Agriculture and Non-agricultural Liberalization in the Millennium Round

Much remains to be done before agricultural trade is as liberal as world trade in manufactures. But agriculture is distorted by more than agricultural policies. In developing countries especially, farming is discouraged not only by farm protection policies in high-income countries but also by those countries' own manufacturing policies and distortions to services markets. This paper explores the extent to which multilateral liberalization of not only farm but also non-farm policies would affect welfare and the markets for farm products. It projects the global economy to 2005, when the Uruguay Round (UR) implementation will be complete, and assesses the potential impact of further cuts from that post-UR base. This is done using a modified version of the GTAP model of global trade, assuming 40% cuts in protection in agriculture, mining and manufacturing, and services. Results suggest agricultural and industrial liberalizations could yield similar-sized benefits for the global economy in 2005. However, the distributions of gains from those cuts are quite different as between rich and poor countries. We also examine the interaction between nonagricultural reforms and agricultural trade balances. For some regions, most notably for China, non-agricultural reforms dominate and reverse the sign of the change in the food trade balance following liberalization of both farm and non-farm trade. This suggests policy makers concerned with food and agriculture need to give attention also to non-agricultural policy reforms.