Will Special Agricultural Safeguards Advance or Retard LDC Growth and Welfare? A Dynamic General Equilibrium Analysis

Abstract

Trade liberalization extends the markets and the international division of labor. This, as Adam Smith argued, is the primary source of productivity and economic growth. Because the transition to liberal trade is not politically and socially costless, several developing countries have proposed that the Doha Development Agenda include Special Agricultural Safeguards (SSGs) to damp potential external market shocks to their domestic markets. An inter-temporal general equilibrium model captures the costs and benefits of SSGs on developing countries' trade, production, and welfare. The stylized SSGs are based on the SSGs of Article 5 of the Uruguay Round Agreement on Agriculture. The Uruguay Round Agreement of 1994 developed guidelines for proper use of trade remedies and solved many of the ambiguities in the earlier agreements. This includes the Agreement on Subsidies and Countervailing Measures, An Agreement of Safeguards, and an Agreement on Antidumping. The Agreement on Agriculture (AoA) allowed member to create Special Safeguards for agricultural commodities. Under the provision, WTO members are allowed to institute the use of SSGs for those products identified by the members in their country schedules, when volume and value trigger levels for action. In the current negotiations on agricultural trade reform some countries propose the total elimination of SSGs while some developing countries propose that only they would be allowed to use SSGs-developed countries would not be allowed to do. In this study we evaluate the effects of various proposals containing positions on SSGs and in particular special and differential treatment for developing countries on SSGs. The model considers 40 geographic countries/regions and 18 commodity groups and based on the GTAP 5.2 database. We estimated the potential effects of SSGs positions undertaken by developing countries using both static and dynamic approach. The later captures the direction of change in the long run accounting for consumption and invest, saving and production, the functioning of capital markets and international capital flows, as well as the technological spillovers and improvement in total factor productivity that seem to accompany growth in countries' trade. Preliminary results indicate welfare loss for developing countries when SSGs are imposed either for groups of commodities, such as staple food, or for all agricultural commodities vs. completely trade agricultural reforms