Liberalizing Agriculture

Arvind Panagariya

From Foreign Affairs, December 2005 -- WTO Special Edition

Summary:  Agriculture will be the make-or-break issue in Hong Kong. On the surface, obstacles to an agreement seem insuperable. But a careful examination of the current agricultural trade regime reveals that prospects for an agreement are not as bleak as they appear.

ARVIND PANAGARIYA is Professor of Economics and Jagdish Bhagwati Professor of Indian Political Economy at Columbia University.

Finally, aid from multilateral institutions such as the World Bank will be necessary to make liberalization attractive to developing countries. Countries that experience preference erosion will need to be compensated, at least in the short run. Estimates of these losses vary widely, but a figure in the neighborhood of $1 billion cannot be ruled out because the losses to producers in the sugar trade alone are estimated at $450 million. Aid is also required to assist countries in meeting the adjustment costs of liberalization. Developed countries can afford trade-adjustment programs. Developing countries cannot. Given the importance the World Bank attaches to trade liberalization, it should promote an "aid-for-trade" program.

Contrary to the impressions conveyed by the media, definite progress has been made toward rationalizing agricultural policy and lowering trade-distorting subsidies over the past ten years. Moreover, the differences among the major players are hardly insurmountable. Some flexibility will be required to produce an outcome that will benefit everyone. Negotiators must not forget that, unlike the Uruguay Round, which dealt with contentious issues such as intellectual-property protection, this round is focused on trade liberalization. And even if they must make other concessions, liberalizing trade will benefit all countries.