In the future, 1993-94 will be recalled as the year during which the Uruguay Round of Multilateral Trade Negotiations was concluded. The Final Act of the Uruguay Round is a notable achievement which should help boost world trade and incomes over the next decade.
The Final Act represents a milestone in international policy, as it is the first time that agriculture has been included in a major way in such negotiations. However, the result is only a partial liberalization. The cuts in domestic support are relatively small and spread over a number of years. The reduction in tariffs will be somewhat larger and, coupled with tariffication of non-tariff barriers to trade, offer the promise of expanded market access. At the same time the agreed reduction in export subsidies, although also phased and to be maintained at a lower level, should help nonsubsidizing low cost exporters. The overall results should be a modest expansion in agricultural trade earnings, with higher costs to importers for commodities that now are subject to large export subsidies.
These changes could bring benefits to the developing countries as a whole but global welfare cannot be said to improve if the losers, especially when they are the poorest countries, are not compensated for losses. In this connection, the special assistance promised for the least developed and net food importing developing countries to help offset the negative effects of the reform process, including technical and financial assistance to improve their agricultural productivity and infrastructure, will need to be generously supported. The food security situation in many of these countries, particularly in Africa, is something that will require increased attention in the future. In the agriculture sector they cannot expect to make many gains given their reliance on a few tropical products for export, while the costs of their food imports are likely to rise. Although some of these countries can expect to make gains in other sectors, the main solution in agriculture will come from increases in productivity and production in the commodities essential to their diet, and consequent reductions in imports of such foods. For their export sectors, the best approach would also be to strengthen their ability to take advantage of the new market opportunities by improving their productivity and reducing the other costs, the marketing and distribution costs, that bear so heavily on the competitiveness of their traded goods.
Perhaps more than the quantitative changes to markets and prices, the main implications for agriculture of the Uruguay Round of Multilateral Trade Negotiations are the changed "rules of the game". The elimination of non-tariff barriers to trade and their replacement with tariffs should improve price signals and possibly stabilize markets but it may pose adjustment difficulties for many countries that have relied in the past on these tools to protect their domestic agriculture from the vagaries of the world market. In the future, too, price distorting domestic policies are to be discouraged while targeted, decoupled forms of support paid for by governments will be more acceptable. However, the least developed countries are exempted from the reduction provisions of the Final Act, and therefore may maintain or embrace measures that capture the subsidies from exporting countries and use them to provide the necessary stimulus to their programmes and strategies for reducing undernutrition and enhancing food security.
While the international community was putting together the multilateral agreement, many groups of countries were developing regional agreements. The most noteworthy in the past year have been the coming into force on 1 January 1994 of the European Economic Area and the North American Free Trade Agreement, but agreements have been developed in other regions as well. A feature of these agreements is the growing extent to which agriculture is included. This move parallels that seen in the GATT, where the Uruguay Round was the first to include agriculture seriously. Perhaps this coincidence reflects the general realization that agriculture needs to be well integrated with the rest of the economy even though it has some special features of its own.
While the negotiation of the Uruguay Round and the growth of regional groupings dominated the international agricultural policy debate in the past year, the markets themselves gave us a reminder of their inherent volatility and ability to rise or fall by magnitudes that can easily swamp those arising from the Final Act. After years of decline, especially in real terms, a number of commodities rose in price in the last few months including cocoa, coffee, maize, high quality rice, soybeans and sugar. Expectations of an economic upturn together with the previous rundown of stocks and, in some countries, poor harvests have given a fairly widely based fillip to prices. This was reinforced by the sharp decrease in interest rates which led investors out of money into other financial instruments and, to some extent, commodities. Few will begrudge the rise in prices after years of decline but there are only few signs that commodity prices have shaken off their structural weaknesses in the last few months. Protectionist forces in agriculture are still extensive, market instability is still considerable, and new concerns such as how to reconcile the needs of the environment with the desire for less fettered trade are on the rise in the international agricultural policy agenda.
Jacques Diouf
DIRECTOR-GENERAL