Developing countries in the Doha Round

Lecture 26

Economics of Food Markets

Alan Matthews

Effects of further agricultural trade liberalisation on developing countries

Developing countries harmed by OECD agricultural subsidies

• Many studies purport to show– Large gains from agricultural trade liberalisation– Large share of gains accruing to developing countries– All developing countries share in these gains

• Examples– IMF 2002: $128 billion, of which $30 billion to DCs– Goldin et al: 2003 $364 billion, of which $176 billion to

DCs– Anderson 2003: $165 billion, of which $43 billion to

DCs– World Bank 2004: $400-900 billion from total trade

liberalisation, more than half of which to DCs, of which agriculture would account for 70%

Developing countries harmed by OECD agricultural subsidies

• These numbers have been picked up by NGOs and contribute to the widespread view that protectionist agricultural policies in OECD countries are mainly responsible for preventing developing countries from benefiting from world trade.

• Cotton issue

Revisionist views

• PE models (ATPSM) have always been more ambiguous

• Panagariya 2002“The presumption that such liberalization will broadly benefit the poor countries, implicit in the allegations that agricultural subsidies in the rich countries hurt the poor in developing countries, is unlikely to be supported by closer scrutiny in its unqualified form.”

• Charlton and Stiglitz 2004“The existence of net losses for developing countries in some areas of reform should not imply that no reform is required—rather it suggests that a selective approach is needed.”

Recent World Bank estimatesAnderson, Martin, Van der Mensbrugge, June 2005

USD billion 2015 Base case

2001 Scaled

dynamics

2001 Compara-tive static

GTAP elasticities

GTAP elas + fixed land

World 287.3 156.4 127.4 88.5 77.8

Dev countries 85.7 43.9 23.7 10.6 2.0

Sub Saharan Africa

4.8 2.8 0.7 0.2 -0.1

South Africa 1.3 0.8 0.7 0.5 0.4

Selected SSA countries

1.0 0.6 0.3 0.4 0.3

Rest of SSA 2.5 1.4 -0.2 -0.6 -0.8

Impact of Doha Round agreement(Bouet et al., 2004)

Change in production

Agri-food exports

Agri-food imports

Returns to land

Change in welfare

EU25 -1.57 2.7 12.8 -15.01 0.14

US -1.05 0.8 2.8 -0.21 0.07

Asia developed -2.08 11.8 9.6 -1.79 0.06

Cairns developed 3.66 12.8 2.8 1.08 0.04

Mediterranean 0.73 8.8 -1.5 0.77 -0.16

Cairns developing 1.25 10.4 -0.7 0.60 -0.07

China 0.01 13.2 10.1 0.30 0.15

RoW 0.64 6.8 -0.7 1.15 -0.08

South Asia -0.01 6.4 7.8 -0.10 0.15

SSA 0.76 4.7 -0.8 0.22 -0.05

World -0.39 6.1 6.0 - 0.09

Achterbosch et al. 2004(dynamic GTAP model)

Million 1997 USD Per cent of GDP

Little Modest Full Little Modest Full

North Africa

67 625 1775 0.0 0.3 0.9

SSA -540 -502 704 -0.3 -0.2 0.3

South Africa

-132 93 1223 -0.1 0.1 0.9

Estimates of costs of OECD country agricultural protectionism

for developing countries• Anderson 2001: $12 billion• Diao et al 2004: $4-8 billion• Tokarick 2003: $4 billion• Francois et al 2003: $1-3.5 billion (from 50%

liberalisation)• Anderson and Martin 2006: $26 billion• Hertel and Keeney 2005: $9.5 billion• Compare to net ODA flows of around $60 billion

Channels of impact

• Main impact is through terms of trade effect– Net exporters gain, net importers lose

• More generally, farmers gain and consumers lose– Depends on degree of market integration– Presumption that trade liberalisation is pro-

poor

• Picture complicated by the role of preferences for net exporting countries

FAO World Agriculture Towards 2015/2030

Impact of different agricultural support measures

• Message that market access matters is largely valid, but…

• ..for some sub-Saharan African countries, domestic subsidies may be more important (cotton, tobacco, peanuts)

• ..the unimportance of subsidies is influenced by the Green Box status of various forms of direct payments. If some trade distortion results from such payments, impacts would be bigger

Impact of different agricultural support measures

• On other hand, export subsidies (despite NGO criticisms) now only important in dairy and sugar

• Yes, such subsidies have iniquitous competition effects, and are counter to WTO rules, but overall positive impact on developing countries of their elimination will be very limited

Conclusions from empirical work

• Multilateral liberalisation in agriculture is an important objective to pursue, but implications for developing countries are more nuanced– The adverse effects of developed country agricultural protection

can be overstated, particularly for least developed countries– For middle income countries, faced with high protection,

liberalisation means strong prospects for competitive export sectors

– For poorer countries, rising import prices, preference erosion and more onerous standards darken picture considerably, particularly under partial reforms

– Danger that crucial factors which will prevent many of the poorest countries from benefiting have not been properly addressed

The role of preferences and preference erosion

The role of preferences

• Winters: “poisoning the debate”• Systemic criticisms

– Divert trade between developing countries– Undermine support for multilateral system

• Preferences have no value– Poorly utilised (restrictive rules of origin)– Come attached with conditions– Uncertain, subject to frequent changes– Delay growth-promoting reforms

Average applied bilateral tariffs, agricultural sector, per cent, 2001

Tariffs applied by →

Applied to ↓

EU25 US Asia developed

Cairns developed

EU25 - 5.8 22.2 15.7

US 16.2 - 28.9 5.1

Asia developed 12.5 3.7 - 6.2

Cairns developed 25.9 3.4 24.9 -

Mediterranean 7.3 4.0 14.1 3.7

Sub Saharan Africa 6.7 3.0 12.0 0.7

Cairns developing 18.3 3.8 24.0 5.9

China 13.5 5.1 21.7 8.7

South Asia 14.4 1.8 33.7 1.8

Rest of World 15.1 2.1 17.4 2.6

Average 16.7 4.7 22.5 10.8

In fact, preferences are well utilisedEU agri-food imports under various regimes, 2002

Regime Eligible regime imports

‘000 Euro

Actual regime imports

‘000 Euro

Apparent utilisation

rate

Effective utilisation

rate

Share of actual

imports

Non-reciprocal preferential agreements

18,610 12,292 89% 18.5%

Cotonou 5,927 5,500 93% 95% 8.3%

GSP regular 8,755 4,385 50% 86% 6.6%

EBA 1,682 294 17% 96% 0.6%

Reciprocal preferences

Med, CEECs, EEA 11,381 8,728 77%

Non-preferential

Duty-free MFN 21,714 32.6%

MFN tariff > 0 4,200 6.3%

Total EU imports 66,558 100%

In fact, preferences are well utilisedUS agri-food imports under various regimes, 2002

Regime Eligible imports

under regime

‘000 USD

Actual imports under regime

‘000USD

Apparent utilisation

rate

Effective utilisation

rate

Share of actual

imports

Non-reciprocal preferential agreements

4,137 3,607 87% 6.2%

AGOA 162 137 85% 85% 0.2%

GSP regular 2,456 1,415 58% 94% 2.4%

Reciprocal preferences

NAFTA 11,616 11,531 99% 19.8%

Non-preferential

Duty-free MFN 29,047 49.8%

MFN tariff > 0 14,039 24.1%

Total US imports 58,368 100%

…and quite effective

• Mixed evidence from statistical studies– Ozden and Reinhardt 2003, Stockel and Borrell,,

2001 argue preferences have no value

• But number of studies argue the opposite– Stevens and Kennan (2004)– Wainio and Gehlhar (2004)– Romalis (2003)

• Criticism of preferences driven by their systemic effects risks depriving some developing countries of something of real benefit to them

Who loses from preference erosion in agriculture?

• Bulk of losses fall on a narrow set of ‘highly preferred’ countries with exports concentrated in a handful of highly protected sectors: bananas, sugar, meat

• Big losers are mostly small islands and most sub-Saharan African states

• Possibility that MFN trade liberalisation or additional preferences could provide some offsetting gains

• Necessity of compensation package to ensure balanced outcome to the Round?

Where does the problem lie?

• Northern agricultural protectionism not a significant explanation of the problems facing the poorest countries to integrate into international trade– Lack of regional integration (South-South

barriers) may be as/more important– Technical/SPS barriers which often prevent

any trade at all (EU restrictions on fish/shellfish exports, new EU SPS controls, affect food as well as primary produce)

The ‘Aid for Trade’ debate

• Aid for trade covers– Trade policy formulation– Trade facilitation– Trade adjustment– Trade-related infrastructure

• Various initiatives underway– IMF Trade Integration Facility– WTO and others, Integrated Framework– Proposals for preference erosion fund– Now part of the Doha Agenda

Should SDT be more differentiated?

Why greater differentiation of special treatment in agriculture?• Negotiation demands

– US/EU joint proposal August 2003 (please correct in written paper)

– Zoellick letter Jan 2004– Lamy/Fischler letter May 2004– Mandelson speech Feb 2005

• Main elements– More competitive DCs should forego SDT– Deeper SDT for wider range of DCs (G-90)– More competitive DCs should also offer SDT to

DCs

Why greater differentiation of special treatment in agriculture? • Economic arguments • One size does not fit all

– SDT should fit the purpose it is designed to serve– More restrictive SDT will also be more generous

• Trade policy may be second best development instrument– Example of dealing with price drop

• Targeting SDT reduces the negative externalities of rule exemptions for system as a whole

Why greater differentiation of special treatment in agriculture?

• The argument for differentiation is that it will lead to more generous SDT

• Recent IPC proposal– Least developed countries– Lower middle income– Upper middle income– Possibility of appeal to move to lower

category

The status of the differentiation debate in agriculture

• Developing countries opposed– Despite variety of developing country groups

representing different interests

• No mention in July 2004 Framework Agreement– But can arise in negotiating any of the

individual modalities of the agriculture agreement

Criteria for differentiation

• Country-based criteria– Income per capita as proposed by the

International Policy Council

• Food security-based criteria– Classification of developing countries into

food-insecure and food-secure not a simple technical issue…

– …different indicators give different results

Criteria for differentiation

• Swedish Board of Agriculture typology– Food insecure (including LDCs)– Developing countries with special need for

rural development– High income advanced developing countries

with low dependence on agriculture– Significant net food exporting countries

(Brazil, Argentina, China, Thailand)

Where greater differentiation would apply

• Market access issues– Tariff reduction formula– Special products– Special Safeguard Mechanism– Expanding Tariff Rate Quotas

• Domestic support disciplines

• Export competition disciplines

• Market access for least developed and other developing countries

Targeting food-insecure beneficiaries

• Focus on food security crops and low-income/resource poor (LI/RP) farmers

• Allow self-definition of food security crops on a negative list approach within broad parameters

• Great difficulty of defining LI/RP farmers and monitoring whether policies are directed to these farmers… although it is an AoA recognised group

Conclusions

• Doha Round meant to be a development round• Developing countries dissatisfied with outcome

of Uruguay Round• Developing countries have conflicting interests in

the outcome• Can sufficient flexibility be offered to developing

countries while ensuring sufficient negotiating gains for developed countries?