Trade 'distortion': impact on developing economies

- Last updated on GMT

Related tags: European union

Balancing liberalisation with a better deal for developing
countries must be a priority for the World Trade Organisation as
figures from a new report released yesterday show that
protectionism and subsidies by industrialised nations cost
developing countries about $24 billion (€22bn) annually in lost
agricultural and agro-industrial income.

Balancing liberalisation with a better deal for developing countries must be a priority for the World Trade Organisation as figures from a new report released yesterday show that protectionism and subsidies by industrialised nations cost developing countries about US$24 billion (€22bn) annually in lost agricultural and agro-industrial income.

Published by the US-based think-tank the International Food Policy Research Institute (IFPRI), the report highlights the urgency for the upcoming WTO trade talks in Cancun, Mexico, next month to come up with rules to create a level playing field for trade in food.

According to the report, Latin America and the Caribbean lose about $8.3 billion in annual income from agriculture, Asia loses some $6.6 billion, and sub-Saharan Africa close to $2 billion.

"The trade policies of the industrialised countries cause great harm to the economies of many developing nations which depend heavily upon agriculture,"​ said Eugenio Diaz-Bonilla, IFPRI senior research fellow.

The report points the finger at the European Union as the greatest culprit of 'trade-distorting measures' that displace agricultural exports from developing countries. More than half of the displaced exports are caused by the policies from the EU, less than a third are due to US policies, with Japan and other high-income Asian countries responsible for another 10 per cent.

The IFPRI estimates that such measures displace more than $40 billion of net agricultural exports per year from developing countries.

"One more kilogram of subsidised sugar in the European Union could very well mean one less kilogram produced in Kenya or Guatemala. Or another ton of subsidised rice in Japan can have the same displacement effect in Vietnam,"​ noted Diaz-Bonilla.

As a result of regional trade relationships, continues the report, EU policies have a greater impact on Africa. In fact, if 'trade-distorting' policies were eliminated worldwide, the value of sub-Saharan imports would rise, but almost 70 per cent of that increase would come from liberalisation in the European Union.

For Latin America and the Caribbean, the greatest expansion of exports would come from changes in EU policies (more than 50 per cent), followed by the United States (about 35 per cent). However, for some Latin American countries, such as Colombia and Mexico, more than half of their increase in agricultural exports would be due to liberalising US and Canadian agriculture.

For the developing countries of Asia, liberalisation in Japan and Korea would represent one-third of the total value of expanded trade from the elimination of subsidies and protectionism.

But developing countries must also shoulder the responsibility for change. "While the wealthy nations need to make the biggest changes, developing countries have to take a look at their own policies, as well."​ said David Orden, senior research fellow at IFPRI. "Developing countries need to reduce their protectionist measures on agriculture, as these policies increase the cost of food for poor consumers,"​ he continued.

"The upcoming WTO Ministerial Conference in Cancún provides an opportunity for world governments to agree on a plan to make agricultural trade more fair,"​ said Diaz-Bonilla. "For the sake of low-income farmers and consumers across the globe, negotiators from the industrialised countries should move beyond rhetoric and gestures. It is time to remove the trade-distorting measures that hurt poor people in developing countries."

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