Agricultural Trade, Rural Development, and Policy Coherence Association for International Agriculture and Rural Development June 7, 2004 John Nash The World Bank

Agriculture is Important for Developing Countries 63 percent of population live in rural areas 73 percent of poor live in rural areas Agriculture and agro-processing account for percent of GDP in developing countries, and an even larger share of employment Even with rapid urbanization, more than 50% of the poor will be in rural areas by 2035 Most of the rural poor are not in countries that receive significant trade preferences

Rural-Urban Poverty Gap Country Burkina-Faso Mauritania Mozambique Tanzania Bolivia Honduras Nicaragua Source: PRSP documents. Different incidence of rural and urban poverty (Rural%-Urban%) 35% 41% 9% 16% 42% 23% 38%

Increased Trade is the Best Lever for Enhancing Agricultural Growth Sustained trade reforms doubled growth in agricultural sector (Michaely, Choksi, Papageorgiou) Agricultural trade liberalization gives much higher ag growth rate – 5.7% vs. 1.1% (Valdes) SSA – countries with large improvement in macro/ trade policies had higher ag growth rate % vs. 0.3% for those with deterioration (World Bank)

Doha Development Agenda Intended to have central focus on poverty reduction in developing countries Key role of agriculture – developing countries’ main concern But – major case of “policy incoherence” by developed countries (interference of government policy in one sphere with achievement of objectives in another)

Many developing countries have undertaken structural reform programs since 1980s, including trade policies, but now face very low world prices for their products and access barriers to industrialized country markets …

Agricultural Protection is Still High and Mostly at the Border

Average Agricultural Tariffs are Much Higher Than Manufacturing Average Agricultural Tariffs are Much Higher Than Manufacturing a. Brazil(2001), China(2001), India(2000), Korea(2001), Mexico(2001), Russian Federation(2001), South Africa(2001), and Turkey(2001). b. Bulgaria(2001), Costa Rica(2001), Hungary(2001), Jordan(2000), Malaysia(2001), Morocco(1997), Philippines(2001), and Romania(1999). c. Bangladesh(1999), Indonesia(1999), Kenya(2001), Malawi(2000), Togo(2001), Uganda(2001), Guatemala(1999) and Zimbabwe(2001)

Tariff Peaks in Agriculture

Tariffs Escalate in Final Products Tariff rates by stage of processing (percent) Source: WTO IDB (MFN Applied Duties)

Specific Duties Mask High Protection Average Ad Valorem Duties vs. Ad Valorem Equivalents in Agriculture Source: WTO IDB (MFN Applied Duties)

Many Products are Protected by Quotas Share Of Agricultural Output Under Tariff Rate Quotas (percent) “Eastern Europe” = Czech, Hungary, Poland and Slovakia; “Other Industrial” = Norway, Switzerland and Iceland; “ Other developing” = Korea, Turkey and Mexico Source: OECD, Agriculture Market Access Database (AMAD)

DCs ’ Own Policies Also Impede Their Agricultural Development Protection and anti-export bias Cheap food policies to keep urban consumers quiescent – often reinforced by food aid or subsidized exports from OECD Underinvestment in Green Box measures, such as rural infrastructure and ag research Lack of definition or enforcement of property rights and contract sanctity Corruption and/or macroeconomic instability

Result: Stagnating Developing Country Trade Share in Agriculture (percent of total world exports)

Way forward: Success in the Doha Round Reforms need to be global and across the board Only way to address domestic agricultural subsidies Large potential gains for developing countries

Global Modeling of Doha Round Results Elimination of export subsidies Decoupling of all domestic subsidies Elimination of specific tariffs, TRQs and anti-dumping Tariffs RichDeveloping Agriculture Average 510 Maximum 1015 Manufacturing Average 15 Maximum 510

Income Gains are Substantial (Real income gains in 2015 relative to the baseline, $1997 billion) Source: World Bank model simulations. Dynamic Static

Driven by Exports (Change in export revenues in 2015 relative to the baseline, $1997 billion) Developing High income

Rural Income Gains (percent change in rural income in 2015 relative to the baseline) Source: World Bank model simulations. Note: XSS—Sub-Saharan Africa excl. SACU, RLC—LAC excl. Brazil and Mexico, XEA—East Asia excl. China and Vietnam, VNM— Vietnam, SAC—SACU countries, IDN—Indonesia, CHN—China, BRA—Brazil, JPN— Japan, CAZ—Canada, Australia and New Zealand.

A “ Development Friendly ” Doha Outcome in Agriculture Would Include … Significant reductions in peak tariffs and tariff escalation in developed and developing countries, through a binding formula mechanism Completion of ad valorem “tariffication” Special safeguard for developing countries to handle import surges/low world prices Expansion of within-quota imports; reduction of in- quota tariff rates to 0 Disciplines on TRQ administration

A “ Development Friendly ” Doha Outcome (cont ’ d) Complete phase-out of export subsidies (including subsidized export credits), and disciplines on STEs and food aid Disciplines on use of export taxes and controls Deep reductions in trade-distorting domestic support payments (Amber Box), with product- specific commitments, and switch to decoupled payments Caps and then reductions in fixed-production subsidies (Blue Box) Cap on Green Box payments, and review of extent of trade distortion of mechanisms in Green Box

A “Development Friendly” Doha Outcome (cont’d)  Re-thinking S&DT: More emphasis on development impact; More on positive obligations of developed countries; Less on blanket exemptions for developing countries, but with some differentiation.