Part III. Protection of Agricultural and Industrial Products

Transcription

1 Part III Protection of Agricultural and Industrial Products

2 Introduction to Part III Bela Balassa JOHNS HOPKINS UNIVERSITY, BALTIMORE AND WORLD BANK Four of the papers discussed at the session on Protection of Agricultural and Industrial Products are included in this volume. The first deals with overall developed-developing country trade; and the fourth deals with policies of the developing countries themselves. In 'The Old and New Export Pessimism: A Critical Survey' Gerald M. Meier examines the arguments put forward by export pessimists in the 1950s and the 1960s as well as in recent years. In the earlier period, it was suggested that world income and price elasticities of demand for developing-country exports were low, and hence these countries would do well to follow an import substitution-oriented development strategy. Meier notes that the pessimists failed to consider the possibilities for developing countries to export manufactured goods, which have spearheaded the rapid expansion of exports that has occurred since. Export expansion, in turn, had led to rapid economic growth in countries oriented towards exports while countries pursuing import substitution-oriented industrialisation (lsi) experienced a slow-down of economic growth. While recognising these results, the new export pessimists claim that (1) export-oriented countries benefited from favourable initial conditions specific to them; (2) future demand by developed countries would not support growth by additional developing countries; and (3) in any case, exports do not really act as an 'engine of growth'. Meier finds, however, that in successful exporting countries 'strong development performance is not attributable to favourable initial conditions but rather to [the] undertaking of appropriate policy measures.' He further adds that, as the NICs proceeded to higher stages of comparative advantage, their place was taken by less developed countries, thereby providing possibilities for their export growth. Finally he cites available evidence indicating the favourable effects of exports on economic growth. Thus he concludes that 'the 177

3 178 Protection of Agriculture and Industrial Products lesson is one of policy reform to promote exports. Even if growth overseas is low and the protection threat is not reduced, it would be a mistake for the developing country to try and adjust by reducing imports through lsi'. This is not to deny the gains that developing countries would derive from trade liberalisation by the developed countries. In 'Protection in Agriculture and Manufacturing: Meeting the Objectives of the Uruguay Round', Gary P. Sampson provides information on the tariff and non-tariff measures applied by the developed countries to the exports originating from the developing countries. He then proceeds to estimate the effects of trade liberalisation by the developed countries for the exports of developing countries. Apart from its trade-creating effects, the elimination of tariffs by the developed countries would cause trade diversion in the case of developing countries whose exports are subject to lower duties under the General Scheme of Preferences. Nevertheless, except for some sectors in some of the developed countries, trade creation would substantially exceed trade diversion. This conclusion is strengthened if consideration is given to the abolition of non-tariff barriers, in which case diversion would not occur. The author notes that benefits to the developing countries would be greater if the developed countries eliminated their tariffs on a preferential rather than on a most-favoured-nation basis - that is. if only developing country exports entered duty-free in developed country markets and existing tariffs on trade among the developed countries were retained. But gains to the developing countries from the abolition of non-tariff barriers by the developed countries would far exceed those derived from the preferential elimination of tariffs. In 'Lowering Agricultural Protection: A Developing Country Perspective Towards the Uruguay Round'. Alberto Valdes and Joachim Zietz concentrate on agricultural protection. This is of particular interest because, for the first time in the history of multilateral trade negotiations, prominence is given to measures affecting agricultural trade. The measures in question include tariff and non-tariff barriers and price support, as well as export subsidies. The authors suggest that the first step toward the liberalisation of agriculture should be to bind existing protection levels on a commodity-by-commodity basis. This would take the form of an agreement that levels of nominal protection, including production and export subsidies, could not again be raised. It would be followed by reductions in protection and the use of tariffs in place

4 Balassa: Introduction to Part III 179 of other measures. According to Valdes and Zietz, 'it would probably be unrealistic to believe that industrialised countries are willing to open their agricultural markets any further to developing countries without expecting reciprocity or some kind of compensation, at least for the more advanced LDCs'. In 'Economic Incentives and Agricultural Exports in Developing Countries,' Bela Balassa suggests that such market opening is in the interests of the developing countries themselves. He provides evidence, for the period preceding the quadrupling of oil prices as well as for subsequent periods, that countries following outwardoriented policies in general did considerably better in increasing both agricultural and merchandise exports than did inward-oriented countries. Outward orientation has been defined as a strategy that provides similar incentives, on the average, to exports and import substitution; in turn, import substitution is favoured at the expense of exports under inward orientation. Outward-oriented countries have also maintained realistic exchange rates. This has not generally been the case under inward orientation. At the same time, an econometric analysis of 53 developing countries has shown the responsiveness of exports to the real exchange rate. In addition to the four papers in this volume that have just been reviewed, papers dealing specifically with India, the Philippines and South Korea were presented and discussed at the session. It is not possible to include them here, but the following are their main contentions. In 'Taxes, Tariffs, and Trade in an Industrialising Low Income Country: Simulating Policy Choices in India, to ', Henrik Dahl and Pradeep K. Mitra discussed a general-equilibrium model to examine the economic effects of a 50 per cent unilateral tariff reduction. They concluded that such a change would bring little welfare gain to India, if the resulting revenue loss to the government budget was compensated by increases in other taxes. They added, however, that the gains would have to be revised upwards if account is taken of improvements in technical and X- efficiency in response to reductions in tariff protection. Further gains would be obtained through the liberalisation of quantitative import restrictions which, rather than tariffs, represent the principal barriers to trade in India. In 'The Relative Welfare Cost of Industrial and Agricultural Policy

5 180 Protection of Agriculture arid Industrial Products Distortions: A Philippines Illustration', Professors Ramon L. Clarete and James A. Roumasset also reported that removing tariffs alone would not bring welfare gains to the Philippines. But gains would be obtained through the elimination of quantitative import restrictions. Moreover, removing all industrial protection would increase welfare, measured as the Hicksian equivalent of variation of benchmark income, by 4.9 per cent. In considering additional policy alternatives in the general equilibrium model they utilised, the authors found also that removing all industrial and agricultural policy distortions would increase incomes in the Philippines by 7.9 per cent. However, if only agricultural distortions were removed while industrial protection was maintained, the welfare gain would be small and eliminating export taxes would even give rise to a welfare loss. Finally, Kym Anderson and Peter C. Warr examined 'Distributional Effects of Agricultural Price Distortions: A General Equilibrium Analysis for Korea'. Their paper commanded particular interest since, in contradistinction with India and the Philippines, agriculture is heavily protected in South Korea. The authors found that agricultural protection benefits the land-owners and unskilled labour at the expense of skilled labour. The resulting decline in the skill differential, in turn, has adverse effects on economic growth by discouraging investment in human capital. This loss, then, adds to the decline in national income associated with protection that encourages agriculture over manufacturing and services in which South Korea has comparative advantages.