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Reviews the experiences of developing countries with the changes to agricultural trade protection during the Uruguay Round process. Considers the effects of relying on bulk agricultural commodties export

Tariff rates on industrial products have fallen framatically since 1947, but tarriffs on agricultural commodities have actually increased. Developing countries have tried to reduce their reliance on agricultural exports, but they have less opporrtunity to do so than industrialised countries (In 1995, developing countries accounted for 44 percent of global exports of bulk agricultural commodities, but only 23 percent of non-bulk agricultural commodity exports. This reliance on exports of bulk commodity exports locks developing countries into a declining share of world markets for agricultural commodities. Since 1965, the share of bulk commodities in world agricultural trade has fallen from 70 percent to around 45 percent.)

Agriculture remains much more important in the economies of developing countries than it does in the high income countries. Developing countries remain small net exporters of agricultural commodities. Further, consumers in developing countries spend over 30 percent of their incomes on food—almost three times the share in industrial countries—making them much more vulnerable to shocks. Agriculture’s contribution to GDP in developing countries, at 16 percent, is also around three times as high as its share in industrial countries.

The authors use the GTAP model to project the changes in the structures of the world economy to 2005, the time at which all the Uruguay Round agreements will have been phased in

Projections include:

• the share of manufactures exports from developing countries is projected to rise further, as the tariff cuts agreed in the Uruguay Round are phased in, while the openness of the agricultural sector tends to decline.
• Predicts that the share of agriculture in developing country merchandise exports will fall further
• A 40 percent reduction in agricultural tariffs, export and production subsidies results in global welfare gains of around $70 billion per year. The largest dollar amounts of gain, and the largest gains as a share of agricultural value added accrue to developed countries. However, the gains relative to GDP are largest in developing country regions such as (non-India) South Asia and (non-Indonesia) Southeast Asia. Impacts of this liberalization on agricultural trade volumes are mixed—while reducing tariffs tends to increase import volumes, reductions in production and export subsidies tend to reduce volumes. If production subsidies are excluded from the cuts, the global gains decline to $60 billion per year, but trade volumes grow relatively more, and net food importers in regions such as the Middle East and North Africa, South Asia and China are relatively better off.
• The gains from a 40 percent liberalization of manufactures trade are about the same order of magnitude as those from agricultural liberalization, despite the fast that agriculture is a much smaller percentage of global output than manufactures. The developing countries receive the lion’s share of the manufacturing liberalization gains because they face higher rates of protection on manufactures exports, and because liberalization lowers the efficiency costs imposed by their own protection.
• Liberalization of trade in manufactures and services has powerful impacts on agricultural trade through inter-sectoral linkages in each economy. Reductions in countries’ own protection to these sectors will affect agricultural exports through three major channels: (1) it lowers the cost of intermediate inputs in food production, (2) it tends to increase the availability of labor and capital for food production, and (3) it encourages consumers to substitute away from agricultural products towards now-cheaper manufacturing and services goods. All of these forces tend to lead to an improvement in the food trade balance, and this is predicted to be the dominant force in the high income countries.

Overall, multilateral trade liberalization of agriculture and non-agricultural trade in 2005 is projected to lead to an increase in the food trade balances for most developing country regions, with the notable exceptions of India, China and the Middle East/North Africa region. The heavily protected markets of Western Europe and Japan experience the largest deterioration in their food trade balance under this WTO2000 scenario. [author]

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