Developing-Country Agriculture and the WTO

In the wake of the World Trade Organization (WTO) meetings in Seattle in late 1999, NEWS & VIEWS interviewed Kym Anderson, professor in the School of Economics and director of the Centre for International Economic Studies at the University of Adelaide, Australia, on his views on the role of trade for developing countries.

NEWS & VIEWS: What are the main disadvantages developing countries currently face in the international trade arena, and how does agriculture fit into the picture?

The key disadvantage is access to the markets of other countries, particularly for textiles, clothing, and agricultural and food products. Recent analysis suggests that a move to free trade globally would benefit developing countries almost as much as advanced economies, even though developing countries account for only one-sixth of global gross domestic product. More than one-third of that gain to developing countries from freeing all trade globally would come from reform of farm and food policies.

The agricultural policies harming developing countries involve not just high import tariffs in both rich and poor countries and tariff escalation, but also complex tariff rate quotas and a vast array of technical barriers to trade such as product standards and quarantine restrictions.

NEWS & VIEWS: Is the millennium round of trade negotiations, begun in Seattle under the auspices of the WTO, the best place to address developing-country trade concerns?

The WTO round definitely is where developing countries as a group should focus their negotiations. Developing countries will continue to get occasional access to advanced-country markets through various preferential deals negotiated bilaterally or regionally, but nearly always such deals leave aside the potentially most important goods for developing country exporters, namely farm products and clothing. These occasional, limited deals also tend to discriminate against other developing countries so that, as a group, developing countries may even be worse off than without preferential arrangements.

Along with the advanced economies of the Cairns Group, developing countries need to focus on securing a much greater extent of farm trade liberalization than the aftermath of the Uruguay Round (UR) has produced. It is great that the UR began the process of getting agriculture into the WTO mainstream and led to an agreement to phase out quotas on textile and clothing trade, but very high barriers to imports of these goods remain. Developing countries could lend more support to Cairns Group efforts to reduce food trade distortions and could coordinate an effort among a broad group of their own, including clothing exporters, to topple remaining barriers. These efforts would be hindered if the least-developed countries (LDCs) were bribed to break away from other developing countries by preferential, duty-free access to high-income markets.

NEWS & VIEWS: Are there prospects for new negotiating partnerships that could emulate the success of the Cairns Group in the last trade round?

The Cairns Group was a spectacular success in coalition-building. It continues to strengthen, having taken oh three new Central American members recently. The next most likely developing-country group to form is exporters of textiles and clothing. If food and clothing exporters were to get together and argue jointly for dismantling protection in textiles and agriculture, virtually all developing countries would want to support their cause.

NEWS & VIEWS: What about the more influential nongovernmental organizations (NGOs)? Where are they likely to stand on the issues, and how will they affect the outcome of the trade talks?

NGOs by definition are not elected representatives of the citizens of WTO member countries and are usually focused on a small subset of issues about which they hold unusually strong, and sometimes extreme, views. Through their domestic lobbying efforts their views are already reflected, along with myriad other views, in national government positions. Hence, to the extent that such special-interest groups are influential in multilateral fora, as they were in Seattle, their views are being "double counted."

Having said that, NGOs are here to stay and will be increasingly influential, thanks to the information revolution that has substantially lowered the cost of sharing information and attracting mass media attention. How will they stand on agricultural trade liberalization? A decade ago most environmental groups were against it, but since then they have come to appreciate that there are environmental pluses as well as minuses from trade reform, and that the pluses probably dominate. Hence they are more supportive now. Development NGOs too are coming round to appreciate that both agricultural and textile reform would bring major gains to the vast majority of the world's poor. So it is possible that as they become more informed, these NGO groups could become supportive rather than sceptical of further trade reform in the next WTO round.

NEWS & VIEWS: Some in the EU are beginning to talk about the WTO's millennium round being a development round. Can you tell us more about this? Could it offer something different, or is it just rhetoric?

The British, and then the EU, have popularized the idea that the WTO's next round will be a so-called development round. This is probably partly a response to claims by numerous developing countries that they benefited little, if at all, from the UR. Certainly many of them feel they had little say in drafting the UR agreements, and some have found it difficult to implement their UR commitments (for example, in services and intellectual property). Naturally developing countries hope that this next round will be different. Efforts are underway, with help from the World Bank and the United Nations, to provide developing countries with more technical assistance in preparing for the new round. A concerted effort is also being made to in-dude more developing countries in the day-to-day negotiating processes at the WTO.

But the test of how serious richer countries are in making this a development round will be the extent to which they keep agriculture and textiles high on the negotiating agenda. These are the two areas that have the largest potential gains from abroad for developing countries.

NEWS & VIEWS: Could freer trade harm some developing countries and the poorer people in those countries? If so, could the harm be offset?

It is always possible for a country's terms of trade to deteriorate in the wake of an external shock, and a multilateral trade reform package is an external shock. But to the extent that a country participates in that reform process, it also delivers a domestic policy shock that is unequivocally beneficial to its economy. And in practice the gain from reforming one's own policies, unless that reform is minuscule, invariably overwhelms adverse terms of trade changes. Hence every economy that undertakes at least some reform is likely to gain in an aggregate sense from a new round.

Within countries there can be losers though. A particular group of households could lose either because of a rise in the prices of the things on which they spend the most, and/or because the industry in which they work declines due to greater import competition. Income distribution, however, is almost certain to improve in these countries if protection of the high-employment sectors, namely food and clothing, is reduced.

NEWS & VIEWS: What are the new trade agenda issues, and what bearing will they have on the negotiations?

What Seattle showed is that there is no consensus on what new issues ought to be included in the next WTO round. Globalization has raised the relative importance of foreign investment policies, as well as numerous domestic policies that impinge heavily on the international competitiveness of various industries. Among the latter are environmental and labor standards. So it is not surprising that such things as competition, environmental, and labor policies have been raised as trade-related issues. Environment and labor issues have become more prominent also because they have the support of sharply focused NGOs whose cost of collective action has plum-meted with the information revolution.

Whether these new issues should be included is a separate matter. On the one hand, there is a risk they could direct negotiator attention away from mainstream trade policy issues. But on the other hand, ignoring issues such as labor and environment will cause the parties pushing those particular agendas to paint the WTO as irrelevant. This will make it harder for advanced economies to muster the political support necessary to reform farm and textiles policies that would benefit developing countries.

NEWS & VIEWS: What are the chances of a more open and fairer trading system, especially for agriculture, emerging in the near future?

It depends on what is meant by "near future." Technically the WTO agricultural negotiations started at the WTO in March 2000. But in terms of outcomes, nothing can be expected until a more comprehensive round is launched, because only then are intersectoral tradeoffs possible. Such a launch seems most unlikely before the latter half of 2001, and possibly later still. Once it is launched, the negotiations will take time - the UR took eight years to conclude.

I am confident, however, that perseverance will be rewarded, because the huge levels of agricultural protection in industrial countries cannot be justified on either efficiency or equity grounds, and greater policy transparency is exposing that fact to ever-larger numbers of voters.