Agricultural trade liberalisation Effects on developing countries' output, incomes and trade

During the past decade there has been a substantial increase in trade in agricultural products between developing countries. Between 1990 and 1998 the value of agricultural trade between developing countries grew at about 7 per cent a year. With this increasing importance of ‘south‐south’ trade, the barriers to such trade have become increasingly important to the growth prospects for developing countries. However, the opportunity to reduce these barriers may not be realised because, under the World Trade Organisation, trade is liberalised by negotiating the lowering of bound tariffs, which in most cases are much higher than the applied tariffs in developing countries. Thus the extent of liberalisation depends on the rate by which the bound tariffs are cut and whether such reductions lower the applied tariffs. In this paper, scenarios that reflect some possible outcomes in WTO negotiations are explored and their implications for developing countries’ output, incomes and trade are assessed. A more realistic approach in modeling the scenarios is to take account of the binding overhang or ‘water in the tariff’. The findings show that developing countries have much to gain from further trade liberalisation. However, negotiations for further agricultural reforms need to be more ambitious if the maximum benefits are to be realised. More importantly, wider participation in the reform process and broad commodity coverage is required to ensure that the benefits are maximised.