Liberalising agriculture and manufactures in a millennium round: Implications for developing countries

This paper brings together the available evidence regarding the impact of future, multilateral liberalisation in agricultural and manufacturing trade on developing countries. In agriculture, the biggest barriers to trade reside in industrialised countries. Accordingly, they command a large share of the gains from trade reforms. However, when measured relative to projected GDP in 2005, the largest percentage gains from liberalisation accrue to developing countries in South and Southeast Asia where the agricultural sector is itself quite large and rather distorted by current policies. The same is true of the East Asian NICs. Developing country exporters in Latin America are also big gainers, but about half of their increased income derives from improved terms of trade stemming from increased demand for their products overseas. The modalities of liberalisation in a Millennium Round will be particularly important in the agricultural sector, particularly in light of the TRQs that were installed to protect market access under the Uruguay Round Agreement on Agriculture. Unfortunately, these TRQs reduce transparency. They also have served to create (or in some cases preserved) substantial quota rents. The presence of these rents increases the risk that some countries will lose from further liberalisation, particularly when liberalisation takes the form of reductions in out-of-quota tariff rates. Fortunately, it appears that these risks can be greatly diminished by policies that combine reductions in out-of-quota tariffs with increases in the volumes allowed under the quotas. The combination of these measures will also ensure a more rapid move towards free trade in agricultural products.