Impact of OECD country agricultural protectionism on developing countries

1
Impact of OECD country agricultural protectionism
on developing countries

• Lecture 30
• Economics of Food Markets
• Alan Matthews

2
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

3
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.

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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 requiredrather it
  suggests that a selective approach is needed.

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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
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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
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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

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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

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FAO World Agriculture Towards 2015/2030
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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

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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

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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

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• The role of preferences and preference erosion

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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

15
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
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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 gt 0 4,200 6.3
Total EU imports 66,558 100
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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 gt 0 14,039 24.1
Total US imports 58,368 100
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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

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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?

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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)

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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

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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?