Agricultural trade: entering a new era?

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I. Agricultural trade - changing trends and patterns
II. A changing world environment for agricultural trade
III. The evolution of international trade rules
IV. The development of regional trade arrangements
V. International trade, the environment and sustainable agricultural development


The expansion of agricultural trade has helped provide greater quantity, wider variety and better quality food to increasing numbers of people at lower prices. Agricultural trade is also a generator of income and welfare for the millions of people who are directly or indirectly involved in it. At the national level, for many countries it is a major source of the foreign exchange that is necessary to finance imports and development; while for many others domestic food security is closely related to the country's capacity to finance food imports.

As with any activity that involves buyers and sellers, however, agricultural trade - perhaps more than any other trade tends to be a source of conflicts of interest and international confrontation. One reason for this is that agricultural policies are frequently influenced by the interests of particular political constituencies within a country rather than by national, international or global interests. Related reasons are: the emergence and growth of widespread distortions in world agricultural markets; the food-security role of agricultural trade, which confers upon it a special political, socio-economic and strategic dimension; and, more recently, differing perceptions of the role of agricultural trade in environmental matters of transnational or global i merest.

Agricultural trade policy has long reflected the widely held belief that, because of its importance and vulnerability, the agricultural sector could not be exposed to the full rigours of international competition without incurring unacceptable political, social and economic consequences. This view has led to high and widespread protection of the sector, which has been a cause of depressed and unstable agricultural commodity markets, in their turn, leading to further pressures for protection. In recent years, however, many developing countries have unilaterally taken steps towards the liberalization of overall and agricultural markets. Most of these steps have involved the development of structural adjustment programmes and regional cooperation schemes. In the former centrally planned economies, the systemic reforms underway have also led to greater external openness and this process, in particular the increasingly important role in international trade that China is likely to play, has far-reaching implications worldwide. On the other hand, for a number of developed countries, including such major traders as the United States and the EC, agricultural policy reform induced by domestic or international pressure has led to some reduction in trade distortions but not to significant trade liberalization as yet.

It was against this background of widespread protectionism and deep structural problems in the world agricultural trading system that the Uruguay Round of GATT negotiations took place. Its conclusion, and the creation of a new World Trade Organization (WTO), have been milestones in the recent history of international trade relations (even though the results of the Round fell short of expectations). Despite its shortcomings the Round was a momentous event for agricultural trade; first because, by its very conclusion, the worst was avoided; second, because agriculture was, for the first time, a major element in the negotiations; third, because it provides hope for at least some progress towards greater market liberalization and reduced domestic support in agriculture; and fourth, because the Round, and the newly created WTO, provide the framework for more discipline, stability and transparency in overall and agricultural trade. However, the impact of the Round on world agricultural markets may turn out to be small in the short term and protectionism in old and new forms is likely to remain high in the medium term and for longer unless further reductions are successfully negotiated.

At the same time as the international community was framing new multilateral rules for trade, many groups of countries were actively moving towards regional trading arrangements. In the recent past such arrangements have increased in number, country coverage and dynamism; and they include agriculture to a growing extent. The development of these arrangements has raised issues related to their position in the multilateral trading system, their degree of openness vis-à-vis third countries and the risks of regionalization of trade flows.

Another issue that has attracted increased attention, and may significantly affect future trade relations, is the role of international trade in environmental protection and the sustainability of production. This is a complex and controversial problem. Trade may be environment-friendly to the extent that it brings about efficiency in the use of resources. However, trading and the related acts of producing and marketing also put pressure on environmental resources. Appropriate environmental and trade policies can help ensure compatibility between trade and environmental objectives. However, resource limitations often impose difficult policy choices between immediate developmental and food security needs and long-term environmental concerns.

The problems and issues facing agricultural trade and the forces underlying agricultural trade policies can only be appreciated in the light of the major changes that have taken place in world markets during the past decades. The first Section of this chapter presents some basic data illustrating the main changes that have taken place since the early 1960s with regard to: the weight of agriculture in overall trade; the market shares of the different regions and countries; the real value and purchasing power of agricultural exports; and the direction and composition of agricultural trade flows. The second Section examines agricultural trade in the context of the major political and economic transformations that have taken place during the past decades, especially since the beginning of the 1980s. Section III discusses the new agricultural trading rules that emerged in 1994 after the conclusion of the Uruguay Round of GATT negotiations and their likely impact on world agricultural trade. Section IV discusses the movement towards closer regional economic integration through the development of regional trading blocs and the place of agriculture in this process. Finally, Section V examines the interfaces between agricultural trade, the environment and sustainable development and the conditions under which trade and the environment could be made mutually supportive.

I. Agricultural trade - changing trends and patterns

Declining importance of agriculture in world trade
Expanding agricultural markets and contracting developing country share
Will the developing countries remain net exporters?
Diversifying markets and intensifying intraregional exchanges
Falling agricultural prices, increasing shipment volumes and dwindling purchasing capacity of agricultural exports
Shifting from primary to processed exports

Amid the profound changes in the economic importance, structure, direction and composition of world agricultural trade during the past three decades, a number of paradoxical features have emerged. While losing importance in relation to total trade, agricultural trade has remained a key element in the economies of many countries. Nevertheless, it has tended to be those economies that depend less on agricultural trade which have made the largest gains in agricultural market share; while economies that are more firmly based on agriculture have not only lost market share, but in many cases have also seen their agricultural trade balances deteriorate in the face of persistently high or even increasing economic dependence on agricultural exports and food security dependence on imports.

Other general tendencies have been a protracted decline in the real international prices of agricultural products, which has negatively affected their purchasing power; greater geographic diversification of agricultural trade flows, along with intensified intraregional exchanges; and the increasing importance of value-added compared with primary products in total agricultural trade.

Declining importance of agriculture in world trade

The relationship between trade and output in general underlies the growing interdependence and integration of the world economies. This is the case also for agriculture. On a global basis, the long-term growth rate of agricultural trade has tended to be significantly greater than that of production.

This pattern was reversed during much of the 1980s, reflecting depressed exports and imports in the developing countries, particularly in Latin America and the Caribbean and in Africa. By contrast, the growth in agricultural trade continued to generally exceed that of production in the developed countries (Figure 11).

Despite its relative dynamism, however, trade in agricultural products has tended to lag behind trade in other sectors, particularly manufactures, as industrialization proceeds. On a global basis, agricultural exports now account for less than 10 percent of merchandise exports, compared to about 25 percent in the early 1 960s.

Figure 11

The tendency for agricultural trade to lose relative importance in external trade has been common to all regions, but in the developing country regions the process was particularly pronounced during the 1960s and early 1970s (Figures 12 and 13).

Thereafter, the share of agriculture in total exports has stabilized at around 2 to 7 percent in the Near East and North Africa region; and around 10 percent in Asia and the Pacific. More pronounced fluctuations in the share were recorded in sub-Saharan Africa and Latin America and the Caribbean, where the general decline in the agricultural trade share was punctuated by temporary upsurges (particularly during the late 1970s in the "commodity boom" years and in 1986, a year of high coffee prices caused by drought-reduced crops in Brazil and its suspension of export quotas) (Figures 14A and 14B).

A similar pattern is observed on the side of imports. The declining weight of agriculture in total imports, which is a good indicator of a country's rate of development, was remarkably strong in the Asia and the Pacific region; less marked in the Near East and Latin America and the Caribbean regions (the latter having a comparatively low agricultural to total import ratio, however); and hardly noticeable in sub-Saharan Africa.

Agricultural exports have also tended to lose importance as a source of import financing. This long-term process has been interrupted only during exceptional periods, such as when particularly favourable conditions for agricultural exports prevail (as in the late 1970s); or, more notably, in the years following the debt crisis of the 1980s when many developing countries sharply contracted their total imports.

However, in Latin America and the Caribbean and in sub-Saharan Africa, agricultural exports still finance about one-fifth of the total import bill. Furthermore, economic dependence on agricultural exports has remained very high in many individual countries (Figures 15). In 1993, 17 out of 46 countries in Africa depended on agriculture for half or more of their total export earnings. In Latin America and the Caribbean 16 out of 40 countries were in the same situation (nine of them in the Caribbean).

Extreme cases, where 80 percent or more of export earnings were agriculture-based, included Cuba and Paraguay in Latin America; and Burundi, the Comoros, Guinea-Bissau, Malawi, Uganda and the Sudan.

Figure 12

Figure 13

Figure 14A

Figure 14B

Figure 15

Expanding agricultural markets and contracting developing country share

The regional distribution of world total and agricultural trade has changed significantly since the early 1960s. While the developing countries gained market share for total merchandise exports (from about 20 to over 25 percent of the world total) their share for total agricultural exports has declined from over 40 to about 27 percent (Figure 16).

The counterpart to the developing countries' market share losses was the increasing weight of the developed countries, mainly the EC, in world agricultural markets. Indeed, while in the early 1960s the EC-12 accounted for slightly more than 20 percent of world agricultural exports, this share is now around 45 percent. Most of this increase reflects intensified trade among EC member countries. Excluding intracommunity trade, however, EC exports still represent approximately 13 percent of the world total, up from 8 percent in the early 1960s. The EC has also remained by far the largest importing area in the world, although its share in world imports from outside the Community has tended to decline.

Figure 16

The United States, after having lost some market share during the late 1960s, managed to recapture it after 1973, when the export sector benefited from liberal fiscal and monetary policies and a weak dollar. However, from 1982 onwards the tightening of macroeconomic policies, the strengthening of the dollar after the second oil shock and the ensuing world recession resulted in a marked deceleration in the growth of United States exports.

All the developing country regions, with the exception of Asia and the Pacific, progressively lost world market share for their exports. That Asia and the Pacific has actually gained share in world agricultural exports since the mid-1970s is all the more remarkable as this is also the region that has been most successful in diversifying its export base away from agriculture. In contrast, despite the persistently strong agricultural component of its external trade, subSaharan Africa's presence in world agricultural markets has tended to lose significance since the early 1970s and is now of a magnitude comparable to that of the Near East and North Africa. Latin America and the Caribbean experienced pronounced market losses since the second half of the 1980s, a period of slow growth in the volume of agricultural exports and of strong decline in export prices (Figures 17 and 18).

Will the developing countries remain net exporters?

Until the late 1970s, the agricultural exports of the developing countries as a whole exceeded agricultural imports by a significant and relatively stable margin. The economic crisis of the early 1980s caused a sharp decline in the demand for developing countries' exports and led to a temporary reversal of their agricultural net trade position. As the crisis progressed, however, financial constraints imposed a drastic cut in imports, including of food, and the developing countries as a whole emerged again as net agricultural exporters, a position they maintained until 1991 . Generally disappointing export performances the following two years led, once again, to a reversal in the trade balance.

Regional situations, however, differed widely within this general pattern. Overall, Latin America and the Caribbean has maintained a strong agricultural surplus position although imports have tended to rise much faster than exports in recent years. Sub-Saharan Africa has recorded wide fluctuations in its agricultural export-import ratio, but recent trends suggest increasing difficulties for the region in maintaining its traditional net exporter status. Asia and the Pacific has moved into a net agricultural importer position since the mid-1970s, with a steady expansion of both imports and exports interrupted only during the first half of the 1980s. Finally, the Near East and North Africa, a net agricultural exporter during the 1960s, has seen foodimport dependence soar during the 1970s and early 1980s and remain extremely high since then. The agricultural trade gap widened dramatically in the oil-exporting countries in this region, but food deficits of a structural nature also emerged in several non-oil-exporter countries (Figure 19).

Figure 17

Figure 18

Diversifying markets and intensifying intraregional exchanges

Two general tendencies have characterized the direction of agricultural trade flows during the past decades. The first is a growing geographic diversification of exports and imports and the second is the increasing intensity of exchanges within the individual regions.

These general tendencies have been far from uniform, however, and have not resulted in large shifts in the overall patterns of agricultural trade. The developed countries' agricultural trade has remained largely, and increasingly, self-centred, with the developing countries accounting for a declining share of total imports. The developing countries, on the other hand, still depend to a very large extent on developed country markets troth as suppliers of imports and as outlets for exports.

Dependence on traditional developed country markets, particularly those of the EC, has remained high in Africa. Indeed, the developed countries currently account for three-quarters of the region's total agricultural exports and nearly 70 percent of its agricultural imports. African agricultural exporters have increased the share of intraregional trade in total exports from 5 to 11 percent between 1970 and 1990. However, this has contributed little to reducing Africa's heavy reliance on food imports from the developed country markets.

Figure 19

All other developing country regions have shown varying degrees of market diversification and regional integration. The Far East already the most selfcentred region for agricultural trade, intensified intraregional exchanges while also reducing the share of its total agricultural exports that go to the developed countries, particularly the EC. Latin America and the Caribbean maintained a fairly balanced export pattern between markets in the EC, North America, developing countries and the former centrally planned economies. Nevertheless, the region also significantly increased the developing country and intraregional share of agricultural trade, the latter by intensifying efforts towards regional economic integration. The Near East has tended to rely on the EC for an increasing share of its food imports, the respective shares of North America and the Far East remaining broadly equivalent.

The closely integrated agricultural markets of Eastern and Central Europe and the former USSR had tended to open significantly to imports, in particular from North America and the EC, even before the reforms of the 1990s and the breakdown of the traditional intraregional trading systems. By 1990 the EC had also emerged as the main outlet for these countries' agricultural exports (over 31 percent of the total, compared to 23 percent for intraregional exports). A growing share of the region's shipments had also been towards the developing countries. In the most recent years the breakup of the Council for Mutual Economic Assistance (CMEA) and the efforts by Eastern and Central European countries to tighten economic and political links with Western Europe, have led to an even further weakening of trade within the transition economies. The introduction in 1993 of a Central European Free Trade Area involving the Czech Republic, Hungary, Poland and Slovakia may reactivate intraregional trade of agricultural products to some extent (Tables 16 and 17).

Falling agricultural prices, increasing shipment volumes and dwindling purchasing capacity of agricultural exports

Throughout the 1960s and 1970s agricultural export unit values in the developed and developing countries followed virtually identical upward trends. Both groups of countries also shared in the decline in prices that followed the economic crisis of the early 1980s. However, while prices of products exported by the developing countries remained depressed until recently, those of the developed countries resumed their upward trend in the mid-1980s.

Table 16 Destination of agricultural exports by region(percent)

Destination Exports from   Developed markets economies EC Canada/United States Developing countries Latin America/the Carribean Africa Near East Far East Eastern and Central Europe/former USSR
World 1970 73 42 15 17 4 3 2 8 9
1980 63 40 10 24 5 5 5 10 10
1990 71 45 11 21 4 4 4 11 5
Developed market economies 1970 79 48 14 16 4 3 2 8 3
1980 69 47 8 23 6 6 4 8 6
1990 77 53 10 18 4 3 3 8 3
EC 1970 85 65 8 11 2 5 2 2 3
1980 78 66 4 17 3 7 5 2 4
1990 85 72 4 11 2 4 3 3 2
Canada/United States 1970 72 28 21 23 8 3 2 13 2
1980 58 25 12 29 12 4 2 15 7
1990 65 19 21 28 9 3 3 16 5
Developing countries 1970 71 35 20 17 4 2 2 9 10
1980 58 31 15 26 5 4 6 13 12
1990 61 29 16 28 5 4 5 16 8
Latin America/the Carribean 1970 77 33 29 12 9 1 0 3 10
1980 60 30 24 19 10 3 3 4 18
1990 65 32 25 21 12 2 3 5 12
Africa 1970 74 50 13 13 0 5 2 5 9
1980 74 58 9 14 1 7 3 4 7
1990 75 59 6 19 0 11 3 5 3
Near East 1970 55 36 7 24 0 2 19 3 18
1980 40 30 4 38 0 4 31 5 17
1990 50 37 6 40 1 5 29 4 9
Far East 1970 58 22 15 31 1 2 3 24 9
1980 49 19 9 40 1 3 6 29 7
1990 52 15 10 37 1 3 4 29 6
Eastern and Central Europe/former USSR 1970 41 27 1 9 4 3 2 4 46
1980 35 20 2 21 4 5 4 5 39
1990 50 31 2 21 5 5 2 3 23

Source: FAO based on UNCTAD data.
Note: the figures in the shaded areas, representing subtotals for developed market economies, developing countries and Eastern and Central Europe/former USSR, should add to 100 horizontally. In most cases thet do not, due to rounding and/or statistical discrepancies.

Table 17 Origin of agricultural imports by region (percent)

Imports by
  Developed markets economies EC Canada/United States Developing countries Latin America/the Carribean Africa Near East Far East Eastern and Central Europe/former USSR
World 1970 58 23 20 32 13 8 2 11 8
1980 64 30 22 29 12 4 1 13 6
1990 69 39 19 25 10 3 1 13 4
Developed market economies 1970 64 27 19 31 14 8 1 9 4
1980 69 37 20 27 11 5 1 10 3
1990 74 17 21 74 47 3 1 10 3
EC 1970 67 36 13 27 10 9 1 6 5
1980 74 so 14 22 9 6 1 6 3
1990 80 62 8 16 7 4 1 5 3
Canada/United States 1970 55 13 29 44 25 7 1 11 1
1980 53 13 28 45 29 4 1 11 1
1990 62 16 37 36 22 1 1 13 1
Developing countries 1970 58 16 28 33 9 6 2 20 5
1980 60 21 27 30 9 3 2 21 5
1990 58 21 25 33 9 2 3 23 4
Latin America/the Carribean 1970 62 14 40 30 27 0 0 3 7
1980 70 14 52 25 22 1 0 3 5
1990 62 17 41 32 28 0 0 4 5
Africa 1970 66 34 16 24 3 13 1 9 8
1980 73 44 18 20 6 6 1 8 6
1990 68 43 16 25 6 9 2 10 6
Near East 1970 51 22 17 39 3 6 16 15 8
1980 58 31 11 35 9 3 8 17 5
1990 61 33 17 36 8 2 11 15 2
Far East 1970 53 6 30 36 4 5 1 31 3
1980 51 5 31 37 4 2 1 36 2
1990 52 9 27 37 4 1 1 35 1
Eastern and Central Europe/former USSR 1970 20 8 5 36 14 8 3 11 41
1980 38 14 15 36 22 3 2 10 22
1990 40 17 16 36 22 2 2 15 17

Source: FAO based on UNCTAD data.
Note: the figures in the shaded areas, representing subtotals for developed market economies, developing countries and Eastern and Central Europe/former USSR, should add to 100 horizontally. In most cases thet do not, due to rounding and/or statistical discrepancies.

In contrast to these movements in prices, the volumes of exports showed a steady upward trend overall. However, the early 1980s marked a shift in the relative export growth patterns of the two country groups. Export volume growth decelerated markedly in the developed countries (chiefly due to lower export volumes from the United States caused by economic policy shifts following the 1979 oil shock) and accelerated somewhat in the developing countries (reflecting, to a large extent, the booming export performances of Asia and the Pacific and the pressure to generate foreign exchange to alleviate debt in Latin America and the Caribbean). Nevertheless, because of the price increase differential the current value of agricultural exports rose on the whole much faster in the developed countries - roughly 50 percent between 1979-81 and 1991 93 - than in the developing ones where over the same period the comparable increase was only slightly above 20 percent (Figure 20).

The increase in the agricultural export unit values of the developing countries also lagged behind that of other major traded products, resulting in a pronounced and almost uninterrupted deterioration of their real agricultural prices (or net barter terms of trade) in international markets after the world food crisis years of the early 1970s. Taking 1979-81 as a base, the developing countries' net barter terms of trade had deteriorated by nearly 40 percent in 1993. All the developing country regions shared in the deterioration but to varying degrees (Figure 21).

The general decline in agricultural commodity prices can be explained by many factors, including: governmental support and protection, particularly in the industrial countries, that provided incentives to production often well above those offered by international markets; the efforts of many countries to counter the decline in prices through expanding volumes of shipments; the plantings and investment made during the more favourable years that preceded the 1980s; and stabilization and structural adjustment policies affecting exchange rates, taxation and marketing systems, which in some cases raised prices paid to growers relative to international market prices.

Figure 20

Figure 21

Gains in productivity and/or the expansion of the area under export crops enabled developing countries to offset the decline in prices to a certain extent. Indeed, as noted earlier, the growth of their export volumes actually accelerated somewhat during the depressed 1980s relative to the previous decades.

Overall, however, prices fell to such depressed levels that they outweighed the expansion of production and export volume, thus reducing overall earnings. As a result, the purchasing capacity of agricultural exports (income terms of trade) deteriorated for a large majority of developing countries. By 1991 -93 the index of income terms of trade of the developing countries as a whole was 8 percent below the 1979-81 levels.

Within this general context regional experiences diverged. Asia and the Pacific benefited, on the one hand, from a less traumatic fall in real export prices than the other regions and, on the other hand, from a strong acceleration in shipment volumes (which nearly doubled between 197981 and 1992-93). At the other end, sub-Saharan Africa suffered a collapse in export prices coupled with widely fluctuating, but overall stagnant, volumes of exports. Latin America and the Caribbean also experienced declining export prices but maintained a positive growth of export volumes.

To a large extent the different regional export performances reflected the market behaviour of the main commodities exported by the respective regions. Generally, the international prices of products exported by Asian countries were less depressed and underwent less-pronounced fluctuations than the tropical products exported by Africa and Latin America and the Caribbean. For instance, the nominal dollar prices of rice fell 13 percent between 197981 and 198991, those of rubber fell about 20 percent and those of palm oil 46 percent. On the other hand the prices of tea and, more markedly, jute and cotton, tended to strengthen. In the cases of coffee and cocoa, the main export crops for many African and Latin American countries, prices declined by respectively 56 and 58 percent during the same period.

Shifting from primary to processed exports

An issue of considerable importance is the extent to which the developing countries have been able to shift from exports of non-processed primary commodities towards value-added products. The different developing country regions recorded varying degrees of success on this account. In both Asia and the Pacific and Latin America and the Caribbean the share of processed products in total agricultural exports rose from around 10 percent in the early 1960s to about one-third of the total in recent years. This share has risen to considerably higher levels in the more industrialized countries in these regions. Thus, in Argentina and Brazil the comparable figure is about 50 percent while in Malaysia it is over 70 percent.

In sub-Saharan Africa, on the other hand, the share of processed products in agricultural exports has remained around 15 percent throughout the past three decades. Behind this stagnating pattern some countries showed pronounced temporal variations. In the case of Kenya the ratio of processed products to total agricultural exports was relatively high (at around 17 percent) during the 1960s and early 1970s, hut declined to less than 10 percent over the following decades. In Côte d'lvoire the ratio increased markedly between the early 1960s and the mid-1970s (from around 3 to 22 percent), but fell to around 15 percent during the 1980s. For most countries in the region, however, the general picture is one of a high and undiminished dependence on a limited range of primary product exports. In the Near East and North Africa, the high share of value-added products in the total generally reflects the strong weight of a few processed products in a relatively small agricultural export base. Processed shellfish and other sea products, as well as canned and preserved fruits and vegetables accounted for much of the total. Among individual countries the high share of processed products is largely explained by wine in Algeria (although this product has lost considerable importance in recent years); by processed fishery products and pistachios in Iran; and by tobacco, hazelnut and fruit confections in Turkey (Figure 22).

Figure 22

II. A changing world environment for agricultural trade

The deregulation of the world economy
The transformation of centrally planned economies
The years to come
The collapse of the CMEA
The case of China

The deregulation of the world economy

Trade being a relatively small part of the economic activity of most countries, the ways in which it is regulated and conducted are closely related to the policy orientations governing the overall economy. Thus, the major transformations that have taken place in many of the world's economies during the past decade, and especially since the late 1980s, are likely to have profound and permanent effects on trade policies and, indeed, on the way trade will be conducted.

The 1980s marked a move away from government intervention in developed, developing and centrally planned economies. Developed market economies began to reduce internal government intervention in a variety of ways and removed restrictions on capital flows and investment. More significant changes took place in the developing countries, which began to abandon their inward-looking trade and investment policies and embarked on major reforms. Developing economies reduced the government intervention that had caused exchange-rate overvaluation, reduced or removed capital controls and privatized state owned enterprises. In the greatest shift of all, the political and economic system collapsed in the former USSR and in Central and Eastern Europe and these countries began adopting market-oriented principles of economic management. Starting in 1979 the People's Republic of China also began major internal reforms of its economic system. As a result, a large portion of the world economy, which had been under the control of state planning systems, moved towards a market system.

The developed countries had already removed many direct government controls over their economies in the years prior to the 1980s. They had been confident enough in their policy direction to sign the General Agreement on Tariffs and Trade (GATT) in 1947 and to adopt a set of common trade rules. Among other things, the GATT rules barred the use of quantitative import controls except in special circumstances, and this meant that tariffs became the only way of protecting non-agricultural products. GATT also prohibited the use of export subsidies in export competition for all but primary products. The original GATT, however, only covered trade in goods. Recognizing the difference in national policies related to agricultural markets, it set out exemptions for agriculture that were to persist for more than four decades. Export subsidies for agriculture were allowed, as was the use of quantitative import quotas, in recognition of the fact that many countries would keep internal markets for agricultural products isolated from world markets.

The developing countries began their major economic reforms in the 1980s. Although the form and pace of these reforms varied from country to country, they usually included the removal of controls and interventions on capital movements and exchange rates. In many cases, government-owned enterprises were sold to the private sector, thus ending the drain on public resources of supporting inefficient activities. Special measures were introduced to attract foreign investors, who had often been rebuffed in the past, and to encourage the repatriation of capital that had fled the country to avoid economic instability, uncertainty and government controls.

As internal reforms took hold, developing countries were in a position to reform and liberalize their foreign trade policies as well. Foreign exchange was made more freely convertible, import restrictions and tariffs were reduced and state trading entities dismantled. The various internal and trade reforms rendered national policies more compatible with GATT trade rules, and developing countries moved to join GATT and become active participants in the Uruguay Round of trade negotiations.

The shift in perceptions and policies also manifested itself with regard to intervention in international commodity markets (see Box 7).

A recent study concluded that, in contrast with earlier periods, the recent liberalization of trade was unidirectional and continual in most developing countries outside Africa. Liberalization was most rapid in Latin America and is beginning to accelerate in South Asia, East Asian countries varied in the speed of reform, but generally made continued progress towards neutrality and


The first United Nations Conference on Trade and Development (UNCTAD) took place in 1964 to deal with the trade and development concerns of developing countries. The countries that led in the formation of UNCTAD had a different agenda from that of members of GATT. UNCTAD's activities centred on the development of a trading system for commodities that were of major concern to the developing countries through international commodity agreements. Commodity agreements were negotiated in the 1960s and 1970s for tin, rubber, coffee, cocoa, wheat and sugar. The interest in this type of agreement increased in the wake of the Organization of the Petroleum Exporting Countries' (OPEC) initial success in increasing and stabilizing oil prices through its producer cartel.

In the GATT Tokyo Round there was an attempt to extend the internal market interventions in agriculture, practiced by many governments, into the international trade sphere. The EC proposed a series of international commodity agreements that would attempt to maintain minimum and maximum prices in world markets and allocate supplies to needy developing countries in the case of shortages. Agreements were proposed for grains, oilseeds, dairy products and meat.

It turned out that countries with markedly different internal systems and objectives were unwilling to adhere to an international system of commodity agreements. As a result of this, the Tokyo Round ended with modest agreement in agriculture and without effective international commodity agreements. The existing agreements in coffee and sugar were to collapse under the economic pressures of the 1980s.

In some ways the end of the Tokyo Round marked a turning point in the movement for government involvement in international markets. The world had already been forced off the fixed exchange rates of the Bretton Woods Agreement in 1973. Worldwide inflation, shortly followed by a widespread debt crisis and a collapse of international commodity prices in the 1980s, made many of the old interventions impossible and, in many cases, too expensive to maintain. liberality. Only Africa has shown little progress in trade liberalization, with several countries actually reversing reform when confronted with renewed foreign exchange constraints and/or import competition.

Changes in both developed and developing market economies were well under way before centrally planned economies began to make significant internal reforms. Centrally planned economic systems were generally linked to the political system and thus changes in political power were required before significant economic liberalization could occur. Incipient forms of internal reform had begun in these economies in the late 1970s and early 1980s. China had also begun some reforms in the late 1970s, including reform of the agricultural system and opening up to outside investors. By the late 1980s, the monopoly of the communist party over political power was broken in the former USSR and Central and Eastern Europe and the centrally planned economic system as it had been operated in these countries effectively ended. Economic reforms were initiated and have been pursued to varying degrees and with varying rates of progress. Generally these reforms have involved a reduction in government intervention in internal markets and more market-oriented trade policies.

In both developed and developing countries agricultural interventions were very firmly entrenched politically and this made them among the most difficult interventions to remove. The political influence of agricultural groups in the developed countries far exceeded their numbers in the electorate. These groups fought vigorously to protect government interventions that, in their view, increased their incomes and reduced competition from more efficient or more heavily subsidized producers. In many developing countries government interventions were heavily focused towards reducing the cost of basic foods to urban consumers, especially those consumers important to political stability. Moves towards agricultural reform came, as in the other parts of the economy, because the old system was not working well, was too expensive or because there were changes in political regimes.

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