By Eugenio Diaz-Bonilla, Visiting Research Fellow and
Sherman Robinson, Director, Trade and Macroeconomics Division
International Food Policy Research Institute
Developing countries as a group have much to gain from continued progress toward a transparent, rule-based trading system in agriculture, say Eugenio Diaz-Bonilla and Sherman Robinson, who urge these nations to begin now to organize themselves to influence the agenda and the outcome of the next round of global negotiations.
The researchers say the negotiations should eliminate export subsidies, impose stricter disciplines on export taxes, cut tariffs, and ensure that food aid continues to be available to poor countries in grant form and delivered so as not to displace domestic production in the countries receiving it. "Badly managed food aid, or cheap food imports due to export subsidies, may just reinforce the bias of economic policies against the rural sector, with its negative impact on poor agricultural producers," they say. International research organizations (such as IFPRI, among other institutions) may provide support to developing countries through programs of collaborative research, technical assistance, and capacity strengthening.
Starting with the first round of trade negotiations under the General Agreement on Tariffs and Trade (GATT) after World War II, there has been a relatively steady trend of increasing multilateral trade liberalization. The successive rounds of negotiations recognized the greater needs of developing countries, especially since the Tokyo Round. Yet the participation of developing countries was limited. Since many developing countries were not members of GATT, the major forum for airing their views was provided by the United Nations Conference on Trade and Development. The views of developing countries had some impact on the Lomˇ¦agreements and on aid flows, but had limited influence on negotiations concerning trading rules, which were discussed within the framework of the GATT, where OECD (Organization for Economic Cooperation and Development) countries set the agenda.
In the Uruguay Round, which began in 1986 and concluded in 1993, developing countries played a larger role in the negotiations compared to previous rounds. In particular, agricultural net exporters organized the Cairns Group (which, in addition to Australia, New Zealand, and Canada, included several large developing countries such as Argentina, Brazil, Indonesia, and the Philippines) to pursue their interests. Furthermore, during and after the conclusion of the Uruguay Round, the formal accession of developing countries to the GATT and now the World Trade Organization (WTO) has continued apace. Of the 134 members of the WTO in February 1999, some 70 percent were developing countries. The United Nations classifies 48 countries as least-developed (LLDCs). Within that group, 29 are members of the WTO, six are in the process of accession, and three are observers. Also, 18 countries have been identified as net-food-importing developing countries (NFIDCs).
Later this year, trade ministers from WTO member countries will meet in Seattle, Washington, to determine, reflecting their governments' views and societal pressures, whether to launch a new round of trade negotiations, the "Millennium Round." Also, Article 20 of the Uruguay Round Agreement on Agriculture (URAA) required that agricultural negotiations be resumed during 1999. If the ministers indeed initiate this Millennium Round, agriculture will be part of it. Otherwise, agricultural negotiations will proceed on their own.
It is in the interest of the developing countries to prepare themselves and to be active and informed participants in the process. They should organize themselves to influence the agenda and the outcomes, pursuing their interests both at the level of a general round and at the level of sectoral negotiations, such as agriculture. We briefly discuss here some of the issues from the perspective of developing countries, particularly the most vulnerable.
Some Definitions
The LLDCs are identified by the UN General Assembly based on several criteria -- income per capita, augmented physical quality of life index, and an index of economic diversification. As a group, they have a population of about 590 million people, with an income per capita about 4 percent that of the world average (1996). Agricultural production per capita in LLDCs has been declining since the 1970s, although the same indicator for all developing countries (mainly under the influence of China) has gone up by nearly 40 percent in the same period. LLDCs represent a small fraction of world trade (less than 1 percent for total trade and about 2 percent for agricultural trade). They had a positive, although declining, net agricultural trade balance until the mid-1980s, when it turned negative. Almost 20 percent of their total imports are food items.
The 18 net-food-importing developing countries have been selected through a process within the WTO. They have a population of some 380 million people and an income per capita nearly five times that of the LLDC average, but still much lower than the world average. NFIDCs are a diverse group: four are upper-middle income countries; eight are lower-middle income; and six are lower income. Four of them had net food exports on average during 1995-97, but because they imported cereals they are included in the group. NFIDCs' per capita food production as a share of both world and developing country averages has risen, although from very low levels.
Although the categories of "developed" and "developing" countries have important legal consequences under WTO rules, there are no formal definitions of either category. The process works through self-identification and negotiation with other member countries of the WTO.
Completing the Unfinished Agenda
In general, developing countries operate under what has been called "special and differential treatment." They face lower disciplines and enjoy longer time frames for implementing reforms. In the case of LLDCs, they are totally exempted from WTO commitments, and it has been agreed that developing and least-developed countries should receive special consideration for market access and technical and financial support. Also, during the Uruguay Round, concerns that liberalization of agricultural policies and trade could adversely affect the food imports of LLDCs and NFIDCs led participants to include several measures dealing with food security issues in the "green box" of permitted domestic support -- for instance, the formation of public stockholding and the provision of foodstuffs at subsidized prices. There was a ministerial decision in Marrakesh in April 1994 to deal with possible negative effects of agricultural trade reforms on the food security of LLDCs and NFIDCs. The decision was reemphasized at the 1996 ministerial meeting of the WTO in Singapore.
The discussion of a negotiating agenda for the developing countries in the Millennium Round must consider the important differences among them, including a better conceptualization of the definitions of "developing" countries and NFIDCs. The following suggestions should be read with that caveat in mind.
Export and Domestic Subsidies. While many developing countries have significantly reduced distorting domestic agricultural policies, the possible benefits that these countries and the world can enjoy are thwarted by the subsidies of developed countries. The Uruguay Round was a first step in imposing discipline on the unfair competition arising from subsidized agricultural exports, which hurts poor agricultural producers in developing countries irrespective of their net agricultural trade position. In the next negotiations, that first step should be completed with the elimination of export subsidies. Net-food-importing developing countries should also be interested in stricter disciplines on export taxes and controls that exacerbate price fluctuations in world markets.
Under the Uruguay Round agreement, there is still a lot of scope for the developed countries to use domestic subsidies, in addition to the use of export subsidies, to help their farmers. The developing countries should seek further disciplines in this regard, including, among other things, the elimination of exemptions under the "blue box" (which allows farmers to receive some forms of direct payments that are considered to be trade distorting). Least-developed and developing countries, however, will still be allowed "special and differential treatment" on these issues.
Market Access. If the developing countries are to succeed in diversifying their agricultural sectors, they need expanded access to markets in developed countries. This includes increasing the volume of imports allowed under the current regime of tariff-rate quotas (TRQs, which replaced the previous system of rigid quotas with a combination of a quantitative quota and a high tariff for the eventual out-of-quota imports); making the administration of the TRQs more transparent and equitable; seeking further reductions in tariffs, particularly those still high in some key products; and completing the process of tariffication in the cases where exemptions were granted. Also, eliminating, or at least reducing, tariff escalation in nonagricultural products is important for developing countries: this practice undermines the possibilities of expanding production and exports of processed goods that use agricultural inputs, exploiting "forward linkages" in the value-added chain.
What the Most Vulnerable Need
The special situation and concerns of least-developed countries and net-food-importing countries were recognized in a ministerial decision agreed upon at the completion of the Uruguay Round in 1993. These concerns include the preservation of adequate levels of food aid, the provision of technical assistance and financial support to develop the agricultural sector in those countries, and the continuation and expansion of financial facilities to help with structural adjustment and short-term difficulties in financing food imports. It is important to make food aid available in grant form, to target it to poor countries and social groups, and to deliver it in ways that do not displace domestic production in the countries receiving it. Badly managed food aid, or cheap food imports due to export subsidies, may just reinforce the bias of economic policies against the rural sector, with its negative impact on poor agricultural producers.
Volatility in agricultural prices must be monitored carefully. While expansion of world agricultural trade should limit overall fluctuations by spreading supply and demand shocks over larger areas, the decline in world public stocks as a percentage of consumption works in the opposite direction. Improving early warning of potential food shortages, lowering costs for food transportation and storage, and providing better targeted food aid programs and financial facilities for emergencies are also issues that need to be addressed by countries participating in the coming round of negotiations.
The impact of changes in trade and agricultural policy on poorer consumers and producers in developing countries is a matter of debate. Some have argued that trade liberalization may hurt both groups. Others have answered that greater productivity and growth coming from better trade and sectoral policies should help generate employment and income, given a setting of adequate overall economic policies and properly functioning markets and social institutions.
Small producers will also be helped by the disciplines that the URAA is bringing to subsidized and dumped exports, while it allows the implementation of a variety of programs aimed at poor producers or consumers, including stocks for food security purposes and domestic food aid for populations in need. The issue here is the adequate design and funding of domestic policies to achieve the intended objectives of agricultural growth and poverty alleviation, which most certainly will not be helped by trade-distorting interventions either in developed or developing countries.
In general, low-income developing countries and LLDCs should emphasize to the international community the importance of creating and expanding a supportive international trade and financial environment and of implementing an integrated framework for economic and social development, with agricultural and trade policies being an integral part of the strategy. Appropriate measures would include -- in addition to the agricultural trade issues suggested here -- the continuation and enhancement of the reduction of the external debt of Heavily Indebted Poor Countries (the HIPC initiative) and the further liberalization of trade in textiles.
But improved international conditions should go hand-in-hand with a better domestic framework in developing and least-developed countries, including stable macroeconomic policies, open and effective markets, good governance, the rule of law, a vibrant civil society, and programs and investments that expand opportunities for all, with special consideration for poor and disadvantaged groups.
Bringing Developing Countries into the Process
Developing countries, as small players in the global arena, should be interested and active participants in the design and implementation of international rules that limit the ability of larger countries to resort to unilateral action. Also, domestic legal and institutional frameworks in developing countries may be strengthened by the implementation of internationally negotiated rules that limit the scope for rent seeking and arbitrary protectionist measures. The developing countries as a group have much to gain from continued progress toward a transparent, rule-based, trading system in agriculture.
What are the requirements and skills for the developing countries to become effective members in the next WTO round? Any negotiation requires careful consideration of the legal, economic, and political dimensions that define the substance and possible evolution of the negotiations, as well as the diplomatic and negotiating techniques that may help in the attainment of the expected outcomes. Questions that need to be addressed include:
What are the economic and social consequences of different WTO scenarios (quantitative estimation of impacts)? Knowing the impacts of alternative scenarios is crucial if developing countries are to represent their interests in the negotiation process.
What are the legal issues being discussed (definition of obligations, exemptions, time frame, and so on)? Detailed knowledge of international trade law is crucial if developing countries are not to be "shortchanged." The devil is in the details.
Looking at the political process, who are the main actors and their interests and what type of alliances may drive the negotiations? Negotiators must understand the political economy of their own country and of other countries in the WTO if they are to negotiate effectively.
With these elements, an adequate diplomatic and negotiating strategy must be defined and implemented.
Developing countries that have carefully considered all four components will be better prepared to participate effectively in the coming negotiations. Of course, limited financial and human resources act as an important constraint. However, developing countries may overcome some of the problems through collective action, for instance considering the creation of alliances with respect to their main export and import commodities and the markets they approach for their exports. An example is the Cairns Group. This approach could reduce the fixed costs of negotiations, spreading them over groups of countries, allow a better use of scarce technical expertise, and improve the bargaining position of developing countries. It could also be in the interest of the OECD countries to deal with negotiating blocs, which represent a smaller number of negotiating positions, rather than with numerous separate countries. The negotiations would be much more efficient and balanced.
Economic Perspectives
USIA Electronic Journal, Vol. 4, No. 2, May 1999