Assessing agricultural trade policies options with the European Union: a Brazilian perspective

Brazil has shown interest in agricultural trade negotiations at bilateral, regional, and multilateral levels. This study addresses several important negotiations, using the agricultural sector model CAPRI (Common Agricultural Policy Regional Impact Analysis), to analyze liberalization scenarios between the European Union and the Mercosur countries focusing particularly on their impacts in Brazil. Four possible agreements between Europe and Mercosur are simulated, including a broader multilateral agreement proposed in the G20. The results suggest that a bilateral scenario involving larger tariff rate quota increase, as called for by Mercosur, generates larger gains than accepting the European Union proposal of 2004 or further multilateral trade liberalization based on the G20 proposal. However, much larger increases in tariff rate quotas for all products are not necessarily justified in all cases. Moreover, Brazil's production and export potential is limited by factors other than trade restrictions.     

The Doha Round of the World Trade Organization and Agricultural Markets Liberalization: Impacts on Developing Economies

We investigate the impacts of multilateral removal of all border taxes and farm programs and their distortions on developing economies, using a world agriculture partial equilibrium model. We quantify changes in prices, trade flows, and production locations. Border measures and farm programs both affect world trade, but trade barriers have the largest impact. Following removal, trade expansion is substantial for most commodities, especially dairy, meats, and vegetable oils. Net agricultural and food exporters emerge with expanded exports; net importing countries with limited distortions before liberalization are penalized by higher world prices and reduced imports. We draw implications for current World Trade Organization negotiations.     

Does multilateral trade liberalization help reduce poverty in developing countries?

ABSTRACT

This article investigates the impact of multilateral trade liberalization on poverty in developing countries from a macroeconomic perspective. The empirical analysis suggests that multilateral trade liberalization is conducive to poverty reduction in developing countries. This outcome therefore suggests that greater multilateral cooperation on trade matters among countries, in particular the Members of the World Trade Organization, would allow further trade liberalization at the multilateral level to the benefit of poor people in developing countries.     

Agricultural trade negotiations as a strategic game

This study views multilateral trade negotiations as a strategic game among nations or regions, including taxpayer, consumer, and producer components. Payoffs are calculated from an intermediate-run international trade model initialized with 1989 data. For the public at large, the Nash equilibrium and socially optimal outcome is liberalization of trade – unilateral or multilateral. Maintenance of the status quo of market distortions costing the world billions of dollars each year is rational only if producer payoffs are sovereign so that strategies optimal for producers are considered optimal for nations. Remedial policies are discussed, including opportunities for economic education, political system reform, and less incentives for producers to scuttle multilateral trade negotiations.     

Exchange Rate Uncertainty and Agricultural Trade

Using a sample of bilateral trade flows across ten developed countries between 1974 and 1995, this article explores the effect of exchange rate uncertainty on the growth of agricultural trade as compared to other sectors. Based on a gravity model that controls for other factors likely to determine bilateral trade, the results show that real exchange rate uncertainty has had a significant negative effect on agricultural trade over this period. Moreover, the negative impact of uncertainty on agricultural trade has been more significant compared to other sectors.     

Trade liberalization in the bio‐economy: coping with a new landscape

Multilateral trade liberalization has made little progress over the last period, but preferential agreements have multiplied. Recent economic literature helps understand the current negotiation game. New economic and political conditions, in particular the gaining influence of emerging countries, make a multilateral agreement more difficult. Developed countries have given up many of their bargaining chips in previous rounds of negotiation and their remaining agricultural tariffs are not sufficient for extracting the concessions from emerging countries on services, procurement, and intellectual property that would make an agreement possible. The risk of a more fragmented world calls for a revised negotiation agenda and a change in the status of developing countries. Research issues are outlined in order to help revitalize the Doha negotiation agenda.     

Canada's Agricultural Trade Policy: Choices and Challenges

As a small open economy, Canada has a considerable interest in the achievement of substantive trade liberalization for agriculture in a multilateral context. Despite the advantages of a multi lateral approach to international trade rules, there are clear economic benefits for small countries like Canada from pursuing unilateral trade liberalization. In the context of Canadian agricultural policy this would require a considerable adjustment to the high levels of protection afforded Canada's supply-managed sectors. The benefits of an open economy are often not reflected in public discussions or in the language of trade negotiations. Instead these tend to reflect a focus on rent-seeking by special interest groups. This misrepresents the concessions of reduced trade barriers as costs, rather than recognizing them as benefits. There is a challenge for agricultural and applied economists to spell out the benefits of an open economy more clearly. A related useful focus of research is to explore the conditions and the nature of compensation to producer groups that would encourage rapid unilateral trade liberalization.     

Links between economic liberalization and rural resource degradation in the developing regions

This paper examines evidence of the effects of economic liberalization and globalization on rural resource degradation in developing countries. The principal resource effects of concern are processes of land use change leading to forestland conversion, degradation and deforestation. The main trends in globalization of interest are trade liberalization and economy-wide reforms in developing countries that have 'opened up' the agroindustrial sectors, thus increasing their export-orientation. Such reforms have clearly spurred agroindustrialization, rural development and economic growth, but there is also concern that there may be direct and indirect impacts on rural resource degradation. The direct impacts may occur as increased agricultural activity leads to conversion of forests and increased land degradation from 'unsustainable' production methods. However, there may also be indirect effects if agroindustrial development displaces landless, near-landless and rural poor generally, who then migrate to marginal agricultural lands and forest frontier regions. This paper explores these direct and indirect effects of globalization and agroindustrialization on rural resource degradation both generally, plus through examining case study evidence. The paper focuses in particular on the examples of structural adjustment, trade liberalization and agricultural development in Ghana, and maize sector liberalization in Mexico under North American Free Trade Agreement (NAFTA).     

Trade Creation and Diversion Effects of Preferential Trade Associations on Agricultural and Food Trade

Agricultural market distortions remain a major focus of contention in world trade negotiations. Estimates of the effects of liberalising current agricultural trade restrictions indicate an approximately $385 billion increase in global welfare, with the disproportionate share of the benefit being enjoyed by developing countries. In response to difficulties in adopting agricultural trade reforms, individual groups of countries have formed multiple bilateral and regional preferential trade agreements (PTA) to enhance trade among members. Few sectoral analyses exist of the effects on agricultural and food product trade of PTAs. This research uses a gravity model to isolate the effects of various PTAs on both intra‐ and extra‐bloc agricultural and food product trade for three time periods: 1995, 2000 and 2004. Findings strongly support PTA benefits in terms of increased intra‐bloc trade in both sectors. The findings also generally support trade creation in agricultural products. PTA membership was also associated with food trade creation in most cases, although diversion was observed for several associations composed primarily of developing countries.     

An Analysis of Removal of Agricultural Trade Barriers between the United States and Canada with Emphasis on the Southeast

A four-region, 23-commodity small world agricultural trade liberalization model within the SWOPSIM framework is used to measure the impact of tariff removal between the United States and Canada. The tariffs are simply defined as negative import subsidy equivalents in the model and are then removed from the trade prices. The model recalculates domestic supply and demand levels in all regions, rebalancing world trade, production, consumption and prices. In summary, the impacts of the Canada-U.S. Trade Agreement on selected commodity groups are significant. Canadian imports of beef and veal, poultry meat, soybean oil and fresh strawberries increase. Furthermore, the results indicate larger trade flows for selected products and declines in producer and consumer prices in Canada, U.S. and Southeast regions. Since the U.S. share of Canadian agricultural imports averaged 60% in the 1980s, the impact of trade liberalization will be greater in Canada in selected commodities than in the U. S. or the southeastern region, and Canadian dependence on the U.S. market will be increasing in the future. The tariff phaseout, together with a reduction in nontariff barriers and harmonizing of domestic agricultural policies, will create more export opportunities in selected commodities for both the United States and Canada, and will create the world's largest free trade market.     

MORE ON WELFARE GAINS TO DEVELOPING COUNTRIES FROM LIBERALIZING WORLD FOOD TRADE

The common presumption that food-importing developing countries would be harmed by a liberalization of world food trade is questioned in this paper. Both theory and new empirical modelling evidence suggest the possibility of the opposite conclusion. Even if just advanced industrial countries were to liberalize their food trade, the present empirical analysis (using a model of world food markets) suggests that economic welfare and net foreign exchange earnings from food trade could improve for the vast majority of developing countries. The extent to which that gain would be greater if developing countries also were to liberalize their policies affecting food markets is shown as well. The analysis helps to reconcile differences between previous results using partial-equilibrium models and those derived from computable general equilibrium models.     

Challenges in quantitative economic analysis in support of multilateral trade negotiations

A wide range of economic analysis of agricultural trade liberalization was performed prior to and during the Uruguay Round of trade negotiations. Views differ as to the effectiveness of this research, although most would agree that it became less relevant as the negotiations progressed. This paper reviews the contributions of economists to the trade liberalization debate, with an emphasis on the quantitative assessment of multilateral agricultural trade liberalization. With a new round of agricultural trade negotiations scheduled to begin in 1999 it is crucial that the quantitative work required to support these negotiations begin in the near future. The authors conclude that the Uruguay Round outcome provides numerous challenges and opportunities in analyzing the traditional agenda of agricultural trade liberalization. In addition, new issues will be added to the agenda of the next round of negotiations. These include: trade and the environment, competition policy and intellectual property rights. It is important that economists begin to develop a research agenda that can address these issues and become activists in addressing these topics in public forums.     

Addressing climate change cause and effect on land cover and land use in South Asia

This paper evaluates the role of trade liberalization and agricultural intensification in mitigating climate change cause and effects on land use and emissions using a computable general equilibrium model. Our results indicate that cropland expansion triggered by climate-induced crop productivity changes results in deforestation and increases emissions in South Asia and globally. Global full trade liberalization on all goods is the optimum policy for South Asia despite significant global deforestation, but for the world, unilateral partial trade liberalization on all goods is a more appropriate policy while ensuring a considerable emissions reduction for South Asia. These results indicate that mitigation responses to climate change are location specific and no one trade policy is suitable at the regional and global levels. Lastly, agricultural intensification by improving productivity growth is the best strategy in land-based emissions mitigation, thereby avoiding the transformation of forest and pasture lands for agricultural cultivation both at regional and global levels.     

International trade and agricultural development in developing countries: Significance of the Uruguay Round of GATT negotiations

Liberalization of world trade in agricultural products ranks high on the agenda of the Uruguay Round. After a period of more than six years, however, the negotiations have not been concluded. Nevertheless, an outcome seems to be in sight. The agreement will most likely not result in a move to freer trade. It seems that domestic policies will become even more regulative than in the past in an attempt to cut exportable surpluses and to ease trade tensions among the main exporting nations. This paper explores possible impacts of the GATT Round on agricultural development in developing countries. Agricultural development is more than only growth in agricultural production or productivity. However, it is argued in the paper that other variables which also indicate agricultural development are often closely correlated with growth in production and productivity. Trade in agricultural products is not always an engine for agricultural development. If internal divergences are not accounted for by appropriate domestic policies, trade may be even harmful to agricultural development. Hence, empirical research based on cross-country analysis does not provide a clear answer about the role of trade for development. Past policies in industrialized countries have most likely had a negative effect on developing countries as a group; however, the effects differ widely across countries. Liberalization policies in industrialized countries would not just reverse these negative effects for developing countries. Price reduction in industrialized countries may not result in the often-cited production decline in the short term. Present X-inefficiency in agriculture will be reduced by liberalization, leading to an outward shift of the supply curve. Hence, liberalization may not lead to higher world market prices for temperate-zone products in the short and medium term. Apart from this, empirical models differ widely in the price effects they predict. The expected outcome of the Uruguay Round – increased regulation of domestic policies – is likely both more negative for developing countries than past protectionist policies and worse than an overall liberalization. World market prices will increase, uncertainty and instability can be expected to grow, and food aid may become less available. There will be a need to react to these challenges with measures on the international and national level. Initiatives to deal with food crises in developing countries and to stimulate liberalization in developing countries should be considered. Finally, developing countries should be made aware that their own domestic policies have a much greater economic impact than policies in other countries, even if the latter are as protectionist as current agricultural policies in the industrialized world.     

Economic issues in tariffication: an overview

The agricultural trade liberalization proposal known as ‘ tariffication’ aims at converting all existing non-tariff barriers (NTBs) to trade into bound tariffs, and to reduce these tariffs over time. This is in tune with the original philosophy of the General Agreement on Tariffs and Trade (GATT) and it calls for a dramatic overhaul of existing agricultural policies in many developed countries. The main economic issues that arise with tariffication stem from the non-equivalence of tariffs and NTBs in a number of scenarios. This paper analyzes non-equivalence arising from the existence of: imperfect competition in importing countries; price instability in importing and exporting countries; and, inefficient allocation of quantitative restrictions. It is shown that in all these cases the definition of an appropriate 'equivalent tariff to be used in tariffication is not straightforward, and that in general this equivalent tariff cannot be computed on the basis of only observed price differences between countries. Tariff-rate quotas, which are meant to be the main tool of implementation of tariffication according to the existing proposal, are analyzed in some detail. Concerning the relationship between tariffication and the other elements of the trade liberalization package, it is shown that tariffication would limit the scope of export subsidy policies. It is also shown that the existence of production and export subsidies makes observed price gaps between countries of questionable value in setting equivalent tariff levels. Finally, it is argued that the main focus of tariffication should be the conversion of NTBs to acceptable long-run (bound) tariffs rates, and considerable flexibility in this conversion process could be exercised in the transition period.     

The trade and environment nexus in Mexican agriculture. A general equilibrium analysis

This paper analyzes linkages between growth, trade and the environment in Mexican agriculture with an empirical economy-wide model. The investigation considers trade liberalization, environmental policy reform, and their coordination. The analysis decomposes the change in pollution emission induced by changes in the sectoral composition of production, effects of technology on emission intensity, and aggregate Scale effects. Outward orientation alone induces a contraction of aggregate agricultural output, but promotes growth and pollution in some agricultural sectors. Overall, free trade does not induce wholesale specialization in dirty agricultural activities. Environmental taxes on pollution emitted in agricultural sectors have a moderate negative impact on agricultural output, except for the tax on water-borne toxic chemicals. More liberal trade combined with targeted effluent taxes can achieve significant environmental mitigation and efficiency gains, but with the implication of a contraction of most agricultural sectors.     

Linking of U.S. monetary policy and exchange rates to world soybean markets

The linkage between macroeconomic policies and agricultural commodity trade has become an important research issue of agricultural economists. This paper investigates the macroeconomic linkage of soybean trade competition between the exporting countries of the United States, Brazil, and Argentina in the EC-12 and Japan import markets. It is argued that U.S. monetary growth may have important impacts on the competitive position of U.S. soybean exports through exchange rates. Two relationships are investigated: (a) the effects of U.S. monetary growth on the agricultural trade weighted exchange rates, and (b) the responsiveness of agricultural commodity prices and U.S. exports to exchange rate movements. Results indicate that a weak dollar increases imports of soybeans and soymeal significantly which serves to increase the equilibrium world price and increase both U.S. and Brazil/Argentina exports in the long run. However, during periods of more expansionary U.S. monetary policy there is little evidence of significant increases in market share position for U.S. soybeans and soymeal in world markets.     

Neither State nor Market: The Influence of Farmers' Organizations on Agricultural Policies in Costa Rica

In recent decades, policies in many countries have been shaped by the implementation of economic liberalization, characterized by state withdrawal from marketing operations and control of trade. In this era of liberalization, policies regulating commodity marketing and trade were expected to disappear, but, in fact, this has hardly occurred. A comparative study is carried out of three farm sectors in Costa Rica, based on a dynamic analysis of behaviour in the context of the institutional change brought about by liberalization. The capacity of farmers' organizations to adapt and contribute to institutional change through their control over economic activity and their participation in policymaking processes is highlighted. In so doing, it is shown that, even in a liberalized era, policies regulating marketing and trade still exist and affect the functioning of agricultural markets. These policies differ according to the farm sector and can be linked directly to the influence of farmers' organizations within these sectors. It is shown that organizations play a key role in the regulation of farm sectors, and that their success depends on the institutional and organizational “thickness” to which they have contributed in each sector. Differences in historical trajectories can explain differences in the capacity of organizations to influence policymaking and to gain market share.     

China and Taiwan access to the World Trade Organization: implications for U.S. agriculture and trade

This paper investigates the impact of China's and Taiwan's accession to the World Trade Organization (WTO) on U.S. and world agricultural trade by means of a 12-region, 14-sector Computable General Equilibrium model for world trade and production. The simulation results show that integrating China and Taiwan into the global trading system could induce more competition on labor-intensive Products and reduce their prices. It could drive up the demand for capital and skill-intensive manufactured goods, thus further improving industrial countries' terms of trade. The expansion of labor-intensive sectors in China could also induce contraction in agricultural exports from China and increase its net agricultural imports by as much as US$9 billion annually, causing food and agricultural exports from other regions to increase. Total U.S. food and agricultural exports could increase by about US$2.4 billion annually, with the non-grain crop sectors gaining the most. The biggest winner from China's WTO accession is China itself. WTO membership could bring a net welfare gain of about US$30 billion a year for China, a substantial benefit compared with the gains for the USA (US$8.5 billion).     

What is the Appropriate Counterfactual When Estimating Effects of Multilateral Trade Policy Reform?

Multilateral trade reforms, such as may eventually emerge from the WTO's Doha Development Agenda (DDA), tend to be phased in over a decade or so after agreement is reached. Given the DDA's slow progress, that implementation may not be completed before the end of the next decade. Ex‐ante analysis of the DDA's possible effects thus requires first modelling the world economy to 2030 and, in that process, projecting what trade‐related policies might be by then without a DDA. Typically, modellers assume the counterfactual policy regime to be a ‘business‐as‐usual’ projection assuming the status quo. Yet we know developing country governments tend to switch from taxing to assisting farmers in the course of economic development. This paper shows the difference made by including political economy‐determined agricultural protection growth endogenously in the baseline projection. We reveal that difference by projecting the world economy to 2030 using the Global Trade Analysis Project (GTAP) model with those two alternative policy regimes and then simulating a move to global free trade (the maximum benefit from a multilateral trade reform) in each of those two cases. The welfare effects of removing the counterfactual price distortions in 2030 are shown to be much larger in the case where agricultural protection grows endogenously than in the case assuming no policy changes over the projection period. This suggests the traditional way of estimating effects of a multilateral agricultural trade agreement may considerably understate the potential welfare gains.