Day 2: Accession experiences during WTOs first decade following Uruguay Round

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Day 2 Accession experiences during WTOs first
decade following Uruguay Round

• 4-day course on Agricultural Trade Policy and WTO
  
• Tehran, Iran, 15-18 May 2005

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Outline of this morning

• Accession experiences to date, and lessons for
  new applicants such as Iran
• If time, 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?

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New members of WTO since 1995
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Accessions are taking ever-longer

• Recent acceding countries have taken about 10
  years to accede from date of establishing a
  Working Party
• Even 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?

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Countries currently seeking accession
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Of the 29 countries currently seeking WTO
accession

• Nine applied more than 10 years ago
• Twelve applied 5-10 years ago
• Average period so far for those 72 is 9 years
• Nine are LDCs (applied gt5 years ago on av.)
• Ten are from Eastern Europe/CIS
• Eight are from Middle East/N. NE Africa
• If 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

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The price of accession

• Involves market access commitments, and other
  specific commitments
• In 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)

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

• CAP-generated surpluses led to disposal via EU
  export subsidies
• US ( Canada) retaliated in kind
• Pushed real food prices in intl markets to
  centurys lowest level by 1986
• which more than doubled the welfare costs of
  agricultural protection over the 1980s (Tyers and
  Anderson 1992)

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Who brought agriculture into the UR?

• US farmers were hurt more by EU policies than EU
  farmers were by US policies
• Australia/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 Japans manufactures exports
  

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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

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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)

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Required services commitments also are growing

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

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

• An average of 20 per acceding country
• Some are WTO, going beyond commitments agreed
  among members in Uruguay Round
• Others are WTO-, or involve agreeing to forego
  rights available for existing WTO members
• e.g., Ecuadors commitment to eliminate all
  domestic subsidies prior to joining and never to
  introduce them in future Chinas acceptance of
  product-specific transitional safeguard
  provisions (likely to be used by importers of
  Chinese clothes)

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How countries have made the most of WTO accession
process

• Starting unilateral reform even before and
  certainly during the Working Party stage
• Being 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

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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 reform
• Establish 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 lt20
  for agric and lt10 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

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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 Chinas trade change, and how did its
  trading partners respond?
• What is the consensus now within China about
  whether WTO accession has been worthwhile?

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Changes in applied tariffs () by China post-WTO
accession
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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 another
• Example agricultures multifunctionality
• Consider some basic principles, and their
  application to
• food security
• rural environment
• viability of rural areas

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Why has this multifunctionality concept emerged
recently?

• Was agreed to in UR
• see 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

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Basic principles

• The debate is not over sovereign governments
  rights to determine national policy objectives
• Rather, the debate is over the means by which
  governments strive to achieve those goals
• Need to bear in mind
• international rights and obligations
• market failures, eg due to externalities
• in production and consumption
• in non-agric sectors as well as agriculture
• government failures in intervention

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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

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Six lessons(continued)

• 4. Trade libn 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

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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 targeted
• could occur at the bureaucratic and/or political
  level

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Why strive for the most efficient way to achieve
societys non-trade objectives?

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

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

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

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(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

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The policy task thus involves several steps

• Get a sense of societys willingness to pay for
  the non-marketed by-product
• Determine the most efficient measure for
  encouraging farmers or others to supply that
  by-product for society
• Then determine the optimal level of encouragement
• equate marginal social benefit with marginal
  social cost of intervention

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Examples of non-trade concerns 1. food security

• Food security is not synonymous with food
  self-sufficiency
• Rather, its 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
  foods
• Note agricultural protectionexacerbates food
  security, by raising consumer prices of food

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Food security (continued)

• What if the intl 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
  RD (an allowable green box item) which lowers
  domestic costs of production is better than price
  support

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Example 2 environmental protection

• Local environment is generally helped by lowering
  output price supports and taxing pollutive farm
  inputs
• But 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)

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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 subsidized
• taxes would be more appropriate than subsidies on
  pollutive inputs

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Example 3 viability of rural areas

• Is agriculture the only (or even main) economic
  activity in rural areas?
• Wouldnt targeted supports for essential services
  in remote areas be a lower-cost option?
• Regional supports in one country harm rural areas
  in other countries
• What is optimal degree of support?

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Conclusions on non-trade concerns

• Likely to become more contentious as regular
  trade distortions are lowered
• Need to be dealt with in WTO because they can
  affect trade
• Should be handled in the same way for all sectors
• Current WTO rules are adequate
• Requires governments to target, with precise
  interventions in each case, rather than use blunt
  market price support (including trade) measures

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Reading for this topic

• See K. Andersons Agricultures
  '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