Agricultural Trade Reform: Policy Implications for Caricom1*

By Freckleton, Marie | Ibero-americana, January 1, 2002 | Go to article overview

Agricultural Trade Reform: Policy Implications for Caricom1*


Freckleton, Marie, Ibero-americana


I. INTRODUCTION

Prior to the Uruguay Round of trade negotiations, the developed countries successfully excluded agricultural products from multilateral trade discipline. Since the General Agreement on Tariffs and Trade (GATT) in 1947, the main objective of multilateral trade negotiations has been the liberalization of international trade. Despite the emphasis on free trade, protection of agriculture has been a primary objective of the developed countries. High rates of agricultural productivity in those countries coupled with low income elasticity of demand reduced farm incomes, thereby creating political pressure for the protection of domestic farmers. High levels of protection for agriculture in developed countries by means of domestic support, export subsidies and other non-tariff barriers resulted in serious distortions in agricultural trade.

Developing countries with fewer resources to support agriculture have been disadvantaged by unfair competition from subsidized products imported into their domestic markets as well as by inability to access export markets for competing agricultural products. In recent years, the prospects for agriculture in some developing countries have been further jeopardized by economic reforms that included unilateral trade liberalization and reduction of support to agriculture. Bringing agriculture under multilateral trade rules is therefore of major importance to developing countries.

The Uruguay Round Agreement on Agriculture (AOA) represents a step towards correcting the distortions in agricultural trade. The AOA brings agriculture under multilateral trade rules and provides for partial liberalization of agricultural trade through tariffication, tariff reduction, reductions in domestic support and reductions in export subsidies.2 The AOA required developed countries to reduce tariffs on agricultural products by an average 36 percent over six years and to reduce export subsidies by 36 percent over the same period. Domestic support to agriculture by developed countries was to be reduced by a relatively small amount of 20 percent over six years. Developing countries were required to reduce tariffs, domestic support and export subsidies by (24 percent), two-thirds of the amount required for developed countries.

Liberalization of agricultural trade potentially offers opportunities for those developing countries that have the capacity to compete in world agricultural markets. However, the evidence suggests that implementation of the AOA has failed to produce significant improvement in market access for the agricultural exports of developing countries. In particular, UNCTAD (1999a:134) has pointed out that tariffication resulted in frequent "tariff peaks" for agricultural products and many of the products with very high tariff rates (above 70 percent) are products that developing countries could possibly export.

In addition, the ability of developing countries to diversify into higher value processed agricultural products is still being impeded by tariff escalation.3 While tariffication and tariff reduction have produced limited benefits in terms of market access, developing countries face the possibility of the imposition of new trade barriers under the special safeguard provisions of the AOA which allow developed countries to increase import duties to protect their domestic markets from import surges. Furthermore, the commitment to reduce export subsidies by only 36 percent means that the ability of developing countries to compete in world agricultural markets continues to be undermined by relatively high levels of export subsidies.

Thus, bringing agriculture under multilateral trade rules has increased the transparency of agricultural trade but has achieved little in terms of liberalization of agricultural markets. Much remains to be done to reduce protection of agriculture and improve market access for developing countries. It is important to note, however, that bringing agriculture under multilateral trade rules poses special problems for those developing countries that rely on preferential treatment for their agricultural exports. …

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