Developing countries must open their markets

There’s a real danger that developing country negotiators will allow ‘political correctness‘ to get in the way of a good result for their own trading interests in the WTO Agriculture negotiations. The PC view is that developing countries need to protect their markets to allow their ‘infant’ agricultural industries to grow or to safeguard their precarious food security. Again and again developing countries have argued in the agriculture negotiations (see the “extended story”:http://www.petergallagher.com.au/cgi-bin/blosxom/blosxom.cgi/pwg/wto/developingMarketAccess.html?seemore=y) that they should make smaller cuts in their very high agriculture tariff averages and that the ‘burden’ of market access reforms should fall on industrialized countries. This is potentially a very expensive, purely ideological line for a developing country to run. Whether they are net exporters of agriculture or not there is overwhelming evidence that developing countries as a group need greater access to other developing country markets and that as a group developing countries gain much more from market access reforms than from, for example, cuts to export subsidies.


This chart, drawn from the IMF’s World Economic Survey (2002) illustrates the Fund’s estimates (confirmed by many other such experiments) that the whole world will see positive results both from cutting export subsidies and from cutting tariffs on agricultural products. But the first bar of the chart shows that the net welfare gains from cuts to tariffs are much bigger than the gains from cuts to export subsidies. In fact, the second set of bars shows that developing countries as a group lose from cuts to subsidies alone (because their import prices go up more than their export prices). But developing countries in every region of the world gain from cuts to tariffs including their own tariffs. The PC view that developing countries should be excused from cutting their own protection is strongly espoused by “India”:http://www.business-standard.com/today/story.asp?Menu=19&story=21049, now with some support from Brazil, and also by old-fashioned “G77” strategists who see the world through the blinkers of a ‘North-South’ debate anchored in the 1980s or the even earlier ‘centre-periphery’ metaphors of “Raúl Prebisch(link to exerpt from PBS series ‘Commanding Heights&#8217)”:http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/ess_dependencia.html. Here’s a recent, typical example from Malaysia’s Straights Times newspaper (often the voice of the ruling party in Malaysia): bq. “Built around the economic interests of the so-called “Quad” — the United States, European Union, Japan and Canada — the WTO relegates developing countries to the desperate pursuit of advantage in the interstitial spaces. In Cancun, they must play the game of reversing the rollercoaster by refusing to accept further trade liberalisation obligations until they are placed within the framework of a development agenda.”

But refusing liberalize unless industrialized countries go first and go further is a shortsighted policy in view of the actual interests of developing countries. This chart (also drawn from IMF data) shows that the proportion of the agricultural exports of developing countries going to other developing countries (purple bars) has doubled since the 1970s to almost 40 percent.

Developing countries have a very strong interest in seeing the barriers to doing business across borders come down in other developing markets. Furthermore, since these growth trends are continuing, “according to WTO(link to a download page for the WTO’s World Trade Report, 2003)”:http://www.wto.org/english/news_e/pres03_e/pr348_e.htm, that interest is becoming stronger every year. It is time for developing country businesses to cut through the PC jargon and look closely at their export opportunities and import supply opportunities in the coming decades. The Doha round negotiations are a once in a decade opportunity to achieve effective improvements in the market outlook. Perhaps they need to be sending a very firm message to their own governments that broadly based market opening is in everyone’s interest.

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