MORE EFFORTS NEEDED FOR TRADE LIBERALIZATION

8:51 AM Oct 24, 1995

MORE EFFORTS NEEDED FOR TRADE LIBERALIZATION
Geneva 24 Oct (Chakravarthi Raghavan) -- Despite the Uruguay Round and its agricultural trade liberalization package, "there remain very substantial areas in international commodity trade where trade liberalization efforts need to be pursued," according to the secretariat of UNCTAD in a report to the Committee on Commodities meeting here next week.

The secretariat document, TD/B/CN.1/30 and its Add 1 (a statistical annex), analyzes evolution of prices and trade in commodities as a result of the Uruguay Round -- providing an overview in some areas on the basis of different estimates (FAO, GATT, World Bank, OECD etc) and filling the gap for other agricultural commodities and minerals and metals which these surveys have not covered.

The areas of international commodity trade liberalization needing further action, UNCTAD says, range from trade-distorting subsidies to domestic production and exports in agriculture, tariff escalation for semi-processed and processed commodities of actual or potential export interest to developing countries, reducing the trade barriers and eliminating policy-induced distortions.

Also needing to be addressed are greater harmonization of national tariff schedules and simplicity of the tariffs -- with attention paid in future negotiations to replacing specific duties by ad valorem rates which are more transparent and with predictable results since they would not influenced by exchange rate variations.

Low tariffs, creating unnecessary formalities and bureaucratic procedures should be abolished -- both to benefit those who face such problems as well as for beneficiaries of preferential duty-free access. For the latter, when the mfn tariffs are in the one to two percent range, the cost of meeting the rules of origin requirements for the preferential duty-free access is often higher than benefits derived.

Other access issues not addressed by the URA, but needing to be dealt with, according to UNCTAD are the private barriers to trade stemming from restrictive business practices, lack of access to technology on reasonable terms for developing countries, escalation for exporting countries of freight rates and marketing costs with the degree of processing before export, and excessive brand advertising.

A careful reading of the UNCTAD survey of the estimations by other organizations of the outcome of the Uruguay Round Agreements (URA), brings out that the impact of the URA and its agricultural liberalisation package for developing countries seems likely to be even more modest than initial estimates immediately after the URA was concluded, and much lower than some of the projections made in 1993 and 1994 ($250 to $500 million world income gains).

The real income gains to the world economy and developing countries in year 2002, the UNCTAD document says (after surveying published assessments by other organizations, including World Bank, FAO, OECD etc) would be "much more modest" than figures projected before the Uruguay Round results were known and ranging from a $25.4 billion to a $48 billion, depending on the base periods used to measure the reductions to be achieved in 2002.

Partly due to the restrictions on length of documents, and perhaps partly also to the current sensitivities and uncertainties stalking UN bodies under the budget and "restructuring" threats wielded by the United States, Britain and others against dissent, the thrust of the report and its assessment have to be gathered from the texts, footnotes and the documents thus referred to.

In 1992/93, the World Bank/OECD Development Centre estimations (by Ian Goldin and Dominique van der Mensbrugghe), and a subsequent one by the OECD (with the same authors and Odin Knudsen) for example projected, on the basis of the Dunkel draft text (30% cut in average tariffs and subsidies) that the income gains from agriculture liberalisation would be $190 billion of which OECD countries would garner $120 billion of net gains and the developing countries and former centrally planned economies (transition economies) would gain $70 billion.

But in papers at a World Bank sponsored seminar in Washington early this year on the effects of the Uruguay Round, according to the UNCTAD document, the real income benefits (in 1992 dollars) in year 2002, would be $25.4 billion (if base level 1982-1993 average is used) and $48 billion if 1991-1993 averages are used for base levels.

The GATT secretariat, in November 1994, on the basis of actual tariffications in country schedules and minimum market access commitments, had estimated a net increase in trade to be $3838 millions.

The variations in these estimates of future gains and losses among the several international secretariats, one official suggested, is perhaps due to the base data and assumptions, but even what is included or not. For example, one study presented at the Washington World Bank organized conference, suggesting that sub-Saharan Africa would not in fact suffer any net loss in food trade, appears to have been arrived at by including cocoa, coffee and other beverage items as well as tobacco -- all undoubtedly African export items falling under the broad heading of 'Agricultural commodities', but can't be used in assessing about net food-deficit countries.

In terms of prices, and trade incomes, the document refers again to several studies, to make the same point that the outcome and estimates in terms of the actual Uruguay Round decisions are very modest.

It cites an FAO study to the effect that the direct impact of the URA is likely to be "negligible" on world agricultural production -- with some reduction in output of temperate zone products in the developed countries and a fractional rise in developing countries.

On the consumption side, the FAO study projects that on balance the URA would slightly slow down consumption growth in low-income food-deficit countries.

As for trade, the URA will not arrest slowdown in growth rate of world agricultural trade, despite a positive outcome for rice, fats and oils and bovine meat.

For developing countries, FAO indicates that net gain in increased exports come from fats and oils and oilmeal, rice, wheat and maize -- an overall $1.5 billion trade gain.

UNCTAD's own projections of trade gains draws on an unpublished study by an UNCTAD Consultant, Prof. Odd Gulbrandsen. One scenario assumes that price effects on commodities on the world markets would have no price response in the domestic markets of non-OECD countries and in the other it is assumed that as a result of policy actions the world prices would be fully reflected in the domestic prices.

In the first scenario, developing countries as a whole suffer a net trade loss of $210 million in year 2000 -- a net gain of $301 million for Latin America and the Caribbean, and net losses of $386 for Africa, $128 million for Asia and the Pacific and $19 for developing Europe. In the second scenario, developing countries as a whole gain $8920 millions -- $790 million in Africa, $4510 million for Asia and the Pacific, $3452 million for Latin America and the Caribbean, and $169 million for developing Europe.

The true picture, UNCTAD says, would lie between these two extremes.

On prices, the FAO say that as a result of the URA, there will be price increases of between 4 to 10 percent or about 6.6% percent on average. UNCTAD projections, under its first scenario, have a similar outcome to that of FAO. But if world prices are transmitted to the developing country domestic markets, there will be much lower prices on the world markets - 2.7% instead of 6.6%. According to the OECD there will be a very small price increase, and even some decrease, in international commodity prices -- price reductions of 0.4% on average under a full employment scenario and a 3.3% price rise in a scenario allowing for some unemployment.