Previous PageTable Of ContentsNext Page


II. The global economy and agriculture

World economic output rose strongly by 4.7 percent in 2000 but slowed to 2.4 percent in 2001.

WORLD ECONOMIC ENVIRONMENT

Following the unusually high growth in 2000 of 4.7 percent, world economic output started contracting significantly after late 2000.11 Prospects for an early recovery in the course of 2001 were shattered by the terrorist attacks of 11 September, which worsened an already difficult situation and led to a further weakening of consumer and business confidence worldwide. As a consequence, world economic growth in 2001 declined to a projected 2.4 percent, the lowest rate since 1993. All major regions participated in the downturn, the high degree of synchronicity being a particularly noteworthy feature of the current global slowdown. The economic slowdown was accompanied by stagnant international trade volumes in 2001.

Table 1
GROWTH IN WORLD ECONOMIC OUTPUT

 

1997

1998

1999

2000

20011

 

(Percentage change in real GDP)

World

4.2

2.8

3.6

4.7

2.4

Advanced economies

3.4

2.7

3.3

3.9

1.1

Countries in transition

1.6

-0.8

3.6

6.3

4.9

Developing countries

5.8

3.6

3.9

5.8

4.0

Africa

3.1

3.5

2.5

2.8

3.5

Asia

6.5

4.0

6.2

6.8

5.6

Latin America and the Caribbean

5.3

2.3

0.1

4.1

1.0

Near East

5.1

4.1

1.1

5.9

1.8

1 Projections.

Source: IMF. 2001. World Economic Outlook, December. Washington, DC.

Growth in the advanced economies declined sharply from 3.9 percent in 2000 to a projected 1.1 percent in 2001. All major countries participated in the slowdown. After several years of strong economic expansion, the United States saw gross domestic product (GDP) growth drop sharply from 4.1 percent in 2000 to only 1.0 percent in 2001. Neither the euro area nor Japan, the other two large economic players among the advanced economies, were in a position to sustain world economic growth in the face of the downturn in the United States. Indeed, GDP growth in 2001 slowed in all the major euro area countries - sharply in Germany and more moderately in France, Italy and the United Kingdom. The economic events in Japan worsened an already difficult economic situation following the tragic attacks of 11 September. After some modest economic recovery in 2000, when GDP expanded by 2.2 percent, GDP declined by 0.4 percent in 2001.

The worldwide slowdown affected developing and transition countries to different degrees, but in most developing country regions growth declined in 2001.

The worldwide slowdown in 2001 affected the transition countries and developing countries to differing degrees and in different ways, according to their economic circumstances and the structure of their economy. Generally, the developing countries were negatively affected by the lower external demand and lower commodity prices. With the exception of Africa, all major developing country regions, as well as the transition countries, saw a decline in their rate of GDP growth in 2001. The most sharply affected regions were the Near East (where oil exporters suffered from lower oil prices and some countries from reduced remittances and tourist revenues) and Latin America (where weak commodity prices and export markets combined with lower domestic confidence have reduced the economic outlook).

In early 2002, prospects for economic recovery still appeared uncertain and were linked to recovery in the United States. However, both the International Monetary Fund (IMF)12 and the Organisation for Economic Co-operation and Development (OECD)13 expected low growth rates for 2002, with prospects of recovery in the course of the year and eventually leading to higher rates of economic growth in 2003.

World trade expanded strongly in 2000 but stagnated in 2001.

World trade and commodity prices

The global economic slowdown negatively affected international trade and commodity markets. After expanding strongly in 2000, growth in volumes of world trade came to a halt in 2001 (Table 2). In particular, the export volume growth of developing countries fell to the very low rate of 2.3 percent, while export volumes of the advanced economies declined by about 1 percent.

Table 2
VOLUME OF WORLD TRADE IN GOODS

 

1997

1998

1999

2000

20011

 

(Percentage change)

World trade

10.5

4.6

5.6

12.8

0.2

Exports

 
 
 
 
 

Advanced economies

10.8

4.3

5.1

11.8

-0.9

Developing countries

12.6

4.8

4.7

15.4

2.3

Imports

         

Advanced economies

9.9

5.9

8.5

11.8

-1.0

Developing countries

10.0

0.5

0.8

16.4

3.5

1 Projections.

Source: IMF. 2001. World Economic Outlook, December. Washington, DC.

International commodity prices, which were already weak, suffered further downward pressures caused by the economic downturn and the aftermath of the events of 11 September (Table 3). Oil prices, after collapsing in 1998, had risen strongly in 1999-2000, but saw their sharpest drop in 2001, with average 2001 prices falling 14 percent below those of 2000 and continuing to decline as a result of weak demand and insufficient cutbacks by oil-producing countries.

Non-fuel primary commodities suffered an overall decline of an estimated 5-6 percent in 2001. The decline was particularly sharp for beverages, which in 2001 declined to 19 percent below the 2000 level (Table 4). Prices of agricultural raw materials were reduced overall by 7 percent relative to 2000. Average 2001 prices of foodstuffs increased slightly by some 3 percent in 2001, but were still well below the higher level of several years ago.

Declining terms of trade are undermining the economic prospects of many developing countries, although in 2001 lower oil prices helped offset the negative impact on non-fuel exporters of falling commodity prices.

Indeed, for all categories of agricultural primary commodities, prices remain well below the peak levels of 1996-97. The steep decline in agricultural commodity prices over the past few years has been most sever e for beverages, for which prices have fallen to less than half their 1997 level. The drop has been particularly dramatic for coffee: average annual coffee prices for 2001 were around one-third of those of 1997 and continued to fall through most of the year.

Weakening non-fuel commodity prices had negative implications for the many developing countries that depend heavily on primary commodity exports and had unfavourable consequences for their terms of trade (Table 3). The decline in terms of trade was sharpest for the developing country fuel exporters. For the non-fuel exporters, lower oil prices helped offset the deteriorating terms of trade situation, which nonetheless continued the slow downward trend observed over most of the preceding years. In contrast, for the food-importing developing countries, the lower international prices of foodstuffs reflected positively on their food import bills.

Table 3
WORLD TRADE PRICES AND TERMS OF TRADE

 

1997

1998

1999

2000

20011

 

(Percentage change)

World trade prices2

         

Manufactures

-8.0 -1.9 -1.8 -5.1 -1.7

Oil

-5.4 -32.1 37.5 56.9 -14.0

Non-fuel primary commodities

-3.0 -14.7 -7.0 1.8 -5.5

Terms of trade

         

Advanced economies

-0.6 1.6 - -2.6 -0.2

Developing countries

-0.9 -6.6 4.7 7.0 -3.0

Fuel exporters

0.2 -26.2 30.4 40.5 -10.9

Non-fuel exporters

-1.1 -1.3 -0.5 -1.3 -0.5

1 Projections.

2 In US dollar terms.

Source: IMF. 2001. World Economic Outlook, December. Washington, DC.

For the developing non-fuel commodity exporters, the negative impact on poverty may be more pronounced than would immediately appear. Indeed, lower agricultural commodity prices negatively affect rural areas, where the majority of poor people live, while the positive impact of lower fuel prices benefits urban areas to a larger extent.

Even with global economic recovery under way in the course of 2002, commodity exporters still appear vulnerable, as market conditions continue to exercise downward pressure on commodity prices. After the decline in 2001, The World Bank projected no rebound in commodity prices in 2002 and some recovery only in 2003.14 For agricultural commodities, the World Bank projected an increase of 1 percent in 2002 followed by an increase of 9 percent in 2003.

Table 4
PRIMARY COMMODITY PRICE INDICES IN US DOLLAR TERMS1

Year/quarter

Non-fuel primary commodities

Petroleum

 

All

Food

Beverages

Agricultural
raw materials

Metals

 

1996

116.7 127.7 124.9 127.1 88.8 88.7

1997

113.2 114.0 165.5 119.4 91.5 83.9

1998

96.6 99.7 140.3 100.0 76.6 56.9

1999

89.8 84.1 110.5 102.2 75.5 78.3

2000

91.4 83.7 92.2 104.2 84.6 122.8

20012

86.4 86.2 74.6 96.7 76.6 105.7

2001 Q1

89.4 86.5 80.7 99.2 83.0 113.4

2001 Q2

88.1 83.9 76.7 101.3 79.7 116.3

2001 Q3

85.7 88.4 70.9 96.1 73.1 109.1

2001 Q4

82.4 86.2 70.1 90.3 70.6 84.1

1 1990 = 100.

2 Provisional data.

Source: IMF.

Implications of the Fourth World Trade Organization Ministerial Conference for agriculture

The value of world agricultural trade, including fishery and forestry products, has more than doubled since 1980, reaching close to $661 billion in 1995-99. The share of farm products in merchandise trade has fallen over time and currently stands at about 12 percent at the world level. However, this average conceals the much greater dependence on agricultural trade of many individual developing countries, both as exporters and as importers. Given the important role of agriculture and trade in agricultural products for many developing countries, the international regulatory framework governing agricultural policies and trade is essential for them and for their efforts to reduce poverty. Indeed, the World Bank points out that developing countries that have experienced more rapid agricultural export growth have also tended to see more rapid growth in agricultural GDP; thus agricultural exports have contributed to increasing agricultural incomes and reducing rural poverty.15

New multilateral trade negotiations were launched at the WTO Ministerial Conference in Doha, Qatar, in November 2001.

New multilateral trade negotiations were launched at the Fourth World Trade Organization (WTO) Ministerial Conference, held in Doha, Qatar, from 9 to 14 November 2001. The negotiations, which will be concluded by 1 January 2005, will have important implications for agriculture, fisheries and forestry. In addition to the talks on agriculture and services that have been under way for more than two years,16 the new negotiations will cover a much broader agenda. The Doha Ministerial Declaration focused considerable attention on the need to ensure that the development and food security needs of its most vulnerable members are not compromised in the drive towards a fair and market-oriented international trading system.

At the Doha Conference, Ministers agreed to undertake comprehensive negotiations on agriculture to improve market access and reduce export subsidies and trade-distorting domestic support.

For agricultural trade, in the Doha Ministerial Declaration the WTO members agreed to undertake "comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view of phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support". They committed to providing special and differential treatment for developing countries to enable them to take account effectively of their development needs. Non-trade concerns, such as food security and the need to protect the environment, are also to be taken into account. The Doha Declaration recognized the progress already achieved in the agriculture negotiations that began in March 2000 under Article 20 of the Agreement on Agriculture.

In the first phase of these negotiations, discussed in depth in The State of Food and Agriculture 2001, some 44 negotiating proposals were tabled, sponsored by a total of 125 WTO members. A major positive development in the first phase was the broad participation of developing countries in the process. The second phase of the negotiations, which ran from March 2001 to March 2002, focused on more in-depth work on all issues and options for policy reform as set out in members' proposals during the first phase, with further elaboration as appropriate.

Discussions on further agricultural trade liberalization have been under way for some time and will continue.

The third phase of the negotiations, which will last until 31 March 2003, will involve reaching agreement on the "modalities" for further reforms; these will spell out the specific procedures countries must follow in reforming their agricultural trade policies, for example the formula and timing for tariff reduction. The WTO members will then have until the date of the Fifth WTO Ministerial Conference (which must be held before the end of 2003) to prepare their draft "Schedules of Commitments". The final phase of the negotiations will entail debate, verification and acceptance of the final commitments. The negotiations on agriculture will be concluded as part of the broader negotiations, currently scheduled to be finalized by 1 January 2005.

Different approaches to agricultural tariff reductions are being discussed.

Market access

The discussions on market access have dealt primarily with tariff reductions and the administration of tariff-rate quotas (TRQs). On tariff-cutting, two basic approaches have received the most support thus far. The first would repeat the Uruguay Round formula, whereby a minimum cut per tariff line is required along with an overall average cut for all tariffs. In the Uruguay Round, the minimum cut was 15 percent (10 percent for developing countries) and the average cut was 36 percent (24 percent). No cuts were required of least developed countries. This approach gives the member countries some flexibility in tariff reductions by commodities.

The second approach, a "cocktail" approach, would combine a flat-rate percentage cut for all tariffs with additional cuts on higher tariffs. The cocktail approach would also include the expansion of tariff quotas and the provision of special treatment for developing countries. This approach could be effective in reducing tariff dispersion both among countries and among product categories, including a reduction in tariff escalation.

On the administration of TRQs, no consensus appears to be imminent. The basic concern is that the method by which a TRQ is allocated may act more as a barrier than an opportunity for market access. The challenge is how to ensure fair market access for all WTO members while protecting the interests of traditional suppliers.

Box 2

SELECTED WTO TERMS

Aggregate measure of support (AMS)
The sum of domestic agricultural support under the amber box measures (see below).

Amber box measures
Domestic agricultural support that is considered to distort trade and is therefore subject to reduction commitments.

Blue box payments
Payments made as part of certain domestic support policies (mainly those of the European Communities [EC] and the United States) that are specifically exempt from reduction commitments.

De minimis payments
Domestic agricultural support payments representing only a small percentage of transfer to producers (less than 5 percent of the production value for developed countries and 10 percent for developing countries). Even if the effects of de minimis payments are potentially production- or trade-distorting, such support is exempt from reduction commitments.

Green box measures
Support measures that are considered to have no, or minimal, trade-distorting or production-related effects. Such payments are therefore exempt from domestic support reduction commitments.

MFN tariff
A tariff applied on a most-favoured-nation (MFN) basis and which, therefore, does not discriminate against individual suppliers.

Special and differential treatment
Exceptional treatment reserved for developing countries, allowing greater flexibility in establishing support and protection measures.

Tariff escalation
Increasing tariff protection on products in line with their stage of processing. Tariff escalation implies protection of the processing industry.

Tariff rate quota
A two-tier tariff system under which a given quota volume of imports is charged an in-quota tariff rate, which is lower than the above-quota MFN tariff.

In the area of market access, measures for special and differential treatment are being considered for developing countries, new WTO members and economies in transition. Some developing countries consider that their tariff should be conditional on the reduction by developed countries of trade-distorting domestic support and export subsidies. Small, "single-commodity", exporters are calling for their trade preferences in developed countries to be preserved and strengthened, while some countries find that certain preference schemes unfairly discriminate against other developing countries. Members generally agree that the erosion of preferences is a problem and that appropriate transition measures may be needed.

Measures for "special and differential treatment" for developing countries are being considered in the area of market access.

Domestic support

A wide range of topics has been debated in the area of domestic support to agriculture, with little consensus emerging so far. Some countries have argued that high levels of domestic support - including measures currently exempt from disciplines - are trade-distorting and should be disciplined. Others argue that current exemptions should be continued and broadened to include measures related to a variety of "non-trade concerns" such as animal welfare or the viability of rural areas.

Little consensus has emerged so far on domestic support export subsidies, although many topics have been discussed.

There appears to be a general willingness to reconsider the imbalance between developed and developing countries regarding their commitments on domestic support. Most developing countries are bound by their de minimis support levels whereas most developed countries have much higher amber box or blue box limits and no limits for green box policies (developing countries also have the right to use green box policies, but few have the financial capacity to do so). Recent discussions have revolved around the possible need for a "development box" that would provide significant flexibility for developing countries to support their domestic production, particularly of staple food commodities.

Export subsidies

Some countries are proposing the total elimination of export subsidies, with an immediate 50 percent cut. Others are prepared to negotiate further progressive reductions but only if all forms of export subsidies are covered. Net food-importing developing countries fear higher food prices if subsidies are eliminated abruptly. Others argue that their domestic producers are placed at a disadvantage by competition with subsidized products in their home and export markets. Many countries would like to extend and improve the rules for preventing "circumvention" of commitments on export subsidies through the use or misuse of state trading enterprises, food aid and subsidized export credits.

Box 3

OTHER ASPECTS OF THE WORK PROGRAMME AGREED AT DOHA WITH IMPLICATIONS FOR AGRICULTURE

Market access for non-agricultural products
Negotiations in this area will aim to reduce or eliminate tariffs and non-tariff barriers. Product coverage will be comprehensive and without a priori exclusions. The modalities for the tariff reductions must be agreed as part of the negotiations. Fishery and forestry products and agricultural products that were excluded from the Agreement on Agriculture, such as rubber and hard fibres, will be covered under the new negotiations.

Trade Related Aspects of Intellectual Property Rights (TRIPS)
It was agreed to negotiate the establishment of a multilateral system of notification and registration of geographical indications for wine and spirits. The extension of the protection of geographical indications to products other than wine and spirits (e.g. cheeses and hams) will also be addressed in the Council for TRIPS. The WTO Committee for TRIPS was further instructed to examine, inter alia, the relationship between the TRIPS Agreement and the Convention on Biological Diversity and the protection of traditional knowledge and folklore.

Subsidies and countervailing measures
Negotiations will aim at clarifying and improving disciplines under the Uruguay Round Agreement on Subsidies and Countervailing Measures. The Conference agreed specifically that the negotiations would "aim to clarify and improve WTO disciplines on fishery subsidies, taking into account the importance of this sector to developing countries".

Trade and the environment
The Doha Ministerial Declaration, for the first time, recognized the right of each country to take measures to protect the environment "at the levels it considers appropriate" on the same basis as measures taken for the protection of human, animal and plant life or health, i.e. provided such measures are not applied in an arbitrary or discriminatory manner or as a disguised restriction on trade and that they are in compliance with other WTO provisions. It was agreed that there would be negotiations on the relationship between existing WTO rules and specific trade obligations set out in multilateral environmental agreements and on the reduction or elimination of tariff and non-tariff barriers to environmental goods and services.



Other important issues, such as state trading, food security, food safety, rural development, safeguards and the environment, are also being discussed.

Other agriculture topics

The agriculture negotiations are addressing a number of other issues, including state trading, food security, food safety, rural development, geographical denominations, safeguards, the environment, trade preferences and food aid. The specific concerns of various groups of countries have also been identified. These groups include small islands, landlocked countries, countries in transition to market economies, new WTO members, net food-importers, and least developed countries. Considerable debate revolves around the need to create special rules and exemptions for vulnerable groups of countries versus the need for a coherent set of international trading rules applying to all countries.


Previous PageTop Of PageNext Page