World Bank calls for curbing farm trade protection, cites Japan

Asian Economic News, Jan 18, 2005

WASHINGTON, Jan. 10 Kyodo

The World Bank on Monday urged industrialized nations to reduce their agricultural trade protection, citing Japan's closed rice market among others, to help developing countries increase their farm productivity and eventually reduce poverty.

''Developing countries are investing to increase their agriculture productivity, but their gains will not be fully translated into poverty reduction unless industrial and some middle-income countries reduce agriculture trade protection,'' the bank said in releasing a new study report.

According to the ''Global Agriculture Trade and Developing Countries'' report, increased farm productivity without reduced protection will instead give rise to overproduction and price declines for many commodities, undermining competitive poor countries' efforts to expand exports and rural incomes and also increasing pressure for greater protection globally.

As for the rice market -- in which 90 percent of global production and consumption occur in Asia -- the report says that many Asian nations ''remain bastions of protectionism,'' with Japan being the ''most protectionist country'' among Asian importers and protection by Japan, South Korea and Taiwan lowering world export prices by some 100 percent.

The report notes that the global trade-weighted average tariff for all types of rice is 43 percent but reaches 217 percent for Japonica rice.

Against this backdrop, the report says that global rice trade liberalization will result in a total economic surplus of $7.4 billion annually, with importing countries having a net gain of $5.4 billion and exporting countries a net gain of $2 billion.

The report says that Japan will gain the most from liberalization, resulting in a net ''welfare'' gain of $3.6 billion per year, or 70 percent of the global economic welfare gains, with producers losing $19.2 billion but consumers gaining $24.2 billion.

''Savings from removing from farm programs more than offset the loss in tariff revenue,'' the report says.

Making similar analysis for sugar, dairy products, wheat and various other farm sectors, the report concludes that trade liberalization will increase global demand and export prices to help developing nations, while also benefiting consumers with lower prices at liberalized countries.

But it also acknowledges that trade liberation may increase prices in countries currently with no trade barriers in adversely affecting consumers there.

''Manufacturing protection has declined worldwide following substantial reforms in trade policies, especially in developing countries,'' said Francois Bourguignon, senior vice president and chief economist of the World Bank. ''Yet many industrial and developing countries still protect agriculture at high levels, which is hitting the world's poor the hardest.''

''Growth in agriculture has a disproportionately positive effect on poverty reduction, because more than half the population in developing countries lives in rural areas, and poverty is highest in rural areas,'' Bourguignon said.

But agriculture protection continues to be the most contentious issue in the ongoing global trade negotiations under the World Trade Organization, even leading to the breakdown of the WTO ministerial meeting held in Cancun, Mexico, in 2003, the report says.

While protection remains high in industrial countries, it says that many developing countries have liberalized their agricultural sectors, with the average agricultural tariffs declining from 30 percent to 18 percent during the 1990s.

Many developing countries have also eliminated other forms of import restrictions, abandoning multiple exchange rate systems that penalize agriculture and giving up almost all export taxes, the report says.

The report projects that without significant reforms, the agriculture trade surpluses of industrial countries will increase, while the developing countries will face increasing trade deficits in exacerbating rural poverty.