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Trade policy options for Trade policy options for developing countries and in the developing countries and in the

Syrian Arab RepublicSyrian Arab Republic

Assigned ActivitiesAssigned Activities • Review Paper: The Impacts of Agricultural Trade Review Paper: The Impacts of Agricultural Trade

Liberalization on Development (Lessons for Syria).Liberalization on Development (Lessons for Syria).• Policy Brief: Trade policy reform in Syria, what has Policy Brief: Trade policy reform in Syria, what has

changed?changed?• Commodity Brief: Syrian agriculture TradeCommodity Brief: Syrian agriculture Trade

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The Impacts of Agricultural Trade The Impacts of Agricultural Trade Liberalization on Development Liberalization on Development

(Lessons for Syria).(Lessons for Syria).

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Protection and LiberalizationProtection and LiberalizationWhy Agricultural Trade Liberalization?Why Agricultural Trade Liberalization? Trade-liberalization advocates:Trade-liberalization advocates:• proposals for higher protection in DingC have a net negative proposals for higher protection in DingC have a net negative

effecteffect• Increasing the protection of agriculture by DingC (where most Increasing the protection of agriculture by DingC (where most

of the future market growth is expected) will undermine the of the future market growth is expected) will undermine the limited support for agricultural policy reforms that can be limited support for agricultural policy reforms that can be energized in DedC energized in DedC

The current process of agricultural trade reform at the WTO The current process of agricultural trade reform at the WTO requires less tariff and subsidy reductions by DingC than by requires less tariff and subsidy reductions by DingC than by DedC DedC

Development advocates Development advocates • favor “special-and-differential treatment” : less or slower trade favor “special-and-differential treatment” : less or slower trade

liberalization to occur in DingC.liberalization to occur in DingC.• Argue that these measures are justified in DingC that suffer Argue that these measures are justified in DingC that suffer

from chronic balance-of- payments deficits and where large from chronic balance-of- payments deficits and where large agrarian populations depend on local production for food and agrarian populations depend on local production for food and other needs.other needs.

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Potential Winners and Losers from Potential Winners and Losers from Agricultural Trade LiberalizationAgricultural Trade Liberalization

• Reform would reduce rural poverty because in the aggregate Reform would reduce rural poverty because in the aggregate they have a strong comparative advantage in agriculture and they have a strong comparative advantage in agriculture and because the agricultural sector is important for income because the agricultural sector is important for income generation in DingC. generation in DingC.

• Liberalization of value-added activities is crucial for expanding Liberalization of value-added activities is crucial for expanding employment and income opportunities beyond the farm gate. employment and income opportunities beyond the farm gate. (The importance of a multi-commodity approach to reform, as (The importance of a multi-commodity approach to reform, as gains and losses will differ by market). gains and losses will differ by market).

• Consumers in highly protected markets will benefit greatly from Consumers in highly protected markets will benefit greatly from trade liberalization as domestic (tariff-inclusive) prices fall and trade liberalization as domestic (tariff-inclusive) prices fall and product choice expands. Consumers in poor, net-food-importing product choice expands. Consumers in poor, net-food-importing countries could face higher prices if these markets were not countries could face higher prices if these markets were not protected before liberalization, because of higher import unit protected before liberalization, because of higher import unit costs. costs.

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Cont…Cont…• Multilateral trade liberalization erodes the benefits from Multilateral trade liberalization erodes the benefits from

preferential bilateral trade agreements and pits low-cost preferential bilateral trade agreements and pits low-cost producers in some DingC (such as sugar producers in Brazil producers in some DingC (such as sugar producers in Brazil and Thailand) against less efficient producers in the least-and Thailand) against less efficient producers in the least-developed countries who are currently helped by preferential developed countries who are currently helped by preferential access access

• global liberalization of primary commodity markets should be global liberalization of primary commodity markets should be accompanied by further effective opening of value added accompanied by further effective opening of value added markets, along with some targeted assistance to overcome markets, along with some targeted assistance to overcome supply constraints. supply constraints.

• higher market prices would prevail in traditional agricultural higher market prices would prevail in traditional agricultural commodity markets (sugar, cotton, dairy, rice, and to a lesser commodity markets (sugar, cotton, dairy, rice, and to a lesser extent, wheat) if trade and domestic distortions were removedextent, wheat) if trade and domestic distortions were removed

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The impact of agricultural trade The impact of agricultural trade liberalization on developmentliberalization on development

1.1. The trade and development linkageThe trade and development linkage The role of human and physical capital accumulation, and The role of human and physical capital accumulation, and

technical progress. Trade is seen as an instrument of technical progress. Trade is seen as an instrument of capital accumulation or as a means of stimulating capital accumulation or as a means of stimulating efficiency through better resource allocation and enhanced efficiency through better resource allocation and enhanced competition. competition.

trade and development are linked through the effect of trade and development are linked through the effect of trade policy on the level and pattern of domestic aggregate trade policy on the level and pattern of domestic aggregate spending, and hence on the savings-investment spending, and hence on the savings-investment mechanism.mechanism.

if trade policy cannot by itself affect the domestic savings if trade policy cannot by itself affect the domestic savings rate, it can be used to address a temporary disequilibrium rate, it can be used to address a temporary disequilibrium in a country's balance of payments resulting from in a country's balance of payments resulting from temporary external factors, such as variations in temporary external factors, such as variations in commodity prices or abrupt movement of foreign capital. commodity prices or abrupt movement of foreign capital.

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2.2. Achieving Agricultural Development Achieving Agricultural Development through Agricultural Tradethrough Agricultural Trade

• Agricultural trade distortions inflict huge costs on developing Agricultural trade distortions inflict huge costs on developing countries—farmers, importers and exporters alike. countries—farmers, importers and exporters alike.

• Trade distortions and biased agricultural policies make it Trade distortions and biased agricultural policies make it impossible for these farmers to escape poverty and hunger. impossible for these farmers to escape poverty and hunger. Most countries are net food importers because trade Most countries are net food importers because trade distortions don’t give them a chance to produce their own distortions don’t give them a chance to produce their own food.food.

• There is great potential for agriculture in Asia, Africa and Latin There is great potential for agriculture in Asia, Africa and Latin

America.America. However some problems against boosting However some problems against boosting agricultural trade in these countries :agricultural trade in these countries :

Macroeconomic policies (stability) and the lack of fiscal and Macroeconomic policies (stability) and the lack of fiscal and monetary discipline, and the where real exchange rate is monetary discipline, and the where real exchange rate is allowed to appreciate uncontrollablyallowed to appreciate uncontrollably

Urban bias in agricultural and food policies and low food Urban bias in agricultural and food policies and low food prices urban dwellers (penalize farmers). prices urban dwellers (penalize farmers).

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Cont…Cont… Land is the third problem facing farmers in developing Land is the third problem facing farmers in developing

countries. In many Asian countries, farms are too small and countries. In many Asian countries, farms are too small and cannot achieve economies of scale, nor can they satisfy the cannot achieve economies of scale, nor can they satisfy the demands of the growing food processing industry (policymakers demands of the growing food processing industry (policymakers believe the only efficient farms are large farms).believe the only efficient farms are large farms).

Inadequate infrastructure raises costs of needed inputs and Inadequate infrastructure raises costs of needed inputs and raises costs of getting farm products to market. raises costs of getting farm products to market.

Inadequate private investment in farm inputs and food Inadequate private investment in farm inputs and food processing industries is also a problem. processing industries is also a problem.

The lack of private investment is directly linked to the unstable The lack of private investment is directly linked to the unstable macroeconomic policy environment in many countries. macroeconomic policy environment in many countries.

Trade liberalization can enhance regional and economic Trade liberalization can enhance regional and economic stability. stability.

In protected systems, tariffs and quotas are often allocated to In protected systems, tariffs and quotas are often allocated to the financially well off or the politically well connected. With the financially well off or the politically well connected. With fewer favors to buy and sell, everyone—not just the rich or fewer favors to buy and sell, everyone—not just the rich or politically well connected—can participate in trade. politically well connected—can participate in trade.

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3.3. The impacts of agricultural trade liberalization on The impacts of agricultural trade liberalization on food security and poverty alleviationfood security and poverty alleviation

Trade liberalization enhances DingC’ food security position and Trade liberalization enhances DingC’ food security position and reduce their food gapreduce their food gap

Trade liberalization implies a change in the relative prices of Trade liberalization implies a change in the relative prices of goods and factors in a previously protected sector or goods and factors in a previously protected sector or economy )changes in both subsectoral and aggregate levels economy )changes in both subsectoral and aggregate levels of production(.of production(.

Changes in income levels have the potential both to reduce Changes in income levels have the potential both to reduce poverty levels and in doing so, to improve the food security poverty levels and in doing so, to improve the food security status by increasing the access of the poor to food. status by increasing the access of the poor to food.

In the short-run, agricultural sectors will not benefit from trade In the short-run, agricultural sectors will not benefit from trade liberalization (even significant impact on income level).liberalization (even significant impact on income level).

Two broad options to achieve adequate levels of food Two broad options to achieve adequate levels of food security: food self-sufficiency and food self-reliance. food security: food self-sufficiency and food self-reliance. food security can be interpreted as being determined by security can be interpreted as being determined by purchasing power. purchasing power.

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Cont….Cont…. The tax revenue from additional imports can be used to The tax revenue from additional imports can be used to

finance the adjustment of those disadvantaged. finance the adjustment of those disadvantaged. Trade liberalization damages food security because Trade liberalization damages food security because

liberalization benefits only the larger, and the more export-liberalization benefits only the larger, and the more export-oriented farmers; leads to scale incentives and size oriented farmers; leads to scale incentives and size concentration, marginalizes small farmers, and creates concentration, marginalizes small farmers, and creates unemployment and poverty.unemployment and poverty.

Agriculture plays a special role in developing countries Agriculture plays a special role in developing countries contributing to employment, income, poverty reduction, export contributing to employment, income, poverty reduction, export earnings in ways that other sectors do not. earnings in ways that other sectors do not.

Low income country agricultural sectors lack the necessary Low income country agricultural sectors lack the necessary institutional and capital support to compete in a global market institutional and capital support to compete in a global market with better infrastructure, institutions and social capital.with better infrastructure, institutions and social capital.

Food security is an important development need so increased Food security is an important development need so increased domestic food production is essential to increasing food domestic food production is essential to increasing food security. security.

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Cont…Cont… Low income producers in developing countries are too Low income producers in developing countries are too

vulnerable to international price variations because of their vulnerable to international price variations because of their limited capacity to respond, adjust and adapt.limited capacity to respond, adjust and adapt.

Special protection is justified because of the asymmetry of Special protection is justified because of the asymmetry of support. In essence, the AoA sanctioned the large levels of support. In essence, the AoA sanctioned the large levels of support for agriculture in the developed countries, while support for agriculture in the developed countries, while obstructing the developing countries from doing so in the future.obstructing the developing countries from doing so in the future.

Trade will only help towards poverty reduction if developing Trade will only help towards poverty reduction if developing countries are given the policy space they need to develop and countries are given the policy space they need to develop and implement adequate environmental and developmental implement adequate environmental and developmental measures measures

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Some Key QuestionsSome Key Questions

1.1. Is the goal of future policy more concerned with self-Is the goal of future policy more concerned with self-sufficiency or food security? sufficiency or food security?

2.2. How would domestic production be affected by a How would domestic production be affected by a more liberal import regime?more liberal import regime?

3.3. What are the employment implications of a more What are the employment implications of a more open trade regime?open trade regime?

4.4. Food security for whom: who would be affected and Food security for whom: who would be affected and how?how?

5.5. What complementary and/or compensatory policies What complementary and/or compensatory policies might be required?might be required?

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The Role of Multilateral Trading System in The Role of Multilateral Trading System in Development ProcessDevelopment Process

Uruguay Round did little to actually liberalize trade. Uruguay Round did little to actually liberalize trade. Cancun failure, July Package, …Hong Kong RoundCancun failure, July Package, …Hong Kong Round Large commodity exporters have benefited first. Least DedC Large commodity exporters have benefited first. Least DedC

have not yet benefited, yet many have significant comparative have not yet benefited, yet many have significant comparative advantages to exploit in more open trade.advantages to exploit in more open trade.

Improved market access, larger quotas and lower tariffs on Improved market access, larger quotas and lower tariffs on value added products, would help DingC as they try to value added products, would help DingC as they try to generate employment and develop their food processing generate employment and develop their food processing industries. industries.

Elimination of export subsidies is also vital to creating a fairer Elimination of export subsidies is also vital to creating a fairer market for all. DingC stand to gain from a substantial market for all. DingC stand to gain from a substantial reduction in the trade distorting domestic subsidies used by reduction in the trade distorting domestic subsidies used by wealthy countries. wealthy countries.

The multilateral trading system is heavily biased towards The multilateral trading system is heavily biased towards export-led development (the needs and interests of export-led development (the needs and interests of transnational corporations) transnational corporations)

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Lessons for SyriaLessons for Syria Syria is not member of the WTO and if agriculture is further Syria is not member of the WTO and if agriculture is further

liberalized in the multilateral trading system remote areas are liberalized in the multilateral trading system remote areas are adversely affectedadversely affected, , costs of living go up and earnings decline, costs of living go up and earnings decline, thus leading to a net income decrease.thus leading to a net income decrease.

If Syria accessed to the WTO prices increase over all sectors If Syria accessed to the WTO prices increase over all sectors especially agriculture, costs-of-living go down due to the high especially agriculture, costs-of-living go down due to the high share of subsistence production.share of subsistence production.

Earnings go up because households in some rural areas get Earnings go up because households in some rural areas get most of their income from agriculture. Both costs of- living and most of their income from agriculture. Both costs of- living and earning developments lead to a raise in net incomes and earning developments lead to a raise in net incomes and declines in poverty rates.declines in poverty rates.

Syrian government has to determine the impact of international Syrian government has to determine the impact of international policies on various groups of the population, like the rural and policies on various groups of the population, like the rural and

the urban poor.the urban poor. These analyses have to be integrated in These analyses have to be integrated in national poverty reduction policies. national poverty reduction policies.

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Cont…Cont…

The first channel to reduce poverty is through an increase in The first channel to reduce poverty is through an increase in earnings and less through a reduction in costs-of-living.earnings and less through a reduction in costs-of-living.

The government has to create better income opportunities in The government has to create better income opportunities in those sectors where the poor have their highest income share those sectors where the poor have their highest income share (i.e. through the creation of functioning markets to sell (i.e. through the creation of functioning markets to sell agricultural products).agricultural products).

By ameliorating infrastructure or extension services to produce By ameliorating infrastructure or extension services to produce a higher quality product which is especially relevant for remote a higher quality product which is especially relevant for remote areas like the mountainous regions in agricultural regions in areas like the mountainous regions in agricultural regions in Syria, poor households can be linked to market opportunities Syria, poor households can be linked to market opportunities created through liberalization. Moreover, sustainable created through liberalization. Moreover, sustainable agricultural systems need to be promoted which allow for more agricultural systems need to be promoted which allow for more income and which do not harm the environment. income and which do not harm the environment.