Since the completion of the Uruguay Round (UR) in December 1993, the world economy and the trade policy environment have changed in significant ways. Asia’s three decades of nearly uninterrupted prosperity has been disrupted by a financial crisis. In the policy arena regional organizations such as the Asia-Pacific Economic Cooperation forum (APEC) and the Association of Southeast Asian Nations (ASEAN) have become more prominent.
Spurred by rapid growth, Asia has become increasingly important to world agricultural trade. The region as a whole jumped from 30 percent of world agricultural production and about 15 percent of world agricultural imports in the 1960s, to 45 percent and 30 percent, respectively, by the mid 1990s. With the percentage of exports relatively stable over the last three decades, Asia has become the largest net importing region. Although the region may never again achieve precrisis growth rates, the current turmoil is likely to prove only transitory and the countries of the region will remain important participants in world agricultural trade. Thus country and regional agricultural trading arrangements matter a great deal not only in Asia but to the world as a whole.
The extraordinary heterogeneity of Asia defies easy generalizations. With the World Trade Organization (WTO) and the upcoming “millennium round” negotiations in mind, distinctions can be made between four groups of countries in the region. China, the region’s second largest economy after Japan and the world’s largest agricultural producer, is not a member of the WTO. Yet by the mid 1990s China represented about 20 percent of world production and 3–4 percent of world exports and imports. Viet Nam and Taiwan, two other important Asian participants in world agricultural markets, also do not belong to the WTO. All three, however, are members of APEC and Viet Nam is also a member of ASEAN, so the decisions made by the regional groups may particularly influence outcomes in the WTO.
Several Asian WTO members have divergent, if not opposite, interests. (Asia may form a coherent geographical unit, but not when it comes to agricultural trade policy.) Japan maintains a highly protected agricultural sector with tight import restrictions on many products and high levels of domestic support (see table). South Korea follows similar policies. Japan recently blocked a trade liberalization agreement at the Kuala Lumpur APEC leaders meetings because it is unwilling to undertake agricultural trade liberalization. In contrast, Indonesia, Malaysia, the Philippines, and Thailand are members of the Cairns Group of self-identified nonsubsidizing agricultural exporters who generally support a more market-oriented global agricultural trade regime. Finally, there are the low-income, densely populated food-importing countries in South Asia, such as India and Pakistan, which present a different set of concerns altogether. Indian policy, in particular, discourages both exports and imports and, indeed, has conveyed negative aggregate support to agriculture.
Although an attempt is made in what follows to present the main issues from the perspective of the Asian region, it must be kept in mind that the new agricultural negotiations in the WTO will have different implications for each of these widely contrasting groups.
The WTO membership will collectively determine a negotiating agenda that is likely to reflect both unfinished business from the last round and issues that have grown in prominence since its conclusion. One set of issues could be labeled marketization. The United States (U.S.) and European Union (EU) want to move the global trade rules in the direction of their own market-oriented reforms. Asian countries could support this initiative in order to make their reforms permanent by tying them to the international system. Asian exporters have an interest in phasing out agricultural export subsidies and eliminating or disciplining export credits. Asian importers have an interest in ensuring continuity of supply. The interest of importing countries could involve negotiations on the elimination of export taxes or quantitative restrictions on exports. This would reassure importing countries that if they do liberalize their markets and experience a reduction in domestic output, domestic food availability will not be subject to interference by exporters.
Lastly on this set of issues, the WTO will have to confront state trading, which affects trade in both agricultural products and manufactures. State trading could increase in importance with the likely future accession of a number of economies in transition. The issue is particularly salient for agriculture because of the impending entry of China, Russia, and the Ukraine into the WTO. Among current Asian WTO members, India, Japan, the Philippines, and South Korea maintain state trading for some imported agricultural commodities.
A second set of issues that the negotiators will confront involves market access. Here the political interests of importers and exporters largely diverge. Because tariffs on agricultural imports are typically higher and vary more across commodities than those levied on manufactures, they will be at the top of the market access agenda in agriculture. Beyond the traditional tariff cutting exercises, negotiators will have to address the tariff-rate quota (TRQ) regimes that were created when a number of countries, most notably Japan and South Korea, converted nontariff barriers to TRQs. The problem is twofold, involving the overall levels of access on the one hand and the administration of the TRQ on the other. Exporters seek increases in market access for the most part. The administration of the TRQs, however, typically generates rents and often creates a rentier constituency—including exporters with privileged access to the restricted market—that oppose further liberalization. In some instances the situation is further complicated by the presence of state trading authorities who can impose further distortions in the market. A related market access issue is the removal of exceptions to tariffication, notably for rice in Japan and South Korea.
Market access also involves the issue of special safeguards. Governments that negotiate trade agreements typically insist on safeguard provisions as an insurance mechanism against import surges and disruption of domestic production. Countries can also apply special protections to avert balance-of-payments crises. Unfortunately safeguard mechanisms can be abused when they are used to convey nontemporary protection. India, in particular, has used the balance-of-payments provision to maintain an extensive array of quantitative import controls. One proposal in circulation would require governments to adopt the price used to calculate tariff-equivalents in the Uruguay Round (typically a rather low price) as the safeguard trigger price, thus discouraging frequent invocation of safeguards and the application of high levels of protection.
A final set of prospective topics for negotiations could be termed new issues, which include agreements related to agriculture but outside the bounds of traditional agricultural negotiations. Most obviously related to agriculture are sanitary and phytosanitary regulations, quarantines, and, most recently, biotechnology and the introduction of genetically altered organisms. The high profile dispute between the United States and European Union over beef hormones and EU restrictions on the importation of beef because of concerns about bovine spongiform encephalopathy (mad cow disease) indicate the intense public interest the new issues can generate. Although there is no particular “Asian” position on these concerns, one can easily imagine individual countries positioning themselves on the basis of their interests as producers, consumers, and innovators. Agreements on intellectual property rights, in particular, could be increasingly important to agriculture.
Competition policy—another possible item on the millennium round agenda—could have relevance for Asia and agriculture if the talks take on the use of domestic distribution systems as a means of impeding market access. In South Korea, for example, the government has designated certain domestic producer-related institutions as sole importers of some agricultural products subject to TRQs.
Finally, agreements on environmental issues could be highly relevant to agriculture, especially those that deal with restrictions on permissible subsidies that might arise in response to concerns about transborder pollution. Again, there really is no “Asian” position. Although Northeast Asian agriculture is characterized by relatively high levels of domestic support, the chance that agriculturally related transborder pollution might occur appears slight.
Asia plays an increasingly important role in global agricultural markets and the upcoming millennium round could prove both highly transformative and problematic from the standpoint of Asia:
- Neither China, Taiwan, nor Viet Nam, all important participants in world agricultural markets, are currently WTO members. Agriculture will continue to be central to the negotiation of China’s accession agreement, which will proceed parallel to the millennium round. China’s accession, although not directly related to the millennium round negotiations, has enormous implications for agricultural trade flows in the future.
- On a number of issues the interests of different countries in Asia diverge, and Japan, the region’s largest and richest economy, has provided little leadership. Indeed, it has been among the main opponents to agricultural liberalization.
Given that China, Taiwan, and Viet Nam are members of groups other than WTO and that Asia has no regional hegemon, a potentially symbiotic relationship exists between the WTO on the one hand and collectives such as APEC, ASEAN, and the supraregional Cairns Group on the other. The regional groups could be a mechanism for the non-WTO members to shape the global regime.
Marcus Noland is a senior fellow at the Institute for International Economics in Washington, D.C.