General Equilibrium Studies of Multilateral Trade Negotiations: Do They Really Help?

The General Agreement on Tariffs and Trade (GATT) is a treaty establishing a framework of rules and principles for policies affecting merchandise trade. It also provides a forum in which sovereign states periodically engage in reciprocal trade liberalisation and rule making.2 As a result of substantial reductions in tariffs through periodic 'rounds' of multilateral negotiations, rule making has gradually become as, if not more, important than liberalisation per se. Starting with the Kennedy Round (I964-7), but especially in the Tokyo (I973-9) and Uruguay (I986- ) rounds, an increasing number of agenda items involved the negotiation of rules and disciplines for specific trade-related domestic policies rather than further reductions in tariffs and other border measures. Rules pertaining to product standards, subsidies and government procurement were prominent items on the agenda of the Tokyo Round. The Uruguay Round further expanded the multilateral negotiating agenda by adding trade-related investment measures (TRIMs), trade-related intellectual property rights (TRIPs), and measures affecting the contestability of service markets. The trend for multilateral trade negotiations to address 'domestic' policies shows no sign of abating. Calls for a post-Uruguay Round negotiation have identified issues such as competition policy, foreign direct investment (FDI) regulations, innovation policies, and the interaction between trade and environmental policies as possible topics for discussion.3 In part the steady agenda expansion reflects changes in the structure of the global economy. The managerial and technological innovations of the last decade - such as just-in-time inventory management and the increased tradeability of services - created pressures for greater specialisation and geographical splintering of production. This in turn made regulations pertaining to services, FDI, transfer of technology and protection of intangible assets more important for both governments and firms. Flows associated with services, FDI and intellectual property (IP) are smaller than merchandise trade, but are quite substantial. Table I reveals that global merchandise trade in i990 was $3-5 trillion, while world trade in commercial services was about $820 billion, global receipts for IP were some $33 billion, and income flows

Agriculture was included in multilateral trade negotiations in a comprehensive manner for the first time in the Uruguay Round. While this was an important step in bringing agriculture into the mainstream of liberalising trade reform, the actual degree to which the Uruguay Round succeeded in liberalising trade and reducing market distortions has been relatively minor. In fact, agricultural support in OECD countries, as measured by the OECD’s Producer Support Estimate (PSE), is currently at very high levels — similar to the levels prevailing at the commencement of the Uruguay Round in 1986. Therefore, the cuts in tariffs, export subsidies and domestic support negotiated in the Uruguay Round would appear to have had very little impact on overall levels of support for agriculture. The Uruguay Round did, however, establish a framework for negotiating further reductions in support and that framework is likely to be essential in the current agricultural negotiations. The dairy industry is one of the most highly supported agricultural industries globally. While there were some increases in market access and reductions in volumes of export subsidies negotiated in the Uruguay Round, world dairy trade remains highly distorted. The current WTO agricultural negotiations provide a vital opportunity to liberalise world dairy policies and trade. The potential impacts of significant dairy liberalisation are highlighted using an analysis of possible scenarios for improved market access for dairy product markets.

The World Trade Organization (WTO) was established on 1 January 1995, as a result of the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT). As of 31 December 2000, the WTO had 140 members, with an additional 28 countries in the process of accession. The WTO, as an international organization, administers the GATT trade agreement; acts as a forum for ongoing multilateral trade negotiations; serves as a tribunal for resolving disputes; reviews the trade policies and practices of its members; and cooperates with other international organizations to standardize global economic policy-making.1

This discussion paper contains seven studies, designed to a) review, and assess the impact of the implementation of the Uruguay Round (UR) Agreement on Agriculture, and, b) to analyze the key issues, interests, and options for developing countries in the new World Trade Organization's (WTO) round of multilateral trade negotiations in agriculture. Six regional case studies are presented: Sub-Saharan Africa, South Asia, Latin America, Eastern Asia, Central and Eastern Europe, and industrial countries. A quantitative analysis of the dynamics of multilateral liberalization in food, and agricultural trade is also presented. Among some of the key conclusions, it is suggested that much preparatory work was achieved in bringing agriculture fully into the multilateral trading system during the UR, and, a significant achievement was the development of a broad framework for reductions in trade-distorting policies. The UR was also successful in negotiating reduced volumes of subsidized exports, and in providing at least, minimum levels of access to markets. There were, however, a number of limitations in both what was agreed to, and in how the Agreement in Agriculture has actually been implemented, as the analyses show that the work achieved during the UR, will be of limited value, unless market distortions in agriculture can be reduced substantially. If liberal agricultural trade is to succeed, its limitations should be addressed, and policy induced distortions to agricultural production,

Trends bei den nichttarifaren Handelsschranken der Industrielander 1966—1986. — Die Autoren analysieren die Veranderungen bei den nichttarifaren Handelsschranken (NTBs) zwischen 1966 und 1986, indem sie auf historische Daten der Industrielander zuruckgreifen. Es zeigt sich, das der Anteil der von NTBs betroffenen Importe der wichtigsten Industrielander in diesem Zeitraum von 25 auf 48 vH angestiegen ist. Neue Handelsbeschrankungen fur Importe von Agrarprodukten, Textilien, Kleidung, Eisenmetallen und nichtelektrischen Maschinen spielten bei diesem Anstieg eine wichtige Rolle, wahrend einige NTBs bei Brennstoffen abgebaut wurden. Der Anteil des Handels mit NTB-Gutern wuchs in der EG schneller als in den USA oder in Japan. Aus wirtschaftspolitischer Sicht zeigen die Ergebnisse, das die bestehenden GATT-Regelungen nicht imstande waren, eine betrachtliche Erhohung der nichttarifaren Protektion zu verhindern, wahrend Fortschritte bei der Herabsetzung der Zolle erzielt wurden. Tendances concernant les barrieres non-tarifaires sur les importations des pays industriels pendant les annees 1966—86. — En utilisant des statistiques historiques pour les pays industriels, cette etude analyse les changements des barrieres nontarifaires (BNT) pendant les annees 1966—86. Les resultats prouvent que la part de l’importation des pays industriels importants, affectee par des BNT, a augmente de 25 pour cent (1966) a environ 48 pour cent (1986). Les nouvelles restrictions commerciales a l’importation des produits agricoles, des textiles, des vetements, des metaux de fer et des machines non-electriques ont joue un role important pour l’augmentation tandis qu’on a libere quelques BNT qui ont affecte les combustibles. La part du commerce affectee par les BNT s’est accrue plus vite aux pays de la CE qu’aux Etats Unis ou au Japon. D’une perspective politique, les resultats demontrent que les arrangements du GATT n’ont pas reussi de contrecarrer une augmentation importante de la protection non-tarifaire malgre des reductions des tarifs. Tendencias de las barreras no arancelarias de los paises desarrollados en el periodo 1966—1986. — Empleando datos historicos para paises desarrollados se analizan los cambios ocurridos en las barreras no arancelarias (BNA) en el periodo 1966—1986. Los resultados muestran que el porcentaje de importaciones de los paises desarrollados mas importantes afectados por BNA aumento del 25 por ciento en 1966 a alrededor del 48 por ciento en 1986. Nuevas restricciones sobre las importaciones de productos agricolas, textiles, indumentaria, metales ferrosos y maquinaria no electrica han jugado un papel importante en el aumento, mientras que algunas BNA afectando los combustibles fueron liberalizadas. El porcentaje de comercio afectado por BNA crecio a una tasa mas alta en la CEE que en los EE UU o en el Japon. Desde el punto de vista de la politica economica los resultados muestran que el reglamento del GATT ha sido incapaz de contener un aumento importante en la protection no arancelaria, a pesar del progreso logrado por el GATT en la reduction del nivel de aranceles.

One of the great achievements of the Uruguay Round (UR) was to begin to bring agricultural policies into the mainstream of GATT discipline. Non-tariff barriers to agricultural imports were tariffed and bound and are scheduled for phased reductions, and farm production and export subsidies also are to be reduced, mostly between 1995 and 2000. That UR Agreement on Agriculture, together with the SPS Agreement (to limit the use of quarantine import restrictions to cases that can be justified scientifically), the new policy notification and review requirements, 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). However, much remains to be done before agricultural trade is as fully disciplined or as free as world trade in manufactures. This mid-way point in the UR implementation period is an appropriate time to examine what has been achieved to date, to evaluate what remains to be tackled when WTO members come back to the negotiating table in 1999, and to decide on the most effective ways of ensuring that the process of reform continues or accelerates as we move into the next millennium. Action is needed on numerous fronts simultaneously. The first priority is to secure an early commitment to begin a new round of multilateral trade negotiations at the turn of the century, and one that is comprehensive enough to allow inter-sectoral tradeoffs. The second priority is to ensure all possible areas for opening agricultural markets are on the table. In addition to reductions in production and export subsidies and bound tariffs, this includes expanding tariff-rate quotas, de-monopolizing state trading enterprises, and phasing out special safeguard provisions. 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 in turn depends heavily on advanced economies honouring and then extending their commitments to liberalize markets for manufactures, especially cars, textiles and clothing. It also depends on socialist economies in transition (most notably China) reforming sufficiently to be welcomed into WTO membership.

At first blush, it might appear that the linkages between the negotiations on agriculture being conducted in the contexts of a bilateral CanadianAmerican Free Trade Area (CAFTA) and the Uruguay Round of multilateral trade negotiations (MTNs) would be rather tenuous. This is for several reasons. First, the primary agricultural trade interest of both countries is focused on the bigticket items of grains and oilseeds, and these are traded almost entirely off-shore. Second, the agricultural commercial diplomacy of both countries is directed primarily at Europe and Japan rather than at each other. Third, insofar as agricultural trade negotiations have become concerned with reducing and eliminating the trade-distorting subsidies provided to farmers by national agricultural policies, both countries have to use the offer to dismantle their farm programs where it will provide most negotiating leverage, which is in Geneva rather than in the bilateral trade negotiations (BTNs). These are three important reasons why early limits might be encountered to the oft-expressed hope and expectation that the BTNs will provide constructive arrangements in agriculture that can serve as models for the MTNs. However, closer examination shows that there are indeed numerous and important interfaces between the two sets of negotiations in terms both of broad common interests and in the finer detail of the ways in which particular issues might be handled. First and foremost, it is decisively important to both the United States and Canada that the agricultural BTNs send the right signals to other countries. This means that the two countries must demonstrate clearly and unequivocally that they can agree to liberalize continental trade in farm and food products, not only by removing frontier measures but, more important, also by changing those elements of national agricultural policies and programs that harm the legitimate trade interests of the negotiating partner. Furthermore, providing the right demonstration effect requires that continental agricultural trade liberalization be on the widest possible scale with few exceptions. Second, both countries have much to gain if they can adopt a common stance in the MTNs. In particular, the reality of the distribution of influence means the results for Canada of the MTNs will be augmented if Canada can support negotiating approaches favored by the United States. By the same token, U.S. negotiating proposals would be strengthened if they were supported by an important member of the Cairns Group. Thus, the BTNs provide the opportunity for seeking and evolving mutually supportive MTN negotiating positions. Third, the BTNs are throwing up all the same issues that will have to be confronted in Geneva. At a minimum, having to address them early means that both countries' negotiators will enter the agricultural component of the MTNs exceptionally well prepared. More important, the BTNs provide a testing ground for alternative approaches and prototype solutions to specific issues, some of which may be subsequently adopted multilaterally. It is to these that we now turn.

Throughout the 1960s and 1970s, countries in Latin America and the Caribbean (LAC) preferred to use the United Nations Conference on Trade and Development (UNCTAD), the Economic Commission for Latin America and the Caribbean (ECLAC) and other regional and sub-regional forums rather than the General Agreement on Tariff and Trade (GATT) to promote their international trade agenda. Many Latin American and Caribbean (LAC) countries were not contracting parties of GATT. Those that were, participated only passively in GATT multilateral trade negotiations prior to the Uruguay Round (UR), meaning that they did not engage in a significant way in the mutual exchange of concessions on a reciprocal basis.

Agriculture has been at the center of conflicts over world trade from the beginning in 1986 of the eighth, Uruguay Round, of multilateral trade negotiations. Yet it is only in the final phases of the Round that linkages from trade to the environment have come to the fore. In this paper, the specific linkages from trade to the environment in the agricultural sector are developed. The impacts of trade flows and policies on environmental quality in agriculture have features which make them unusually difficult to resolve. In many respects, the same domestic agricultural policies at the root of trade distortions also encourage environmental damages. Hence, reforming these domestic and trade policies would be a partial, though not a complete, step in the direction of greater environmental benefits. A complete set of policies will require targeted environmental interventions as well. Market failures in agricultural production and consumption have widespread effects on soil, water, human health, and natural ecosystems which are difficult to monitor and therefore to estimate. These market failures are generally reinforced by government policies which distort the prices of agricultural products and inputs (water, fertilizers, pesticides). These distortions occur in agriculture to a greater extent than in many sectors of both developed and developing countries. Trade flows and policies are a direct result of these domestic distortions. This case study will consider market failures with adverse environmental impacts in agriculture and their interaction with failures in agricultural trade policy in developed and developing countries. Section II develops a theoretical perspective on market and government failures in agriculture. In it, a simple model is discussed which emphasizes the distinction between the welfare effects of trade liberalization with and without appropriately targeted environmental policies. Section III provides some concrete examples of trade flows in agriculture and their environmental impacts in developed and developing countries, and analyzes the domestic policies at the root of distortions in agricultural trade. Section IV considers the likely impact of agricultural trade liberalization on market failures with adverse environmental effects, and the need to integrate environmental and trade policy reforms. Section V discusses the relationship between trade and environmental policy instruments in this context, and proposes some principles to guide trade and environmental policy in the agricultural sector. Section VI offers a summary and some proposed guidelines for the agricultural sector.

Despite the successful launching of a new round of multilateral trade negotiations in Doha, a wide gap between the priorities of developed and developing countries in the World Trade Organization (WTO) persists. The position of Latin American members tended to converge with that of other developing economies. Latin America made considerable concessions in the Uruguay Round (UR), with many economies binding their tariffs at relatively low levels. Even in the middle of macroeconomic turmoil in the late 1990s, with the successive financial crises in Asia, Russia and Brazil, commitment to liberal trade policies has been on the whole preserved. The liberalization process has, of course, raised severe problems related to the accommodation of conflicting interests. Problems arising out of the political economy of trade are not the monopoly of developed economies. After the very significant reduction of high tariffs entailed by the UR, tariff concessions by developing countries by further lowering their bound tariff levels will severely affect established interests which are favored by protectionist policies. Most of the region’s economies may face problems in adjusting in the mid-term to substantial additional tariff reduction undertakings. To create the political conditions required for further liberalization, Latin American governments need to be able to show to domestic interests that the developed countries are willing to make significant concessions by opening their markets in all sectors.

The Uruguay round of multilateral trade negotiations (MTN), successfully completed, will drift into the history of post-war international commercial diplomacy. Along with it will go much of the sound and fury that characterized its arduous negotiations. During the course of the MN, it seemed for a time that the General Agreement on Tariffs and Trade (GATT) no longer expressed a political-economic consensus between the United States and many European states, and that negotiations within the institution, as exemplified most markedly over the issue of agriculture, served only to highlight divergent national priorities. The issue of agriculture captured the attention of observers, understandably, since it appeared to impede progress in the MTN as a whole and to bring the United States and the European Union2 to the brink of the largest trade war in the history of the post-war international trade system. With the benefit of hindsight, however, some important lessons of the Uruguay round become perceptible.

As was seen in the previous chapter, agriculture is still of particular significance to the EU, as it is the major importer and the second largest exporter of food products in the world. Consequently, the EU is a very prominent and vocal member of what is today known as the World Trade Organization (WTO). Successful rounds of multilateral trade negotiations in the past have led to a decrease in the level of protection facing developing as well as developed countries. The situation of the agricultural sector, where protection in the developed countries grew enormously in relative terms until the mid-1980s, is generally in contrast with a background of falling tariffs experienced in the manu-facturing sector. Indeed, average tariff levels on manufacturing products have decreased from 40 to 50 per cent of the import value in 1950 to an average of 3.9 per cent in the 1990s. Thanks to the last round of multi-lateral negotiations, the Uruguay Round (UR), average tariffs on fish products declined by more than a quarter (Senti and Conlan, 1998).

The ratification of the North American Free Trade Area (NAFTA) agreement in the US Congress was seen by many as a further sign that the new wave of regionalism was turning the world away from the multilateral trading system established by the GATT. It is certainly true that the renewed interest in regionalism of the 1980s and 1990s has its roots in the weakening of the multilateral trading system. The length and complexities of the preparatory phase of trade negotiation following the Tokyo Round indicated that the GATT-based trading system might be losing its vitality and momentum. The multilateral trade negotiating game has changed significantly. The number of players involved has increased substantially over the years: more than 120 countries participated in the Uruguay Round. With such a large number of players the extent of free-riding and the likelihood of not reaching an agreement was quite high. The leading player in the multilateral negotiations, the USA, changed its stance from being strongly in favour of the multilateral approach to one which is only mildly supportive. In fact, as many commentators in this area claim, the US official position with respect to multilateral trade negotiations has helped to establish the view that regionalism may be seen as an alternative to the multilateral trading system rather than a complement to it. Moreover, regionalism is seen as inextricably linked with the global integration of foreign direct investments and production (see also Balasubramanyam and Greenaway, 1993 and Box 17.1, p. 513).

CHINA'S ROLE IN WORLD COTTON AND TEXTILE MARKETS

This paper uses a computable general equilibrium model to assess the effects of the Uruguay Round (UR) and CAP reform. Detailed attention is given to the impact of the agricultural components of the UR and of the CAP reform on the agricultural and food‐processing sectors of the EU. The CGE model used, while based on the standard Global Trade Analysis Project (GTAP) model, uses a more detailed representation of the UR and CAP policy changes than is usual in GTAP analyses of the UR effects. In so doing it assumes a degree of specificity of factors used in agriculture and makes appropriate agricultural policy variables endogenous. Finally, it assesses the consequences of assuming imperfect competition in all non‐agricultural sectors.