VI. Conclusions

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The outlook for commodity markets even after all the ongoing trade liberalization efforts is still for a slowdown in growth rates compared with the eighties. The Uruguay Round is estimated to have a positive effect on the value of trade as the small boost to volumes is coupled with a positive effect on prices, but it will not overturn the slowdown that is caused by decreased import growth in the main developed country markets. World agricultural market prices are generally expected to be higher than in the 1987-89 base period, the growth due significantly to the effects of the Uruguay Round.

Overall the global value of world trade of the principal agricultural commodities is expected to rise by US$55 billion between 1987-89 and 2000, US$15 billion of which may be attributed to the Uruguay Round.

Among the developed countries there would be large increases in the net imports of the principal commodities by western Europe and Japan, a decline in the deficit of Eastern Europe and the area of the former USSR. By contrast, large export gains will he made by North America and Oceania.

As regards the developing countries, their overall agricultural export earnings are expected to keep pace with the rise in import bills. However, the gap between the value of imports and exports is expected to widen substantially for the Near East while in Africa it is projected to go from a small surplus to a small deficit. Net exports are expected to improve for the Latin America and the Caribbean region and for the Far East The Uruguay Round, though only accounting for a part of these changes, will affect the agricultural import bills of all developing regions adversely and boost exports to a lesser extent. Apart from higher prices and shifts in market shares towards the more efficient exporting countries, the Uruguay Round will raise food import bills because of the reduction in export subsidies on these products anti will lead to a sizeable fall in the value of preferential trading arrangements.

The slowdown in the growth of world agricultural trade, despite the positive effects of the Uruguay Round, is a disappointment to agricultural exporting countries. However, agricultural trade liberalization per se does not necessarily boost the volume of world trade especially when the protectionism being reduced is concentrated in countries that are exporters of agricultural goods. The effect of reduced protectionism in these cases is more on world prices ante on trade shares; and, as has been noted, these are expected to change as a result of the Uruguay Round.

Moreover, the Uruguay Round only represents a partial reduction in protectionism. Only a relatively small cut in domestic support is envisaged though more substantial cuts in border protection are to be made. It may also be noted, however, that the Uruguay Round Agreement on Agriculture calls in Article 20 for the continuation of the reform process and reiterates that the long term objective remains that of "substantial progressive reductions in support and protection resulting in fundamental reform".

One of the side-effects of the reduction in tariffs will be the erosion of the value of preferential margins, the potential loss of which has been estimated at US$0.8 billion. As many of the recipients of preferential schemes are among the poorest of the developing countries, this is a loss that should be examined in depth by the preference giving countries with a view to restoring the value of the preferences by other trade concessions or by other forms of compensation.

Though this document is concerned with the assessment of the impact of the Uruguay Round and other developments on agricultural markets, it should be noted that the Uruguay Round Final Act is also a milestone in the development of agricultural policy. The implications for national policy formulation are manifold and can only be listed in a very summary way here. They are, however, the focus of FAO's normative and operational policy work at present and will continue to be in the future. FAO has organized four regional expert consultations on the subject and a number of requests for policy assistance have been approved; others will be undertaken subject to resources being available. Briefly the following are the main areas where policies may need to be reexamined:

(i) the expected increase in food and agricultural prices in international markets may call for modifications in national food security and nutrition enhancement policies and strategies, including consumer price policies for food; (ii)although the rise in prices at the world level, coupled with use of tariffs, can lead to more appropriate incentives to producers, most developing countries will need to evolve targeted and decoupled (Green Box) forms of assistance that can be implemented at low budgetary costs;

(iii) tariffication may introduce greater instability to domestic prices, which may require reconsideration of producer price policies and modifications in "price bands" or other instruments to prevent excessive instability;

(iv) countries will need to assess carefully the extent to which countervailing measures may be required to offset the internal price depressing effects of gradually declining but continuing high levels of protectionism elsewhere, and use the financial resources captured to increase food production and enhance food security in accord with their comparative advantages in a protectionism-free world;

(v) following tariffication, and hence the elimination of non-tariff barriers, there may well be increased scope for intra-regional or sub-regional trading arrangements based on tariff concessions;

(vi) countries not members of the CATT/WTO will need to assess carefully the costs/benefits of membership in view of the changed international trading environment; and

(vii) countries will need to strengthen their technical services in the sanitary and phytosanitary areas.

Developing countries will be [acing considerable changes in world market conditions while also confronting a complex policy agenda. They may require a variety of assistance to capture potential benefits from new market opportunities and to cope with new problems and exigencies. The relatively sluggish growth of world markets for the principal agricultural commodities should encourage them into diversification and further processing of their primary agricultural commodities. More thought needs, therefore, to be given to questions of tariff escalation and targeted tariff reduction in areas of potential market growth of interest to developing countries. New forms of assistance to replace loss of preferences need to be considered and technical assistance in policy formulation and sanitary and phytosanitary measures will need to be stepped up. In all this, the particular needs of the least developed countries will need to be given priority consideration.

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