24. Memorandum submitted by the Centre
for Research in Economic Development and International Trade (CREDIT),
School of Economics, University of Nottingham
1. Developing Countries are not a homogenous
group. The brief comments provided here have sub-Saharan Africa
(SSA) in mind, and broadly apply to least developed countries
in other regions. The concerns of middle-income countries, in
Latin America and East Asia, large poor countries (eg Indonesia,
South Asia), and small island economies (Caribbean and Pacific)
are often quite different.
AGRICULTURAL REFORM
2. In general, SSA countries have made insufficient
progress in reforming their own agricultural policies, critical
to promoting production, livelihoods and food security. Efficiency
levels, in production and marketing, are generally low, extension
services are ineffective, while significant price and market distortions
remain (especially low prices for outputs). Farmers face constrained
access to vital inputs, eg credit, seeds, fertilizer and new technologies.
Reform of domestic agricultural policy will be more important
for these countries than multilateral reform in agricultural trade,
although the latter is itself important.
3. The CAP is highly inefficient and distortionary
and in need of reform. While many of the distortions affect world
markets and impinge on SSA, the case for reforming the CAP can
and should be made solely on the grounds of increasing economic
welfare and efficiency within the EU. With appropriate reforms,
most farmers and consumers can benefit, both within Europe and
elsewhere.
4. The case for reforming the CAP need not
be argued on the basis of expected benefits for developing countries.
While some developing countries will benefit from the elimination
of EU export subsidies (mostly Cairns group members) and enhanced
access to the EU market, the benefits to the least developed countries
in general will be small. The immediate effect of removing EU
export subsidies would be to increase world food prices (off-set
if other produces can increase output). Developing countries that
are net food importers because of weak domestic production (see
2) may well suffer if the price of imports increases.
5. The evidence on food aid, on balance,
is that it benefits recipients by providing for food security
needs that cannot be met from domestic production. Specific instances
where food aid discourages domestic production can be identified,
but should be addressed on a case by case basis.
MARKET ACCESS
AND S&D TREATMENT
6. The principle that poor countries require
preferential treatment as compared to rich countries is widely
accepted and enshrined in S&D. The problem lies in how would
determines countries eligible for S&D treatment. An income
per capita criterion imposes an arbitrary cut-off point, made
worse in the WTO by defining the list of least developed countries
(very poor countries that are yet to join the WTO are not automatically
entitled to S&D). While this may not be a severe problem where
S&D treatment is in respect of the pace and extent of implementing
WTO commitments, it creates distortions when S&D applies to
preferential market access.
7. Preferential access initiatives are beneficial
to eligible countries, but when offered on a selective basis they
often limit the extent of benefits and introduce distortions.
In cases such as the EBA, where eligibility is restricted to the
least developed countries, they discriminate against poor but
not least developed countries (eg Uganda and Tanzania are eligible
but Kenya is not). In fact, as least developed countries are entitled
to preferential access under the WTO in any case, the EBA confers
few additional benefits.
8. It should be recognised that least developed
countries have weak and small tax bases, and will continue to
be relatively dependent on trade taxes. While reducing tariffs
is desirable on efficiency and welfare grounds, this does not
imply that a zero tariff regime is the optimum. SSA countries,
for example, can derive the principal economic benefits by reducing
the dispersion of tariffs, eliminating very high rates and reducing
average tariffs to no more than 20 per cent. This balances the
trade-off between revenue needs and lower tariffs. Converting
NTB restrictions into tariff equivalent can be even more beneficial,
by eliminating major distortions in a revenue-enhancing way.
9. The WTO has consistently recognised the
case for S&D for least developed countries, and has shown
willing to incorporate this in development box proposals for the
Agreement on Agriculture. Two points should be noted, however.
The poorest countries are typically the least able to afford subsidy
schemes, assuming they can design appropriate schemes. Furthermore,
the reason why most subsidy schemes have been eliminated is because
of pressure from the World Bank and/or IMF, not because they are
non-compliant with the WTO. There is little real benefit of the
WTO permitting subsidies or exceptions which the countries are
prevented from using by other multilateral agencies.
10. Enhanced market access (to other countries)
increases the export opportunities available to SSA countries,
but does not in itself ensure that exports will increase. Typically,
the export supply response is at best limited. Expanding exports
requires complementary reforms in a range of non-trade domestic
policies (eg labour and credit markets, agriculture, the financial
sector) and measures to reduce constraints associated with inefficient
infrastructure (eg high transport costs) and weak institutions
(eg customs and legal systems).
11. Whereas market access enhances the opportunities
to export, offering a potential long-term gain, the removal of
restrictions on imports tends to have more direct and immediate
effects. Some of these effects are beneficial, through access
to a greater variety of cheaper inputs. However, increased competition
from imports can impose a cost on weak domestic producers of import-competing
products. In SSA countries, where domestic manufacturing tends
to be small-scale and relatively inefficient, and factor markets
are inflexible, these immediate costs can be high. Whilst it would
be an exaggeration to assert that trade liberalisation causes
de-industrialisation in poor countries, the concerns of such countries
should be recognised.
NEGOTIATING AND
COMPLIANCE
12. Least developed countries, generally,
have severely limited negotiating capacities. Doha witnessed the
first effective efforts of SSA countries to act as a group to
promote special interests. This should be encouraged and supported.
13. The EU approach under Cotonou, advocating
the negotiation of Economic Partnership Agreements (EPAs) between
(regional groupings of) ACP countries and the EU, adds excessive
additional pressure to the limited negotiating capacity of these
countries. In addition to negotiating within the WTO, they are
required to engage in separate negotiations with the EU (and may
also be encouraged to negotiate regional agreements). It would
be better for the ACP countries if the EU made its concessions
within and consistent with WTO negotiations.
14. The proposed EPAs require reciprocity
(to be WTO-compliant), ie tariff-free access to EU markets has
to be reciprocated with granting the EU tariff-free access to
their markets. The EU will benefit far more from such EPAs than
will any ACP countries, many of which will not benefit at all.
Countries eligible for EBA have no incentive to agree to an EPA.
More generally, least developed countries entitled for S&D
have no incentive to enter into reciprocal agreements. In fact,
the principle of S&D implies that preferences be non-reciprocal.
15. Of greater import for poor countries
are the very high administrative and legislative costs of complying
with WTO commitments (eg on standards, trade facilitation, Customs
valuation, TRIPs). The monies allocated by the WTO, in concert
with other donors, are insufficient to meet the needs of least
developed countries, who have not been adequately supported for
the real costs of WTO membership.
16. DFID is attempting to support trade
policy capacity, for negotiation and implementation, in SSA countries.
The project in Ghana has been fairly successful; most of the aid
has been spent in country, funding technical assistance and supporting
policy-making and implementation costs. The Africa Trade and Poverty
Programme is far more ambitious, encompassing a number of countries.
Whilst it offers potential benefits, the complex administrative
structure suggests that a relatively high proportion of the aid
will not actually be spent in the countries, or on activities
that directly benefit the countries.
Oliver Morrissey, Chris Milner and Andrew McKay,
CREDIT
January 2003
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