6. Concluding remarks

This paper uses the ATPSM model to assess the likely impact of the modalities for the ongoing agricultural negotiations on three country groups: developed countries, LDCs and the rest of the developing countries. Three scenarios were analyzed, the draft Harbinson modalities of March 2003 and those of the EU and US, as alternative scenarios. Impacts were assessed on a number of indicators, notably world market prices, various welfare measures and trade and government revenues. For each indicator, information was also presented on the number of countries that gain or lose. Thus, the paper provides a range of information that should be useful for trade negotiators and policy makers as they negotiate to finalize the negotiating modalities. The assessment of the likely impact of the reform package as a whole is also a contribution to this literature.

Many of the results are standard and relatively straightforward to explain. Thus, further trade liberalization raises world prices of farm products, much more so for temperate-zone products, which received large support and protection in the base period, than for tropical products. Price rises are more pronounced under the US scenario than the under other two, reflecting the depth of the reform proposed. Similarly, in all scenarios, the developed country group experiences producer surplus losses while consumers gain.

The extent of the change in domestic prices, following a simulation, determines many of the outcomes. The domestic prices are influenced by the interaction between changes in world prices and tariffs. While all countries face the same change in world prices, both applied and bound tariffs are country-specific. Depending on the formula used and operative tariffs in the base period, different scenarios result in different depths of tariff cuts for individual countries and commodities. So, the impact cannot be predicted in advance and herein lies the value of an empirical model. Thus, for example, for given (simulated) increases in world prices, the LDCs were affected differently from the other two country groups in scenarios where they were not required to reduce tariffs (the EU and Harbinson proposals) but not in the US proposal where even the LDCs reduce tariffs. Where an LDC does not reduce tariffs, domestic prices rise to the full extent of the change in world markets. This reduces consumer surpluses while producer surpluses increase. The net impact, i.e. on total welfare, for LDCs was negative in both the EU and Harbinson scenarios. By contrast, in the US scenario, reduced tariffs moderated the transmission of higher world prices and so the LDCs gain in consumer surplus but lose in producer surplus, with positive net impact in total welfare terms. Government revenues are also affected by these forces and play some role in determining the size of the total welfare.

To state the results on total welfare gains in one sentence, the US scenario appeared to be most attractive for all three country groups. While developed countries experienced positive gains in all three scenarios (with the largest value in the US proposal), it was only in the US scenario that both the LDC and rest of the developing countries experienced positive gains.

This ranking of the modalities in terms of "gains" varies according to impact indicator. For example, the impact on government revenue for both developing country groups was negative in all three scenarios, the least negative impact being under the EU proposal. As for trade revenues, the impact on LDCs was positive under both the EU and Harbinson scenarios but higher in the latter, which was also more or less the case for the rest of the developing countries. Finally, the LDCs experienced increased producer surplus only in the EU proposal, while this was the case under both the US and Harbinson proposals for the rest of the developing countries.

Thus, there are important trade-offs involved in the ranking of the modalities depending on the indicator used. Very often, published impact studies report only one or other indicator, the typical ones being total welfare and trade flow. While economists tend to like the former, trade negotiators seem to be mainly interested in the latter. This study demonstrates the value of considering a range of impact indicators and the trade-offs involved. Hopefully, this is appreciated by both economists and trade negotiators.

Finally, it seems useful at this stage to raise an issue for further debate. The question is what would it really mean in practice to gain in consumer surplus terms (and lose in producer surplus) in lower-income economies with large populations engaged in agriculture? One issue is that in models where income gains are not generated endogenously (as in the ATPSM) or even injected exogenously, it is not clear if consumers are able to express effective demand to the extent estimated by the model. The problem is that consumer surpluses invariably show up with producer losses. But in these economies, farm production itself is a major source of income (for consumers) and so producer losses also imply income losses for consumers. Moreover, agricultural development requires producer surplus gains on a sustained basis. For such economies, it would thus seem that producer surpluses are much more valuable that consumer gains. If this is so, assessments based on total welfare could also be misleading because this indicator attaches equal importance to both the surpluses (i.e. one dollar of producer surplus is valued similarly to one dollar of consumer surplus). Thus, it makes sense for policy makers in such economies in particular to review the impact of policy reforms on both surpluses, alongside total welfare.

References

Diao, X., Elbehri, A., Gehlhar, M., Gibson, P., Leetmaa. S., Mitchell. L., Nelson, F.J., Nimon, R.W., Normile, M.A., Roe, R., Shapouri, S., Skully, D., Smith, M., Somwaru, A., Trueblood, M., Tsigas, M., Wainio, J., Whitley, D., & Young, C.E. (2001). The Road Ahead: Agricultural Policy Reform in the WTO-Summary Report. Ed. M. E. Burfisher. Market and Trade Economics Division, Economic Research Service, U.S. Department of Agriculture. Agricultural Economic Report No. 797.

Diaz-Bonilla, E., Robinson, S., Thomas, M., Yanoma, Y., 2001. WTO, Agriculture and Developing Countries, Paper prepared for the Advisory Group March 26 to March 30, WTO Negotiations and Changes in National Agricultural and Trade Policies: Consequences for Developing Countries, IFPRI. Washington DC.

Drabek, Z. & Laird, S. 1998. Trade Policy Development in Emerging Markets. Journal of World Trade, 32\(5), 241-269.

FAO. 2002. Commodity-specific trade issues and implications of possible modalities for commitments in the context of WTO negotiations on agriculture, Paper No. 4, 8^th Geneva Roundtable on trade-related issues. FAO, Rome.

FAPRI. 2002. The Doha Round of the World Trade Organization: appraising further liberalization of agricultural markets, FAPRI Working Paper, 02-WP-317, Iowa State University, Ames, US.

Freeman, F., Mélanie, J., Roberts, I., Vanzetti, D., Tielu, A. and Beutre, B. 2000. The impact of agricultural trade liberalisation on developing countries, ABARE, Canberra, Australia.

Lindland, J. 1997. The impact of the Uruguay Round on tariff escalation in agricultural products, ESCP Working Paper No. 3, FAO, Rome.

Martin, W. & Winter, L.A. (eds.). 1996. The Uruguay Round and the developing economies, New York, US: Cambridge University Press.

OECD. 1997. The Uruguay Round Agreement on Agriculture and processed agricultural products. OECD, Paris.

OECD. 2001. The Uruguay Round Agreement on Agriculture: an evaluation of its implementation in OECD countries. OECD, Paris.

OECD. 2002. Alternative liberalization scenarios and their impacts on quota rents and tariff revenue in selected OECD agricultural markets. OECD Paris.

Sharma, R., Konandreas, P. & Greenfield, J. 1996. An Overview of Assessments of the Impact UR on Agricultural Prices and Incomes, Food Policy, 21 (4/5), September/November 1996.

Vanzetti, D. & Sharma, R. 2002. Impact of agricultural trade liberalization on developing countries: results of ATPSM partial equilibrium model, Paper presented at IATRC summer symposium, 16-17 June 2002, Whistler Valley, Canada.

Vanzetti, D., & Peters, R. 2003. An analysis of the WTO, US and EU proposals on agricultural reform, Unpublished paper, UNCTAD, Geneva.

Weisbrot, M., & Baker, D. 2002. The relative impact of trade liberalization on developing countries, Centre for Economic and Policy Research.

WTO.1999. Guide to the Uruguay Round Agreements, Geneva, Switzerland, Kluwer Law International and WTO Secretariat.

WTO. 2002. Negotiations on agriculture, Document number TN/AG/6 18/12/2002, Geneva, Switzerland.

WTO. 2003. Negotiations on agriculture: first draft of modalities for the further commitments, TN/AG/W/1/Rev.1, 18 /03/2003, WTO, Geneva, Switzerland.

Annex 3

Tables

Table 1. Change in total welfare (million US$)

Table 2. Change in producer surplus (million US$)

Table 3. Change in consumer surplus (million US$)

Table 4. Change in government revenue (million US$)

Table 5. Change in trade balance (million US$)