Agricultural Trade Liberalization: Time to Close Windows of Exception

Asia Pacific Trade and Investment Review, 2006, vol. 2, issue 1, pages 1-21

Abstract: Agriculture is the economic activity that still provides a livelihood for the majority of people, especially the poor. Every effort thus needs to be made towards making this sector more productive and able to sustain a better quality of life for those who remain dependent on agriculture as a livelihood while also indirectly contributing to improved welfare among the remainder of the population. This understanding has not always been the driving force behind policymaking. It took the Uruguay Round to start mainstreaming agricultural trade into the multilateral trading system under the World Trade Organization in 1995. Although a latecomer, agriculture is now at centre stage of the Doha Development Agenda negotiations and, in the view of many, is holding the Doha Round captive as it prevents agreements in other areas of negotiations until members concur on agricultural trade liberalization. Meanwhile, despite Uruguay round liberalization, agriculture remains the most distorted sector due to the heavy use of trade barriers and support policies (for both domestic production and exports). Most nations still seek “windows of exception” for their agricultural sector, be it for the use of trade barriers or support policies. Since all such instruments distort the relative prices of agricultural products vis-à-vis other products, they affect every country’s overall economy and its sectors differently, depending on production and consumption patterns. However, multilateral negotiations so far have focused considerably more on one distorting instrument, export subsidies, thus resulting in much less progress in freeing trade in agriculture and removing other support for domestic agricultural production. This paper argues that this focus might have been misdirected, given the available evidence of sources of welfare effects in agricultural trade liberalization efforts. It is time to start closing windows of exception for some and start opening windows of opportunity for all. Irrespective of how (and when) the Doha Round will close, other important aspects of trade liberalization in agriculture are explored in this paper. One aspect is a process of increased reliance on less transparent instruments of protection. It appears that trade in agriculture follows the same trade path as that followed with industrial goods during the General Agreement on Tariffs and Trade (GATT) era; with a reduction in import tariffs and quotas, there was a clear increase in the use of non-tariff and non-border barriers (such as quality standards, safety standards and rules of origin). This paper comments on some instruments that have the potential to be used for non-tariff protection, i.e., geographical indications and food safety standards. While these have already been used extensively by some trading nations, many others (particularly developing countries) have failed to see how they could significantly contribute to development. This, however, does not in general apply to the use of food and agricultural product safety standards. It is true that these can be used as (effective) trade barriers. However, with some proactive strategic thinking, these standards could be transformed into incentives for economy-wide positive changes in the production of food. Coupled with the adaptation of modernized regulatory systems, this would become a driver of increase competitiveness in both domestic and export markets. Another aspect of agricultural trade liberalization is preferential liberalization through bilateral or regional trade agreements. The Asian and Pacific region is a fertile breeding ground for new agreements of this type, with almost 100 of them now in force or being negotiated that include at least one member of ESCAP. ESCAP has developed a database for tracking and (ultimately) assessing the performance of these preferential trade agreements. It can be used in gaining a better understanding of the treatment of any particular sector, including agriculture, in the preferential agreements as well as the contribution of the design of such agreements to their performance. The database is also considered helpful to policymakers in their management of multilateral, preferential and autonomous liberalization.

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