School of Economics and
Centre for International Economic Studies
University of Adelaide
Adelaide SA 5005
Australia
Phone (+61 8) 8303 4712
Fax (+61 8) 8223 1460
kanderson@economics.adelaide.edu.au

November 1998

Paper prepared for the World Bank/World Trade Organization joint Trade and Development Centre website on the agenda of the next WTO round of trade negotiations, to be made available on the Internet at http://www.itd.org/. This is a joint initiative of the Bank’s Economic Development Institute and the WTO. The author is grateful for funding from the EDI. The views expressed are those of the author alone and not necessarily those of his employer, the World Bank or the World Trade Organisation.

Many perceive one of the great achievements of the Uruguay Round (UR) to be the start to bringing agricultural policies under GATT discipline.¹ Following the signing of the UR accord in 1994, non-tariff barriers to agricultural imports are required to be tariffied and bound and the tariff bindings are scheduled for phased reductions. As well, farm production and export subsidies also are to be reduced, mostly between 1995 and 2000 (with developing countries having an extra four or more years). That UR Agreement on Agriculture (URAA), together with the SPS Agreement (to limit the use of quarantine import restrictions to cases that can be justified scientifically) and the Dispute Settlement Agreement (which has greatly improved the process of resolving trade conflicts), ensure that agricultural trade will be much less chaotic in future than prior to the formation in 1995 of the new World Trade Organization (WTO).

Much remains to be done, however, before agricultural trade is as fully disciplined or as free as world trade in manufactures. This paper first explains why agricultural policies need to be disciplined under the WTO (Section 1). It then examines what has been/is being achieved through implementation of the URAA (Section 2), evaluates its impacts on developing countries (Section 3), explores what remains to be tackled when WTO members come back to the negotiating table at the end of 1999, as was agreed in the URAA (Section 4), and reviews ways developing countries can seek to ensure that the process of reform by them and others continues as we move into the next millennium (Section 5).

During more than three centuries of modern economic growth there has been only one significant episode involving a major liberalization of agricultural protectionism, namely the mid-nineteenth century repeal of Britain's Corn Laws. Other than that, the history of industrial and post-industrial development has been overlaid with a history of agricultural protection growth. Poor agrarian economies tend to tax agriculture relative to other tradables sectors, but as nations industrialize their policy regimes tend to gradually change from negatively to positively assisting farmers relative to other producers (and conversely from subsidizing to taxing food consumers). The period since the 1950s has seen substantial growth in agricultural protectionism in the advanced industrial economies and its spread to newly industrializing economies, and those tendencies accelerated in the 1980s (Anderson and Hayami 1986; Anderson 1994, 1995; Lindert 1991).

Given this history, the attempt in the Uruguay Round to reduce farm price supports was seen as both exciting and daunting: exciting, because a successful liberalization would reduce the huge and growing waste of resources that would be associated with the continuation of past trends in farm policies; and daunting, because the history of those policy trends across many countries and over a long period suggests major counter-acting of domestic political forces would be needed for a multilateral agreement to be reached.

Why has the growth of farm protectionism historically been so difficult to avoid? It seems almost incredible that the Uruguay Round could have been prolonged for years by a farm trade dispute affecting products that account for less than one-tenth of world trade and less than one-twentieth of GDP and employment in the main countries seeking exceptional treatment for agriculture. It seems all the more amazing given that the economies hurt most by these policies are those of the protecting countries themselves. The protectionist policies are wasteful in terms of raising consumer prices for food; requiring ever-larger treasury outlays to farmers; redistributing welfare with increasing inefficiency (not only because it costs consumers and taxpayers much more than one dollar for every dollar received by farmers, but also because the largest producers receive the lion's share of the benefits); making non-agricultural producers less competitive in so far as farm programs retain resources in agriculture; and damaging the natural environment, not least because these price-support policies typically encourage excessive use of farm chemicals (Tyers and Anderson 1992).

Why has agreement on farm trade reform been so difficult to reach? The issue involves two groups of countries. On the one hand, there are the traditionally lightly protected, food-exporting countries, involving not only the members of the Cairns Group ² but also numerous other developing countries; and on the other hand, there are industrial countries of Western Europe, Japan and Korea that are highly protective of their farmers. Both groups have felt strongly about their positions for a long time. Indeed it is because those policies are so contentious that (a) the first four rounds of GATT-based multilateral trade negotiations virtually ignored them and the next three eventually had to drop them, and (b) many minilateral (regional and other preferential) trade agreements also largely exclude farm products. We should therefore not be surprised that the inclusion of farm policies in the Uruguay Round caused problems. Their inclusion was considered necessary, however, because they had become extremely distortionary by the 1980s, both absolutely and relative to non-farm trade policies, and because there was every indication that agricultural protection growth would continue to spread, cancer-like, unless explicitly checked (see Box 1).

The growth of agricultural protectionism in industrializing countries has contributed to the long-term downward trend in the international price of farm products relative to that for industrial products (Figure 1). What is striking about Figure 1 is not only the extent of decline of the relative price of food but also the increase in its coefficient of variation during the past two decades. That, together with the EC's provision from the latter 1970s of export subsidies to dispose of its induced surpluses, stimulated the US to defend its export markets by subsidizing US farm exports as well -- a move that contributed to international food prices falling by 1987 to their lowest level this century in real terms. The export subsidies under the US Export Enhancement Program have been very costly to the US, have added only very modestly in proportional terms to the EC budgetary cost of the Common Agricultural Policy, and have imposed large costs on other actual or would-be agricultural-exporting countries.

As a consequence of these policy developments (reasons for which are analysed in Anderson 1995), the deadweight welfare losses in those protecting countries from distorting their food markets more than doubled over the 1980s, while the benefits to their farmers as a group increased by about 50 per cent. According to one set of estimates from a multicommodity model of world food markets, the annual benefits of these policies to farmers of Western Europe, the United States and Japan rose from $94 to $141 billion over the 1980s (in 1985 US dollars), while the cost to consumers in those countries rose from $120 to $216 billion. That study estimates the direct global loss of economic welfare because of industrial country food policies to have trebled in the 1980s, rising from $16 billion to $50 billion (Tyers and Anderson 1992, Tables 6.5, 6.6). And that does not include the costs of lobbying for and administering the policies, nor the collection and by-product distortion costs of raising the government revenue needed to finance the subsidies, let alone the indirect cost these policies imposed in terms of holding up the Uruguay Round’s conclusion.

Agriculture benefited in several important ways from the Uruguay Round. Apart from the Agreement on Agriculture itself, there were agreements relating to SPS provisions (quarantine) and to textiles and clothing trade (which will boost net food imports of newly industrializing countries), requirements to notify and review all trade-related policy developments which will boost transparency, and major improvements in dispute settlement procedures. Each of these is considered in turn.

The applause in some countries and protests in others, following the incorporation since 1995 of agriculture into the rules-based trading system, is not surprising. Agricultural more than most sectoral policies have needed to be disciplined under the GATT/WTO, because the empirical evidence across countries and over time strongly suggests domestic political pressures are such that, without such discipline, many countries would eventually adopt policies that increasingly assist and insulate their farmers from foreign competition. Such policies in a subset of countries lower the mean and increase the variance of international food prices, thereby encouraging additional countries to adopt similar policies. Their perpetuation, though wasteful, is evidently affordable in advanced economies because of the sector’s small and declining shares of GDP and employment.

While farm policies had proved to be too politically contentious to be included in previous GATT rounds, their inclusion in the Uruguay Round was unavoidable because the farm policies of OECD countries had become so extraordinarily distortionary by the 1980s, both absolutely and relative to non-farm trade policies. Since there was every indication that agricultural protection growth would continue to spread unless explicitly checked, the Cairns Group of agricultural-exporting countries formed and took it upon itself to ensure the Round was not concluded unless and until an agricultural agreement was in place.

In the light of the long history of agricultural protection growth in industrial countries, even achieving a standstill in agricultural protection via the Uruguay Round could be described as progress. It would be an advance over what otherwise might have been the case in part because it would reduce the risk of newly industrializing countries following the more advanced ones down the agricultural protection growth path. As it turned out, though, only a little more than a standstill was agreed to.

As summarized in Box 2, the Uruguay Round’s Agreement on Agriculture has three main components: reductions in farm export subsidies, increases in import market access, and cuts in domestic producer subsidies. The fact that (often discriminatory) farm export subsidies are still to be tolerated continues to distinguish agricultural from industrial goods in the GATT, a distinction that stems from the addition in 1955 of paragraphs to GATT Article XVI when the United States insisted on primary products being exempted from the new prohibition of export subsidies. Moreover, even by the year 2000 farm export subsidies need be only about one fifth lower than they were in the late 1980s to comply with the agreement. True, the budgetary expenditure on export subsidies is to be lowered by 36 per cent from the base period, but for some commodities it may be only the agreed cut in the volume of subsidized exports (21 per cent for industrial countries, 14 per cent for developing countries) that bites because international food prices in recent years have been higher than in the base period, so exportable surpluses have been able to be disposed of with lower subsidy outlays.

A second distinguishing feature of the agricultural agreement is that it requires nontariff import barriers to be converted to tariffs. Those tariffs are now bound and those bindings are to be reduced over the implementation period. However, the extent of bound tariff reduction by the end of the century will be even more modest than for export subsidies: the unweighted average tariff cut must be 36 per cent (24 per cent for developing countries), but it could be less than one sixth as a weighted average, since each tariff item need be reduced by only 15 per cent of the claimed 1986-88 tariff equivalents (10 per cent for developing countries).³

Moreover, the claimed tariff equivalents for the base period 1986-88, and hence the initial tariff bindings, are in many cases far higher than the actual tariff equivalents of the time. The European Union, for example, has set them on average at about 60 per cent above the actual tariff equivalents of the CAP in recent years, while the United States has set theirs about 45 per cent above recent rates. This ‘dirty’ tariffication is shown in column 4 of Table 1 for the US and EU to be considerable. Nor is it confined to industrial countries. On the contrary, developing countries are even more involved in the practice. This is possible because they were allowed to convert unbound tariffs into ‘ceiling bindings’ unrelated to previous actual rates of protection. Many developing countries have chosen to bind their tariffs on agricultural imports at more than 50 per cent and some as high as 150 per cent -- far above the tariff equivalents of restrictions actually in place in the 1980s/early 1990s (Figure 2). Josling (1998b, Table 1) calculates that the unweighted average bound tariffs by 2000 for a sample of 20 major countries will be between 42 and 49 per cent for each of grains, oilseeds, sugar and livestock products, and 35 per cent for fruit and vegetables.

‘Dirty’ tariffication has two consequences. One is that actual tariffs may provide no less protection by the turn of the century than did the non-tariff import barriers of the late 1980s/early 1990s. Indeed in the case of the EU the final bindings for the year 2000 are almost two-thirds above the actual tariff equivalent for 1989-93, and for the United States they are more than three-quarters above (final column of Table 1). The other consequence of binding tariffs at such a high level is that it allows countries to set the actual tariff below that but to vary it so as to stabilize the domestic market in much the same way as the EU has done in the past with its system of variable import levies and export subsidies. This means there will be little if any of the reduction in fluctuations in international food markets this decade that tariffication was expected to deliver.

It is true that some countries have agreed also to provide a minimum market access opportunity, such that the share of imports in domestic consumption for products subject to import restrictions rises to at least 5 per cent by the year 2000 under a tariff quota (8 per cent in the case of rice in Japan in lieu of tariffication; less in the case of developing countries). But that access is subject to special safeguard provisions, so it only offers potential rather than actual access (another form of contingent protection). As well, there is scope to minimize the impact of those imports on the domestic market: Japan’s required rice imports could be of low feed quality and/or could be re-exported as food aid, for example. Furthermore, market access rules formally introduce scope for discriminating in the allocation of import quotas between countries, where within-quota imports attract a much lower tariff than above-quota imports. Perhaps even more importantly, the administration of such quotas tends to legitimize a role for state trading agencies. When such agencies have selling rights on the domestic market in addition to a monopoly on imports of farm products, they can charge excessive mark-ups and thereby distort domestic prices easily and relatively covertly -- just as such agencies can hide export subsidies if they are given that monopoly. There are thus elements of quantitative management of both export and import trade in farm products now legitimized under the WTO, including scope for discriminatory distortions to trade volumes as well as prices.

The third main component of the agriculture agreement is that the aggregate level of domestic support (AMS) for industrial-country farmers is to be reduced to four-fifths of its 1986-88 level by the turn of the century. That too will require only modest reform in most industrial countries because much of the decline in the AMS had already occurred by the mid-1990s. Furthermore, there are many forms of support that need not be included in the calculation of the AMS. Perhaps the most important are direct payments under production-limiting programs of the sort adopted by the US and EU, which are classified as "blue box" exemptions. Others such as quarantine and environmental provisions are classified as "green box" exemptions. A risk that needs to be curtailed is that the use of such "blue box" and "green box" instruments may spread to other developed countries and other commodities as farm income support via trade and domestic price support measures becomes less available and in some cases eventually WTO-illegal.

The OECD’s latest estimates of producer subsidy equivalents show that the rate of assistance to farmers in advanced industrial countries has fallen on average by more than one-third over the past decade (Table 2). As well, the proportion of producer support paid for by consumers in those countries in the form of raised domestic food prices has fallen over that decade from 65 to 60 per cent (OECD 1998a, p. 19). However, about two-thirds of those changes are due to the one-sixth rise in international prices, and less than one-tenth is due to falls in domestic prices (OECD 1998b, pp. 36-37).

In short, implementing the agricultural reforms agreed to in the Uruguay Round will involve only very modest liberalization by 2000, with plenty of room for disputes over compliance during the implementation period and for further reductions in the new millennium (see column 2 of Table 1). According to Table 3, only a small number of import price reductions can be expected from the Round through the implementation period, especially among developing countries. At best that will do no more than slow the decline in real prices for farm products in international markets, rather than reverse it. ‘Dirty’ tariffication in particular means that the real price of farm products in international markets will be barely above what it otherwise would be (see the modelling results reported in Table 4) -- and it will do little this decade at least to reduce price fluctuations around that long-run trend. The Round will accelerate agriculture's relative decline and loss of farm jobs in heavily-protected industrial countries, but only slightly. And it will boost gradually the competitiveness of farmers in countries where the international price rises are transmitted to the domestic market for farm products, although again the improvements will be only slight over the remainder of this decade.

But at least agriculture is now in the mainstream of the WTO (which allowed the other agreements in the Uruguay Round to be concluded), and it has been agreed to reopen agricultural negotiations by the end of 1999 to continue the process of farm reform. Moreover, the requirement to tariffy nontariff import barriers, to quantify the Aggregate Measure of Support, and to notify all subsequent policy changes to the WTO’s Committee on Agriculture are major contributions to transparency that in themselves limit the worst excesses. The new rules and obligations eventually will constrain further farm protection growth in both advanced and newly industrialized countries, thereby promising greater certainty and stability to international food markets next century. Furthermore, there has been considerable reduction in the degree of tariff escalation affecting markets for tropical export products. In the cases of rubber, jute, oilseeds, spices, tobacco and wood, for example, tariffs on the primary and semi-processed products have been lower than on the final manufactured products but the latter are to be reduced much more than the former thanks to the Uruguay Round (ESCAP 1995, pp. 128-30). All these developments will encourage developing countries with a natural comparative advantage in farm products to exploit the new market opportunities, not least through seeking reductions in their own country’s direct and indirect policy discrimination against agriculture.

Because of the concern among agricultural exporters that the hard-won benefits to them from the UR agriculture agreement could be reduced by current farm protectionist measures being replaced by alternative measures such as quarantine restrictions, an agreement on Sanitary (human and animal health) and Phytosanitary (plant health) measures was also negotiated. The SPS Agreement seeks to ensure that any such SPS import restrictions are imposed only to the extent necessary to ensure food safety and animal and plant health on the basis of scientific information, and are the least trade-restrictive measures available to achieve the risk reduction desired. Although there is sufficient vagueness in the wording to ensure that the protectionist abuse of SPS measures is still possible, consultations between WTO members are leading to conflict resolution in numerous cases and, in other cases that go on to form a panel, the dispute settlement evidence to date shows that exporting countries can succeed in getting WTO panels to rule against the most excessive cases (Roberts 1998).

Another major achievement of the Uruguay Round of indirect but none the less significant importance for agricultural-trading countries was the bringing of highly protected textiles and clothing back into the mainstream of GATT/WTO activities. Since the early 1960s their protection in advanced economies from import competition from newly industrializing countries had grown enormously, contrary to the policy trend for most other manufacturing industries. That had been most unfortunate for (especially densely populated) developing countries seeking to industrialize and export their way out of poverty. In turn it meant those economies’ emergence as net food importers has been delayed.

When the Uruguay Round was due to be launched, developing country members of GATT made it clear they would not participate actively in the Round unless, like farm policies, textile and clothing trade policies were high on the agenda for liberalization. That was taken seriously in the Uruguay Round, unlike in previous rounds, because advanced economies were keen to improve their access to services and capital markets, and protection of their intellectual property, in developing countries.

What was achieved in terms of commitments under the Uruguay Round to dismantle textile and clothing protection? As with agriculture, not a lot in absolute terms but a great deal relative to the past and to what might otherwise have been the case. More specifically, the MFA and its ‘voluntary’ export restraints (VERs) on textiles and clothing are to be gradually dismantled so as to return textiles and clothing to the full discipline of the GATT by 2005. During the transition, quotas on trade volumes are to grow faster than in the past and eventually are to be replaced entirely by tariffs as the only restraint on trade. Those tariffs will be bound and gradually reduced. For advanced economies as a whole, the average tariff on these goods is scheduled to fall from 15.5 per cent in 1995 to 12.1 per cent by 2005. But, again as with agriculture, the devil is in the details. According to Hertel et al. (1996), by 2005 the quotas will have increased by only about half the amount necessary for them to become redundant, in which case full tariffication would require the other half of the increase to occur at the end of the ten-year transition period, which seems unlikely. It is also likely that reforming countries will use the special safeguards and/or other forms of contingent protection such as anti-dumping duties as that time approaches.

Furthermore, while China, Taiwan and Vietnam remain outside the WTO, they are likely to enjoy little if any extra growth in their access to EU and US textile and clothing markets as those liberalizing countries are pressured to honour commitments to developing country members of WTO. Should China -- the world’s largest clothing exporter -- be admitted to the WTO before the MFA phaseout is completed in 2005, that would add substantially to structural adjustment pressures for these declining industries in advanced economies, and reduce the quota rents to other developing country suppliers. The least-competitive firms and workers in both sets of countries are unhappy about that prospect, and may use China’s accession as an excuse for not completing the phase-out of the MFA by 2005. Should that happen, a great deal of the potential economic benefits from both the Uruguay Round and China’s WTO accession, particularly for food-exporting countries, would be foregone (Anderson et al. 1997).

In short, the bringing of textiles and clothing back into the mainstream of GATT disciplines is a major coup for newly industrializing countries and therefore to agricultural-exporting countries in so far as the former become ever-larger net food importers. But equally clearly, the implementation of this agreement will have to be monitored carefully, in the hope both of minimizing any slippage (particularly if/when China joins the WTO) and of making sure further progress is made in the next round of multilateral trade negotiations as it affects this still-highly protected group of manufactures.

One of the reasons protectionist trade policies persist is that the losers from those policies are poorly informed about the nature and extent of their loss. In so far as they underestimate the loss, so they under-invest in lobbying against such distortionary policies. In these circumstances there is an economic return to society from supplying more information on the effects of interventionist policies. Yet many governments choose to under-supply such information, presumably at the request of those interest groups gaining from incomplete transparency (Rattigan and Carmichael 1996).

The shortfall in national transparency agencies can be offset somewhat at least by the WTO Secretariat providing that service. It now does so, in the form both of comprehensive annual notification requirements (to the Committe on Agriculture in the case of farm policies) and of the Trade Policy Review Mechanism (TPRM). Notices of all changes in trade and trade-related policies must be published by each country and made accessible to its trading partners, as well as sent to the WTO Secretariat. The Secretariat now makes those notifications public, including through the WTO’s internet website.⁴ As well, the WTO’s TPRM reviews each country’s policies on a regular basis ⁵ and publishes its findings.

A further Uruguay Round achievement is that the GATT’s role in resolving trade disputes has been strengthened very substantially under the WTO. Each case is to be completed in less than nine months. If an appeal is lodged, the new WTO Appellate Body will hear and rule on any claim of legal error within 60 days. Rulings are automatically adopted unless the WTO membership decides by consensus not to do so, unlike under the old GATT where the party under review effectively had the power of veto. The experience over the first two years of this new system has been highly successful (Cameron and Campbell 1997). In its first two years about 100 cases have been brought, compared with a mere 300 cases in the total 48-year history of the GATT. Moreover, the panel reports are causing countries to implement significant policy changes, unlike many of the GATT dispute reports. A prominent trade law professor believes the establishment of the Dispute Settlement Body in the WTO "is likely to be seen in the future as one of the most important, and perhaps even watershed, developments of international economic relations in the twentieth century" (Jackson 1998, p.176).

This development is of particular significance to agriculture because farm trade is so contentious. From the late 1940s to the mid-1990s, more than 43 per cent of GATT dispute settlement cases were agricultural (Hudec 1998, p. 38), and even since the WTO came into force the share has been about 30 per cent -- several times agriculture’s share of world trade.⁶ The fact that the share has dropped since 1994, despite there being a backlog of claims that were held over until the Round was completed, suggests the Uruguay Round’s agricultural and SPS agreements may well have lessened confrontation in farm trade. And the fact that the new dispute settlement procedures are faster, more automatic, and binding once the case is finished means much more satisfactory outcomes can be anticipated in the future than resulted pre-1995.

The Uruguay Round was not only about agriculture of course. Manufacturing tariffs (already quite low) are to be reduced further; ‘voluntary’ export restraints are to be phased out; the Multifibre Arrangement is to be abolished and protection to textiles and clothing lowered; a (small) beginning is to be made to liberalize trade in services; there will be greater discipline on abuse of intellectual property rights; tighter rules have been introduced on technical barriers to trade, rules of origin, pre-shipment inspection, trade-related investment measures, import licensing, safeguards, subsidies, and countervailing measures; a plurilateral agreement on government procurement has been signed; and much-improved dispute settlement procedures have been put in place in the new World Trade Organization.

All of these changes will boost global economic welfare substantially. Whether and to what extent a particular country will share in that welfare gain depends largely on how much (a) its trading partners lower barriers to its exports, (b) its competitors lower their trade barriers, and especially (c) how much the country concerned lowers its own trade barriers. Since the Uruguay Round involved so much more than just agriculture, and since this freeing up of global trade and the associated boost to economic growth is going to alter countries’ comparative advantages, it is only possible to think about the impact of the Round on a country from a global, economy-wide perspective. In particular, will the Uruguay Round improve the country’s terms of trade and, if not, will its own policy reform commitments be sufficient to ensure its citizens are nonetheless better off from the Round’s implementation? And how will the country’s agricultural sector and food security be affected? We address these two questions in turn for the larger economies of the region, before focusing on the smaller and least-developed countries.

Earlier GATT Secretariat estimates put the economic benefit of the Round as a whole at between US$200 and $500 billion per year (Nordstrom, McDonald and Francois 1994). More-recent studies provide lower estimates of global welfare gains, primarily because of the more-modest agricultural reforms that are now expected thanks to ‘dirty’ tariffication and to the fact that agricultural protection has decreased since the Round began (the effects of which were not captured in earlier studies).⁷ All such empirical studies grossly underestimate the total benefits from the Uruguay Round, however, because they under-represent or ignore a number of important effects of the agreements that are difficult to quantify. One is in strengthening the multilateral trading system (including the bringing of services, TRIPs and TRIMs under GATT/WTO discipline) and thereby in boosting investor confidence, employment and productivity growth. Another is the encouragement that greater openness abroad gives to accelerating the unilateral reform programs of individual (especially developing) countries beyond their Uruguay Round commitments. These studies also assume the alternative scenario is the status quo, whereas the alternative may well have involved more protectionism, higher barriers around regional blocs, and sporadic trade wars in farm products, autos, etc. with few if any winners.

Bearing those points in mind, much can still be learnt from available quantitative modelling exercises. Hertel et al. (1996) estimate a global welfare gain from agricultural and manufacturing trade liberalization of US$260 billion per year by 2005 (in 1992 prices), or 0.4 per cent of expected global GDP. Much of that estimated benefit of the Round will accrue to developing countries, especially the more open ones and those making the largest liberalization commitments. The estimated gain to East Asia’s developing economies, for example, is a 4.7 per cent boost, primarily because of large gains from (a) textile and clothing import liberalization by industrial countries and (b) their own reforms.

Three important implications of these results are worth stressing. One of the consequences of expanded manufacturing export opportunities is that agricultural production growth in Asian developing economies other than China and South Asia is slowed -- despite farm trade liberalization in developed countries -- as more resources are attracted to textiles and clothing. This can be seen from Table 5, which shows the projected percentage changes in output between 1992 and 2005 for each sector with and without the Round, as estimated by Hertel et al. (1996).

A second important point to note from Table 5 is the absence of negative numbers in row 1. That is, even in the countries reducing their agricultural protection most (the EU, Japan and South Korea), their agricultural sectors are projected to be larger in 2005 than in 1992 -- the UR reforms simply slow the expansion of their farm output.

The third point, though, is that the expansion of agriculture outside Western Europe and Northeast Asia is only slightly faster than it would have been without the Uruguay Round, because the benefits from reducing agricultural protection are so widespread and the liberalizations expected to come from the UR are very modest. And it is enough only to slow the relative decline in agriculture in middle- and upper-income countries, not to reverse it.

Francois et al. (1996) estimate the annual gain from the Round to be up to $215 billion in 1992 prices, but their model is calibrated to 1992 rather than 2005 so that gain represents up to 1 per cent of global GDP. That estimate assumes increasing returns to scale and imperfect competition for the industrial sector; when constant returns to scale are instead assumed, the gain is estimated to be only 0.45 per cent. The latter is close to the 0.42 per cent gain estimated by Hertel et al.’s constant returns to scale model -- the difference underscoring the point that market structure assumptions are critical in such modelling work. Of that global welfare gain of $215 billion, only one-thirtieth is attributable to agriculture post-1992, compared with one-fifteenth for other primary product reform, half for textiles and clothing, and the rest for other manufactures. For Australasia, however, 60 per cent of the estimated gain is due to agriculture. Again Asian developing economies are projected to gain proportionately much more than other regions from the Uruguay Round Agreements (a GDP boost for China of 4.0 per cent, for other developing East Asia of 3.2 per cent, and for South Asia of 3.1 per cent per year).

What impact will the Round have on international food prices? Estimates prior to the conclusion of the Round were quite optimistic. Tyers and Anderson (1992), for example, estimated that if all industrial countries were to tariffy all their support programs cleanly and then halve those tariffs by 2000, real international food prices would be 8 per cent by the turn of the century and the volatility of those prices would be almost halved. A one-fifth reduction in protection, therefore, might lead one to expect a rise in prices of temperate foods in international markets to average perhaps 3 per cent. But that would ignore three important factors: dirty tariffication is causing the reduction in protection levels to be even less than one-fifth; tropical agricultural products trade has been liberalized even less than temperate farm trade; and non-agricultural trade also is being liberalized, so that food prices relative to manufactured goods prices can be expected to be raised even less or even to be below what they would have been without the Uruguay Round.

All the latter three influences are evident in more recent results from Goldin and Mensbrugghe’s (1996) economy-wide model, summarized above in Table 4. The first column shows the change in the relative price of agricultural products that could be expected if there had been no ‘dirt’ in the tariffication of agricultural nontariff import barriers: temperate food prices would increase between 5 and 12 per cent, while tropical goods prices would barely change at all, relative to prices of manufactures. By comparing that first column with the second column, the impact of dirty tariffication is apparent: agricultural prices are expected to hardly change at all relative to manufactured goods prices. This result is consistent with an even more recent study by Anderson et al. (1997), which finds the Uruguay Round to raise only very slightly agricultural prices relative to prices of manufactures (less than 2 per cent) and to slightly lower the relative price of processed foods, again relative to what would have been the case without the Uruguay Round being implemented.

How can these findings be reconciled with the FAO’s projection of the effect of the Round? The FAO suggested international food prices will be 5 to 10 per cent higher in the year 2000 because of the Round. The model used to generate the FAO’s results does not include non-farm sectors, however, and so does not measure the change also in prices for non-farm products as a result of the Round. It is the relative price change that matters in terms of its effect in altering production and consumption decisions, not just the change in the absolute price of food in each country. More importantly, the FAO study effectively ignores the fact that agricultural tariffications were ‘dirty’. It therefore overstates substantially the decrease in farm protection and hence the impact of the Round on international food prices (see Sharma, Konandreas and Greenfield (1996) for a careful and balanced discussion of these reasons for the FAO’s higher price projections).

In all the above-mentioned studies of the Round, the big welfare gains for Asia’s developing countries are based on the assumption that China (hence Taiwan) does not join the WTO. If China (including Taiwan) were to accede to the World Trade Organization, global welfare would expand substantially but some developing countries competing with China in OECD markets for labour-intensive manufactures would see their benefits from the Uruguay Round diminish by China’s accession. The extent of that change depends heavily on how much China would be allowed to share, prior to its WTO accession, in the expanded access to textile and clothing markets that would result from the Uruguay Round agreement to dismantle the Multifibre Arrangement. Anderson et al. (1997) provide results under the extreme assumption that China and Taiwan are completely denied expanded market access until they join the WTO. In those circumstances, global economic welfare from the Round is estimated to be $50 billion per year higher once China is allowed into the WTO, but because of China’s export expansion the gain from the Round is diminished somewhat for South and Southeast Asian countries (compare columns 1 and 2 of Table 6).

How is grain self sufficiency affected by the Round? Contrary to the many concerns expressed during the negotiations, the effects on the larger economies are likely to be quite minor -- not least because the UR reforms in agriculture are now expected to be only modest. The second pair of columns in Table 6 provides one set of estimates. Malaysia and the Philippines are seen to become less import dependent and Thailand to export more rice, but otherwise the changes are no more than a percentage point or two away from what they are projected to be without the Uruguay Round being implemented. But what about for the smaller and least-developed economies?

In addition to the special and differential treatment given to developing countries in the UR Agreement on Agriculture that is noted in Section 2 above, there are additional provisions for the least-developed countries (LDCs). They include a recognition of their special interests, fewer obligations, longer implementation periods for commitments, and technical assistance provisions (see WTO (1995) for a full list). In the case of the Agreement on Agriculture, for example, Article 15.2 exempts LDCs from having to make commitments in all three areas of domestic support, market access, and export subsidies. There is as well provision for assisting LDCs and net food-importing developing countries to cope with the effects of implementing the Round’s agricultural agreement on international food prices and on reduced subsidies on exports from industrial countries. There might also be assistance provided where there has been an erosion of preference margins, as in the case of ACP countries receiving the domestic price in the European Union for their exports. Specifically, in-kind aid in the form of food, short-term financial assistance to import food, and technical assistance to improve agricultural productivity and infrastructure are provided for in this Decision.

If anything, in-kind food aid has fallen rather than increased since the Uruguay Round was completed, with the depletion of discretionary grain stocks held by governments. Assuming governments choose to hold only modest stocks in future now that there is to be less domestic price support, the cost of official food aid will be higher than under previous farm policy regimes. Hence there will be domestic political pressure for food aid to be confined more to short-term emergency and humanitarian relief and to be used less as a substitute for commercial imports by LDCs.

There is already a loan facility at the IMF to help LDCs finance cereal imports during periods of price spikes or foreign exchange shortfalls. It has been used very little in the past, perhaps because the loan carries with it conditions of the type attached to regular structural adjustment loans from the IMF and/or because of the availability up until now of food aid and subsidized exports from industrial countries. Whether it will be used more under conditions of tighter grain markets and less food aid remains to be seen.

As for technical assistance to improve LDCs’ agricultural productivity and infrastructure, that too has if anything declined in the 1990s. Both bilateral aid agencies and multilateral institutions, such as the international agricultural research institutes and their former key funders such as the Ford and Rockefeller Foundations, have reduced the proportions of their funds targeted at agricultural aid projects. And aid in aggregate has been growing slower as well, as industrial governments respond to demands for downsizing and for providing less funding to international agencies.

Hence there is little evidence that the LDCs and net food-importing developing countries have been assisted significantly more since the implementation of the Round’s Agreement on Agriculture began.

Whether this matters depends in part on whether smaller and least-developed countries are likely to suffer disproportionately from that agreement. To help assess that, consider Table 7. It shows the extent to which the LDCs and smaller economies of Asia and the Pacific have been dependent on food imports. Column 1 indicates that in most cases food accounts for well below one-fifth of all merchandise imports (the unweighted average for the countries shown is one-eighth), and hence an even smaller share of all goods and services imports by these countries. But as many as one-quarter of these countries were actually net food exporters in 1990-93 (column 2) -- notwithstanding the fact that some of them (India, Laos) are still classified by the United Nations as net food-importing countries. Of the other three-quarters, net food imports amount on average to only 9 per cent of all their merchandise imports. A one or two per cent change in international food prices would therefore amount to an increase of less than 0.2 per cent of these countries’ import bills. This is insignificant when compared with normal year-to-year fluctuations in international food prices.

To go beyond such casual empiricism, Ingco (1996) has used the model and results reported in Table 4 above to estimate more precisely the impact of the Round’s effect on international prices for agricultural products for a large number of LDCs. Predictably, though, the results show the impact on both the food import bill and GDP to be extremely small, especially when it is borne in mind that the Round’s implementation period is 6-10 years.⁸ Certainly it would be swamped by fluctuations in their trade balances due to other economic events, and more or less offset by the normal pressures for a slight long-term decline in the real international price of food depicted in Figure 1.

Of course these policy reforms will tend to help developing countries that are net exporters of farm products and those that are so close to being food self sufficient that they would be net exporters once food prices rise following implementation of the Round. They also are likely to help those countries that would be net food exporters but for their own distortionary policies that discriminate against farmers (Anderson and Tyers 1993). Even in those developing countries that would remain significant food importers even after the Round is implemented, many rural households, as net sellers of food or of farm labour, would benefit from a rise in food prices.

This suggests a general conclusion that even these poor countries are unlikely to be harmed very much by the Round’s implementation, especially if they take advantage of the now-more-open markets abroad (including through reduced tariff escallation) by liberalizing their own economies. However, three caveats are in order.

First, countries that enjoyed a disproportionately large share of world food aid supplied out of subsidy-generated surpluses in Western Europe or the United States may be harmed significantly in so far as they now have to purchase such imports at closer to commercial rates.

Second, countries that in the past were able to purchase a large proportion of their food imports at discounted prices financed by the export subsidies of the EU or US will find themselves less able to do so in the future as export subsidies are cut.

And third, ACP and other developing countries benefiting from preferential or duty-free access to EU and other markets under, for example, the Lome Convention or the Generalized System of Preferences will in future enjoy that privilege less. This is because the domestic prices in developed countries will be closer to international levels as their agricultural protection is reduced. However, while that reduction in the preferential margin may be large in proportional terms, it is rather minor in absolute terms. Table 8 suggests that the loss of margin in the United States amounts to about 2 percentage points, in the European Union to 4 points, and in Japan to 2 points for tropical products and 6 points for temperate farm products. A recent paper by Yamazaki (1996) attempts to estimate the gross dollar value of those preferences before and after the Round. As shown in Table 9, he suggests the loss could be as much as (282 - 105 =) $177 million for Asia and $6 million for the Pacific developing countries per year. That sum of $183 million, to put it in perspective, is equivalent to just 5 per cent of the value of the region’s preference-receiving trade in 1992 (slightly above the average of 4 per cent for all developing countries). It would be much smaller than 5 per cent of the region’s (larger) total trade at the end of the Round’s implementation early next century.

For countries adversely affected by one or more of these three phenomena (reductions in food aid, in OECD food export subsidies, and in preferential access to OECD markets), there is even more reason for them not to be seduced by the special and differential treatment clauses of the Uruguay Round but instead to reform and structurally adjust their own economies to take full advantage of the new opportunities arising from the Round.

Can a case be made for including a food security clause in the next round of multilateral trade negotiations or for providing some other form of safety net for low-income food-deficit countries? On the one hand, the evidence presented above provides little reason to suggest those would be needed more in the future than prior to the Uruguay Round’s conclusion. It is true that international food prices may be a little higher, that food-deficit countries’ import bill may be too, and that export earnings in protected preferential markets may shrink a little. But in all cases these changes represent reductions in market distortions by governments and hence are to be welcomed as contributors to the WTO’s fundamental purpose of bringing greater stability and predictability to world markets. On the other hand though, a case might well be made for offsetting those reductions in trade preferences and aid to the worst-affected developing countries with more-direct and more-efficient forms of financial support, discussed at the end of the paper.

Pathbreaking though the Uruguay Round achievements have been for agriculture, much remains to be done before world agricultural trade is as fully disciplined or as free as world trade in manufactures. Being aware of this at the end of the Uruguay Round, it was agreed that there would be a return to the negotiating table by the end of 1999. That is unlikely to be very productive, however, unless it is part of another comprehensive round of multilateral trade negotiations whereby inter-sectoral and cross-issue tradeoffs are possible. Since services and TRIPs also are due for review by decade’s end, a strong case can be made for the new agricultural negotiations to be part of a much bigger package. Among other things, that would open up the possibility for broader scrutiny of progress in reforming textiles trade which, for the reasons given above, would be especially worthwhile if China is to become a member of the WTO.

Assuming a comprehensive round is launched at the turn of the century, what should be on the agenda for the agricultural negotiations? The developing countries that have a comparative advantage in agriculture would share the priorities of the Cairns Group, even though some of them may not yet be food exporters under current distortionary policies at home and abroad. Those priorities are discussed first, followed by a discussion of additional priorities of countries with a comparative disadvantage in agriculture.

• Make agriculture more market-orientated. Given the very limited expected progress by 2000 in making agriculture more market-orientated, the first priority must be to further that process. Hopefully that will not be as difficult to agree to now as it was when the Uruguay Round was being launched, given the considerable progress in unilateral farm policy reforms in the US, the EU and Japan during the mid-1990s (which themselves were responses to the changed atmosphere created by the UR Agreement on Agriculture -- see IATRC (1997, Chs. 1, 2 and 6) and Tracy (1997)).
• Phase out farm export subsidies. Nothing less than a ban on farm export subsidies is needed to bring agriculture into line with non-farm products under the GATT. The prospects for getting agreement to phase them out in the next decade or so will depend on prices remaining higher and more stable in international food markets. A less ambitious objective would be to continue the schedule of reductions agreed to in the Uruguay Round. Josling (1998b) points out that if the same magnitudes were adopted, that would eliminate 72 per cent of the subsidy payments of the base period, and 40 per cent of the volume of subsidized exports would have been removed from the market over the two Rounds (with only 28 per cent of the expenditure to be spread over the remaining 60 per cent of the volume). The rules might also be changed to disallow unused subsidies in any year to be carried forward to the next year.
• Strengthen disciplines on domestic subsidies? The acceptance of the idea that domestic subsidies are a legitimate concern of trade negotiators was an important breakthrough during the UR even though the actual disciplines on those policies are currently weak. In the next round an early decision needs to be taken as to whether to strengthen or abandon the attempt to constrain domestic policies under the WTO. Even though a plausible case can be made for the latter (Snape 1987), the Cairns Group may well decide to pursue the former, in which case attention needs to be directed to the ‘blue box’ and ‘green box’ items.
• Remove the ‘blue box’. The ‘blue box’ items, containing the US and EU direct payments to farmers who restrict their output or at least some inputs, were not counted in the Aggregate Measure of Support (AMS) and were granted exemption from challenge under the Blair House agreement as a way of moving the Uruguay Round talks forward. But with the policies of the US and EU gradually being reformed for internal reasons in recent years, and in particular with the further de-coupling of farm income support measures from production as with America’s FAIR Act of 1996, the political necessity of that anomaly has lessened. It may therefore be possible to remove the ‘blue box’ in the next round of talks.
• Tighten the ‘green box’ criteria. This is needed to reduce the loopholes these criteria provide for continuing output-increasing subsidies, especially since AMS reduction commitments encourage countries to make more of their policies conform to ‘green box’ criteria, the rewards for which are exemption from the AMS and avoidance of challenge. Many of the green box measures give at least some encouragement to production. An example is crop insurance, which by reducing risk must encourage output somewhat. There is the possibility, however, that opening the definition of the green box would result in it being expanded rather than contracted. Indeed that seems to be the motive behind the push by some European and East Asian countries to examine ‘non-trade’ concerns under the rubric of the so-called ‘multifunctionality’ of agriculture.⁹
• Further reduce the Aggregate Measure of Support (AMS). Even though the constraints on domestic support are currently very weak, one of the possible benefits of getting countries to commit to reduce further their AMS is that it will encourage them to make more of their policies conform to the ‘green box’ criteria (IATRC 1997, Ch. 11). That in turn makes it all the more important that the ‘green box’ criteria are tightened such that policy instruments so exempted are not in practice encouraging much further production. One way of making progress in reducing domestic supports would be to replace the AMS with measures that applied to subsets of farm commodities (as was the intention earlier in the Uruguay Round but was replaced with the aggregate measure during the Blair House bilateral between the US and EU in 1992).
• Secure large reductions in bound tariffs. Perhaps the most important area requiring attention has to do with import market access. Tariffication has made restrictions to imports much more transparent, but the degree of ‘water’ currently in those tariffs exaggerates the barriers and makes most bindings ineffective. The combination of dirty tariffication by developed economies and the adoption of very high ceiling bindings by developing economies allows countries still to vary their protection as they wish in response to changes in domestic of international food markets. Getting those bound tariffs down from 50-250+ per cent to the 5-15 per cent level of tariffs on manufactures requires radical action if reform is to be taken seriously. Even if as much as a 50 per cent across-the-board cut by 2010 was accepted, however, that would still leave some very high tariffs. A second option is the "Swiss formula" used for manufactures in the Tokyo Round, whereby the rate of reduction for each item is higher the greater the item’s tariff level. This has the additional economic advantage of reducing the dispersion in rates that was introduced or exacerbated during the Uruguay Round. And a third option is the one used successfully in the information technology negotiations, namely, the "zero-for-zero" approach whereby for selected products tariffs are eliminated altogether. In contrast to the second option this would increase the dispersion of tariffs across products, increasing the risk that resources will be wastefully diverted from low-cost to higher-cost activities. While that might appeal as a way of then allowing attention to then focus on the politically difficult items such as dairy and sugar, the manufacturing sector experience with long-delayed reductions in protection of textiles and cars makes it difficult to view this option optimistically as a quick solution.
• Expand tariff-rate quotas? The above tariff reductions refer to above-quota imports. There is also a pressing need to focus on in-quota imports, that is, those that meet the minimum access requirements in the UR Agreement on Agriculture (generally 5 per cent of domestic sales by 2000 for developed economies). Agricultural-exporting countries are understandably reluctant to suggest the tariff-rate quota (TRQ) be removed, because the TRQ provides at least some market access at low or zero tariffs. Yet as Stefan Tangermann put it recently, TRQs "created a slew of bilaterals which seems likely to keep agricultural trade a question of government intervention for years to come. Moreover, they have created a new wave of government interference with agricultural trade through licencing procedures, and provided a playground for rent-seeking traders, who will in turn have an incentive to lobby for the continuation of the high above-quota tariffs" (IATRC 1997, p. 137). Allowing TRQs to be auctioned is not a solution because that would be like imposing the above-quota tariff that the TRQ was designed to avoid. Perhaps the best alternative to removing the TRQ is to expand it, so as to simultaneously reduce its importance, increase competition, and lessen the impact of high above-quota tariffs. If it were to be increased by, say, the equivalent of one per cent of domestic consumption per year, it would not be very long in most cases before the quota became non-binding. Expanding the TRQ could thereby be potentially much more liberalizing in the medium term than reducing the very high above-quota tariffs. Such an approach may require binding within-quota tariffs at a reasonable level (such as that for manufactures), and perhaps allowing countries not to have to reduce those bound within-quota tariffs until the quota becomes redundant.
• Tighten SPS/quarantine rules? The SPS Agreement has worked well, so some Cairns Group members are suggesting it be left alone lest it be weakened if opened up for re-negotiation. However, many countries use very blunt quarantine instruments such as import bans that excessively restrict imports well beyond what is necessary for protecting the health of their plants and animals (and citizens in the case of food safety concerns). For example, there are outright bans on imports of many products, including from agricultural-exporting countries seeking to preserve a disease-free image. The levels of protection involved are in some cases equivalent to tariffs of more than 100 per cent.¹⁰ Without some form of notification requirement on WTO members that forces them to disclose the degree to which trade is restricted by such measures, reform in this area is likely to be confined to the very small proportion of those cases that are brought before the WTO’s dispute settlement body. The expense of such legal proceedings and the time involved in concluding each case ensures the pace of reform by that means alone would be glacial.
• Reform state trading enterprises? Here too the Cairns Group members and other agricultural exporters are equivocal, since some of them have government-sanctioned single-desk selling agencies/export monopolies that may come under the spotlight. However, the issue is worthy of much closer attention in general (not just for farm trade) because of the large number of former centrally planned economies seeking WTO membership. While an outright ban on STEs seems implausable (too many current WTO members have them), it might be possible to require members that create new STEs to compensate other WTO members that are adversely affected. It might also be possible to make more use of Article II:4 of the GATT, which states that no mark-up by a STE should be larger than the import tariff. In the past members were able to circumvent this by claiming to be administering a non-tariff barrier and, in any case, few agricultural tariffs were bound. That is not going to be possible following the tariffication and binding of farm tariffs, at least once the ‘water’ in those bound tariffs is removed. On the export side, requiring the removal of the monopoly status of single-desk exporting agencies and any concessionary credit arrangements, and disallowing their practice of defining ‘export’ grades differently from the grades sold on the domestic market, would lessen suspicion that these STEs are being used to subsidize exports covertly and/or raise domestic consumer prices.¹¹
• Phase out the Special Safeguards mechanism. This mechanism, which allows developed economies to trigger import restrictions should quantities surge or import prices plummet, could be phased out by adjusting the triggers each year so that they are less and less likely to cut in. In the meantime, though, agreement could be sought on the level of trigger prices. For example, members could be required to set them to the (typically very low) external prices used in calculating initial tariff equivalents.
• Remove exceptions to tariffication. This applies mainly to rice in Japan and Korea (although the Philippines and Israel also are involved). Fortuitously, domestic reforms and market changes in Northeast Asia since 1994 have been such that there should be less concern with keeping these exceptions as we approach the new millenium (IATRC 1997, p. 139).
• Normalize farm export credits and export promotion. These are just farm export subsidies by another name, and clearly need to come under stronger discipline. Since the Uruguay Round mandated members to reach an accord by 2000 on export credits in general, this is an opportunity to ensure export credits and export promotion are treated in the same way for agriculture as for other products. Alternatively, the subsidy equivalent of such measures could be charged against the export subsidy constraints in each WTO member’s schedules.

The above agenda for those seeking more liberal agricultural markets will be resisted by those seeking a continuation of special favours for agriculture. The latter are forming coalitions with other groups to find reasons/excuses for not lowering trade barriers and/or to lobby for interventions abroad that would raise their competitors’ costs. The key issues that for this reason will have greater prominence in the next WTO negotiations than in the Uruguay Round are discussed below. In assessing the implications of these priorities for farm and trade policies, the following should be kept in mind: that where there are several policy objectives, typically an equal number of policy instruments is required to deal efficiently with them; that the most efficient policy instrument for achieving a particular objective will be that which addresses the concern most directly; that trade measures in particular are rarely the most efficient instruments for addressing non-trade concerns; and that trade reforms will be welfare-improving so long as optimal domestic interventions are in place to deal with those non-trade concerns.¹²

• Food security. The claim is often made that a high level of food self-sufficiency is necessary before a nation feels food-secure. This is inconsistent with the usual definition of food security though, which is that everyone always has access to the minimum supply of basic food necessary for survival. Lower rather than higher consumer prices for food would by that definition boost the number of food-secure people, suggesting lower import barriers and export subsidies should be called for. But becoming more dependent on imports does raise questions about the preparedness of exporters to always supply foreign markets. For that reason, food importers may call for stronger disciplines on the exceptions to GATT Article XI.1 which prohibits export restrictions other than export taxes. For example, GATT Article XI.2(a) permits temporary quantitative export restrictions to relieve critical food shortages in an exporting country. True, the URAA’s Article 12 added some discipline to that provision, requiring that due consideration be given to the effects of such a restriction on WTO members who are food importers, that such affected members be consulted, and that the WTO be notified of the nature and duration of the restriction. Even more discipline could be called for in the next WTO round. For example, if it were shown that in the past longer-term customers were being served first and charged less in years of shortfall, agricultural exporting countries could be asked to cease that practice and instead provide non-discriminatory access to their supplies of basic foodstuffs at all times.
• Environmental protection and preserving rural landscapes. Agriculture’s contribution to the natural environment is mostly negative. Some claim that it is adding to biodiversity and the landscape by preserving, for example, hedgerows in Europe, but that could be done simply by paying some landowners not to destroy their hedgerows. Others in rich countries claim that farmers need to be compensated for adopting less-environmentally damaging farming practices. This pay-the-polluter idea is the opposite of the OECD-sponsored polluter-pays principle, whereby farmers would be taxed according to the extent of the damage their practices cause. It would seem reasonable therefore to disallow such payments to polluters from being included in the green box and thereby not counted as part of the AMS. Perhaps of even more importance from the viewpoint of developing country exporters of farm products is the erection of trade barriers against foreign products because of the way they are produced. Mexico won its case at the GATT against the US ban on imports of tuna that were deemed to be caught in nets unfriendly to dolphin, and the shrimp/turtle case had a similar outcome, but both cases have made the GATT/WTO very unpopular with environmental groups. Thus developing countries will need to continue to argue against import restrictions being allowed on products produced by methods not liked by importing countries -- otherwise there would be no end of restrictions being imposed on such grounds (Anderson 1998a).
• Food safety and quality. As with the quality of the environment, the demand for higher quality, safer food rises with per capita incomes. However, perceptions about the safety of different foods and food production and processing methods, and conformity assessment procedures, differ greatly -- even among countries with similar income levels. The WTO Dispute Settlement case between the US and EU on beef hormones showed that standards differences are difficult to resolve even with the best scientific advice. Other examples are irradiated food, cheese made from unpasturised milk, and genetically modified organisms. Increasingly over time such issues will arise, under the Uruguay Round’s SPS and Technical Barriers to Trade agreements in the case of food standards and under the TRIPs agreement in the case of food quality (Mahe and Ortalo-Magne 1998, Henson 1998), providing yet another possible excuse for erecting trade barriers that by their nature will tend to be discriminatory.

By the standards of the rest of the 20^th century, the past few years will be judged by historians as good ones in terms of the reduction in disarray in world food markets. The GATT/WTO membership can take a significant share of the credit for that -- just as GATT Contracting Parties should take a significant share of the blame for the disruptions caused by not focusing on agriculture during the GATT’s first four decades. Yet it is clear from the above discussion that a great deal more remains to be done before agricultural markets are anywhere near those for manufactures in terms of freedom from government intervention Anderson 1998b, Josling 1998a).

Moreover, the next stage of reform will be conducted in an environment in which globalization forces (including ever-faster international transfers of information, ideas, capital, skills and new technologies) will be having ever-stronger impacts on markets but simultaneously may trigger sporadic policy backlashes. Examples of the former forces affecting agriculture include the new genetically engineered crop seeds that are part of the biotechnology revolution in the seed/pesticide industry, and the on-going scientific and marketing innovations in the wine industry. Both of those industries are experiencing surges in economies of scale in parallel with these developments which, together with the liberalization of the world’s financial markets over the past 15 or so years, is encouraging rapid expansion of foreign direct investment by large multinational corporations. The Uruguay Round’s TRIPs agreement is a contributor to that expansion (for example, in providing more secure property rights for seeds and geographical indications for wines). The privately optimal international location of production may well change in non-trivial ways as a result, bringing forth new forces for adjustment. The current East Asian financial crisis reminds us that in stressful circumstances governments may be tempted either to embrace the forces of change and facilitate efficient and rapid adjustment to the new market-driven circumstances, or to try to resist change by turning their back on reform and intervening in those markets.

With this in mind, there are clearly many challenges as well as opportunities ahead. For Cairns Group members and other developing countries interested in seeing agricultural market reforms continue into the next century, their key priorities for the rest of this decade are as follows:

• secure a consensus to launch a new round of multilateral trade negotiations at the turn of the century that is comprehensive enough to allow inter-sectoral tradeoffs (a prerequisite for which is fast-track legislation in the US),
• ensure all the main forms of distortions to agricultural markets are high on the negotiating agenda, to minimize the possibility that reforms in one area are offset by policy re-instrumentation to trade-distortive support measures not yet disallowed,
• facilitate the accession of new members to the WTO, particularly those aspirants that are significant in world agricultural markets such as China, Russia, Ukraine and Vietnam,
• encourage more transparency and analysis of the nature, extent and economic effects of market-distorting farm and food policies, including those that have been relatively unexposed such as environmental and quarantine measures,
• keep explaining why trade reforms are desirable and why they need not be a threat to food security, to food safety, or to the environment, especially if appropriate first-best policy instruments are used to address the latter concerns,
• clarify each major country’s interests and objectives and explore the prospects for more coalition-building among WTO members and for reducing animosity between members where that is based on incomplete or incorrect information,¹³ and
• build a stronger consensus for reform in food-exporting countries, including in areas traditionally neglected (single-desk exporting agencies, quarantine restrictions) where setting a good example in food-exporting countries will enhance the prospects of food-importing countries agreeing to do likewise.

Agricultural exporting countries also have a clear, if indirect, interest in ensuring a continuation and spreading of rapid industrialization in densely populated Asia and elsewhere, for that will expand those developing countries’ net imports of farm products (especially if WTO commitments prevent them from raising food import barriers). That industrialization in turn depends heavily on advanced economies honouring and then extending their commitments to liberalize markets for manufactures, especially textiles and clothing. Scope may exist for agricultural exporters and textile exporters to work collectively on ensuring the continuation of reform to textile and clothing trade.

At home, food exporting countries will do themselves a favour by removing remaining domestic or trade policy barriers of their own to their agricultural exports. This includes reducing any under-investment in infrastructure in rural areas. That will enhance their chance of gaining from Uruguay Round implementation and ready them for further market openings following the next WTO Round.

As for densely populated food-importing developing countries, they should no longer entertain the idea of following the steps of more industrial economies in the sense of protecting their farmers increasingly from import competition as economic growth proceeds. That simply is not a long-run option under the WTO. Even if it could be pursued in the medium term by countries that set tariff ceiling bindings for farm imports at very high levels, the emergence of true protection would make them vulnerable to criticism from other WTO members. The economically superior option of facilitating adjustment by farmers to market forces will yield far greater dividends. And it will not lead to the disappearance of their agricultural sectors. Indeed it is likely to lead to specialization in production that may even see some niche firms emerge with high value added differentiated products that are internationally very competitive.

One final point. Special and differential treatment for developing countries in the GATT and now the WTO has not done their economies a favour (Hudec 1987, Finger and Winters 1998). Developing countries would do well to trade this off for more-substantive gains in other areas, and for the poorer WTO members that might include assistance in playing a more active role as a WTO member. The latter would be most helpful in the long run if it was directed to training and capacity building. A beginning has been made to expand such assistance in the past year or so, but much more could be done, especially for the smaller economies that cannot even afford a permanent mission in Geneva.

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