through the processes of restructuring, establishing new businesses, and recovering from the drop in agri- cultural and food industry output, CEECs are not in an advantageous position to compete with imported Market Access products. While import competition often serves as an added incentive for domestic industries to improve Although bound tariff reduction under UR sched- their competitiveness, many CEECs will experience ules was intended to improve market access, from less benefit in mutual, symmetric increases in market the perspective of the CEECs the benefits of this access than will more advanced economies. improvement have been very limited. Because most agricultural and food products produced in CEECs are of the same type (but somewhat lower quality) as those produced in more advanced coun- tries, and given the limited possibilities for newcom- ers to enter well-established and highly competitive markets (except for a few high value-added specialty 104 CEEC Interests and Options in the WTO 2000 Negotiations Tariff Bindings and eliminated completely, since they have nothing to lose and everything to gain. Many CEECs experi- Non-Tariff Measures enced the negative impacts on their exports to Rus- sia in 1998, when the United States and European The UR eliminated non-tariff measures in agricul- Union responded to the world market glut and Rus- ture through "tariffication." This led to increases in sia's financial crisis by dramatically increasing bound tariff rates, tariff rate quotas (TRQs) to pro- subsidies and preferential credit for their Russian vide minimum access, and often a wide gap be- exports. Further disciplines on preferential export tween bound rates and applied MFN rates. Al- credit sales may also be of benefit to these coun- though some tariffs were reduced significantly as a tries, which lack the financial resources to compete result of the UR, others (especially out-of-quota with such sale arrangements. tariffs in TRQ commitments) remain high and are likely to remain an important issue for the upcom- ing round of talks on market access in agriculture. Special Safeguard Clause One issue is the structure of tariffs; they should be limited primarily to ad valorem rates as the most transparent type, and strict notification procedures In order to secure stability in domestic markets and on the ad valorem equivalents of the remaining protect them from extreme externalities, the URAA tariffs should be introduced. Another issue is re- offers some flexibility in the application of border lated to further tariff reductions, the increase of and domestic stabilization measures through vari- quantities in the TRQ commitments, and further ous procedures, including a special safeguard limiting NTMs to improve market access. These (SSG) clause. SSG allows the application of addi- are areas where differences of interest may be evi- tional tariffs in case of low, declared import prices dent between pre- and post-UR members among or substantial inflows of products into a country. the CEEC group. There is very little "water" in the However the SSG mechanism does not apply tariff bindings of the post-UR members and they automatically, since not all countries have access to have relatively few TRQs in their own schedules, it. Eligibility to use the SSG scheme depended on So a reduction of tariff bindings might be more the tariffication process, so unlike pre-UR mem- difficult to accept, but expansion of TRQs would bers, post-iR members cannot take advantage of be seen as a benefit, in that for the most part it this protection. This can be seen as a case of dual would increase market access in other countries. standards. If the SSG clause cannot be eliminated entirely, then equal access to the SSG clause should be considered during the next round, since general safeguard provisions are expensive and time- Export Competition consuming to implement, require additional docu- mentation, and are often not effective in the case of Further reduction, or elimination, of export subsi- large import flows into small domestic markets. dies is likely to be high on the agenda in the up- This is another topic in which post-UR mem- coming negotiations. CEECs will have different bers in the CEEC group are likely to bave a greater interests in regard to this issue, depending primar- interest than pre-UR members. They can, of course, ily on the timing of their accession. As mentioned, use provisions of the general agreement on safe- post-UR members (with the exception of Bulgaria) guards; but application is complicated and costly. It have not succeeded in joining the WTO with non- could take so long for a small economy to use this zero export subsidy commitments. It is in the inter- procedure for something as volatile as a food or est of these members that export subsidies be agricultural product that, in the meantime, irre- 105 Agricultural Trade Liberalization in A New Trade Round versible developments may have destroyed, or had The Future of the WTO a severely negative impact on, domestic enter- prises. Not having recourse to the SSG provisions Initiatives represents a serious disadvantage, since they can be implemented more rapidly and could avoid such In addition to the base GATT Multilateral Agree- outcomes. ments on Trade in Goods, some countries have formulated or entered into a range of sectoral ini- tiatives. One of them, the Zero-for-Zero Initiative, deals with some products covered by the provisions State Trading of the URAA (including beer and brown spirits). Until now, this and other similar initiatives have As part of their transition CEECs have reoriented not been obligatory, although countries negotiating the role of the state, removing constraints on the accession to WTO feel certain pressure to join emerging private sector. This is consistent with the them. The issues for the next negotiation round are general WTO approach of encouraging the estab- whether the list of products will be expanded, and lishment and strengthening of market-based devel- whether any of the current initiatives will be insti- opment in transition economies. State monopolies tutionalized (in one form or another) as obligatory have largely been privatized, and the role of gov- commitments for all WTO member-states. For later ernments limited mainly to the regulatory sphere. accessions, there may also be a question as to the However, over the past couple of years almost all status of such initiatives in negotiations. For the CEECs have established a market regulation or CEECs, however, it is clear that as future EU intervention agency to implement market- members they will not be likely to join initiatives regulation policies. Despite differences in organiza- like zero-for-zero unless the EU has already joined tion and operation, all such institutions are under- or will join them as well. taking purchases within the framework of govern- ment regulation-with or without direct or indirect government financing. While these agency opera- tions would not be classified as state trading under Exchange Rate Regime current WTO definitions, it is not clear how these agencies would be effected if tighter WTO rules on and Market Protection state market intervention are developed during the next round of negotiations. The weakness of the In the process of instituting policy reforms, CEECs current situation with regard to many of these undertook liberalization or partial deregulation of agencies is that government procurement rules are prices. As a result of subsidy elimination, domestic not well defined. At a minimum, transparency in market prices rose in the direction of world market procedures has to be ensured. However, as with prices, sometimes even exceeding them, because of some other issues, the CEECs will be concerned underdeveloped market infrastructure, inefficien- that overly complex rules or disciplines will be cies in the marketing chain, and other, similar fac- difficult to administer while institutional infrastruc- tors. Some of the countries have pursued currency tures are still relatively weak. Of course, as import- board arrangements, pegging their currencies to the ers and exporters they have an interest in improv- German Mark, ECU (now the Euro), the U.S. dol- ing disciplines on state-trading organizations, to lar, or a basket of such currencies. Strong, real ap- ensure that state trading is more transparent and preciation of national currencies, price adjustments, does not violate WTO non-discriminatory princi- and differences in domestic and foreign inflation ples. rates reduced the real effective rate of protection, 106 CEEC Interests and Options in the WTO 2000 Negotiations given that no changes in ad valorem tariffs have ing farm- and food-industry group pressures, will occurred. But such policies made exports less com- also influence the position of individual countries. petitive in external markets and favored imports in However no matter how different their positions domestic markets, thus increasing the competitive may be, the two country groups in the region are pressure on industries undergoing privatization, re- likely to share some common features. structuring, and modernization. The result has been While we do not presume to know the actual an increase in imports, rapidly deteriorating trade positions or strategies of CEEC governments, we and current account balances, pressures for can infer from their starting points the most likely strengthening domestic-market protection through scenario. These self-interest-based inferences may higher import tariffs, and import restrictions (quo- be overpowered by the overriding goal of joining tas, NTMs, and even temporary import bans). the EU, in which case countries may align totally A number of measures have been taken in re- with EU positions on both overall strategy and spe- sponse, including: increases in import duties; anti- cific agenda items. With that important caveat, we dumping duties; import surcharges; import deposit believe that potential positions on the three main requirements; import taxes, in addition to import areas of agriculture negotiations can be differenti- duties; quantitative restrictions on imports; in- ated among CEECs according largely to their status creased licensing, registration, and customs clear- as pre- or post-UR members (table 6.5). ance fees; additional requirements (use of the na- The main difference in anticipated positions on tional language for providing consumer informa- domestic support is related to the fact that pre-UR tion, special labeling, additional test certificates, members had a much earlier base period, when registration requirements for importers and export- both production and support levels were higher. ers); and the use of reference prices for customs New members have less room to make "painless" valuation. Of course, WTO members have been adjustments, and thus are likely to be more cau- restricted in which of these measures could be tious. For the same reason, new members are more used, but those countries still involved in negotia- likely to be concerned about switching to a prod- tions have sometimes adopted measures not in uct-specific commitment. The situation is similar in compliance with WTO rules, knowing full well that regard to market access; new members have little if these measures would have to be abandoned upon any "water" to squeeze out of bound tariffs, and are accession. likely to be more affected by reductions in tariff bindings. However, they will probably be less con- cemed about efforts to expand TRQ quantities or otherwise reduce their role, since TRQs represent a Conclusions less important part of new member commitments. Another important difference between old and new The agenda items highlighted here certainly do not member commitments is that new members cannot represent a complete list; this will only emerge as take advantage of the SSG provisions that were the negotiations proceed. Country positions on part of the tariffication process. If this were elimi- specific agenda items will depend on the current nated or accepted as a right of all WTO members, starting point of each country, initial or current it would give post-UR members equal rights with WTO commitments, and the evolution of domestic others. Finally, on export competition, the potential support and foreign trade policies. Their ongoing difference in positions between these two groups is preparations to join the EU will surely have a that new members (except for Bulgaria) have zero strong influence on their positions and could even bindings on export subsidies. Thus they would mean strategic coordination during the course of have nothing to lose if export subsidies were cut negotiations. Domestic political constraints, includ- 107 Agricultural Trade Liberalization in A New Trade Round Table 6.5. Summary of Potential CEEC Positions in the Next Round of Negotiations on Agricul- ture Issues Pre- UR member countries (a) Post-UR member and acceding countries Domestic support * Expansion of green box, inclu- * Expansion of green box, inclusion of sion of environmental measures environmental measures * Preservation of blue box . Preservation of blue box * AMS commitments are not bind- * Less flexibility in reduction of AMS, ing, because of the pre-90 base because of the post-90 base period period (b) * Preservation of aggregate commitment on AMS versus product-based Market access * Modest cut in import tariffs with * Little or no flexibility in reduction of possibility to squeeze "water" current bindings, since they were out of current bindings based on actually applied MFN rate or a Differentiated approach in tariff below it; preservation of higher tariffs reductions to preserve higher for some sensitive and new products levels for some sensitive prod- . Expansion of TRQs ucts * Equal right to apply SSG provisions Export competition * Modest cut in export subsidies * National policy not affected, but coun- tries without subsidies would benefit most from large reduction or elimina- tion (c) (a) Romania might have to address additional issues related to changing its unique developing-country status. (b) 1990 is considered to be the start of the policy and structural reforms accompanied by substantial decline in agricul- tural output. (c ) Bulgaria might take a different position because of its non-zero export subsidy bindings Source: Author's data. further or even eliminated, while they would bene- that the accession of all countries to the WTO be fit from cuts in export subsidies by other countries. conducted on fair and equitable terms. Some or all CEECs may support a decision to ex- Finally, the grouping of CEECs in this analysis tend a modified concept of "special and differential is not intended to suggest that any type of policy treatmnent" to transition economies, in recognition coordination could or will emerge among these that their weak markets and policy institutions countries. Even though subgroups are members of place them at a disadvantage in implementing some two regional trade blocks (CEFTA and BFTA), no WTO disciplines. However taking advantage of significant policy coordination among the countries special treatment may be counterproductive for in dealings with WTO or other external entities has countries working hard to show readiness to join taken place, even though such coordination might the European Union. Thus if such a provision were have strengthened their negotiating positions. It adopted, it might be more likely to be used by seems likely that the most important issue for most, subsequent accessions of transition countries from if not all, CEECs will be the definition of, and eli- the CIS or elsewhere. An important general princi- gibility for, green-box and blue-box measures. This pal, stated in 1998 by the Secretary-General of the is so not only because of the countries' anticipated U.N. Conference on Trade and Development, is future membership in the EU, but also because of 108 CEEC Interests and Options in the WTO 2000 Negotiations the increased use of such measures as transition would surely be more interesting if different posi- tools toward more transparent, less distorting poli- tions and priorities emerged from this dynamic cies. While EU negotiating positions could domi- group of countries. nate all or most issues of interest to the CEECs, it 109 Agricultural Trade Liberalization in A New Trade Round References Organisation for Economic Co-operation and De- velopment (OECD). 1999. "Agricultural Poli- European Corrmission. Various dates. Market Ac- cies in Emerging and Transition Economies- cess Database at http://mkaccdb.eu.intl. 1999." OECD Centre for Co-operation with European Commission. 1998. "Agricultural Situa- Non-Members. Paris. tion and Prospects in Central and Eastern . 2000. "Agricultural Policies in Emerging European Countries: Summary Report." EC and Transition Economies-2000." OECD Cen- Working Document, Directorate for Agricul- tre for Cooperation with Non-Members. Paris. ture, Brussels. Ramona, Franic, Zdanka Berak, and Ruzica Gelo. Food and Agriculture Organization, United Nations 1999. "Measuring State Intervention in Croa- (FAO). 1999. Commodity Market Review, tian Agriculture." Presentation at the IXth 1998-99. Rome. European Congress of Agricultural Econo- . 1997. FAO Trade Yearbook, 1997. Rome. mists, Warsaw, Poland, Aug. 24-28. Josling, Timothy, and Stefan Tangermann. 1999. United Nations Conference on Trade and Devel- "Implementation of the WTO Agreement on opment (UNCTAD). 1998. Trade and Devel- Agriculture and Developments for the Next opment Report, 1998. Report by the Secretary- Round of Negotiations." European Review of General. Geneva. Agricultural Economics 26(3). World Bank. 1999. World Development Indicators, 1999. Washington, D.C. 110 Interests and Options in WTO 2000 Negotiations on Agriculture: Industrialized Countries 7. Interests and Options in the WTO 2000 Negotiations on Agriculture: Industrialized Countries Stefan Tangermann The Uruguay Round Agreement on Agriculture URAA Implementation and (URAA) set new rules for world trade in agricul- - R tural goods and initiated a modest reduction in pro- Domestic Policy Reforms tection. Signatories to that agreement have now, in in Major Industrialized the main, implemented these rules and begun the Countries slow process liberalization. But the agreement also mandated new talks to start before the end of 1999, The impact of the URAA on agricultural policies to continue these reforms and liberalization. It is and world markets depends on implementation of therefore an appropriate time to review the changes its provisions in individual countries. The situation that the URAA has made to agricultural trade pol- in major industrialized countries is described in icy, and to see how the agenda for future negotia- table 7.1, which illustrates the range of impacts that tions might develop. Section two of this paper the URAA has had on policies in selected coun- briefly discusses implementation of the URAA in tries. The remainder of this section describes some major industrialized countries; section three re- o 2 views the positions on agriculture that these coun- tries have adopted for the next round of WTO negotiations; and section four comments on a few new issues of interest to some industrialized coun- Market Access tries that may play a role in the next round.' The paper does not outline the provisions of the URAA, The push for "tariffication" was in no small part nor does it provide detail on specific commitments aimed at the market-access regulations used by the accepted by the countries covered here. WTO dis- European Union (EU). The EU has therefore had to putes on agricultural matters are not covered, nor make significant changes to implement the terms of does the paper discuss provisions or implementa- the URAA. Nevertheless policy changes were kept tion of the agreement on Sanitary and Phytosani- to a minimum by various devices that have pre- tary (SPS) measures. served much of the functionality of the Common Agricultural Policy (CAP). The cereals market, 111 Agricultural Trade Liberalization in A New Trade Round Table 7.1. Impact of Uruguay Round Agreement on Policies of Major Trading Partners Element Market access Export competition Domestic support European Union Conversion of variable levies Export subsidy constraints MacSharry payments to tariffs, but maximum duty- binding for several com- sheltered from reduction paid price for cereals, entry modities by blue box price for fruits and vegetables AMS constraint not binding United States Elimination of Section 22, EEP program constrained by Deficiency payments sheltered quantitative restrictions on commitments in blue box; imports AMS constraint not binding; FAIR Act may remove need for blue box Australia/New Zealand Tariffication achieved with Few export subsidies Reforms removed most price little difficulty Export boards not affected policies Canada Conversion of import quotas Transport subsidy removed Most policies moved to green on supply managed commodi- Export board (wheat) not box ties to tariffs affected Japan Tariffication delayed for rice No subsidies No constraint from AMS Additional minimum access commitments agreed Source: Tangermann, 1999. for example, is still protected by a variant of the vari- true market access awaits the next round of trade able levy, and the new import regime for fruits and negotiations. In some cases market access actually vegetables acts much the same as the previous system declined as a result of tariffication. This was par- of reference prices (Grethe and Tangermann 1999). ticularly true when levies were previously tied to Not only have the mechanisms determining domestic cereal prices, as occurred with pig meat. market access changed little, but ease of access has CAP reform had already reduced import levies on improved only marginally. Tariff-rate quotas pig meat, but they rose again when based on the (TRQs) exist for a number of products, but for the tariff equivalent in the WTO base-period. most part they reflect "current access" (that is, bi- Market-access provisions in the Uruguay lateral agreements that the EU has had with a num- Round did not lead to a dramatic opening up of the ber of overseas countries). New "minimum-access" U.S. market for agricultural goods. For many prod- quotas that have been opened have not always been ucts trade barriers were low before the UR, while filled. The above-quota tariffs are often prohibitive, for a few "sensitive" items, such as dairy products as were the threshold prices that they replaced, and and sugar, liberalization was modest. Conversion of non-tariff barriers to tariffs took place in several restraints" had been used to bolster the domestic sectors, notably in beef-where "voluntary export market over parts of the cattle cycle-and in 112 Interests and Options in WTO 2000 Negotiations on Agriculture: Industrialized Countries dairy, where non-tariff import barriers had been Development (OECD) countries. The way in which widely used to control markets for milk products. the access agreements have been administered The respective TRQs appear not always to have demonstrates this problem. Market access differs been filled during the first three years of operation, for commodities imported by the private sector and although sugar imports have exceeded the those for which state trading is still practiced. In quotas. Above-quota tariffs remain high for a the latter case high tariffs faced by private traders number of sensitive goods, leaving action on these exist alongside lower mark-ups for state enter- commodities a natural focus for the next round prises. An incentive for the private sector to pur- of negotiations. chase from the state importer thus remains, allow- Implementation of the agreement had one im- ing the latter to maintain effective control over the pact that was significant in terms of import access market. Import arrangements for pork are compli- to the United States. The notorious Section 22 of cated by a device designed to reproduce some of the Agricultural Adjustment Act, which gave the the stabilization of the previously used differential U.S. president a mandate to use quantitative con- tariff, which operated like a variable levy. trols whenever imports threatened domestic sup- Of all the agricultural policy changes resulting port programs, was removed. This, in turn, elimi- from the Round, none faced more domestic opposi- nated the need for the waiver from General Agree- tion than the opening up of Japan's domestic mar- ment on Trade and Tariffs (GATT) rules ket to imported rice, through a minimum-import that had been in effect since 1956. The importance commitment rather than tariffication (one of the is symbolic: it indicates that even the United States rare exceptions to universal tariffication). However, has agreed to allow the operation of international Japanese consumers did not benefit from the lower trade under agreed rules to impinge upon domestic prices that could potentially have resulted from the programs. minimum-access commitment. Little rice reached Market access provisions have had a more the domestic market, and some found its way into marked impact in Canada. Non-tariff import barri- stockpiles or processing uses. Increased private ers that bolstered the domestic market in supply- involvement in the marketing of domestic rice un- managed commodities (poultry, eggs, and milk) der the new law of 1995 did not spread to the sale were converted into bound tariffs as a direct result of imported rice. Interestingly, after the Uruguay of the Uruguay Round Agreement. This change Round a widespread belief gained ground in Japan would probably not have been possible without that tariffication (at a high level of tariff, of course) pressure from the UR. The new tariffs, however, are would have served Japan's objectives even better, very high (in some cases over 300 percent), and because it would have been more protective than access depends on TRQs, which carry a much lower the minimum-access commitment permitted. This rate of duty. Thus for Canada one key issue for the was probably one of the reasons why the Japanese future is the extent to which TRQs will be expanded govemment finally notified the WTO that it in- in further negotiations. Strong resistance can be ex- tended to change to (rather high) tariffs on rice pected from the provincial marketing boards that run imports in April 1999. Some other WTO members Canada's supply management programs. questioned the tariffs set by Japan, but no formal Japan has met its obligations with precision, if dispute has been initiated. It appears that the new not enthusiasm. The improvement in market access tariff regime has not fundamentally affected Ja- has been modest, as is the case in most other coun- pan's rice market.3 tries. In part this reflects the nature of the domestic Among those countries most keen on including food-processing and -distribution system, which is agriculture in the Uruguay Round were two export- still more tightly controlled than those in most ers of temperate-zone commodities, Australia and other Organisation for Economic Co-operation and New Zealand, who felt negatively impacted by EU 113 Agricultural Trade Liberalization in A New Trade Round and U.S. subsidies. This concern translated into ric, which still seems to regard export subsidies as leadership of the Cairns Group, which includes a necessary aspects of commercial policy to be used number of developing Asian and Latin American to maintain market shares and prevent the EU and countries and Canada. Implementation of the Uru- other exporters from undercutting U.S. sales guay Round Agreement posed few difficulties for abroad. A 1998 dip in prices caused some rethink- Australia and New Zealand. Domestic policy re- ing of U.S. policy, but the "bail-out" package given forms in the mid-1980s had removed many trade- to farmers that year was mostly in the form of addi- distorting domestic subsidies, in particular for the tional direct payments. livestock sector. Import restrictions had been Longstanding transportation subsidies that gave largely converted to tariffs, and the rates tended to Canadian grain an advantage on world markets be below those bound under the Agreement. Aus- were finally terminated. This change has long been tralia had to make a few more changes to imple- debated domestically, but the pressure from Uru- ment the URAA. Non-tariff barriers on sugar im- guay Round limits on export subsidies was effec- ports were converted to tariffs, as were those for tive in forcing the issue. But meanwhile a new some dairy products. form of export assistance was industrialized for dairy products. Marketing authorities designated a lower-priced, "export" class of milk for use in products sold abroad. Export Competition Japan has not engaged significantly in export subsidies, and therefore is not faced with the prob- With respect to the constraints on export subsidies, lem of implementing these restraints. Export subsi- the picture has been quite different. It was always dies were rarely used in New Zealand. In Australia known that the constraints on export subsidies ne- an export subsidy on dairy products was modified gotiated in the Round were likely to be the most to be more consistent with WTO rules, although binding: that is why the agreement on such con- the new export rebate scheme may itself come un- straints was so difficult to achieve. This has proved der scrutiny at some stage. The operation of the to be the case in particular for the EU. For a num- Australian Wheat Board has also been modified to ber of products, cheese being the main example, give private traders more scope in the internal mar- export subsidy constraints have already dictated ket, although Australian grain exports are still han- domestic policy decisions, and will do so even dled through the Board. more as time goes on (Tangermann 1999a). In the case of wheat, however, high world prices "res- cued" the policy from the constraints of the WTO schedule, as the need for export subsidies tempo- Domestic Support rarily waned in 1995 and 1996. U.S. export-subsidy programs were also subject Domestic support commitments have not had a to the cuts agreed in the Round. But rising world major impact on the policies of major trading coun- prices since the base-period of the Agreement, and tries. In the EU the impact has been almost imper- more particularly the high prices of 1995 and 1996, ceptible. The deal secured at Blair House, which meant that export subsidies for cereals naturally places the MacSharry compensation payments in declined. Congressional appropriations for subsi- the "blue box," implied that they did not count to- dies actually decreased substantially in recent ward the level of support that needs to be reduced years, and the Export Enhancement Program (EEP) (and are sheltered from most WTO challenges is unlikely to be used to its full, authorized level in unless support is increased). This move ensured the near future. This is despite the prevailing rheto- that the EU stayed well within the AMS 114 Interests and Options in WTO 2000 Negotiations on Agriculture: Industrialized Countries constraint. One issue for the next round will be future use of price-related subsidies, since their whether the EU can change its method of allocat- base in these policies was small. However, if they ing compensation payments to avoid all need for wished to reverse their movement toward more the blue box. liberal policies, they would find it difficult to im- As was expected, the Uruguay Round Agree- plement such policies in the future. ment has had little direct impact on U.S. domestic support programs, such as the deficiency payments scheme for cereals. That was ensured by the Blair House deal, which allowed the U.S. to shelter di- Positions on the Next rect payments in the "blue box" reserved for pay- Round: Major andustrial- ments linked to supply-control programs. Even without this arrangement it is unlikely that the level ized Countries of payments would have violated AMS limits, for which the base was a period of higher subsidies. The closer we get to the start of the next round of However, even the very indirect restraints of the WTO negotiations, the more urgent it becomes for "blue box" are likely to have been made redundant countries to think about the positions they should for the U.S. by the substantial changes in domestic adopt in the talks. Different countries have dealt in policy embodied in the Farm Bill of 1996. This different ways with the process of preparing for the bill, known as the FAIR Act, removed acreage set- next round, and have gone public about their ap- aside conditions for receiving direct payments for proaches in different ways and to differing extents. cereals. Although some incentive for staying in Some industrialized countries, in particular the agriculture remains, this change essentially "de- United States and Cairns Group countries, have coupled" payments from output levels. It therefore started early by making public statements and issuing can be assumed to be a "green box" policy, which publications. Others, including the European Union, results in leaving the EU nearly alone in sheltering have been more restrained, and have generated less its direct payments from challenge under the GATT publicity on their current thinking about the next by means of the "blue box."4 round. Given the different approaches adopted to- Canada has a long history of experimentation ward making their views public and the different with decoupled payments for farmers, based on the forums they have used for doing so-ranging from stabilization of incomes from a range of crops or public speeches delivered by politicians to official the net income from farming activities. As a result documents submitted to the WTO-it is not easy to Canada has been able to adapt domestic policy to compile a balanced and "true" survey of where meet the requirements of the green box, and the countries stand at this time. Moreover, the public AMS constraint has not been an issue. In contrast statements issued are bound to contain a fair amount Japan had to comply with AMS constraints on do- of window dressing and tactical positioning. At- mestic support through reduced spending on agri- tempts to describe country positions, such as this cultural programs or lower administered prices. In analysis, therefore necessarily involve considerable Japan this has caused few problems, as adminis- speculation. tered prices were, in any case, lower than those of Apart from general knowledge of agricultural the base period. Japan has reoriented its spending policy and trade attitudes in different countries, toward enhancing productivity through land con- information sources include the statements coun- solidation, market development, and research ac- tries have made in the AIE process (not publicly tivities to reduce the need for price supports and available) and a series of communications that border protection. Australia and New Zealand are countries have submitted to the WTO General in the interesting position of having little scope for Council in the context of preparations for the 115 Agricultural Trade Liberalization in A New Trade Round 1999 WTO Ministerial Conference. The latter are for dairy products will not become effective before available on the WTO Web site, and will occasion- 2005; that is, after the new WTO round is likely to ally be cited in this review.5 be concluded. This will make it more difficult for the EU to accept significant reductions of tariff European Union peaks, which are prominent in the EU dairy sector. In the absence of reforms for sugar (which also The European Union approaches the new Round of were not included in the Commission proposals), agricultural trade negotiations in somewhat of a reduction of the extremely high EU sugar tariff quandary. The lesson learned by many in Europe (plus a "generous" trigger price for the special from the experience of the Uruguay Round was safeguard in that sector) is an outcome that would that Europe exhausted its energies defending the be very difficult for the EU to swallow, as it would CAP from attack. This meant that it had no re- force reform of the EU sugar regime "under the serves to devote to developing a positive strategy dictate of the WTO." to pursue changes that EU countries would like to The EU had not, as of September 1999, decided have seen, either in trade rules or in the policies of on the details of its position for the next round. others countries. The notion that it had already "re- Different member states obviously have different formed" the CAP (with dairy quotas in 1984 and a views, ranging from the more liberal attitude budget ceiling in 1988) was not convincing to its prevalent in the United Kingdom to strong resis- partners. Even after the introduction of the Mac- tance against significant liberalization in agricul- Sharry reforms in 1992, it was clear that the EU ture from France. In September 1999 the European still required high border-protection to preserve its Commission was in the process of being newly domestic policy. But to enter the next Round in a appointed for the coming period of office under position of strength would have required further President Prodi, who appeared to have a two- reforms in advance of the talks. pronged strategy. When addressing EU farm audi- The European Commission was well aware of ences, for example, he emphasized the need for this requirement, and used this argument as a rea- further reform of the CAP, going beyond the son for suggesting further significant reform to the Agenda 2000 decisions, while at the same time CAP under the heading of Agenda 2000. For a long promising that the EU will defend the "European time, during the heated debate about the Commis- model of agriculture" in the WTO and will start sion proposals, it looked as if the Council-lacking negotiating from the base of Agenda 2000. In rela- a consistent alternative position-might finally tion to the outside world he suggested a more con- adopt the Commission proposals. However, backed servative position for the next round of agricultural by strong opposition from farm groups against de- negotiations, but did not rule out progress toward termined CAP reform, and employing clever nego- further liberalization. tiating tactics,6 the French government managed, at One example of the internal hints at the need the Berlin Summit of March 1999, to convince for further CAP reform was the warning issued by leaders of EU governments to water the reform Commissioner for Agriculture Fischler at a public package down considerably. With the decision fi- conference in late June 1999. He stated that: "It is nally made, the EU will now have to enter the next an open question whether the price reductions round of WTO negotiations on agriculture much adopted in the final compromise at the Berlin less well prepared than the original Commission Summit will be sufficient to achieve market bal- proposals would have allowed (Tangermann ance envisaged in the original proposals." Fischler 1999a). The smaller price cuts for cereals and beef added that the dilution imposed by the Summit had now adopted are unlikely to eliminate the need for made the EU position in the next WTO round far export subsidies in these sectors. Price reductions less categorical than it might have been.7 At the 116 Interests and Options in WTO 2000 Negotiations on Agriculture: Industrialized Countries same time, in his August 1999 response to a statements and comments that open the door for question by the European Parliament about his constructive negotiations.8 priorities for the next five years, Fischler's state- The EU communication stresses "the need for a ment under the heading "WTO negotiations and rapid negotiation." The background to this (not international trade relations, safeguarding of the explicitly explained in the communication) is that European Model of agriculture" read as follows: the EU would indeed like to conclude the negotia- tions in 2003, for two major reasons.9 First, the EU The fundamental issue of the European has a strong interest in extending the peace clause, model of agriculture lies in the multifunc- and prefers that the next round of agricultural ne- tional nature of Europe's agriculture and gotiations be over before the peace clause expires the part it plays in the economy and the in 2003. Second, the EU would like to fold the environment, in society and in preserving GATT Article XXIV:6 negotiations on EU Eastern the landscape, hence the need to maintain enlargement into the Millennium Round. As the farming throughout Europe and to safe- first countries from Central Europe might join the guard farmers' income. The Commission EU soon after 2003, the EU has an interest in hav- has seized and should seize in the future ing these negotiations concluded by that time. all opportunities to defend the multifunc- Regarding adaptation of the specific instru- tional character of EU agriculture and to ments provided in the URAA, the EU communica- advance its full recognition, especially in tion says that "the Community is not of the view the context of the upcoming WTO that a major review of the specific instruments pro- Round .. With the new round of multilat- vided in the Agriculture Agreement is necessary or eral trade negotiations to be launched in a desirable." On more specific items in this category, few months, there might be increasing the Communication makes the following comments. pressure to progress along the lines of the Marrakech Agreement; that is, to further While it does not rule out some updating liberalize agricultural trade. The Agenda of the blue and green boxes, it believes 2000 agricultural reforms are considered that they remain essential elements of the to constitute essential elements in defining policy to reduce support and provide in- the Commission's negotiation mandate. dispensable assistance to WTO members, The EU will soon have to further develop to help them move away from price- a clear vision of its objectives and strate- supports toward more transparent and gies for these negotiations in order to both non-distorting policies. safeguard the European model and benefit The need, recognized by the peace from opportunities in international mar- clause, to provide legal security for the kets. Furthermore, agricultural trade is outcome of the negotiation will exist at also very likely to be influenced by bilat- the end of the forthcoming negotiation, eral free trade agreements under negotia- just as it did in the Uruguay Round agri- tion" (Fischler 1999). cultural negotiation. The Special Safeguard Clause represented The EU position in regard to other countries a key element of agricultural liberalization was outlined in a communication to the WTO Gen- agreed in the last Round. It has enabled ab- eral Council submitted on July 27 1999. This normally low price offers or import surges to communication, outlining the "EC Approach on be dealt with without frequent recourse to Agriculture," is an interesting mix of protectionist more disruptive action under the General Safeguard Clause. A similar provision for 117 Agricultural Trade Liberalization in A New Trade Round the future should therefore be in the gen- Reductions in support. The Community eral interest of all members. will be prepared to negotiate this on the Regarding progress on key trade issues, terms set out above, in particular the con- the EU communication notes that its "pol- tinuation, in an appropriate form, of the icy will be founded on the full Agenda Blue and Green Boxes. 2000 package decided by Community Heads of State and Government." It is interesting to note that this part of the communication starts by emphasizing the EU's Some specific areas addressed in the communica- position as a major exporter, and hence its interest tion are quoted below. in improving access to other countries' markets. During past GATT negotiations on agriculture, the Improvement in access. The Community EU has tended to behave mainly like an importer, is a major food exporter and intends to interested in defending protection. It may also be of share in the expansion of world trade in interest that the EU does not deny the need for fur- agricultural products. The Community ther reductions of trade barriers in agriculture. The will seek to obtain improvements in op- nearly self-evident statement that this cannot be portunities for its exporters, inter alia completed in the next round is an improvement through greater clarity in the rules for over saying that nothing serious can be achieved. the management of TRQs, including im- Export credits, which do not play much of a role in ports through single desk buyers, and the EU, are a clear negotiating target, as are single- the removal of other unjustified non- desk exporters and (excessive) food aid. Even on tariff barriers. At the same time, as Article the blue box, which the EU would very much like 20 of the Agreement on Agriculture to maintain, the reference to "an appropriate form," itself recognizes, the process of reducing although left unclarified, may open up a small win- trade barriers in agriculture, which is dow for negotiations. That the EU's position will more advanced in some sectors than in be "founded on the full Agenda 2000 package" is a others, is to be seen as an ongoing process statement that is less restrictive than saying that the resulting in fundamental reform, and not EU cannot go beyond that package, as is often sug- something which can be completed in the gested by some EU farm ministers and agricultural next round. representatives. Indeed, Fischler's response to the questions asked by the European Parliament, Reductions in support for exports. The sounds a little different in this regard: Community is willing to continue to nego- tiate this process, provided that all such It is ... absolutely legitimate that the Berlin support is treated on a common footing. European Council has adopted the declara- This means that the commitment to intro- tion concerning the Union's position for duce disciplines on agricultural export the next round of WTO negotiations. This credits which formed part of the Uruguay declaration means that essentially the Round Agreement must be respected. Commission should defend the reforms Other less transparent forms of export adopted within the framework of Agenda support, notably through the operation of 2000 and have them internationally ac- single desk exporters and the provision of cepted (Fischler 1999). food aid on concessional credit terms, will also need to be satisfactorily addressed. It will be very interesting to see how the Com- mission will bridge the gap between the be- 118 Interests and Options in WTO 2000 Negotiations on Agriculture: Industrialized Countries lief-held by many in the EU-that the Union general manner in order to assure con- cannot go beyond Agenda 2000 in the next round, sumers that the WTO will not be used to and the fact that Agenda 2000 will not even allow force onto the market products about the EU to live comfortably with its existing URAA whose safety there are legitimate con- commitments, let alone further reductions that may cerns. As regards food quality, in any re- be agreed to in the next round. Success of the next view of the TRIPS, the provision of im- round in agriculture may depend strongly on proved protection for products whose repu- whether the Commission can manage to enact an- tation for quality is linked to their geo- other round of CAP reform while the WTO nego- graphical origin will be a major concern. tiations are underway, repeating Commissioner for Agriculture MacSharry's success in pushing Animal welfare. There is increasing public through his 1992 CAP reform during the Uruguay concern about the conditions in which Round. At the time, MacSharry managed to main- animals are kept and reared which has led tain the notion that his reform was needed for many WTO Members to adapt ever more purely domestic reasons in the EU, avoiding the detailed provisions to meet this legitimate politically fatal impression that the CAP was re- moral requirement. It is, therefore, becom- formed "under the dictate of the GATT." It will not ing increasing important to address this is- be easy for Fischler to repeat this trick, given that sue on a multilateral basis. Consensus part of the Agenda 2000 adjustments to the CAP should be sought on the accommodation will not have been implemented before the next within WTO rules of any trade measures round is well underway-if not concluded. taken pursuant to any multilateral agree- In regard to non-trade concerns, the EU com- ment which might be reached regarding munication to the WTO General Council has issued welfare standards." the following text. Given the emphasis placed on the "European "The multifunctional role of agriculture. Model of Agriculture" in the internal EU debate, it In the Union's view it is essential to en- is not a surprise that multifunctionality should fig- sure that progress on trade issues does not ure in the EU position on the next round. It is not damage the ability of those employed in clear to what extent the "European Model of Agri- agriculture to supply public goods, in par- culture" is a slogan used mainly to calm fears ticular as regards the environment, (in- among EU farmers, or whether the EU will really cluding combating desertification) and the emphasize this aspect in the next round. However it sustained vitality of rural areas. Direct aid is somewhat reassuring to note that the EU com- measures with no or minimal trade impact munication refers in this context not to trade poli- have an important role to play in this con- cies, but to "direct aid measures with no or mini- text. mal trade impact." After all, the green box appears to be the most appropriate place for dealing with Food safety and quality. The issues aris- the multifunctionality of agriculture (see below, ing here link Agriculture to the discussion "non-trade concerns"). But the EU has serious con- of SPS and TBT. Recent WTO case law cerns about qualitative aspects such as food safety has confirmed that non-discriminatory, and animal welfare, and will surely want the next science-based measures to achieve the round to look more closely into these matters (see level of safety determined by Members below, "consumer concerns"). are in conformity with that agreement. It Irrespective of public statements made inter- might be useful to confirm this in a more nally in the EU or at the international level, a num- 119 Agricultural Trade Liberalization in A New Trade Round ber of issues will be important for the EU in the definitions of trade-neutral instruments. In regard next round. Regarding market access, the EU is to the blue box, the EU is likely to defend it in ne- going to be cool toward sweeping cuts in tariffs. gotiations for a long time. However, if hard- Though an exporter, the EU still feels under pres- pressed in the next round the EU could, in princi- sure from competing imports of temperate-zone ple, change its own compensation policies without goods. As a result it would like to see Asian mar- too much inconvenience (and to domestic advan- kets expand, but cannot move too far from its tradi- tage) and make them compatible with the green tional protection of domestic markets. A modest, box, as did the United States through the FAIR Act. across-the-board reduction in tariffs is likely to be An alternative probably not considered very unfor- the preferred outcome. But the EU will be vulner- tunate by the Commission though met with strong able on such as issues as the widespread use of resistance in some member states- would be a tem- specific tariffs; the use of entry prices for fruits and porary extension of the blue box, with a reduction vegetables; and the high degree of excess protec- requirement for EU direct payments during the tion for cereals, as afforded by the bound tariff next implementation period. This option would relative to the "maximum duty-paid import price" rejuvenate the concept of degressivity (over time) for cereals agreed in the Uruguay Round. The EU of EU direct payments, which played a prominent position on state trading is unclear, although as an role in the final stages of the Agenda 2000 negotia- exporter the EU has good reasons to side with other tions, although it was finally dropped at the Berlin exporters to put additional disciplines on such Summit on the insistence of the French government agencies. (with tacit support from Germany). The EU position on export subsidies is likely to As is the case for other countries, the EU posi- be that they are essential to the clearing of markets, tion on the next round will continue to evolve in at least for the next few years. It is unlikely that the coming months and during the negotiations. At EU could be persuaded to end them in principle. some stage, probably in fall 1999, the European The Commission would rather not have to export Commission will seek a formal negotiating man- subsidies as instruments of policy, but it would be date from the Council.'° For that purpose the new unacceptable to lose market shares too rapidly in Commission, which in September 1999 was still in the cereals and dairy markets as a result of not be- the process of being approved by the European ing able to lower offer prices. Only if the EU Parliament, will first have to adopt its own position should manage to reduce its support price for cere- on the new round. In relation to agriculture that als beyond the Agenda 2000 target, and world mar- position will strongly reflect the known views of ket prices for cereals should rise again, could a the current and (very likely) next Commissioner sector-specific elimination of export subsidies for Fischler. During the overall negotiations in the Mil- cereals become an option for the EU. lennium Round, however, the chief EU representa- One of the most contentious issues is likely to tive will be the Trade Commissioner. The French be the "size" and "composition" of the green box. politician Pascal Lamy, former head of cabinet of For the EU the green box represents a possible way Commission President Delors, is a leading candi- out of a dilemma: how to satisfy political impera- date for that position. Some observers believe that tives for the maintenance of farm incomes, and at this could well mean that French views on agricul- the same time live within the WTO constraint. The tural issues will have a particularly strong influence EU may have a tendency to allow payments, per- on the EU attitude during the next round. If that haps from national sources of EU member states, were to be the case the EU would not be an easy aimed at recompensing farmers for the "multifunc- negotiating partner in agriculture. In his responses tionality" of European agriculture-even if these to the questions of the European Parliament during payments are not totally consistent with current 120 Interests and Options in WTO 2000 Negotiations on Agriculture: Industrialized Countries the approval process, Lamy has largely adopted the The basic structure of the Uruguay Round current Commission's positions on agriculture. disciplines on agriculture is a sound basis United States for conducting the negotiations on agricul- ture. Within the overall framework, addi- Although each country will negotiate separately, tional modalities should be established in the U.S. attitude will undoubtedly influence the the three principal areas-export competi- position taken by other North American countries tion, market access, and domestic sup- during the next round. But what will the role of the port.... Additional measures that unjusti- U.S. be regarding the next round of talks on agri- fiably distort intemational trade in agricul- culture? Will the U.S. be in a position to take the ture also must be addressed and subjected lead in suggesting the path toward reform? Clearly to rules and disciplines, including possibly the outcome of the debate over fast-track negotiat- outside of the Agriculture Agreement ing authority will influence the answer to this ques- (WT/GC/WI 186, 20 May, 1999). tion. Without fast-track negotiating authority, and with a Congress wary of further attempts to liberal- Regarding market access, it appears that the ize trade, it is not easy to foresee a U.S. leadership United States does not suggest large tariff reduc- role in the next round. But even with fast track, tions, probably due to its own domestic problems, certain hard decisions have to be made. The U.S. with some highly protected products in mind. It will need to offer to others some incentives to al- speaks of the need to "lower tariff rates and bind low them to strike a deal on agriculture. In particu- them, including, but not limited to zero/zero initia- lar the U.S. will have to grant better access to its tives for agriculture" and argues for "simplification own markets for some commodities that have so of complex tariff regimes" and "greater certainty far not been opened up to imports. These include and transparency in the operation of tariff regimes" sugar, dairy products, peanuts, and citrus fruit. (WT/GC/W/287, 4 August 1999)." However, the Open markets also imply transparent health regula- communication also notes that "tariffs remain ex- tions, allowing such imports as poultry into the cessive on too many agricultural products in too domestic market subject to meeting the same con- many countries. This threatens to effectively ex- ditions imposed on domestic supplies. The process empt agriculture from WTO disciplines despite of opening up U.S. markets to North American progress made in the Uruguay Round." Whether Free-Trade Association (NAFTA) partners has only this statement is viewed as including high U.S. just begun. The putative date for an agreement on tariffs as well will be an interesting question in the free trade in the Western Hemisphere is only seven next round. Additionally, whether or not U.S. inter- years away. In addition the U.S. Administration has est in exploring zero-for-zero approaches means consistently supported the Asia-Pacific Coopera- that the United States opposes the notion of reduc- tion (APEC) group objective of free trade and in- ing protection across the board remains to be seen. vestment, and this objective is scheduled to be Interestingly, the US favors elimination of the achieved within 12 years. But whether the political gaps between applied and bound tariff rates. While will is present to support a liberalization of U.S. this may be targeted particularly at EU cereals tar- markets is not certain. iffs (whose applied rates, due to the 155 percent In terms of specific items for the negotiating clause, are below bindings), it could mean that in agenda the United States, like the EU, feels that the the future countries will be loath to charge anything overall format of the URAA should be maintained. less than their bound tariffs, fearing that they might Its communication to the WTO General Council otherwise get trapped at their lower applied rates in states that the subsequent WTO round. Statements on the ag- ricultural safeguard provisions are notable for their 121 Agricultural Trade Liberalization in A New Trade Round absence from the U.S. communication on market were given an additional US$5.9 billion at a time access. of low prices in 1998, and another US$7.4 billion Although less categorically than the Cairns of extra payments in 1999 as disaster relief.12 Dur- Group (see below), the U.S. statement favors "ex- ing WTO discussions, however, the United States panded market access opportunities for products sub- has defined its negotiating objective to be "that the ject to tariff rate quotas," but also argues for more agriculture negotiations result in substantial reduc- transparent TRQ administration. The U.S. requests tions in trade-distorting support and stronger rules "disciplines governing ... transparency and competi- that ensure all production-related support is subject tion for import STEs." to discipline" (WT/GC/W/290, 4 August 1999). The U.S. position on export subsidies is The latter part of this statement may be a cryp- straightforward: it calls upon the WTO tic reference to the blue box, which the U.S. has often said should be eliminated during the next ... to completely eliminate, and prohibit in round. It is curious that no explicit reference to the the future, all remaining export subsidies blue box was made in the U.S. communication on as defined in the Agreement on Agricul- domestic support. A widely held assumption was ture; and to clarify rules on other meas- that the United States would argue strongly in favor ures that can act to circumvent export sub- of eliminating the blue box, as it (arguably, and in sidy disciplines. its 1996 notification to the WTO) no longer has payments in that category. Is the United States not Given that since the Uruguay Round the United completely certain that its production-flexibility States has made only marginal use of export subsi- payments, introduced under the 1996 FAIR Act, dies (although domestic legislation allowing export really fall in the green box, as notified? Or are subsidies is still in place) this position is reasonably there fears that the extra payments made to U.S. convincing. But the U.S. communication is silent on farmers in 1998, to the extent that they were linked export credits, which form a part of foreign policy as to these FAIR Act payments, could mean that this well as a means to get rid of surpluses. whole program of payments is no longer green? The United States, however, wants to see ex- Rather than requesting stricter rules on green porting state trading enterprises (STEs) disciplined domestic support, the U.S. communication argues and suggests working toward "improving transpar- for "preserving criteria-based 'green box' policies ency in the operations of exporting state trading that can provide support to agriculture in a manner enterprises and stronger disciplines on the monop- that minimizes distortions to trade" (WT/GC/ oly activities of STEs, including pricing policies W/290, 4 August 1999). that support cross-subsidization and price undercut- ting in export markets." Australia and New Zealand The U.S. also seeks to eliminate "the use of ex- port taxes applied in a sporadic and distortive man- Australia and New Zealand played an important ner on specific agricultural products," while appre- part in the Uruguay Round discussions on agricul- ciating the fact that "some countries may use ex- ture, in particular through their participation in the port taxes legitimately to generate government Cairns Group. The Cairns Group will probably revenue." On the issue of domestic subsidies, the play a key role in the next round as well, perhaps United States has tended to downplay the signifi- with expanded membership. One function of the cance of AMS reductions, on the assumption that Cairns Group in general, and Australia and New strict rules would be difficult to enforce. Recent Zealand in particular, is to maintain pressure on the events in the United States have exploited the am- United States and the European Union to reach biguities, or slack, in the AMS constraint; farmers agreement. Protagonists are likely to try to post- 122 Interests and Options in WTO 2000 Negotiations on Agriculture: Industrialized Countries pone awkward decisions on agricultural liberaliza- pound and other complex tariffs further reduce the tion until the last moment. The "last moment" in predictability of trade." Though not stated explic- the case of the next round of agricultural talks may itly, the EU entry-price regime for fruit might be be the expiration of the peace clause in 2003. After considered to fall in that category. that the special protection given to agricultural In regard to TRQs, Australia proposes that programs by that clause might give way to the full WTO "members agree to a major expansion of rigor of the subsidies code and anti-dumping regu- market access opportunities inter alia through sub- lations. This should concentrate the minds of the stantial increases in trade volumes under tariff quo- negotiators, in particular the EU (see above). The tas." The communication also noted that "there are role of the Cairns Group in such a situation could significant inequities in the size of market access presumably be to block such an extension of spe- opportunities provided through tariff quotas. Of the cial protection until an agreement is reached on 1,370 tariff quotas in Members' Schedules, around issues of market access and export subsidies. two-thirds are in the Schedules of industrialized Overall, Australia and New Zealand (and the country Members" (WT/GC/W/198, 7 June 1999). Cairns Group in general) want to end the special Australia and New Zealand favor improve- treatment of agriculture in the WTO as soon as ments in the administration of TRQs. Australia has possible. An Australian communication to the proposed that WTO "members ensure that the ad- WTO General Council maintains that: "the objec- ministration of tariff quotas does not diminish the tive for the agriculture negotiations be, by a speci- size and value of market access opportunities." fied date, to put trade in agricultural goods on the Australia also suggested that "it appears that the same basis as trade in other goods and establish a tariff quotas are being administered in such a way fair and market-oriented agricultural trading system as to provide a level of protection greater than the which corrects and prevents restrictions and distor- impact of the tariff quota itself. Overall, tariff quota tions" (WT/GC/W/166, 9 April 1999). " fill rates are less than two-thirds" (WT/GC/W/197, With respect to particular agenda items, Austra- 7 June 1999). But no concrete approaches for im- lia and New Zealand can be expected to be in the plementing TRQs appear to have been suggested by forefront of those arguing for improved market Australia or New Zealand.'4 Auctioning of licenses access. In a communication to the WTO, Australia under TRQs seems not to be a preferred solution. has proposed that "members agree to a major ex- The position on export subsidies is clear: along pansion of market access opportunities for all basic with most members of the Cairns Group Australia and processed agricultural products, resulting in and New Zealand would like to see such practices commercially viable access on the same conditions disappear. Australia has plainly proposed that WTO as those applying to other goods," and that "sub- members "agree to the immediate elimination and stantial cuts to protection levels for agricultural prohibition of all forms of export subsidies" products at all levels of the processing chain must (WT/GC/W/168, 9 April 1999). Export credits are result from the next agricultural negotiations" also blamed for distorting markets to the disadvan- (WT/GC/W/184, 20 May 1999). tage of smaller exporters, who cannot afford such Tariff peaks and tariff escalation are mentioned programs: "Agricultural export credits as important items on the agenda: "deep cuts to all must be brought under effective international tariffs, including curtailing tariff peaks and elimi- discipline with a view to ending government sub- nating tariff escalation" are said to be necessary sidization of such credits." Australia and New Zea- (WT/GC/W/199, 7 June 1999). The rather specific land are likely to press for more effective disci- and highly protective tariff regimes that have been plines on export restrictions and taxes. Australia established in some cases are identified as an issue has suggested that for the next round, based on the notion that "com- 123 Agricultural Trade Liberalization in A New Trade Round ... with a view to providing both greater overall, although some important modifications are access to world markets for food and agri- likely to result from the specific nature of Canadian cultural products and increased certainty agricultural policies. In particular the Canadian of supply for food importing countries, in view on market access has several faces, depending particular least-developed and net food- on the product- sector concerned. Canada is likely importing developing-country Members, to resist a drastic reduction in tariff peaks, since the agriculture negotiations develop disci- these peaks are particularly high for Canada, plines on export restrictions and taxes. mainly for products subject to supply management. Such disciplines would be an integral part Yet Canada favors the notion of "zero-for-zero" of delivering further substantial liberaliza- agreements that would accelerate trade liberaliza- tion of trade in agriculture, including the tion for particular commodity groups, and would elimination of tariff escalation like to apply that approach to oilseeds, oilseed (WT/GC/W/237, 6 June 1999). products, barley, and malt.'5 Beyond zero-for-zero arrangements, Canada may exhibit a general ten- However, some ambiguity can be discerned dency to negotiate each agricultural subsector in- with respect to these countries' position on the is- dependently. If effective, this strategy might help to sue of single-desk sellers. Export STEs have been a avoid strong pressure on sectors, such as dairy prod- prominent feature of the agricultural policy of these ucts, that are sensitive in Canada (and elsewhere). countries for many years, and they have parried However it would go against the notion of reducing attacks in the GATT that accused them of export- protection across the board, as usefully employed in subsidization through price discrimination. But the the Uruguay Round. Regarding tariff reductions, a parastatals are losing their monopoly powers so carefully crafted statement says that Canada "will rapidly that it is likely that Australia and New Zea- seek the maximum negotiable reduction in tariffs land will be able to lead the charge against export through approaches that substantially reduce both monopolies in the next round with no domestic the disparity in final bound rates for similar compet- conflict to constrain their position. ing products and tariff escalation between primary On the issue of domestic subsidies, it is clear and processed forms of the same product." that Australia and New Zealand will push for sig- Canada agrees with the Cairns Group about the nificant reductions, and preferably elimination, of need to improve the administration of TRQs, "in- support in the amber box. An Australian communi- cluding possible elimination of country-specific cation proposes that WTO "members agree to ma- allocations." Its initial negotiating position, however, jor reductions in domestic support for all agricul- does not refer to an expansion of quota volumes. tural products, resulting in the elimination of all Canada wants TRQs to be on a product-by-product trade distorting domestic subsidies with only non- basis (that is, "pork, not meat; barley, not feed distorting forms of support permitted thereafter" grains"). In this Canada is probably targeting the (WTIGCIW/1'77, 4 May 1999). EU approach of aggregating minimum access quo- In the view of Australia and New Zealand the tas over larger product sectors. blue box should be eliminated, and any loosening Canada proposes two interesting variations on of green-box criteria will probably be resisted. the theme of TRQs. It favors "binding rules to re- quire that any tariff over a specified level be accom- Canada panied by a minimum access commitment equal to at least 5 percent of current consumption of the As was the case during the Uruguay Round, Can- product concerned." If agreed to, this provision ada's position on agriculture in the next round will would go somewhat beyond the UR arrangement, probably be in line with that of the Cairns Group described in the "Modalities" document, specifying 124 Interests and Options in WTO 2000 Negotiations on Agriculture: Industrialized Countries that minimum-access TRQs should be established making them very similar to the current amber box. "where there are no significant imports." But the According to Canada, however, the "overall limit" tariff levels for which Canada might want to re- would not be subject to the same, if any, reduction- quest new minimum-access commitments may, in commitment as amber support. Over and above the general, be those for which pre-UR imports were implicit ceiling that such a provision would place not significant. Through a second innovation Can- on green policies, Canada favors "a review of the ada seeks "binding rules to require elimination of criteria of the green category to ensure that green tariffs within TRQs where over quota tariffs are support does not distort production and trade." maintained at levels which limit access to the size Given its experiences with countervail cases, of the within quota volume." While this might help Canada seeks "permanent international recognition in cases where TRQs go unfilled because of high that green support should not be countervailable." within-quota tariffs, it also implies a danger that Canada also argues for "elimination of those ele- quota rents (generally flowing to agents in the im- ments of the 'peace clause' that restrict Canada's porting country) will be further enhanced. A more rights to pursue dispute settlement in cases where convincing variant might be to require reductions of trade-distorting domestic support and export subsi- within-quota tariffs until quotas are filled. dies cause nullification and impairment of access Like the U.S., Australia, and New Zealand, or disrupt sales in third country or import markets." Canada wants export subsidies to be eliminated. It Regarding STEs, it will not come as a surprise argues for disciplines on export credits, export that Canada distinguishes carefully between im- promotion, food aid, and other forms of export porting and exporting agencies. It wants "to ensure assistance. Rather than arguing for a complete that the existing disciplines on the activities of im- elimination of export taxes, Canada seeks "agree- port monopolies for agricultural products are ap- ment on rules to effectively discipline export taxes propriately enforced to ensure that such entities do and export restrictions." In very specific terms, not nullify market access commitments." At the Canada proposes "a ban on export restrictions that same time, Canada is would reduce the proportion of the total supply of an agricultural product permitted to be exported ... willing to discuss any practical trade compared to the proportion prevailing in a previous concerns identified by our trading partners representative period." This wording is reminiscent about the activities of single-desk export- of the infamous (and now fortunately obsolete) ers of agricultural products. Canada will provisions for import restrictions on products under seek to ensure that any new disciplines supply management established by the GATT un- proposed to deal with the perceived der Art. XI: 2(c). market power of such enterprises apply Somewhat less categorical than Australia's plea equally to all entities, public or private, for elimination of all trade-distorting domestic sub- with similar market power. sidies, Canada seeks "the maximum possible re- duction or elimination of production and trade- Japan distorting support, including support under so- p called 'production-limiting' or 'blue-box' pro- Japan will be among those participants in the nego- grams." Instead, as a new approach Canada argues tiations that adopt a conservative approach, resisting for "an overall limit on the amount of domestic large reductions and more stringent disciplines. Ja- support of all types (green, blue and amber)." If pan feels that under the URAA the rights and obliga- adopted, this would fundamentally change the na- tions of importers and exporters are not yet bal- ture of the blue and green boxes, essentially anced. Its communication to the WTO suggests that 125 Agricultural Trade Liberalization in A New Trade Round The objectives for the next agricultural sidered. Furthermore, not only quantity, negotiations are to establish a set of rules but also the quality, including safety and and discipliaes that are genuinely fair and stable prices of food supply, is important. equitable for both food importing and ex- porting countries, as well as for devel- One way out of the dilemma, although certainly oped and developing countries, and which not sufficient from the Japanese point of view, is to allow a coexistence of the various types of emphasize the issue of export restraints and taxes. agriculture among Members (WT/GC/ If a food-security package were to be put together W/220,28 June 1999). 16 that satisfied Japan that the trade system had an obligation to maintain exports, even at times of The position taken by Japan will tend to be domestic shortage, then the concern with self- dominated by concerns over the multifunctionality sufficiency might possibly be reduced. But this of agriculture, of which provision for food security may require more obligations on access to supplies is considered one important element. The definition than exporters are willing to concede. This is one of food security, however, remains contentious. In area where developing-country food importers Japan there is a strong tendency to equate food could have an impact. A package combining greater security with a high degree of self-sufficiency: "It import access with supply assurances could be influ- is ... indispensable to provide domestic agricultural ential in defusing current tensions between exporters production with the primary role of ensuring food and protected importers in international agricultural supply by increasing such production." While at a markets. In this context it will not come as a surprise psychological level this position might be under- that Japan maintains that it is important to standable, it poses a significant challenge to a global trading system, raising the question of how ... strengthen the existing rules and disci- to reward such an attribute without harming farm- plines on export prohibition/restriction ers in exporting countries. Whereas it could be ar- measures, export tax, export subsidies and gued that environmental contributions can be ac- export state trading enterprises, with a knowledged without undue trade disruption, it is view to redressing the imbalance of rights not easy to see how to simultaneously promote and obligations between exporting and im- self-sufficiency and preserve an open food system. porting countries. This is the dilemma that Japan will have to address in the next round, but how this is to accomplished Regarding market access, the Japanese feel vul- is not explained by statements such as: "It nerable to suggestions of reducing tariff peaks or is.. necessary to fully examine how policy interven- introducing maximum tariffs. They are more likely tion should be placed within the international to favor modest tariff cuts. The useful approach of framework and as to what extent it is allowed, agreeing on universal rates of tariff reduction for all based on the experiences of implementing the past products is questioned by Japan, which argues that agricultural agreements." There is no doubt that rice will remain at center stage for Japan, which is Border measures for agricultural products reflected in their statement that and processed food should be examined in a detailed manner, as well as on a product- An examination of policy intervention by-product basis taking into account the should not be made in a uniform manner circumstances of each product. It is not for major products. Rather, the character- appropriate to treat them uniformly, istics of production, trade, and consump- thereby ignoring the specific character of tion of individual products should be con- each product. 126 Interests and Options in WTO 2000 Negotiations on Agriculture: Industrialized Countries It is also somewhat worrying to note that Japan mitments on the total AMS) in the present would like to establish a link between tariff levels framework has some rationale. Since it is and food security, arguing that for the purpose of impossible to drastically review this clas- food security sification and to fully eliminate the trade dis- tortion effect of the 'Green Box,' it is appro- ... appropriate border measures should be priate to maintain the present frame-work taken together with domestic support. and to review the requirements and scope Given the existing trade rules, which al- for 'green' policies based on the experiences low an exporting country to take export achieved in implementing the past agree- restrictions or prohibitions, importing ments, with a view to facilitating a smooth countries have legitimate rights to take conversion towards a market-oriented pol- appropriate border measures for food se- icy... Furthermore, in dealing with the curity in their own country.... As for the 'Amber' policy, it is necessary to assure border measures for processed food, care- flexibility in its implementation by each ful attention should be paid to a sound de- Member, taking into account the progress of velopment of the food industry, which conversion towards a market-oriented pol- plays a vital role in providing a stable icy, based on the present framework, includ- supply of food of high quality. ing that of the total AMS. Japan wants to maintain effective safeguards. It Somewhat surprisingly Japan, a country that appears to have few objections to the present ad- has not thus far made use of the blue box, argues in ministration of TRQs, will probably be wary about favor of maintaining that provision: expanding them too fast, and can be expected to oppose suggestions that TRQs be linked with im- In pursuing a market-oriented policy, the ports by private firms. On the issue of further dis- existence of the 'Blue' policy cannot be ciplines on state trading importers, Japan is denied, as it is the midpoint for transform- unlikely to be forthcoming, at least until its own ing an 'Amber' policy to a 'Green' policy. internal-distribution systems have been reformed. The effects of the 'Blue' policy are less The Japanese position on export subsidies has distorting on trade and less stimulating of been that they are responsible for market disruption production than those of the 'Amber' pol- and should be discontinued. However, Japanese icy. Thus the 'Blue' policy should be state-trading importers are known to favor dealing maintained and positively evaluated. with sole sellers in export markets. Yet Japan has argued that "export state trading, on which more Japan emphasizes the need to address new issues in lenient rules are applied, may circumvent the re- the next round, particularly the treatment of geneti- duction commitment of export subsidies by using a cally modified organisms (GMOs). dual pricing system and differential pricing for each export destination." In the area of domestic support, Japan tends to favor flexible (if not permissive) arrangements for A Look across Country both amber and green policies: Positions Classification of domestic support into the groups of 'Green,' 'Blue' and 'Amber' Given the country positions outlined in the preced- (the Amber group being subject to com- ing section, there is no doubt that the major indus- 127 Agricultural Trade Liberalization in A New Trade Round trialized countries approach the next round of agri- and Canada might agree to some extent. The other cultural negotiations from rather different angles. countries reviewed here would probably rather The various groups of developing countries will have all tariffs reduced under a universal- reduction add still different perspectives to the agenda. The approach. The zero-for-zero initiatives favored by talks will therefore not be easy going. the United States and Canada can, at best, probably Given this situation it is reassuring that none of be applied to a very limited subset of products. the industrialized countries reviewed here Regarding TRQ administration, agreement is fundamentally question the validity and integrity of nearly universal that greater transparency and a the URAA and its basic structure. There is no call more disciplined approach are needed, although the for returning to the non-tariff measures that were issue may still become contentious when details are converted to tariffs in the Uruguay Round. No explored. Agreement that the volumes of TRQ country has suggested that the strict quantitative should be expanded and tariffs within TRQs cut is constraints on export subsidies should be done far less universal. On the special safeguards for away with. The need to maintain an overall limit on agriculture, the positions could not possibly di- trade-distorting domestic support is not questioned verge more widely between defending safeguards, anywhere. Viewed from the perspective of the as do EU and Japan, and seeking their elimination, situation in international agricultural trade as it which is Australia's position. Japan may be in an existed until less than 10 years ago, this can only isolated position among the other major industrial- be viewed as a great success of the Uruguay ized countries on the issue of importing STEs. Round. The next round can now start from where No country has explicitly opposed further reduc- the URAA leaves matters in the year 2000. It can tions in export subsidies. However, whether any- go beyond, and is unlikely to regress from, the thing close to the reductions agreed in the Uruguay provisions and commitments that exist now. The Round will again be possible remains to be seen. negotiations in the next round will, therefore, Complete elimination, as requested by the United concentrate on the details of further reduction States and the Cairns Group, will be strongly re- agreements and refinements of the existing rules. sisted by the EU, possibly with some support from Even though the negotiating task for the next Japan. The United States will find it difficult to resist round in agriculture is, from this perspective, much the nearly universal interest in effective disciplines more limited than that of the Uruguay Round, it on export credits. The EU, meanwhile, will proba- will not be easy to reach compromises among the bly have to give in on at least some disciplining of major industrialized countries. A look at tables 7.2 to export taxes. The degree of Canada's willingness to 7.4, summarizing country positions in the major areas discuss the 'practical trade concerns" others may up for negotiation, shows how far apart their positions have vis-a-vis single-desk exporting agencies is un- are. certain, given that most countries favor explicit dis- In the area of market access, none of the coun- ciplines on exporting STEs. tries reviewed here has suggested that tariffs should The EU's willingness to negotiate further re- not be further reduced. However the gap is large ductions of amber domestic support will not go far between the deep tariff cuts favored by countries enough to accommodate the Cairns Group's interest such as Australia, and the modest reductions ac- in seeing significant reductions in trade-distorting ceptable to the EU and Japan. An attack on tariff peaks will come mainly from Oceania, while there is somewhat broader sympathy for a reduction of tariff escalation. One unsettled issue is the product- specificity of tariff reductions. Japan prefers a product-by-product approach to tariff negotiations, 128 Table 7.2. Summary of Country Positions on Market Access in the Next Round of Agricultural Negotiations European Union United States Australia INew Zealand Canada Japan Tariffs Modest reduc- Lower tariffs and Deep tariff cuts Maximum negotiable reduction Modest lowering of tions zero/zero initiatives Curtail tariff peaks Zero/zero for specified prod- tariffs, on product-by- Reduce gaps between ap- Eliminate tariff escalation ucts product basis plied and bound rates Reduce tariffs within TRQs Reduce disparity in tariffs for Respect Simplify complex tariff similar products multifunctionality, in regimes Reduce tariff escalation particular food security Eliminate tariffs within TRQs where above TRQ tariff pro- hibitive TRQ Cautious, if any, Expand Substantial increase New TRQs where tariffs above No position announced, volumes expansion Tariffs should be only form specified level probably no expansion of protection TRQs on product-by-product basis TRQ Greater clarity Adequate disciplines Should not diminish size Binding rules No position announced administration and value of market access Eliminate country- specific allocation Safeguards Key constituent Greater certainty and Eliminate No position announced Maintain of agricultural transparency of tariff re- liberalization gimes Importing Improved disci- Transparency and compe- No position announced, but Enforce existing disciplines No explicit position STEs plines tition probably eliminate announced, but proba- bly maintain scope Source: WTO. Table 7.3. Summary of Country Positions on Export Competition in the Next Round of Agricultural Negotiations European Union United States Australia/NewZealand Canada Japan Export subsi- Willing to negotiate re- Completely eliminate and Immediate elimination and Eliminate as quickly Strengthen existing dies ductions prohibit prohibition as possible rules to redress im- balance of rights and obligations between exporters and im- porters Export credits Discipline No position announced Effective international disci- Discipline No position an- pline, with a view to ending nounced subsidization Other forms of Address "other less Prevent circumvention of Prevent circumvention Discipline market Strengthen rules and export assis- transparent forms," in- commitments promotion, food aid, disciplines o tance cluding food aid on con- and other forms of cessional credit terms export assistance Export restric- No position announced Terminate export taxes ap- Develop disciplines No restrictions that Strengthen rules and tions and taxes plied in sporadic and distor- reduce exports rela- disciplines tive manner tive to production in representative period Exporting STEs Discipline Improve transparency and No position announced Willing to discuss Prevent circumven- stronger disciplines practical trade con- tion of comnmitments cems Source: WTO. Table 7.4. Summary of Country Positions on Domestic Support and Other Issues in the Next Round of Agricultural Negotiations European Union UnitedStates Australia/New Zealand Canada Japan Reductions Prepared to negotiate Substantial reduction Major reductions, eliminat- Maximum possible reduction Assure flexibility and ing all trade distorting sub- or elimination, including blue allow for multifunc- sidies box support tionality and food secu- rity Blue box Maintain No explicit position an- Eliminate Include in overall limit Maintain as midpoint Some updating not nounced between amber and ruled out Stronger rules that ensure all green production-related support is subject to discipline Green box Consider multifunc- Preserve criteria-based Maintain Include in overall limit Review criteria to fa- tionality green policies Review criteria cilitate smooth policy conversion Peace Maintain No position announced No position announced Permanent recognition that No position announced clause green support is not counter- vailable Allow dispute settlement for nullification and impairment, and for disruption of sales Other is- Legitimate consumer All countries to table com- Do not open SPS Agreement; Address consumer con- sues men- concerns prehensive offers Establish working party on cems tioned in Animal welfare Address biotechnology biotechnology Establish forum to dis- position Geographical origin cuss GMOs Source: WTO. Agricultural Trade Liberalization in A New Trade Round support. Canada's position that an overall limit be ment." In the relevant passage of the preamble imposed on the aggregate of all amber, blue, and WTO members note that "commitments under the green support is not shared by other countries. On the reform program should be made in an equitable green box criteria, inconsistencies between various way among all Members, having regard to non- positions will probably become apparent only when trade concerns, including food security and the the negotiations turn to detail. As to the blue box, the need to protect the environment." country positions explicitly presented so far appear less threatening to the sustainability of the current approach to direct payments in the EU than many observers (including the author) had anticipated Non-Trade Concerns However this situation may change during the ne- gotiations. Given the country positions reviewed The term "non-trade concerns" (and closely related here, the peace clause may well survive the next terminology on the "multifunctionality of agricul- round, possibly with some modification. ture") has become fashionable in the current debate Some industrialized countries have explicitly over the future of the international trading regime called for discussion of several issues that were not for agriculture. They have played an increasingly on the negotiating table-or were, in their view, important role in the preparations for the next not treated appropriately-during the Uruguay round of WTO negotiations on agriculture."7 Both Round. Some of these issues will be discussed in industrialized and developing countries have made the following section. reference to these concepts. Here we will concen- trate on industrialized country perspectives in this area. At first glance it might appear paradoxical that Beyond the Uruguay talks in the World Trade Organization should deal Round Agenda with non-trade matters, and on those grounds we might tend to dismiss the relevance of such con- ,cerns for the upcoming round of negotiations. When agreement was sought during the Uruguay However, such a position would be neither practi- Round on the need to continue the process of pol- cal nor logical. It is not practical because a number icy reform in agriculture after the URAA imple- of countries put great stress on these concepts, and mentation period, a number of countries were con- will not be prepared to negotiate seriously in the cerned that another round of reductions in support next round if they are prevented from making ref- and protection might conflict too sharply with their erence to their concerns. Moreover, the respective traditional agricultural policies. Although they did words in article 20 of the URAA cannot be ig- not see a way to block a new round of negotiations nored: they reflect the compromise that was on agriculture completely, they tried to guard reached during the Uruguay Round. It would also against pressure on their policies by inserting into not be logical to exclude non-trade concerns from the relevant provision of the URAA a phrase that trade negotiations, because in most cases trade appeared to offer some hope for fending off the policies do not address trade issues per se, but heaviest attacks. Thus Article 20 of the URAA, rather their implications for the domestic economy which states the joint resolve to continue the re- and society. Changes in trade policies agreed in form process, requests that the next round of WTO international negotiations, then, affect the attain- negotiations on agriculture take into account "non- ment of domestic policy objectives. At the same trade concerns ... and the other objectives and con- time most economic policies, pursued for domestic cerns mentioned in the preamble to this Agree- reasons, have trade implications. This is why the 132 Interests and Options in WTO 2000 Negotiations: Industrialized Countries GATT goes beyond border measures and has rules tiations in terms of concrete rules and commit- for domestic subsidies as well. The URAA, in par- ments? and (b) What role might these issues play ticular, contains very specific rules on domestic during the next round? measures, in the context of the green box. Thus Based on statements by countries arguing for there is no good reason to negate the legitimacy of the importance of non-trade concerns, in particular considering non-trade concerns during interna- in the AIE process, it is not easy to answer this tional trade negotiations. question. Most such statements discuss non-trade The theory of economic policy in regard to the concerns in fairly general terms, with some refer- optimal instrumentation of measures targeted at ence to country-specific conditions, and try to ex- domestic problems and objectives is reasonably plain why it is important to leave sufficient scope clear and well documented in the literature. Based for agricultural policies that pursue objectives re- on this general literature, Anderson (1998) recently lated to such concerns. How that might translate discussed and summarized specific conclusions for into concrete WTO rules or specific modifications agricultural policies and the WTO negotiations.'8 of commitments is never directly addressed. The The general message is that border measures are statements tend to argue that taking non-trade con- economically inefficient means to cure domestic cerns into account requires continued high levels of problems and attain domestic objectives. Among support and protection, which in concrete terms domestic policies, general support for agriculture- could mean that the countries concerned want to as provided, for example, through price supports or signal that they are not prepared to accept further non-targeted direct payments-is less effective significant reduction commitments. This is not al- than well-crafted and highly targeted measures together new information, and it might be asked directly addressing the specific issues that arguably why lengthy documents with detailed discussions cause problems. In addition the most efficient do- about multifunctionality are viewed as the most mestic policy measures usually interfere less with appropriate way of getting that simple message international trade, and hence do not impose an across to other countries. It is certainly not a coin- undue burden on other countries. Moreover some cidence that the industrialized countries stressing of issues often mentioned under the headings of non-trade concerns most strongly are those that still "non-trade concerns" or "multifunctionality" turn have particularly high levels of support and protec- out to be non-issues, or issues best cured by a re- tion. That these countries are strongly opposed to duction of agricultural support and protection. further, significant reductions was likely to become Such considerations (also advanced in the AIE obvious during the next round of negotiations. process by governments that oppose a more promi- Going beyond this general level to consider nent role for non-trade concerns in the WTO nego- what the statements on non-trade concerns could tiations) appear not to have convinced agricultural possibly imply for concrete rules and commitments policymakers in countries that emphasize the im- calls for considerable guesswork. Nobody appears portance of non-trade concerns-and they may fail to suggest that non-trade concerns should result in to do so in the coming negotiating round. Emphasis less demanding disciplines for export subsidies. In on non-trade concerns is probably not only a nego- the area of market access, should non-trade con- tiating tactic, but also an approach aimed at calm- cerns allow some countries to opt for a lower rate ing domestic constituencies, allowing governments of tariff reductions, or for smaller volumes of to be seen as fighting hard for their farmers' inter- minimum access than generally agreed? For exam- ests in international negotiations. At a more prag- ple, it could conceivably be suggested that a link be matic level the questions to be asked are: (a) What established between the degree of food self- are governments that stress the importance of non- sufficiency in individual countries, on the one trade concerns seeking to achieve during the nego- hand, and allowable tariff levels or required rates 133 Agricultural Trade Liberalization in A New Trade Round of tariff reduction in those countries on the other. Domestic subsidies are the appropriate category The emphasis often placed by some governments of measures to deal with non-trade concerns. But on food security-to be achieved through adequate even in that area, what concrete changes to URAA domestic food production, and hence less depend- rules or commitments could be suggested in the ence on the vagaries of world markets-could be next round, when the preparatory stage of philoso- interpreted as pointing in that direction. One sug- phical discourse is over and practical negotiations gestion might be, for example, that a rule be agreed begin? Country-specific discounts on the rate of upon in the negotiations according to which the required reduction of domestic support, when target tariffs on basic foodstuffs, below which fur- the country concerned can demonstrate that it has ther reductions would not have to be made, are an legitimate non-trade concerns? One of the suc- inverse function of the level of self-sufficiency in cesses of the URAA was that rather than relying on food. Alternatively, the rate of tariff reduction to be country-by-country requests, a number of general achieved in the next implementation period could rules and universal reduction rates were agreed- be determined as a direct function of the degree of with very few country-specific exceptions. It would self-sufficiency. be a big step backward in the next round if agreed Such an approach would appear to be so distant rate reductions were not to apply indiscriminately from economic rationale that not even governments to all countries. Even supporters of non-trade con- stressing the food-security aspects of non-trade cerns might agree to that view. The same reasoning concerns may have considered it.'9 That would be would apply at the level of individual products, fortunate for several reasons. As argued extensively should the next round agree on making the domes- by many commentators, self-sufficiency is by no tic-support commitments product-specific. means an effective-and certainly not an effi- Taking a comprehensive view, it is difficult to cient-way of achieving food security. It would imagine that the next round could establish links therefore be patently wrong to make self- between non-trade concerns and quantitative pa- sufficiency a criterion for policy commitments at rameters of reduction commitments or allowable the international level. If this step were taken in the policy levels, be it for export subsidies, tariffs, or area of agriculture, it would also set the wrong domestic support. The only area remaining for po- precedent for other sectors, where the "security of tentially taking non-trade concerns into account in supplies" is arguably enhanced through higher self- the next round is the qualitative definition of the sufficiency. At a more technical level of econom- green box of domestic-support measures, which ics, when a country feels an overwhelming need to could conceivably be widened to make it easier for attain a certain level of domestic production for governments to respond to non-trade concerns. security reasons, a domestic-producer subsidy is a Two types of changes to the green box could poten- more efficient, and less trade-distorting, instrument tially be suggested by supporters of non-trade con- than a border tariff. cerns. Governments emphasizing the importance of First, more "green" policy measures could be food security may think more highly of domestic added to those listed under paragraphs 2 to 13 of support than of tariffs. This is reflected in state- Annex 2 of the URAA, or the eligibility criteria of ments such as: "A substantial cut in agricultural these measures could be relaxed to allow a wider support ... is likely to result in reduced production range of measures to be sheltered by the green and impaired national food security" and "Policy box.2' No concrete suggestions have been made to measures aiming at food production to safeguard date as to which types of measures should be added national food security should generally be allowed, to the current URAA list of green-box policies, or if subject to certain mutually agreed principles."20 134 Interests and Options in WTO 2000 Negotiations: Industrialized Countries which policy-specific criteria should be relaxed. round to relax the non-distortion criterion of the However a look at the domestic-support notifica- green box. If this were approached in a general tions submitted under the URAA suggests (at least) way, eliminating decoupling as a fundamental re- two types of policies for which some countries may quirement for inclusion in the green box, then the have an interest in amending the green-box defini- whole concept of the green box could lose its eco- tion. First, a number of measures were notified by nomic justification, and it would not be clear why some countries, without reference to any of the measures falling into that category should be ex- specific policies listed under paragraphs 2 to 13 of empt from reduction requirements. However it Annex 2 of the URAA. These "other" measures, would be extremely difficult to relax the non- including programs such as a scheme to refund distortion criterion only for measures meeting non- farmers for replacement expenses during vacations trade concerns by more than is already implicit in and illness, could be suggested for inclusion among the definition of many of the policies listed in rele- the green-box measures. However it is very diffi- vant paragraphs of Annex 2 of the URAA. cult to find any policies listed under "other" meas- In summary, it is far from clear what concrete ures that are related to the non-trade concerns often changes to the URAA or the commitments estab- referred to. Second, some measures have been noti- lished under it could conceivably be demanded by fied as green, although it is not really clear whether countries stressing the importance of non-trade they meet the criteria for green policies. For exam- concerns. And it is even less clear whether such ple, a payment made to maintain the gap between changes would leave the overall thrust of the administered and external reference prices for URAA intact. grains, combined with a payment to stockholding, was notified under the heading of "public stock- holding for food security purposes." A second change that might be suggested is a New Issues: Consumer relaxation of the requirement, contained in para- Concerns and the Quality graph I of Annex 2, that green-box measures "have no, or at most minimal, trade distortion effects on of Food production." A suggestion to this effect may be inferred from statements, made in the AIE pro-cess, A number of new issues have recently been raised that "a substantial proportion of production- by some industrialized countries in their statements coupled support seems to be the most efficient way on matters to be addressed during the next round of of ensuring the production of this public good" agricultural negotiations. The statements express (referring to food security as a public good), or that the view that neither current GATT provisions nor "further decoupling may lead to suboptimal situa- agreements reached during the Uruguay Round tions." It is not clear whether doubts about the eli- adequately address these issues. The issues raised gibility of a measure claimed to fall in the green include consumer concerns about food safety, box have already been raised in the Committee on treatment of genetically modified organisms Agriculture, on the grounds that the measure con- (GMOs), and animal welfare.22 cemed had more than a minimal effect on produc- Issues of this nature have to do with qualitative tion or trade. However, it is conceivable that a characteristics of agricultural products and produc- number of measures designed to meet certain envi- tion methods, as well as regulatory policies. Some ronmental objectives or to result in certain types of of them have recently resulted, or could potentially land-use have significant effects on agricultural result, in major trade conflicts. Indeed, it appears production and trade. It will be interesting to see that conflicts in this area are now at least as impor- whether some countries will want to use the next tant as-if not more important than-arguments 135 Agricultural Trade Liberalization in A New Trade Round about subsidies, tariffs, and other economic poli- States contains hormone residues have had the cies on agriculture. The U.S.-EU disputes over beef same effect. Biotechnology is a particularly hot hormones and difficulties over trade in genetically issue among European consumers, and from the modified organisms are typical of these conflicts.23 perspective of the United States Trade Representa- Although a solution to the beef-hormones dispute tive, it "continues to be a political issue in several may be around the corner, the large set of issues member states ... with scientific and objective atti- related to GMOs is likely to remain a trade irritant tudes pushed to the side by emotional and extrem- for quite some time, affecting a large volume of ist positions. Prospects for improvement appear actual and potential transatlantic trade in agricul- dim at this time" (USTR 1999: p. 111). tural and food products. Other issues relating to The fundamental issue, however, is not so technical standards in the agricultural and food much whether European consumers are more or sector will crop up from time to time, and this less paranoid about "modem" food technologies whole category of problems may well become a than consumers in other parts of the world. For crucial battlefield for agricultural trade disputes. trade problems to arise out of such concerns, it is Hence efforts to improve trade relations in agricul- sufficient that consumer attitudes differ among ture should definitely include, if not give special countries, that governments respond to the specific weight to, attempts to find solutions that reduce the perceptions of their domestic consumers, and that probability and severity of conflicts in this area. the resulting policy differences across countries This is more easily said then done, because views make it difficult, or even impossible, for traders to on how to approach these issues appear to diverge ship products from one country to another. When significantly between different industrialized coun- policy differences among countries cannot easily tries. In particular, attitudes in Europe appear to be be explained and justified on the basis of "objec- inconsistent with those in North America. tive" criteria that all countries can accept in the Some European consumer groups strongly op- same way, the trading system is faced with particu- pose the use of hormones in food production, in- larly significant problems. cluding GMOs in food products, food radiation, Such situations are part of the reality of day-to- husbandry practices that might conflict with animal day food policymaking. Faced with vigorously welfare, and so on. To some extent this opposition stated consumer concerns, politicians find it ex- is independent of whether or not such technologies tremely difficult-and often inadvisable-to argue can be scientifically shown to result in threats to that "objective" criteria such as "pure" science human or animal health. Trust in the ability of sci- should guide decisions on food and production ence to determine risk has faded significantly standards. The general public perceives a problem, among parts of the general public. Moreover, for and politicians want to be seen as responding to the consumer groups concerned avoiding such pro- such perceptions. It is not in the least surprising duction practices sometimes constitutes a value in that politicians respond to consumer concerns, and itself. The media are happy to report on such is- in case of doubt, tend to block imports considered sues, leading consumers (at least in some European to be the source of the problem. countries) to discuss these concerns and request Moreover, when domestic production is re- political action. Such concerns were exacerbated quired to meet certain standards in response to such by events such as the BSE ("mad cow") crisis and consumer concerns, it would be unrealistic to ex- the scientific, administrative, and political mis- pect that politicians will not impose the same stan- judgments committed in that context. Repeated dards on imports. Banning imports not meeting reports about illegal use of antibiotics in animal such standards is often also in the interest of do- feed; and the finding that in some cases even mestic farmers, because it reduces potential supply "guaranteed" hormone-free beef from the United and thereby avoids pressure on prices. Thus agri- 136 Interests and Options in WTO 2000 Negotiations: Industrialized Countries cultural policymakers often find it attractive to In the case of international trade, labeling is of- jump on the consumer bandwagon and argue for ten seen as the appropriate alternative to technical "legitimate consumer concerns" that must not be standards, in particular when agreement cannot be jeopardized by international trade rules. It is politi- reached on the "objective" need for standards. For cally easy, and therefore tempting, for domestic- example, in the beef-hormone dispute it has been producer lobbies to argue against practices, such as suggested that Europe should require the labeling the use of hormones in food production, and to of beef produced with hormones, rather than ban- stimulate public opposition against an international ning such beef completely from European markets. trade regime that might force the state to make The attractiveness of labeling requirements is that room for such production activities-or at least to they appear to allow foreign producers access to the import such products. However there are many domestic market-even if they use production cases in which consumer concerns are the primary methods different from those commonly used in the driving force behind the setting of standards, for importing country-rather than closing the domestic both domestic output and imports. And it must also market completely to foreign competition. In many be recognized that consumers may be genuinely cases labeling may indeed be the answer, and it may concerned-even when scientific evidence does also represent a solution to the dispute over beef not support their fears. The question, then, is what hormones, as suggested by the WTO panel. How- is the appropriate role of government in such cases, ever in at least two categories of cases labeling may and how should the resulting problems be dealt not be able to solve the problem satisfactorily. with at the international level. The first type of case is when labeling require- Regarding the role of government, public offi- ments might impose a heavy economic burden on cials should, of course, ban food that poses an ob- foreign suppliers, possibly resulting in their effec- vious threat to consumer health, a sustainable envi- tively exclusion from the market of the importing ronment, or animal welfare.24 However discussion country. The cost of labeling is not confined to that is likely to center on whether there is any need for of placing a label on the product, but also involves public action when an obvious risk is not involved. the extra cost of separating production lines and In such cases shouldn't individual consumers de- logistics between the different product categories cide privately on what food they want to buy, while distinguished by different labels, often referred to the market process ensures that different types of as "identity preservation." Such extra cost can be food, produced with both modern and traditional considerable, and potentially prohibitive. This is technologies, are supplied in sufficient quantities to particularly so when most of the production in the meet demand, without government involvement? exporting country would have to be labeled "red," The problem is that information asymmetries (pro- or potentially suspicious to consumers in the im- ducers knowing far more about quality characteris- porting country. For example, estimates of the cost tics than consumers) would prevent the market from of identity preservation for various non-GMO working efficiently, even in such cases. The appro- crops, in cases where much of the respective output priate role for governments in this context is to re- has been genetically modified, suggest a range of 5 quire labeling, to allow consumers to make decisions to 15 percent of the farmgate price in most cases. on the basis of information that is at least nearly as An extra cost of 149 percent over conventional complete as that available to producers. Indeed, la- sourcing (for zero tolerance non-GMO soymeal beling requirements are a widely accepted instru- protein) was reported in one case.25 When the extra ment of food (and other) policies, although there is costs of labeling are high, or even prohibitive, ex- not universal agreement on the exact parameters on porting countries could, of course, forgo the option which labeling requirements should be based, of shipping "green" products under a "green" label, and simply label all products "red." However be- 137 Agricultural Trade Liberalization in A New Trade Round cause of the economic loss involved they might trade. However that could change in the future, es- instead question the labeling requirement, arguing pecially in relation to GMO products. For example, that it amounts to unjustifiable discrimination the latest report of the United States Trade Repre- against foreign suppliers. In such cases the conflict sentative on trade barriers in the EU states might turn, as in the case of product standards, into an argument about the "objective" or "scientific" jus- In the United States, companies are not tification of the labeling requirement. Arguments over required to label products simply because labeling requirements might then become just as con- they are produced through biotechnology. tentious as disputes over product standards and The United States believes that such label- have to be settled in the WTO under similar rules. ing is unnecessary, in the absence of an The second case in which labeling may not be identified and documented risk to safety the appropriate solution is of a somewhat more or health. However, most European offi- theoretical nature, and appears not to have attracted cials, including those that are pro- much attention. It refers to situations in which a biotechnology, have come to believe that large majority of consumers in the importing coun- labeling of all GMOs, regardless of risk, is try is convinced that a product labeled "red" should necessary to ensure consumer acceptance not come on the market at all, because they con- (USTR 1999, p. 112). sider it unsafe, dangerous to the environment, im- moral (against animal welfare), or for some other On the basis of such views it is easy to see how reason. In such a case the economic argument it might be argued; for example, in the context of a could be advanced that the domestic transaction WTO dispute under the SPS Agreement, that there costs of labeling requirements in the importing is no scientific reason for requiring labeling, be- country are potentially higher than the benefit of cause it is not necessary to protect health. product availability to the few consumers who This takes us back to the situation in which want to buy the "red" product. These transaction governments believe that labeling is not sufficient, costs come in various forms, including the cost for and that standards should also be established. domestic producers (who, of course, have to label While such standards have in the past mainly re- as well), administration of monitoring procedures, lated to dangers for life and health, they also now and the cost of collecting information on the prod- increasingly relate to issues such as environmental uct characteristics, which is borne by consumers. impact and animal welfare. To avoid conflicts over When such transaction costs are high, compared to standards, two rather different, but not mutually the benefit of wider product choice, overall welfare exclusive, approaches are being used: specific in the importing country would be enhanced if the standards agreed bilaterally between exporters and "red" product were banned from the market alto- importers, and multilaterally negotiated general gether. In such cases can the importing country be frameworks for setting unilateral standards. Under expected to abstain from a ban of the "red" prod- the bilateral approach there are two options: har- uct, just because it inhibits free trade? monization and mutual recognition. Harmonization In spite of these limitations of labeling as an is an extremely difficult business; even the member approach to maintaining reasonably open access to states of the European Union have found this ap- markets in the face of international differences in proach too cumbersome to be used to remove tech- consumer attitudes, labeling is rightly regarded as nical barriers to trade under the Single Market ini- the most advisable approach by econo- tiative. Mutual recognition (of national standards) mists-preferable to product standards whenever was considered the more promising road forward, feasible. To date conflicts over labeling requirements and indeed was used successfully to create the have not played a major role in agricultural and food Single Market in the European Union. However, 138 Interests and Options in WTO 2000 Negotiations: Industrialized Countries true mutual recognition of standards-accepting vincing to everybody. Thus perceptions may indeed into the domestic market without further con- differ between the "old" and the "new" world, and it straints products that comply with standards in would be wrong to assume that Europe's more cau- the exporting country-requires considerable trust tious approach is necessarily and always targeted at in each others' fundamental values, and although producer protection, rather than truly perceived administratively more convenient, may be even consumer concerns. Improving the trading atmos- more demanding than harmonization. phere in the agricultural and food sector will re- As long as bilaterally agreed or accepted stan- quire determined efforts to develop new ap- dards in agricultural and food trade remain the ex- proaches that go beyond the existing rules. Indeed, ception rather than the rule, avoiding conflicts will such efforts may be necessary to maintain confi- continue to depend on multilaterally established dence in, and support for, the WTO and the interna- rules. This is the domain of the SPS Agreement, tional trading regime among significant segments concluded in the Uruguay Round to guard against of the European general public. A regime that is the misuse of technical standards in agricultural seen as requiring consumers to be exposed to trade. The rules laid down in this agreement put as goods that they believe are potentially risky will much weight as possible on objective criteria, above not, in the long run, be politically viable. all on scientific justification of sanitary and phyto- Given this situation, one of the major objectives sanitary measures. At first glance this appears to be of many European agricultural policymakers for exactly what was needed to establish a basis for de- the next round of WTO negotiations is to reopen termining whether governments have good reasons the SPS Agreement, to create room for trade re- for establishing health-related standards, or whether, strictions that may not be based on scientific evi- on the contrary, these standards are being used as dence, but which respond to "legitimate" consumer disguised instruments for protecting domestic pro- concerns. Other branches of governments in ducers when the URAA has required reduction of Europe generally support these tendencies. A major more traditional economic measures. And it is cer- target for the next round may therefore be to de- tainly appropriate to require that classic SPS meas- velop approaches that take account of European ures, clearly targeted at conventional risks to life and perceptions, without threatening to result in unpre- health, be based on appropriate scientific evidence dictable trade barriers and losses to exports from and a clear and transparent risk assessment. other parts of the world. A central element in such However, when technologies take large leaps new approaches has to be a new basis for objectiv- into uncharted territory, scientific evidence may not ity in assessing the justification of standards. Scien- yet be sufficient to assess the long-run risks involved tific evidence of definable risks to life and health, at in production methods and products based on these least in the traditional interpretation, is unlikely to do new technologies. This is the view of a significant the trick. But unconstrained government decisions run number of people, and they can cite evidence of past the risk of being captured by powerful domestic lob- scientific misjudgments to explain their residual bies, particularly if vocal consumer initiatives and mistrust of technologies that depart significantly politically well-connected producer groups join forces from well-known practices. The breathtaking speed against imported products. of progress in biotechnology clearly falls in this If science cannot provide full answers and de- category. In this situation some people argue mocracy does not truly represent the majority, what strongly for the principle of precaution, while others is the alternative? The answer may be some form are prepared to accept the new technology if it is not of independent national institution charged with clearly shown to involve definable risks. In such a deciding on food-related health issues from a scien- case the requirement of basing standards on scien- tific and precautionary point of view. The U.S. tific evidence and nothing less is not equally con- Food and Drug Administration could serve as a 139 Agricultural Trade Liberalization in A New Trade Round model. An important requirement would be that the tion in the EU and the intended benefit for animal institution be completely independent, in particular welfare? For example, an extra tariff on egg imports from producer interests, so that its decisions cannot from countries where standards are "below" those in be criticized as seeking to protect domestic producers the EU would allow EU egg producers to compete from foreign competition. A revised SPS Agreement on a "level playing-field," while the costs of meeting could potentially defne the nature of such institutions the animal welfare standard are borne by EU egg and acknowledge the standards they set. This would consumers (who should bear those costs). be similar to a provision in the SPS Agreement ac- Under current GATT and URAA rules, the EU cording to which standards based on those agreed to could not charge such an extra tariff. Could the EU by international institutions (such as the Codex Ali- then at least pay its egg producers compensation, out- mentarius) are considered to be in conformity with the side the constraints on domestic support? The green requirements of the SPS Agreement. After all, the box "payments under environmental programs" international institutions referred to are of a com- (paragraph 12 of Annex 2 of the URAA) might apply. pletely different nature than the WTO, and as such But is a standard on animal welfare an environmental have no legal power. A major difference, of course, is program? If participation in this "program" is not that the independent domestic institutions to be cre- voluntary (because the standard is mandatory), how ated to decide on standards would be national rather would the "extra costs or loss of income involved in than international bodies. It might make sense to in- complying with the government program" (to which clude some international representation in these do- payments must be limited) be determined? Discussion mestic agencies, to ensure that decisions are based on of these and similar issues will almost certainly take the broadest available evidence. place during the next round. The issues discussed might transcend technical standards and SPS matters and enter into discus- sions of economic measures, such as tariffs and domestic support. Consider, as a concrete example Conclusion of a standard relating to animal welfare, the new EU rules on minimum space per layer-hen in bat- Much of the outcome of the upcoming talks will teries. This regulation will mean that production depend on domestic political constraints and the costs for eggs in the EU are considerably higher extent to which domestic attitudes toward farm than those in the U.S. and other countries, where policy have evolved in the last few years. Imple- hens can be held in a much smaller space. If EU mentation of the results of the Uruguay Round was tariffs on eggs and egg products were low (which is made easier by the continuing process of domestic not yet the case) and if no compensation for their reform. Regional pressures have been working in higher production costs were granted to EU egg the same direction, to allow more contestability in producers (also not the case), then the EU market national agricultural food markets. Those with po- might be swamped by imports from countries with tentially competitive agricultural sectors are look- less demanding standards (assuming, unrealisti- ing forward to a new era of openness. The pace of cally, low transportation costs for eggs). If this change, however, will always be restrained by were to happen, the intended benefit of the EU countries whose agricultural sectors have been regulation for animal welfare would not material- sheltered from competition and whose competi- ize, because production of eggs for the EU market tiveness remains to be tested. Countries do not would move to countries where hens are not held in have unlimited enthusiasm for further talks on ag- accordance with the conditions the EU considers riculture at this time, but there is a feeling of resig- appropriate. Could the EU then use economic nation that further action is needed at the interna- measures to ensure the continuation of egg produc- tional level as a framework for the domestic and 140 Interests and Options in WTO 2000 Negotiations: Industrialized Countries regional policy changes that lie ahead. Policy on domestic policies of the new WTO rules for changes continue to be made in many countries, agriculture is probably the best indication of their partly in response to the URAA, but also in antici- success. pation of the next round of WTO talks. This impact 141 Agricultural Trade Liberalization in A New Trade Round References East of the Atlantic." Food Policy 23(2): 111-21. Anderson, K. 1998. "Domestic Agricultural Policy International Agricultural Trade Research Consor- Objectives and Trade Liberalisation: Synergies tium (IATRC). 1994. "The Uruguay Round and Tradeoffs." Paper prepared for the OECD Agreement on Agriculture: An Evaluation." Workshop on Emerging Trade Issues in Agri- IATRC Commissioned Paper 9. St. Paul, Min- culture, Paris, 26-27 October. nesota Blandford, D., and L. Fulponi. 1999. "Emerging . 1997. "Implementation of the Uruguay Public Concerns in Agriculture: Domestic Round Agreement on Agriculture and Issues Policies and International Trade Commit- for the Next Round of Agricultural Negotia- ments." European Review ofAgricultural Eco- tions." IATRC Commissioned Paper 12. St. nomics 26(3): 409-24 (Special Issue: Plenary Paul, Minnesota. Papers of the IXth Congress of the European Josling, T. 1999. "Who's Afraid of the GMOs? Association of Agricultural Economists, War- EU-US Trade Disputes over Food Safety and saw, August 24-28, 1999). Biotechnology." Seminar paper presented at Brittan, Sir L. 1999. "The Next WTO Negotiations the Center for International Studies and the on Agriculture: A European View." Address European Center of California, University of delivered at the 53rd Oxford Farming Confer- Southern California, California, March 11, ence, Jan. 5, 1999. London, U.K. 1999. Buckwell, A., G. Brookes, and D. Bradley. 1998. Josling, T., and S. Tangermann. 1999. "Implemen- "Economics of Identity Preservation for Ge- tation of the WTO Agreement on Agriculture netically Modified Crops." Final report of a and Developments for the Next Round of Ne- study of the Food Biotechnology Communica- gotiations." European Review of Agricultural tions Initiative. Wye College and CEAS Con- Economics 26(3): 371-88. (Special Issue: Ple- sultants. London, U.K. nary Papers of the IXth Congress of the Euro- Fischler, F. 1999. "Response to the European Par- pean Association of Agricultural Economists, liament's Questionnaire for Designated Com- Warsaw, August 24-28, 1999). mission Members." http://europa.eu.int/comm/ Josling, T., and T.K. Warley. 1996. Agriculture in newcomm/hearings/index_en.htm#answers. the GATT. Houndmills and New York: Mac- Grant, W. 1999. "Biotechnology: A Source of Ten- millan and St. Martin's Press. sions in U.S.-EU Trade Relations." Paper pre- Kerr, W.A. 1999. "International Trade in Trans- pared for the Conference on Liberalizing Agri- genic Food Products: A New Focus for Agri- cultural Trade, CAP Reform, U.S. Agricultural cultural Trade Disputes." The World Economy Policy, and Transatlantic Trade Tensions, 22(2): 245-59. University of Washington, Seattle. May 14, Podbury, T., and I. Roberts. 1999. "WTO Agricul- 1999. tural Negotiations: Important Market Access Grethe, H., and S. Tangermann. 1999. "The EU Issues." ABARE Research Report 99.3.: Aus- Import Regime for Fresh Fruit and Vegetables tralian Bureau of Agricultural and Resource after Implementation of the Results of the Economics, Canberra. Uruguay Round." Diskussionsbeitrag 9901. Roberts, D. 1998. "Implementation of the WTO Institute of Agricultural Economics, Gottin- Agreement on the Application of Sanitary and gen. Phytosanitary Measures: The First Two Years." Harvey, D. R. 1998. "The U.S. Farm Act: 'Fair' or International Agricultural Trade Research 'Foul'? An Evolutionary Perspective from Consortium, Working Paper 98-4. IATRC. St. Paul, Minnesota. 142 Interests and Options in WTO 2000 Negotiations: Industrialized Countries Swinbank, A., and C. Tanner. 1996. Farm Policy and Trade Conflict: The Uruguay Round and Com- 4 For an opposing view of FAIR Act payments mon Agricultural Policy Reform. University of and the green box, see Harvey (1998). The issue Michigan. Ann Arbor. has not yet been put to the test. Tangermann, S. 1999a. "Europe's Agricultural 5 The WTO Secretariat is to be praised for mak- Policies and the Millennium Round." World ing all unrestricted documents swiftly available at Economy. the WTO Web site, and providing efficient tech- . 1999b. "Agenda 2000: Tactics, Diversion nology for retrieving them. The address of the and Frustration." Agra Europe (Eng. ed.), May WTO Document Dissemination Facility is 29, 1999. www.wto.org/ddf/ep/public.html. The documents United States Trade Representative (USTR). 1999. cited in the following will be referenced in the text "1999 National Trade Estimate: European Un- by their WTO document number and date, and are ion." http://www.ustr.gov/reports/nte/1999/ not included in the list of references. contents.html. 6 For a comment on the process of negotiating Winters, L.A. 1990. "The So-Called 'Non-Econo- CAP reform under Agenda 2000, see Tangermann mic' Objectives of Agricultural Support." (1999b). OECD Economic Studies 13 (Winter 1989- 7 Agra Europe (Eng. ed.) 1856, July 2, 1999, p. 90): 237-66. EP/1. 8 WT/GC/W/273, 27 July 1999. The following citations are from this document. 9 For a more detailed statement on the EU's in- Notes terest in concluding the negotiations by 2003, see (current) EU trade Commissioner Brittan (1999). '° The EU Communication to the WTO, al- This paper was prepared for the World Bank though discussed with member states in the so- Conference on Agriculture and the New Trade called "113 Committee," is not yet based on a for- Agenda in WTO 2000 negotiations held in Geneva, mal negotiating mandate. October 1-2, 1999 11 Subsequent quotations of the U.S. position are from the same communication. l Parts of this paper draw on Josling and Tan- 12 It should be pointed out that other countries germann (1999). are also in the process of compensating farmers for 2 For more details on implementation of the income losses. However so far this has not taken Agreement by country, see IATRC (1997). the form of higher prices, and thus could come 3 How minimal the effect of tariffication may under the heading of direct income payments. Such be is reflected in a report in the July 1999 edition largesse may well, however, encourage farmers to of the Japan Agrinfo Newsletter 16 (I 1): p. 3: "Ja- stay in production. 13 In addition to a series of communications to pan's Food Agency announced in May that a Japa- the WTO General Council from Australia, and one nese trading firm was planning to import 61.1 tons g eneral Coubmil New Zealand of rice from Thailand under Japan's new rice im- general text submitted by New Zealand port tariff system ......I. n addition, a food importer .......... (WT/GC/W/1 12, 11 November 1998), one com- based in Yokohama reported that it would import munication on behalf of the Caims Group was 850 kilogramsaof risotto." submitted by Australia (WT/GC/W/156, Mar. 24, 1999). The communique and "vision statement" resulting from the Cairns Group 18th Ministerial 143 Agricultural Trade Liberalization in A New Trade Round Meeting on Apr. 1-3, 1998, was also submitted to border measures should be taken together with the WTO by Australia (WT/L/263, 21 April 1998). domestic support." Australia's unilateral communications are largely 20 The citation continues as follows: "Such a consistent with the Cairns Group position, as out- practical solution would seek to minimise trade lined in these documents. distortions and tensions, while safeguarding an 14 For an extensive discussion of the issues re- important NTC [non-trade concern]." lated to TRQs by Australian authors, see Podbury 21 The suggestion to relax specific criteria could and Roberts (1999). potentially result from the statement, made in the "5 At the time of writing, the WTO Document AIE process, that "the specificity of the require- Dissemination Facility did not yet have a Commu- ments [of the green box] prevents many member nication from Canada on agriculture in the next countries from effectively addressing NTCs [non- round. However, on Aug. 19, 1999, Canada's min- trade concerns]." ister of agriculture issued a statement on "Canada's 22 For discussions of trade issues in relation to Initial Negotiating Position on Agriculture," avail- biotechnology and GMOs, see for example Grant able at www.agr.ca/cb/news/n90819be.html. Cita- (1999), Josling (1999), and Kerr (1999); for animal tions in this section are from that document. welfare issues see Blandford and Fulponi (1999). 16 Subsequent quotations of Japanese state- 23 For an account of the dispute over beef hor- ments and positions are taken from this same mones until late 1997 see Roberts (1998). document. 24 This apparently straightforward statement, of i Of 64 informal documents presented by course, does not address the difficulty of deciding WTO Members in the AIE process by June 22, on the appropriate quantitative criteria; for exam- 1999, no fewer than 15 refer explicitly in their title ple, thresholds for toxic residues. to non-trade concerns, multifunctionality, envi- 25 See Buckwell, Brookes, and Bradley (1998). ronmental effects, food security, or side effects of agricultural policies and production. I For an earlier, extensive discussion of these issues, see Winters (1990). It is interesting to note that the Winters paper, in line with language used at the time, still refers to "non-economic" objec- tives. Does the current, more common usage of the term "non-trade" concerns indicate that govern- ments emphasizing this concept seek to explicitly declare that they oppose further trade liberalization in agriculture? 19 It has, however, been argued by one country emphasizing non-trade concerns in the AIE process that "trade policies conducive to food security must allow for room for maneuver to foster domes- tic production in net-food importing countries" (emphasis added). As noted, Japan, in its commu- nication to the WTO General Council, has main- tained that to ensure food security "appropriate 144 8. The Dynamics of Multilateral Agricultural Policy Reform Ivan Roberts, Troy Podbury, Neil Andrews, and Brian S. Fisher The Need for Multilateral tiplied by 100)-is currently around historically extreme levels. Reforms for Agriculture Support in OECD countries is nearly as large as the almost unprecedented levels reached in the Agricultural assistance-as measured by the nomi- mid-to-late 1980s (figure 8.1; OECD 1999). In nal rate of assistance (the ratio of the value of as- fact, agricultural protection in western Europe in sistance to the unassisted value of production mul- that period was higher than at any time in living Figure 8.1. Nominal Rates of Assistance for Agriculture in OECD Countries Frcent 80- 70- 60 - 100. 50- 40- 30 20- 10 1965-74 1979-81 1986-8 1989--91 1992--94 1995 1996 1997 1998 Note: The nominal rate of assistance is the ratio of the value of assistance to the unassisted value of productivity multiplied by 100. Source: Australian Bureau of Agriculture and Resource Economics (ABARE). 145 Agriculture Trade Liberalization in A New Trade Round memory, with the possible exception of the late tection. It can be observed, however, that protection 1930s (figure 8.2; OECD 1999; Tyers and Anderson levels tend to fluctuate inversely with short-term 1992). By 1998, total agricultural support in indus- movements in world market prices (figure 8.3). trialized countries was still as high as levels in the Agriculture has lagged behind other major sec- early 1990s. For example, U.S. direct payment sup- tors in achieving economic gains from trade liber- port is estimated to have increased by 80 per cent in alization (figure 8.4). Those gains arise from the the 1999 U.S. fiscal year (October 1998 to Septem- increased efficiency of resource use that stems ber 1999; U.S. Department of Agriculture 1999). from greater specialization, with potential benefits Agricultural support is concentrated in, but is globally and in most economies. There are many by no means limited to, the industrialized countries gainers from trade liberalization, including tax- of westem Europe, Japan and, for some commodi- payers and consumers in countries with ties, the United States. There are many factors that large distortions, and efficient producers globally, influence support levels for agricultural industries resulting in net economic gains for the world as a over time in various countries. These include, among whole. Broad ranging multilateral negotiations, others, changes in prices for outputs and inputs, levels not only for agriculture but also for many other of agricultural incomes, the size of agriculture in the sectors, provide an opportunity for countries to economy, and political attitudes toward industry pro- achieve those gains. Figure 8.2. Nominal Rates of Assistance for Agriculture in Western Europe FPrcent 100 60- 40- 20- 0 1927 1931 1956 1963 1979-81 1986-88 1989-91 1992-94 1995 1996 1997 1998 Note: The nominal rate of assistance is the ratio of the value of assistance to the unassisted value of productivity multiplied by 100. Source: Australian Bureau of Agriculture and Resource Econornics (ABARE). 146 The Dynamics of Multilateral Agricultural Policy Reform Figure 8.3. Nominal Rates of Assistance for Agriculture and Real World Prices Percent 100 -_ 9%pport in U.5, EU, and Jaan/ 70 - - 100 / World price index (right-hand axis) 60 80 World price 0 ~~~~~~~~~~~~~~~~~~~~~~~~~index 0 I_t 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Note: The nominal rate of assistance is the ratio of the value of assistance to the unassisted value of productivity multiplied by 100. Source: Australian Bureau of Agriculture and Resource Economics (ABARE). Necessary Ingredients the costs, that support should be provided in ways that are in fact minimally market distorting, and not for Success just "agreed" to be so. Approaches to achieving reduced market distor- To achieve potential domestic and global economic tions may vary. However, the greatest benefits benefits from agricultural policy reform, the bal- would be achieved by imposing the largest support ance of production must be reoriented from cur- reductions on the most highly supported products. rently high support countries to low support coun- These include, among others, rice, wheat, feed tries. This would enable increased agricultural pro- grains, sugar and milk in Japan; wheat, feed grains, duction in the most efficient producing countries. oilseeds, sugar, milk, beef and sheep meat in the The key to this change is for producers and con- European Union; and sugar and milk in the United sumers in countries where prices are currently insu- States. In addition, many agricultural products in lated from world markets to face lower market countries such as the Republic of Korea, Iceland, prices that both approach and change with world Norway, Switzerland, and Turkey receive high lev- market prices. This does not prevent countries from els of support that must be reduced if they are to supporting their agriculture. If countries do wish to contribute to significant reductions in distortions to continue to provide support then, to avoid most of world markets and trade. 147 Agriculture Trade Liberalization in A New Trade Round Market Access that those conditions are applied consistently. For Reducing barriers to trade is critical in exposing support to be effectively decoupled, the price that producers and consumers more to market prices farmers receive for their output must be the world and to assuring market access for competitive pro- market price and marginal costs should not be af- ducers. Reduced barriers would enable consumers fected by support payments. If farmers believe that in countries that currently restrict imports to obtain they can influence future support levels by current benefits from lower prices and more diverse production decisions, support will not be minimally sources. By being able to draw supplies from a distorting. wider range of sources, consumers would benefit Production-limiting arrangements, as currently from greater food security. applied, lock in production capacity and are not Many bound (maximum) tariffs exceed actual fully decoupled. Changes to these policies to ensure tariffs. Reductions in tariff barriers will be illusory that they are fully decoupled would be an advance. if cuts in bound tariffs-which are the basis for If this does not occur, payments made under such both negotiations and commitments-do not re- schemes must be subject to negotiated reductions. duce actual tariffs. Some benefit from greater market access can be Export Subsidies achieved by expanding minimum access using tar- iffquoas Sofar hwevr,tariff quotas are being Export subsidies are among the most trade distort- iff quotas. So far, however, taring are sup- ing of support arrangements. With the marked re- used as much to lock in highly distorting price sup- ductions that have occurred for some commodities, port as to expand market access. If the potential the potential for further substantial cuts or even achieved, the tariff-quota mechanism should be elimination of export subsidies appears to be a rea- transitory, with trade eventually exceeding the sonable objective. Such an outcome would be an tariff-quota quantity. Otherwise, tariff quotas will essential part of a successful agreement. continue to be used in much the same way as the However, it would be a hollow victory if the import quotas which tariffication was supposed to main effect of reduction or elimination of export replace. In many instances, beyond-quota tariffs are subsidies was a reorientation toward domestic sup- currently prohibitive, port that is still markedly distorting, as has hap- For tariff quotas to be used up to their potential pened with so-called 'production limiting' ar- to advance trade, administrative arrangements must rangements. This reinforces the need for ensuring not impede the realization of imports within the that domestic support arrangements that are ex- tariff-quota quantities. empted *om cuts are properly decoupled. Domestic Support Benefits from Liberalization Greater exposure of producers and consumers to There is an apparent paradox with agricultural pro- world prices does not mean that farm support must tection. Most economies gain from liberalizing beeliminate,a move toward genuinely trade and reducing market distorting subsidies, and be eliminated. Indeed, amvtordgniey the ones with the most to gain are those with the decoupled domestic support could achieve many of highest te mon to ge tios. in the the economic gains from liberalization while highest protection and largest distortions. In the allowing some level of farm assistance. case of agriculture, the governments of these same If decoupled support is to be effective as a countries tend to be the least willing to reform, for means of replacing market distorting forms of sup- political reasons. por i i crtialthat the conditions for decoupled The benefits from liberalization are widespread, uport it is critical minitistor and but adjustments are typically regionally concentrated. support ensure that it is minimally distorting and 148 The Dynamics of Multilateral Agricultural Policy Reforn With liberalization, the previous recipients of sup- was the agreed tariff cut under the Uruguay Round port face adjustment costs and may incur financial and it is assumed that actual reductions in all forms losses. The potential losers are visible and vocal of support would be at that level. These reductions while the more numerous gainers are widely dis- in support lead to estimated global economic gains persed, with individual gains often small. In addi- of US$34 billion a year. The largest gainers would be tion, the links between liberalization and the sub- the economies where agricultural support is currently sequent gains are not usually evident to the gainers. the highest as those are the ones with the largest dis- So domestic consensus for agricultural reform can tortions. However, most countries, including those in be difficult to achieve. the Cairns Group of low agricultural support coun- The path to reform can be eased through coop- tries, China and India also gain (figure 8.4). erative intemational approaches to mutually reduce agricultural support. If all countries reduce support, world prices would rise and become more stable while adjustment costs would decline. As others Approaches to Reform also reduce support, fears that domestic producers will be undercut by subsidized products from com- There were two main approaches to reducing agri- petitors will be reduced. cultural market distortions under the WTO Agree- Potential economic gains from agricultural lib- ment on Agriculture. One was to reduce barriers to eralization are illustrated by an analysis of the ef- trade and market distorting domestic and export fects of a 36 per cent reduction in all forms of sup- subsidies. The other was to encourage countries to port in all countries, using the GTAP general equi- reorient support away from highly distorting price librium model, as developed by Hertel (1997). This support to less distorting decoupled or production Figure 8.4. Annual Economic Gains from Agricultural Liberalization $U.SOOO millions 35 - 30 25 - 20 - 15 - 10 - Cairns pan Korea, Rep. of European United China Global Group Union Sates Note: The nominal rate of assistance is the ratio of the value of assistance to the unassisted value of productivity multiplied by 100. Source: Australian Bureau of Agriculture and Resource Economics (ABARE). 149 Agriculture Trade Liberalization in A New Trade Round limiting arrangements. Payments under these ar- duced was agriculture-wide, allowing considerable rangements are exempted from agreed reductions scope for reshuffling support between commodities in domestic support. as market conditions changed. Importantly also, the There has been a shift in policy balance since base period adopted, 1986-88, was one of high the early 1990s. Support through direct payments protection, so, with return to more normal market has increased and market price support, while still conditions, countries had to do little, if anything, to by far the major form of assistance, has declined. meet commitments. The main direct gains in reducing barriers to Perhaps even more importantly, large areas of trade and market distortions as a result of the Uru- domestic support were excluded from cuts on the guay Round were through reductions in barriers to grounds of them being minimally distorting or pro- trade and in export subsidies. duction limiting. Some types of support that were included in these categories actually lock resources Market Access into the highly distorted uses that were established with previous policies. In addition, other forms of The reductions in actual tariff levels from tariffica- support considered to be minimally distorting, such tion, whereby tariff and nontariff barriers were as expenditure on research and development, infra- converted to tariffs and negotiated down, were structure, extension and advisory services, market- generally small. Reasons include a base period ing and promotion services, insurance subsidies, when protection levels were the highest for at least environmental programs, or regional assistance, half a century and the degree of latitude that coun- would be significantly market distorting if not ap- tries were given to determine base tariff levels plied at optimal levels. (dirty tariffication). The present agreement encourages reorientation Some gains were made in assuring current ac- of support away from areas where there was some cess and opening up markets through minimum success in achieving reductions, such as export access arrangements, using tariff quotas as the subsidies, toward domestic support, especially in relevant mechanism. However, those gains were categories that are exempted from agreed reduc- not large. The tariffs for beyond quota imports tions in domestic support. were generally prohibitive, enabling tariff quotas to be used largely as a tool for managing trade within Exporf Subsidies highly distorting support systems rather than for prising or keeping markets open. The reduction in subsidized exports is perhaps the Special safeguards, which are supposed to pro- main gain from the Uruguay Round. Competitive vide a cushion for producers against surges in im- export subsidization plagued the wheat market ports and precipitate reductions in world prices, are from the mid-1980s to the mid-1990s. Since that in some instances being used as an integral part of time subsidized exports have declined greatly (fig- market management systems. With EU sugar, for ure 8.5). However, that advance is partly illusory, example, they effectively render the negotiated as the European Union has replaced much of its reduction in the tariff level irrelevant. export subsidies for cereals with direct compensa- tion payments that cover production, including the Domestic Support quantities exported. Those payments retain several production and trade distorting features but are Domestic support disciplines agreed in the Uru- excluded from reduction commitments. guay Round were probably weaker than for market For dairy products, negotiated limits on export access and export subsidies. The "aggregate meas- subsidies are constraining subsidized exports only ure of support" for each country that was to be re- somewhat. The limits for butter far exceed any 150 The Dynamics of Multilateral Agricultural Policy Reform Figure 8.5. Subsidized Wheat Exports and World Wheat Trade $U.S millions 110 - 100 - tr World wheat exports 80 - 60 - M40ximum subsidized exports 20 - U.S and EU subsidized exports 0-ll lllll I 1982-83 1984-85 1986-87 1988-89 1990-91 1992-93 1994-95 1996-97 1998-99 2000-01 Note: The nominal rate of assistance is the ratio of the value of assistance to the unassisted value of productivity multiplied by 100. Source: Australian Bureau of Agriculture and Resource Economics (ABARE). expectations of subsidized export volumes and are limiting arrangements is exempted from domestic not a constraint. For skim milk powder, subsidizing support limitations under the agreement. countries are using unused export subsidy credits Decoupling, or breaking the links between sup- from early years in the implementation period to port and key market variables including produc- enable them to exceed the annual volume limits in tion, prices, and input use, enables income support subsequent years (figure 8.6). to be paid to farmers in a less market distorting manner than otherwise. Decoupling has the poten- tial to subject both producers and consumers di- rectly to world prices. Decoupling and Produc- Decoupled support, if implemented correctly, A . can substantially lower market distortions. Conse- tion-Limiting Arrangements quently, reorientation of support toward decoupled payments is desirable if support is not totally The switch toward direct payments has been eliminated. Nevertheless even the most stringently mainly in the European Union for major crops and designed and implemented decoupled arrange- beef, with the payments being under production ments are likely to distort production somewhat limiting or "blue box" arrangements as defined in through insurance and wealth effects. The benefits the agreement. The United States has retained sub- of changing to decoupled direct payments in terms stantial direct support payments for major crops but of reducing market distortions take time to be real- has changed to more decoupled arrangements. ized. Most of the capital resources attracted into Support under both decoupled and production- supported activities by years of price support will 151 Agriculture Trade Liberalization in A New Trade Round Figure 8.6. U.S. Subsidized Exports of Skim Milk Powder $U.S 000 thousands 200 150-A Maximum subsidized exports 100- / __ _ 50 //U.S subsidized exports 50- 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 Note: The nominal rate of assistance is the ratio of the value of assistance to the unassisted value of productivity multiplied by 100. Source: Australian Bureau of Agriculture and Resource Economics (ABARE). continue to be used for agricultural activities, cotton is not fully decoupled. These other forms of probably for several years after support payments support are within the very liberal limits agreed are decoupled. These fixities maintain production under the Uruguay Round. above levels that would apply if support payments The U.S. government markedly increased direct had never been made. However, in the long term, support payment rates in 1998 when world prices provided decoupling arrangements are rigorously fell. However, this was done in a way that meant applied, production would approach levels likely to that U.S. producers still respond at the margin to be achieved with no support. much the same prices as they would face without The effectiveness of decoupling in reducing the additional support. So the additional payments distortions will be thwarted if farmers expect to be may not have had a direct effect on producers' in- able to influence future payment benefits by cur- centives. However, the higher payments when rent production choices. For example, they might world prices are lower could provide a signal to increase yields by using more inputs if they believe producers that future price risks will be offset by that future benefits are likely to be linked to yields increases in direct payments. This could, over time, in years after the initial base period. reduce incentives for farmers as a group to diver- U.S. direct support payments for major crops sify investments and could result in higher levels of since 1996 are relatively decoupled in a direct farm production. Also, if the increase in support sense. However, U.S. producers are still not re- indicates to U.S. farmers that the mechanism for sponding to world market prices because of other adjusting payments in future years may depend on forms of support including loan rates, marketing their production decisions, then the degree of de- loans and cotton competitiveness subsidies. So, the coupling in the present arrangements could be U.S. support system for wheat, feed grains and eroded. Furthernore, the extra payments could 152 The Dynamics of Multilateral Agricultural Policy Reform reduce growers' expectations of risk, reducing their placed price support is less than for cereals. Head- responsiveness to market conditions. age payments are linked to animal numbers and pro- The switch away from market price support to- vide incentives to sustain animal numbers and pro- ward direct payments in the European Union is duction at around the distorted base period levels. shown in figure 8.7. Support under the production The EU support systems for both arable crops limiting arrangements adopted by the European and beef remain hybrids of price support backed up Union for arable crops (grains, oilseeds, and pro- by border measures and export subsidies and direct tein crops) and beef since 1992 is excluded from payments. Price support levels are now much lower agreed cuts to domestic support. Such support, than before 1992, the reductions having been re- which includes compensation payments for crops placed by the compensation and headage payments. and headage payments for cattle, retains definite On that part of support represented by the difference production distorting elements. For crops, individ- between world prices and internal prices, the system ual farmers receive payments on areas actually remains as market distorting as ever. There are some planted subject to commitments under area reduc- decoupling elements for arable crops because pay- tion programs, although there are supposed to be ments are based on past, not current, yields. How- regional limits to payments. Such arrangements ever, this does not appear to have been effective so lock in production capacity at around base period far in reducing the intensity of production. levels while advances in productivity, in particular, Overall the reforms in the European Union the responsiveness of cereal production to fertiliz- since 1992 have amounted to replacement of very ers, are continuing to increase production. For beef, market distorting arrangements by somewhat less the extent to which the direct payments have re- but still markedly distorting arrangements that lock Figure 8.7. EU Agricultural Support $U.S 000 millions 100 - 80- 60 -" Market price support 40- 20- 0 I I I I I I I I I 1987 1988 1990 1991 1992 1993 1994 1995 1996 1997 1998 Note: The nominal rate of assistance is the ratio of the value of assistance to the unassisted value of productivity multiplied by 100. Source: Australian Bureau of Agriculture and Resource Economics (ABARE). 153 Agriculture Trade Liberalization in A New Trade Round in most of the previous production distortions. U.S. "Fast Track" Authority However, these reforms have reduced the extent of consumption distortions arising from the high lev- U.S. support of more liberal trading arrangements els of market price support that previously applied. and less distorted markets will be important for a successful outcome from the coming negotiations. As yet the U.S. Congress has not given "fast track" authority for the coming negotiations. Such author- Threats to the Success of ity would enable any agreement reached to be rap- idly considered by the Congress and either ac- the Negotiations cepted or rejected entirely. Absence of this author- ity would allow Congress to accept, reject, or mod- Several threats to the coming agriculture negotiations ify individual components of the agreement. Such a can be readily identified. In particular, some govem- situation could place limits on what the United ments may be attracted to protectionist policies rather States is prepared to accept in the negotiations. It than outward looking trade oriented approaches. could even prevent a final "agreement" being reached in the agricultural negotiations. While lack of fast track authority represents a major threat to reaching final agreement, it will not prevent the ne- The Asian Currency gotiations from commencing. However, granting fast track authority would provide an important Upheavals signal that the United States is committed to achieving a successful outcome to the negotiations. Following the Asian currency crisis there is a risk of some of the directly affected countries looking inward. There are also risks from the depressed world import demand situation and the currency "Multifunctionality" of appreciation that has occurred in industrialized countries. In the United States, for example, farm- Agriculture ers' incomes have been affected by both lower ex- port demand and an appreciated currency. A result Another possible threat to negotiations could arise has been a large upsurge in agricultural support. from the increasing emphasis that is being placed Generally the United States is an advocate of trade on the so-called "multifunctional" nature of agri- liberalization to attain the benefits of economic culture, particularly in industrialized countries with growth. Its advocacy, in practice, in that role will high levels of agricultural protection. be important to the success of the negotiations. Advocates of the concept of multifunctionality The extent of the impact of the Asian upheavals emphasize the unpriced spillover benefits of agri- on the agricultural negotiations will partly depend culture that are additional to the supply of food and on the timing of recovery in the affected Asian fiber. The focus of this argument is on benefits countries. While some signs of economic recovery ranging from environmental values, rural ameni- are emerging, full recovery will require significant ties, cultural values, rural development, and rural structural reforms. These reforms will need to be employment. In a policy context, the provision of successful if sustainable economic growth is to be agricultural support is seen in some countries as an achieved. appropriate mechanism to enhance these benefits. 154 The Dynamics of Multilateral Agricultural Policy Reform However, in addition to the positive spillovers be weakened or avoided through those countries from agriculture there are negative spillovers. joining a trading bloc in the future. These include environmental damage, such as chemical and animal effluent leaching into water supplies, increased salinity, and loss of vegetation. Further, there is considerable evidence that protect- The Situation of ing agriculture worsens the negative spillovers C n i (U.S. Environment Protection Agency 1990; Mahe Developing Countries and Ortalo-Magne 1999). It is important to recognize that using agricul- The implications of trade liberalization for devel- tural protection in one country to obtain multifunc- oping countries are important both for the success tional benefits lowers the benefits from agriculture, of the next negotiations and for the advancement of including multifunctional benefits, everywhere these countries' economies. else. This includes developing countries. In the Uruguay Round developing countries A more efficient and potentially more effective were accorded special and differential treatment approach to achieving multifunctional objectives is allowing them lower cuts to tariffs, a longer im- to use specific payments that are targeted at provid- plementation period, and wider exemptions from ing the multifunctional outcome. Indeed, there are cuts to domestic support than industrialized coun- already targeted policies explicitly aimed at achiev- tries. ing some of the multifunctional spillover benefits. There is a wide diversity among developing Where this is the case, the spillovers are already countries in their resource endowments, stage of being addressed. Consequently, there is no basis for development and economic and institutional struc- pursuing those benefits through broad-based agri- tures. Most have much lower levels of agricultural cultural protection. As the protection is not being protection and support than the large industrialized targeted at the specific objective, this approach is countries, but some have substantial protection. neither effective nor efficient. Therefore, there is In many developing countries, institutions that no justification for supporting domestic prices support efficiently functioning markets, such as above world prices or for general agricultural sub- secure and readily transferable property rights and sidies in order to achieve multifunctional objec- legal and administrative systems that enable low tives. cost transactions, are not as well established as in industrialized countries. Many also have inade- quate infrastructure. Many have skewed income and property distributions and some groups in soci- Regional Trading Blocs ety may be largely excluded from benefits from trade reform. In such cases institutional reforms Developments in regional trading blocs are another and infrastructure development together with trade factor that could affect the effectiveness of the and investment liberalization will be required to coming negotiations. In particular, the European realize their economic growth potential and the Union is pursuing a process to expand membership welfare improvements that this can bring. to include several eastern European countries. Lev- As already discussed, protection in industrial- els of agricultural support in these potential mem- ized countries can have serious negative economic bers are currently well below those in the European impacts on developing countries. The imposition of Union. In the next agricultural negotiations it will such costs on developing countries is unjustified. be important to ensure that commitments on agri- In any case, with increasing globalization, the culture that individual countries enter into cannot 155 Agriculture Trade Liberalization in A New Trade Round costs and risks from not opening up economies are port bills could rise. Because some will not have a increasing. comparative advantage in agriculture, multilateral In the coming negotiations, developing coun- liberalization is important for a wide range of activi- tries can choose approaches ranging from seeking ties, giving such countries opportunities to benefit liberalization for a wide range of sectors including overall from gains from trade in other sectors. agriculture in industrialized countries as well as for The main potential for market growth in food themselves, to defending their own support and not demand is in developing countries. However, that exerting pressure on industrialized countries to potential will only be realized with economic liberalize. The former has promise of economic growth. Trade liberalization and, for many, other gains to themselves as well as for industrialized institutional reforms and infrastructure develop- countries. The latter has the likely outcome of re- ment, will be prerequisites for realizing their ducing economic gains both domestically and growth potential. globally. As market distortions from agricultural protec- tion are greatest in industrialized countries, liber- alization for agriculture will result in a reorienta- Concluding Comment tion of agricultural production toward developing countries that have the comparative advantage to The next WTO negotiations represent a moment of become larger exporters. Developing countries as a truth for multilateral trade reform in agriculture. group would benefit from agricultural liberalization. Much preparatory work has gone into bringing Agricultural exporting developing countries agriculture fully into the multilateral trading sys- and those that emerge as exporters clearly benefit tem. But, that work will be of limited value unless from agricultural liberalization. The situation is market distortions in agriculture can be reduced less clear for agricultural importers as world agri- substantially toward levels for other major traded cultural prices would be somewhat higher than goods. without liberalization and, depending on the effect in stimulating domestic food production, food im- 156 hne D)ynamics ofMultilateralAgricultural Policy Reform References OECD. 1999. "Agricultural Policies in OECD Tyers, R., and K. Anderson. 1992. Disarray in Countries: Monitoring and Evaluation", Paris. World Food Markets: A Quantitative Assess- Gravelle, H., and R. Rees. 1992. Microeconomics. ment. Cambridge: Cambridge University Press. 2nd edition. London: Longman. U.S. Department of Agriculture. 1999. Agricultural Hertel, T.W. 1997. Global Trade Analysis: Model- Outlook. June-July. Economic Research Ser- ing and Applications. Cambridge: Cambridge vice, Washington, D.C. (and previous). University Press. U.S. Enviromnent Protection Agency. 1990. "Agri- Mahe, L.P., and F. Ortalo-Magn6. 1999. "Five culture and the Enviromnent: OECD Policy Proposals for a European Model of the Coun- Experiences and American Opportunities." tryside." In "CAP and the Countryside," Eco- Washington, D.C. nomic Policy, April. 157 Distributors of World Bank Group Publications ric- sand credittems arytram CZECH REPUJBUC INDIA Elo PublishingVCo.. Ltd. PERU SWEDEN county tconr.Consu yor USIS NIS5 Prodaina Allied Publishers Ltd. 46-. SeorgtogEdiorial flesarrollo SA W e nrw ireWllams AB local dstributor before placig arn Havetn 22 751 MoorE.Roadt ten11groG Aoarlado3824 ca242 OF 106 P0. 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Paul [lutchinisoni, in collabor-ati]on with l)emissie Habte and Mary Mulusa No. 405 (Gentler-Related Legal Reformt and A"kccess to Economic Resou r c es in Eastern AIfrica, Gita Gopal No. 406 The Private Sector and Power Generation in China. F Ener-gy and Mininig Sector Unit, East Asia and P'acific Regioni, NVorld Bank No, 407 Econiomzic Growth with EqIBity: Ukrainian Perspectives. .John Hansen, editor No. 408 Econiomiiic Growth with Eqaity: 117,ich Strategy fjOr Utkrainie?.ohn Hansen and l)iana Cook No. 409 East Asian Corporationis: Heroes or r`illains.? Stijn. Claessens, Simeon D)jankov. and Larry H. P. Lang No. 411 liaking the Tranisition II0rkfor 11Jinnen in En rope and Central .sia. Marnia I.azreg editor No. 412 Intellectural Property Rights anid Econ1om01ic Development. Carlos A. 'rimlo Braga, Carsten Fink, and (laudia P'az Sepuleda No. 413 .Ma1nagement anid Resoluttioni of Bankinig (Crises: Lessons fr-onti the Repufblic of Korea and .lexico ..Jose D)e Luna-Martinez No. 414 Liquefied Natural Ges ini (China: Options for Markets, Justitittiolls. and(l Finance. D)ean (Girdis, Stratos TaVoulareas, and Ray lonikins No. 416 Foster-ing Comtipetition in China's Power Iarkets. Noureddine Berrah, Ranjit Lamech, and Jianping Zhao No. 417 Hzangamy: MVoderniizinig the Sabnational Goverumnent System. Mihaly KopanNi, Samir El I)aher, I)Dhorah WVetzel. Michel Noel. and Anita P'app No. 419 Measuring and Apportioninig Rents from Hy,droelectric Power Developments. Mitchell Rothnian No. 420 Financing of Private Hydropower Projects. Chris Ilead No. 421 Free 7i1ade I1srea M1emnber-ship as a Steppinig Stomte to Developmtent: The Case of.ASEAL. Eimiko Fukase and WVill Martin ISBN 0-8213-4986-4