Agricultural Trade Liberalization: Effects on developing countries' output, incomes and trade

During the last decade there has been a substantial increase in trade in agricultural products between developing countries. Between 1990 and 1998, the value of agricultural trade between developing countries has been growing at about 7 per cent per year. With this increasing importance of south-south trade, the barriers to such trade are becoming increasingly important to the growth prospects for developing countries. However the opportunity to reduce these barriers may not be realised because under the WTO, trade is liberalised through negotiations for the lowering of bound tariffs that are in most cases much higher than the applied tariffs in developing countries. Thus the extent of liberalisation is dependent upon the rate by which the bound tariffs are cut and whether such reductions lower the applied tariffs. This paper explores scenarios that reflect some possible outcomes in the WTO negotiations and assesses its implications on developing countries’ output, incomes and trade. A more realistic approach in modelling the scenarios is to take account of the binding overhang or “water in the tariff”. The findings show that developing countries have much to gain from further trade liberalisation. However, it is necessary that negotiations for further agricultural reforms should be more ambitious for benefits to be realised. More importantly, wider participation in the reform process and broad commodity coverage is required to ensure that the benefits are maximised.