Your book 'Trade Policy and Global Poverty' concludes that increase in market access in agriculture (and to a lesser extent, textiles and apparel), will provide significant welfare gains to developing countries. However, domestic lobbies within many developed countries, including the United States, would strongly oppose such liberalisation. What is the way out?
Domestic lobbies in industrialised countries will certainly resist liberalisation in agriculture, and textiles and apparel. However, there is more scope for liberalisation than many might think. An underlying force is the political need for the Doha Round to be a meaningful success in the global fight against poverty. Industrial countries have become much more active in supporting global development in recent years, and policy-makers are aware that trade opportunities are key to development. There would be a high cost to the international reputations of the United States and the European Union in particular if the Doha “Development Round” were seen to be a failure in contributing to the development objective.
In agriculture, there is already some movement. Export subsidies are to end. The EU has just announced a 40 percent cut in the sugar price maintenance target in response to a World Trade Organisation (WTO) ruling on a Brazilian petition, and the United States will have to liberalise cotton because of a similar WTO ruling.
The EU argues that its subsidies have been decoupled from output, and developing countries can insist on an external verification of this in the negotiations. In textiles and apparel, the key is to ensure that quotas really do disappear, and that the initial round of safeguards measures is temporary, as safeguards are supposed to be. Industrial countries must accept some tariff cuts in textiles and apparel as well given that they have tended to insist on general tariff cutting formulas.
It will be crucial, however, for the developing countries, especially the middle-income countries, to make substantial offers to reduce their own protection (and to reduce not just bound tariffs but also applied tariffs). This will induce manufacturing interests in industrialised countries to put pressure to limit the obstacles imposed by agricultural and textile apparel interests.
Even if agricultural markets were liberalised, the benefits might accrue to large agriculture exporting developing countries such as Argentina and Brazil. Would it not be better to strengthen preferential access for developing countries rather than liberalise the agricultural markets completely?
Argentina and Brazil are not unique in having a comparative advantage in agriculture among developing countries. Many developing countries have comparative advantage in agriculture and would benefit from improved terms of trade from general agricultural liberalisation. My calculations show that free trade in agriculture contributes 53 percent of the total income gains to developing countries from global free trade. They also show that free trade in agriculture would benefit almost all of the developing countries and regions.
Keeping agriculture protected while increasing preferential access for some developing countries would inevitably yield a minimalist result. The least developed countries account for only three percent of the agricultural exports of developing countries as a whole. Strategically, for the developing countries as a group, it would be a mistake to let the industrial countries avoid overall agricultural liberalisation in exchange for improving preferential entry for the least developed countries who would be the logical candidates for preferences.
Studies by the Center for Global Development point out that 80 percent of the $114 billion that the US gave away as subsidies to American producers between 1995 and 2002 went to agribusiness firms. Is there a case to argue that the small farmers in the US are in the same boat as the farmers of the developing world?
The main point is that agricultural subsidies in the United States are indeed concentrated on the larger farms. The top 10 percent of recipients receive 65 percent of the subsidies. Yet the politics of subsidies justifies this on grounds of preserving the small family farm. The real problem is that the subsidies make it highly profitable to engage in lobbying. It might be difficult, nonetheless, to make the case that small American farms are, in fact, made worse off by the subsidies. In some products their small share of subsidies may just reflect their small share of output.
Are Free Trade Agreements (FTAs) a fair substitute for multilateral liberalisation? Would the Central American Free Trade Agreement (CAFTA) that the US intends to sign with six countries in Central America help them improve market access for agricultural exports such as sugar and rice?
FTAs should not be seen as desirable substitutes for multilateral liberalisation. The challenge today is to get deep liberalisation multilaterally through the Doha Round. After that it will be the right time for individual regions to go further and adopt FTAs, as for example, the Free Trade Area of the Americas. It is important that CAFTA is completed soon, because otherwise the Central American preferences will expire. Ideally, CAFTA should allow market access for sugar and rice, but we will have to see whether this is blocked by the interest groups.
What would be your three top prescriptions to prevent developing countries becoming disenchanted with the Doha Round? What concessions would developing countries - especially the more advanced ones - have to make in agricultural and non-agricultural market access?
Developing countries should not be disenchanted; they successfully forced more than expected meaningful liberalisation at Cancun, and they can build on their success in the future.
The developing countries should insist on deep liberalisation in industrial country agriculture, including decoupling subsidies from output, as well as substantial cuts in high tariffs. Developing countries should call for wider free entry for imports from least developing countries, and the middle-income countries should also grant free entry to the least developed countries.
At the same time, developing countries should be willing to offer enough liberalisation of their own markets to encourage manufacturing interest groups in industrial countries to push for liberalisation in their own countries of agricultural and other sectors of interest to developing country exporters. This would mean cutting applied tariffs on manufactured goods in developing countries, which are typically around 15 percent. |
