Poor Farmers Hit by Tariffs – at Home and Abroad

 

Farmers in the world’s poorest countries do not get a fair deal and the last GATT trade agreement, the Uruguay Round, achieved little for them. Two leading economists, Kym Anderson (Adelaide University and CEPR) and Bernard Hoekman (World Bank and CEPR), argue in a Discussion Paper published by CEPR that market access in the rich nations still has to be the main priority for developing countries. The authors add, more controversially, that, when the WTO embarks on its ‘Millennium’ trade round next year, attention should focus also on reducing the protection offered to manufacturing and service industries in developing countries.

The authors show that protection for manufacturing and services costs farmers dear in poor countries. They have to pay more for inputs as a result of protection: India is cited as an interesting case: but even when its tariffs were reduced agriculture did not respond because of supply bottlenecks in many areas such as credit and fertilisers. In developing countries, farmers have an interest in ensuring that there is freedom of entry into other sectors. For example, in the late 1970s in Chile there were considerable gains when the government abandoned flag discrimination and exporters and importers profited from competitive shipping rates.

Even when farmers in poor countries can produce saleable surpluses, they have to struggle to gain sales in the rich markets of the world because of the power of entrenched farm interests there. The multilateral agricultural agenda should, therefore, focus on further reducing farm protection in industrialised countries. The authors point out how little such protection has been reduced recently: “..implementing the reforms agreed to in the Uruguay Round will involve only very modest benefits from liberalisation by 2000 for developing country agriculture.”

The authors also revisit the arguments about ‘standards’ in trade issues. They note that developing countries have much to fear from the attempt by many rich nations to enforce national standards and laws extra-territorially. Here there are issues that can pit developing countries against environmentalists, as in Mexico’s case against the United States in the GATT. It won a judgment against a US import-ban on tuna caught in nets unfriendly to dolphin.

The authors conclude that from the perspective of economic development the main gains in the new trade round will come from market access liberalisation. This will be achieved by “reducing agricultural protection in industrialised countries to the level applied to manufactures, and reducing the anti-agriculture bias in developing countries induced by protectionist policies in manufacturing and services.”

Notes for Editors:

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Kym Anderson is Professor of Economics at Adelaide University and a Research Fellow in CEPR’s International Trade programme.

 

Bernard Hoekman is based at the World Bank and is a Research Fellow in CEPR’s International Macroeconomics and Transition Economics programmes.