Day 2: Accession experiences during

WTO’s first decade; and ‘non-trade’ concerns

4-day course on Agricultural Trade Policy and WTO

Tehran, Iran, 15-18 May 2005

Outline of this morning

Accession experiences to date, and lessons for new applicants such as Iran

An examination of what the growth of ‘non-trade’ concerns in agriculture means for WTO members and accedants

sometimes called ‘multifunctionality’ – is this the new agricultural protectionism (along with food safety and SPS measures) to replace traditional market price support measures?

New members of WTO since 19951. Ecuador 01/96 11. Oman 11/00

2. Bulgaria 12/96 12. Croatia 11/00

3. Mongolia 01/97 13. Lithuania

05/01

4. Panama 09/97 14. Moldova 07/01

5. Kyrgyz R.

12/98 15. China 12/01

6. Latvia 02/99 16. Taiwan 01/02

7. Estonia 11/99 17. Armenia 02/03

8. Jordan 04/00 18. Macedonia

04/03

9. Georgia 06/00 19. Nepal 04/03

10. Albania 09/00 20. Cambodia

10/04

 

Figure 1: A lengthening process

020406080

100120140160180200

1 3 5 7 9 11 13 15 17 19

Nu

mb

er

of

mo

nth

s

Accessions are taking ever-longer

Recent acceding countries have taken about 10 years to accede from date of establishing a Working PartyEven ignoring China (number 15 in Figure 1), the trend number of years is clearly rising

Due to more demands by WTO members, or because late applicants have the most distorted economies or are the most reluctant reformers?

Countries currently seeking accession1. Algeria 06/87 16. Lebanon 01/99

2. Saudi Arabia 06/93 17. Bosnia & Herz. 05/99

3. Russia 06/93 18. Andorra 07/99

4. Belarus 09/93 19. Bhutan* 09/99

5. Sudan* 10/93 20. Cape Verde* 11/99

6. Ukraine 11/93 21. Yemen* 04/00

7. Uzbekistan 12/94 22. Bahamas 05/01

8. Vietnam 01/95 23. Tajikistan 05/01

9. Seychelles 05/95 24. Ethiopia* 01/03

10. Tonga 06/95 25. Libya 04/04

11. Vanuatu* 07/95 26. Afghanistan* 12/04

12. Kazakhstan 11/96 27. Iraq 12/04

13. Azerbaijan 06/97 28. Montenegro 02/05

14. Laos* 07/97 29. Serbia 02/05

15. Samoa* 04/98 *LDCs (9)

Of the 29 countries currently seeking WTO accession …

Nine applied more than 10 years agoTwelve applied 5-10 years agoAverage period so far for those 72% is 9 yearsNine are LDCs (applied >5 years ago on av.)Ten are from Eastern Europe/CISEight are from Middle East/N. & NE AfricaIf all joined, WTO membership would rise from 148 now to 177 customs territories (or 178 with Iran)Ones larger than Iran: Russia and Saudi Arabia

then Kazakhstan, Ukraine and Vietnam

The ‘price’ of accession

Involves market access commitments, and other specific commitmentsIn terms of market access, the average tariff binding is getting lower over time

see agric and non-agric in the following two figures, ignoring the final two applicants which are the first LDCs to join (Nepal and Cambodia)

 

Figure 2: Tighter commitments on agricultural products on DCs

0

10

20

30

40

50

60

1 3 5 7 9 11 13 15 17 19

Ave

rag

e ta

riff

bin

din

gs

Figure 3: Tighter commitments on non-agricultural products on DCs

0

5

10

15

20

25

30

35

40

45

1 3 5 7 9 11 13 15 17 19

Ave

rag

e ta

riff

bin

din

gs

Historical background: Why agriculture was brought into the Uruguay Round (but not previous GATT rounds)?

CAP-generated surpluses led to disposal via EU export subsidiesUS (& Canada) retaliated in kindPushed real food prices in int’l markets to century’s lowest level by 1986

which more than doubled the welfare costs of agricultural protection over the 1980s (Tyers and Anderson 1992)

Who brought agriculture into the UR?

US farmers were hurt more by EU policies than EU farmers were by US policiesAustralia/NZ and food-exporting developing country farmers were affected hugely

led to formation of Cairns Group in 1986, whose sole aim was to keep agriculture high on the UR agenda

• its agric. exports = Japan’s manufactures exports

Recent change to traditional protection pattern

Unilateral reforms by developing countries since the 1980s have reduced their export taxes and other negative incentives for farmers But some developing countries have ‘overshot’ and become protectionist towards farmers

or could do in the future, because of their much higher bound than applied agricultural tariffs

Implications for countries seeking WTO accession

Relatively wealthy and large acceding countries, such as Iran (and China before it), are going to be required to bind their agricultural tariffs at low levels

Which presumably means little or no binding overhang, and hence greater cuts to applied tariffs in future multilateral trade rounds (relative to members with still large tariff binding overhangs)

Required services commitments also are growing

Of the WTO’s 160 services sub-sectors, the number of commitments made by founding members were 44 for developing and 108 for developed countriesBut the twenty developing and transition economies that have joined WTO since 1995 have on average committed in 104 sub-sectors

And specific (non-market access) commitments are being added

An average of 20 per acceding countrySome are WTO+, going beyond commitments agreed among members in Uruguay RoundOthers are WTO-, or involve agreeing to forego rights available for existing WTO members

e.g., Ecuador’s commitment to eliminate all domestic subsidies prior to joining and never to introduce them in future; China’s acceptance of product-specific transitional safeguard provisions (likely to be used by importers of Chinese clothes)

How countries have made the most of WTO accession process

Starting unilateral reform even before and certainly during the Working Party stageBeing pro-active in targeting reforms to areas identified as national priorities

e.g. Cambodia identified textiles, clothing and tourism as sectors that could benefit from reform

Clearly identifying goals, analyzing options (requires modelling), and formulating negotiating strategies and fall-back options

Lessons from the past decade of experience with accession negotiations

Expect the process to take at least 5 years, or more if society is reluctant to reformEstablish a broad base of support within government, civil society and especially the private sector (and with key trading partners)Expect to have to bind average tariffs at <20% for agric and <10% for non-ag goods

And so anticipate the employment and other adjustments needed and the domestic measures (e.g. adjustment assistance) that could reduce opposition to reform and facilitate growth

• And identify aid funds to finance adjustment assistance

Lessons from experiences with implementing accession commitments: the case of China

Discussion questions:How large were the adjustment shocks?How much reform was still to be implemented at time of WTO accession?Were there significant losing groups/regions?

• How were they dealt with?

What complementary domestic reforms were introduced to magnify gains/ ease adjustment burdens?How did China’s trade change, and how did its trading partners respond?What is the consensus now within China about whether WTO accession has been worthwhile?

Changes in applied tariffs (%) by China post-WTO accession

Agric. & food

Textiles &

clothing

Other manuf.

2001 38 19 11

End of 2004

10 10 6

New topic: Are ‘non-trade’ concerns the new agricultural protectionism?

Negotiations can be like squeezing a balloon: while you may gain (lose) in one battle you may lose (gain) in anotherExample: agriculture’s ‘multifunctionality’

Consider some basic principles, and their application to:• food security • rural environment• viability of rural areas

Why has this ‘multifunctionality’ concept emerged recently?

Was agreed to in URsee Art. 20(c) of URAA

The claim is that reduced support for farming may damage the rural environment, reduce food security, make rural communities less viable, etc.

being thought of as public goods produced jointly with farm goods

Basic principlesThe debate is not over sovereign governments’ rights to determine national policy objectivesRather, the debate is over the means by which governments strive to achieve those goalsNeed to bear in mind:

international rights and obligationsmarket failures, eg due to externalities

• in production and consumption• in non-agric sectors as well as agriculture

government failures in intervention

Six lessons from theory and past policy practice

1. Where there are several policy objectives, an equal number of policy instruments is required to deal with them efficiently

2. The lowest-cost measure will be that which addresses the concern most directly

3. Hence trade measures are rarely the best way of addressing non-trade concerns

Six lessons(continued)

4. Trade lib’n will improve economic welfare so long as optimal domestic interventions are in place to deal with non-trade (eg environmental) concerns, and are adjusted as trade is freed

5. The extent of achievement of non-trade objectives may not be as great with as without trade reform

• Part of the ‘price’ of gains from trade

Six lessons(continued)

6. Whenever govt intervenes, even if it is to overcome a market failure, there is a risk of government failure

which could be more welfare-reducing than the market failure being targetedcould occur at the bureaucratic and/or political level

Why strive for the most efficient way to achieve society’s non-trade objectives?

Because achieving those objectives requires resourcesAnd the fewer resources required to achieve each objective, the more there will be for achieving others and/or for preserving resources for future generations

Do farmers make more of a non-marketed contribution than other producers?

All sectors generate both marketed and non-marketed productsSome non-marketed products are more desirable than others, and some are undesirableSince tastes and preferences change over time and differ between countries, so too do societies’ valuation of non-marketed products

(continued)Does farming produce more non-marketed +ve externalities/public goods than other sectors?

net of -ve externalities/public bads?If so and if they are under-supplied, what are the most efficient ways to get their optimal provision?

are those measures WTO-consistent? Import barriers and other price-supports are inefficient instruments for boosting their supply

The policy task thus involves several steps

Get a sense of society’s willingness to pay for the non-marketed by-productDetermine the most efficient measure for encouraging farmers or others to supply that by-product for societyThen determine the optimal level of encouragement

equate marginal social benefit with marginal social cost of intervention

Examples of ‘non-trade’ concerns: 1. food security

Food security is not synonymous with food self-sufficiencyRather, it’s a consumer issue:

ensure that everyone always has access to a threshold supply of basic food necessary for survival

Requires threshold income and savings (or credit access) and a well-functioning market for staple foodsNote: agricultural protectionexacerbates food security, by raising consumer prices of food

Food security (continued)What if the int’l market is thin, as with rice? Or there is a risk of an export embargo (as permitted under GATT Article XXI)?

Try long-term contracts with trading partners, or subsidize stockholding of staples (allowed in Annex 2 of URAA as a ‘green box’ item)

If greater domestic production is desired, agric R&D (an allowable ‘green box’ item) which lowers domestic costs of production is better than price support

Example 2: environmental protection

Local environment is generally helped by lowering output price supports and taxing pollutive farm inputsBut in the case of +ve externalities, subsidize just their provision, to the optimal degree, de-coupled from farming (and even farmers?)

rural landscape? (vs golf courses?)cows in alpine pasture? (pay directly)biodiversity? (pay for hedgerows, eg)

What about negative externalities from farming?

They (and food safety risks) tend to increase with the intensity of input use, which in turn is greater the more product prices are raised or input prices are subsidizedtaxes would be more appropriate than subsidies on pollutive inputs

Example 3: viability of rural areas

Is agriculture the only (or even main) economic activity in rural areas?Wouldn’t targeted supports for essential services in remote areas be a lower-cost option?Regional supports in one country harm rural areas in other countriesWhat is optimal degree of support?

Conclusions on ‘non-trade’ concernsLikely to become more contentious as regular trade distortions are loweredNeed to be dealt with in WTO because they can affect tradeShould be handled in the same way for all sectorsCurrent WTO rules are adequateRequires governments to target, with precise interventions in each case, rather than use blunt market price support (including trade) measures

Reading for this topic

See K. Anderson’s “Agriculture’s 'Multifunctionality' and the WTO”, Australian Journal of Agricultural and Resource Economics 44(3): 475-94, September 2000.

[Related concerns about new forms of agricultural

protectionism have to do with human, animal and plant health claims leading to import restrictions on food safety or environmental grounds]