How the WTO has liberalized agricultural trade.
- By Jason H. Grant Jason H. Grant and Kathryn A. Boys are assistant professors at Virginia Polytechnic Institute and State University and Clemson University, respectively. Their paper, "Does the World Trade Organization Promote Trade? An Empirical Assessment of Agricultural and Non‐Agricultural Trade Flows," is available here. , Kathryn A. Boys
In the decades-old debate over the global role of the World Trade Organization, agriculture is a constant point of reference — particularly for those who question the organization’s ability to make progress in leveling the playing field. Developing countries, many of them reliant on agriculture, have long wanted rich countries to stop subsidizing their farmers’ production and lower tariffs. In exchange, wealthy countries are arguing against a proposal for a safety-net tariff mechanisms for developing countries; when prices fall or when imports rise too high, poor countries could charge substantially more at the ports to make sure local producers are protected. For more than three decades, during seven rounds of multilateral talks that finished with the Tokyo round in 1979, attempts to reach a deal on agricultural trade liberalization failed. The Uruguay round of discussions, concluded in 1994, at last brought agriculture under the purview of the organization. But it’s widely agreed that Uruguay did little to open agricultural markets.
In the ongoing Doha Development Agenda round of talks, agriculture has again taken center stage. Initiated in 2001, the negotiations had stalled by December 2008 as members became deadlocked, once again, over farming sector subsidies, tariffs, and other protections. WTO member countries have vowed to rev up talks in an effort to conclude the round in 2011, but so far this year there seems to have been little concrete progress. After 10 years of Doha negotiations, there is increasing concern that if the talks are not completed this year, then the round may be abandoned. And developing countries reliant on agriculture may well begin to question the value of their membership in the organization. Indeed, given the lack of progress on agricultural-sector liberalization through the WTO negotiations, one might reasonably wonder whether the WTO is an effective body to facilitate agricultural trade.
We recently decided to test this notion, to find out what benefits the WTO actually offers to agricultural countries. Surprisingly, despite all the rancor and roadblocks on reforming agricultural trade, we found that WTO membership still yields big rewards. Importantly, this is true for both developed and developing countries’ agricultural markets.
Our research provides some intriguing answers about how WTO membership affects market access for developing countries. Our data set covered over 200 countries and territories, two sectors (agriculture and manufacturing), reflected 25 years of international trade flows, and controlled for a host of economic, political, and geographical factors known to either promote or impede trade. We found that participation in the WTO and its predecessor, GATT, increased members’ agricultural trade by a remarkable 68 percent on average. In 2004 alone, this translated into an increase of $167 billion worth of additional agricultural imports, compared to a world without the WTO.
Expanding this analysis, we tested whether membership improved market access for developing and least-developed countries’ exports into the developed world. Again we found that the WTO was hugely beneficial. In fact, developing-country exporters actually gained relatively more access to rich markets than the other way around. We estimate that the average developing country exported 2.4 times more and the average least-developed country exported 1.9 times more to the average developed country than their non-WTO member counterparts. Clearly, when it comes to agricultural trade, participation in the WTO has its perks.
How is it that even as the WTO can’t agree on liberalizing agricultural trade it still provides such tantalizing benefits to its members? Several possible explanations exist. First, since the 1980s many developing countries have progressively reduced their own agricultural export taxes. Although this domestic policy change was not a function of WTO membership, it is possible that membership made countries more disposed, in general, to undertake trade reform. Second, the WTO offers more than just a forum to negotiate trade policy reductions; it establishes procedures that reduce uncertainty in international transactions, makes rules that exemplify transparency among members about their trade policies, and provides legal means to circumvent discriminatory action. More fundamentally, however, the WTO facilitates coordination among members, incentivizing countries to invest in trading relationships that may not exist between non-members.
The implication is clear: Regardless of their development status, countries that wish to expand their agricultural trade can do so by joining the WTO. Accession generates sizable trade flow gains and establishes an atmosphere conducive to commercial exchange. Not only does membership inhibit backsliding on trade liberalization commitments, but it also sets the stage for future negotiations that promise further reforms and more trade. Countries considering joining, or existing members reconsidering the benefits of membership, given the protracted Doha round negotiations, would do well to reflect on the positive externalities embodied in WTO participation.
But the other, perhaps more profound conclusion is that in the WTO, participation in the negotiations to a final agreement may be at least as valuable as the agreement itself. By being a part of the negotiating structure, countries form relationships and put their policies and priorities transparently on the table. In a word, they build trust, which is fundamental to long-term bilateral ties. If Doha concludes with a solid agreement on agriculture, the benefits to trade will be undoubtedly worthwhile. But in the meantime, countries will find that some good can come during the wait.