WORLD TRADE ORGANIZATION
ORGANISATION MONDIALE DU COMMERCE
ORGANIZACIÓN MUNDIAL DEL COMERCIOWT/WGTDF/W/14
18 October 2002
(02-5696)
Working Group on Trade, Debt
and FinanceOriginal:  English/
anglais/
inglés
MARKET ACCESS FOR DEVELOPING COUNTRY EXPORTS—SELECTED ISSUES
Paper prepared jointly by the staff of the
International Monetary Fund and the World Bank1
_________________________________________________________________________________
Groupe de travail du commerce,
de la dette et des finances
ACCÈS AUX MARCHÉS POUR LES EXPORTATIONS DES PAYS
EN DÉVELOPPEMENT - QUESTIONS DIVERSES
Document établi conjointement par les services du Fonds
monétaire international et de la Banque mondiale1
_________________________________________________________________________________
Grupo de Trabajo sobre Comercio,
Deuda y Finanzas
ACCESO A LOS MERCADOS PARA LAS EXPORTACIONES DE LOS PAÍSES
EN DESARROLLO - CUESTIONES DIVERSAS
Documento preparado conjuntamente por el personal del Fondo Monetario
Internacional y del Banco Mundial1
                                                     
1 This paper, in English only, is being circulated with the permission of the International Monetary Fund
and the World Bank for the information of delegations.   Ce document, en anglais seulement, est distribué aux
délégations pour information avec l'autorisation du Fonds monétaire international et de la Banque mondiale.  El
presente documento, en inglés solamente, se distribuye co n la autorización del Fondo Mo netario Internacional y del
Banco Mundial para información de las delegaciones.WT/WGTDF/W/14
Page 2
INTERNATIONAL MONETARY FUND AND THE WORLD BANK
Market Access for Developing Country Exports—Selected Issues
Prepared by the Staffs of the IMF and the World Bank
Approved by Timothy Geithner and Gobind Nankani
August 27, 2002
CONTENTS
PAGE
List of Ab brevia tions .......................................................................................................... ....................4
Executive Summary.............................................................................................................. ..................5
I. INTRODUCTION .............................................................................7
II. MARKET ACCESS ISSUES AND POLICY  IMPLICATIONS: OVERVIEW.................9
A. P ATTERNS OF PROTECTION .........................................................................................................9
B. C ONTINGENT PROTECTION .......................................................................................................12
C. S TANDARDS AND NONTARIFF BARRIERS TO TRADE ................................................................13
D. T RADE PREFERENCES ................................................................................................................15
E. P OLICY IMPLICATIONS ..............................................................................................................18
III. MARKET ACCESS ISSUES IN AGRICU LTURE.............................................................19
A. A GRICULTURE IN THE MULTILATERAL TRADING SYSTEM .......................................................19
B. M ARKET ACCESS , AGRICULTURAL SUPPORT , AND POLICY TRENDS IN OECD C OUNTRIES ...20
C. A GRICULTURAL TRADE POLICY IN NON-OECD C OUNTRIES ...................................................28
D. C OSTS OF PROTECTION AND BENEFITS OF LIBERALIZATION ....................................................30
E. D ISTRIBUTIONAL IMPLICATIONS OF REFORM AND ADJUSTMENT NEEDS .................................31
F. P OLICY IMPLICATIONS ..............................................................................................................33
IV. BARRIERS TO TRADE IN TEXTILES AND CL OTHING .............................................33
A. D EVELOPING COUNTRY EXPORTS OF TEXTILES AND CLOTHING .............................................33
B. T EXTILES AND CLOTHING IN THE MULTILATERAL TRADING SYSTEM .....................................34
C. R EMAINING MARKET ACCESS BARRIERS TO EXPORTS OF TEXTILES AND CLOTHING .............38
D. T HE COST OF BARRIERS AND BENEFITS OF LIBERALIZATION ..................................................39WT/WGTDF/W/14
Page 3
E. A DJUSTMENT NEEDS FOLLOWING LIBERALIZATION ................................................................41
F. P OLICY IMPLICATIONS ..............................................................................................................43
V. CONCLUSIONS …………………………… .........................................................................43
Figures
1. Quad Countries: Trends in Trade-Distorting Agricultural Supports,
      1986–88 to 1999–2001 ..................................................................................................... .27
2. Exports of Textiles and Clothing by Region, 1965–98............................................................35
Text Tables
1. Effective Ad Valorem Tariff Equiva lents on Bilateral Trade Flows .......................................11
2. Initiations of Antidumping Investigations , 1995-2001 ............................................................13
3. Impact of Duty-Free Access to Qu ad Markets for LDC Exporters .........................................18
4. Summary Indicators of Ag ricultural S upport, 2001.................................................................22
5. MFN Tariff Peaks in Developed Countr y Markets on Agricultural Imports from
Developing Countries, 1998–99........................................................................................26
6. Costs of Agricultural Distortions, 1997...................................................................................317. Exports of Textiles and Clothing, 2001 ...................................................................................36
8. Export Tax Equivalents of MFA Quotas and Tariffs on Textile and Clothing
Imports in Quad Countries, 1997 ......................................................................................37
9. Number of Quotas Eliminated by Integration in ATC Stages 1 and 2.....................................39
10. Income and Export Revenue Losses Due to MFA Quotas and T&C Tariffs...........................40
Text Boxes
1. Market Access at a Glance.................................................................................................... .....8
2. Technical Standards and Barriers to Trade..............................................................................15
3. Uruguay Round Principal Comm itments on Agri culture ........................................................20
4. Barriers to Brazilian and Arge ntine Agricultur al Exports .......................................................23
5. Main Features of the U.S. Farm Security and Rural Investment Act of 2002 .........................28
6. The EU’s Common Agricultural Po licy (CAP) Refo rm Proposals .........................................29
7. The Agreement on Textiles and Clothing................................................................................38
8. Labor Standards and Cambodia’s Expor ts of Textiles and Clothing.......................................43
Annex .......................................................................................................................... .......................46
References..................................................................................................................... ........................48WT/WGTDF/W/14
Page 4
List of Abbreviations
ACP African, Caribbean, and Pacific Countries
AGOA African Growth and Opportunity Act (U.S.)AMS Aggregate Measure of SupportASEAN Association of South East Asian NationsATC Agreement on Textiles and Clothing (Uruguay Round)AVEs Ad Valorem Tariff EquivalentsCAP Common Agricultural Policy (EU)CDE Constant Difference in ElasticitiesCES Constant Elasticity of SubstitutionEBA Everything-but-Arms Initiative (EU)EC European CommunityEPAs Economic Partnership AgreementsEU European UnionGATT General Agreement on Tariffs and TradeGDP Gross Domestic ProductGEP Global Economic ProspectsGSP Generalized System of PreferencesGTAP Global Trade Analysis ProjectLDCs Least Developed CountriesMFA Multifiber ArrangementMFN Most-Favored-NationMPS Market Price SupportNAFTA North American Free Trade AgreementOECD Organization for Economic Cooperation and DevelopmentSAARC South Asian Association for Regional CooperationSACU South African Customs UnionSPS Sanitary and Phytosanitary (Standards/Regulations)T&C Textiles and ClothingTBT Technical Barriers to TradeTRQs Tariff Rate QuotasUSDA United States Department of AgricultureUSITC United States International Trade CommissionWTO World Trade OrganizationWT/WGTDF/W/14
Page 5
EXECUTIVE SUMMARY
Integration into global markets offers the potential for more rapid growth and poverty
reduction. But market barriers to some key developing country exports have made it harder for them
to take full advantage of this opportunity. This paper examines patterns of protection in merchandise
trade, with a particular focus on market access in agriculture and on barriers to trade in textiles and
clothing, and suggests ways of making the multilateral trading system more supportive of
development. While the emphasis is on industrial country policies, the paper points out that trade
regimes in developing countries often erect barriers against the same products, at a cost to themselves
and to their trading partners. It should also be noted that liberalization of services, an issue not
handled in this paper, may be of equal importance to developing countries as merchandise trade.
Protection carries a high price in both industrial and developing countries.  Estimates of the
welfare gains from eliminating barriers to merchandise trade—in both industrial and developing
countries—range from US$250 billion to US$620 billion annually, with about one-third to one-half
accruing to developing countries. According to a World Bank analysis, more rapid growth associatedwith a global reduction in protection could reduce the number of people living in poverty by as much
as 13 percent in 2015, and make a valuable contribution to meeting the Millennium Development
Goals.
Pockets of protection remain in products of particular interest to developing countries. Between
6 percent and 14 percent of Quad (Canada, the EU, Japan, and the United States) tariff lines are
subject to “tariff peaks.” In Canada and the United States, tariff peaks are concentrated in textiles and
clothing; in the EU and Japan, in agriculture, food products and footwear. This pattern of protection
creates hurdles for countries taking first steps up the technology ladder. The effect of these tariffs is
aggravated by the subsidization of agriculture in OECD countries (which depresses world prices ofcommodities and increases their volatility), by remaining quotas in textiles and clothing trade, and by
high barriers in inter-developing country trade.
Agricultural markets are among the most heavily distorted.  About three-quarters of the world’s
poor still live in rural areas, mostly dependent on agriculture. On agricultural exports to the OECD
they face tariffs that exceed those on typical inter-OECD exports (of all products) by factors of 10 or
more. Including subsidies, OECD agriculture received support amounting to US$311 billion or1.3 percent of GDP in 2001. Much of this support increases with the level of output, contributing to
excess production that competes with developing country farmers for markets. While the need for
reforms has been broadly recognized, recent policy signals have been mixed, with, for example, the
new U.S. Farm Act representing a step back from reform.
Agricultural liberalization in both industrial and developing countries is likely to have long-
term, dynamic effects on developing country production and trade.  Static gains alone would be
on the order of US$30 billion in income and US$120 billion in exports per year. Increased investment
and enhanced technologies could magnify the benefits of liberalization, but require a framework of
supportive domestic policies and infrastructure (transport, logistics, credit, technical assistance).
Textiles and clothing exports have been central to industrialization strategies, but barriers
continue to be very high.  Developing countries account for some 50 percent of world textile exports
and 70 percent of world clothing exports. Several have developed a high dependence on these
exports. Tariff barriers far exceed those on other manufactured products, in industrial and developingcountries alike. Despite an international agreement to phase out quotas on textile and clothing trade,WT/WGTDF/W/14
Page 6
the vast majority is still in place. The backloading of quota removal by Canada, the EU, and the
United States is set to cause sharp adjustment pressures at the end of the implementation period in
early 2005, as quotas have protected less competitive suppliers in both industrial and developing
countries.
Protection often imposes disproportionate burdens on the poor.  Protection has raised the prices of
necessities in industrial countries, with a larger  share in the consumption basket of lower-income
households, relative to other goods. In developing countries, barriers to exports of labor-intensive
goods have slowed job-creation. It is estimated that industrial country restrictions on trade in textiles
and clothing have prevented the creation of well over 20 million jobs in developing countries, many
of which would represent a step out of rural poverty.
A further concern is the growing frequency of trade remedy actions and the proliferation of
technical barriers to trade.  Antidumping measures have become far more common in recent years,
with developing countries increasingly active. There is a risk that this trend might intensify as
statutory protection declines. Furthermore, technical barriers (including health, safety, and product
standards) have been accumulating at a fast pace, and many developing countries are ill-prepared tomeet their complexity and cost.
Most developing countries have preferential access to industrial country markets through GSP
schemes, but the benefits are often limited.  Preference margins are smaller for “sensitive” products—
which are also the most protected. Utilization rates of GSP schemes tend to be low, partly due torestrictive rules of origin or social and environmental requirements. While still subject to conditions
and residual uncertainty over their duration, recent initiatives to grant more generous access to least
developed countries offer the prospect of additional benefits at a fairly low cost in terms of trade
diversion.
Improving market access for developing country exports requires a comprehensive approach to
liberalization.  The Doha Development  Agenda contains important commitments but this initial effort
needs to be sustained. Particular issues include:
− The phasing out by all countries of tariff peaks (tariffs of 15 percent or higher) and escalation
(tariffs rising with the degree of processing of imports) is critical to the development
dimension of the current round of multilateral trade negotiations, and could best be achieved
through formula approaches that ensure deep across-the-board reductions.
− Disciplines on the application of trade remedy action should be strengthened—including
through reviews of existing rules to deter their use as protectionist devices—and developingcountries should receive more assistance to implement product and process standards.
− Schemes that provide unrestricted market access for all least developed countries should be
extended by all large trading nations (with liberal rules of origin) but set within a frameworkof multilateral liberalization.
− In agriculture, meaningful liberalization must cover border protection and subsidies in
industrial as well as developing countries. OECD countries should seek to de-link agricultural
income support from production levels. Reforms of subsidy and tariff regimes should proceed
in parallel in order to soften the impact on net food importing countries.
− In textiles and clothing, the priority must be to accelerate the removal of quotas in order to
avoid an adjustment shock in 2005 as a result of the phasing out of quotas under the UruguayRound Agreement on Textiles and Clothing. The simultaneous reduction in import tariffs
would help to mitigate adjustment pressures.WT/WGTDF/W/14
Page 7
− Reform of market access in developing countries themselves would contribute as much to a
development-oriented multilateral trading system as OECD policies. Apart from domesticefficiency gains and a reduction in remaining anti-export biases, developing countries are
increasingly large markets for each other.
Like all reforms, these will have distributional effects which should be recognized and
anticipated.  Food security issues and the concerns of poor consumers, in particular, must be
addressed as part of national poverty-reduction and development strategies. Trade policy is unlikely
to be the most effective and appropriate instrument to pursue these objectives.
I. INTRODUCTION
1. World trade in products of export interest to developing countries remains heavily
distorted.  Market access barriers and trade-distorting subsidies imposed by industrial countries tend
to be skewed toward labor-intensive manufactures and agricultural products. The trade policies of the
developing countries themselves target many of the same products, adding substantially to the burden
they face in increasing and diversifying their exports. The need for greater coherence between trade
and development policies, including better market access for developing country exports, is a central
focus of the Doha Development Agenda of the World Trade Organization (WTO).
2
2. Since last year’s joint Bank-Fund paper on “Market Access for Developing Countries’
Exports” (SM/01/137, Revision 1, 8/23/01) the gl obal economy, and with it world trade, have
continued to perform poorly . Against this background, protectionist pressures have increased
notably, including in steel and farm trade. More significant, however, there has been progress in
launching a new round of multilateral trade negotiat ions. Perhaps reflecting the start of negotiations,
changes in market access conditions have otherwise been limited.
3. This paper reviews the patterns of protection and considers policies that would support a
development-oriented liberalization of the multilateral trading system.  While other studies have
underscored the importance of trade policy reform in developing countries,3 this paper focuses
primarily on industrial country policies.  The focus on industrial markets should not be taken to
suggest that developing nations could not benefit eq ually from liberalizing their own markets. Indeed,
both theory and practical experience indicate that trade restrictions impose the greatest costs on the
country that erects them. However, arguably, the industrial countries carry a particular responsibility
for the multilateral trading system. Liberalization initiatives by industrial countries would send a
strong signal to developing countries about the importance and urgency of following up with theirown reforms. Moreover, industrial countries have committed, at Doha and at the UN Financing for
Development Conference in Monterrey, to helping ensure greater coherence between their trade
policies and development assistance.
                                                     
2 The status of negotiations under the Doha Development Agenda is reviewed in a companion paper,
“World Trade Organization—The Doha Development Agenda and Selected Activities of Interest to the Fund,”(SM/02/225, 7/15/02). The World Bank paper “Leverage Trade for Development: The World Bank Group’sAgenda” summarizes its activities in support of the Doha Development Agenda (SCM2002-0221).
3 See, for example, World Bank Global Economic Prospects 2002: Making Trade Work for the
World’s Poor . Beyond this and other broad reviews, both the Fund and the Bank have analyzed domestic trade
policies in developing countries extensively as part of their respective surveillance and programs in developingcountries.WT/WGTDF/W/14
Page 8
4. Market access covers a broad range of issu es, which are briefly outlined in Box 1. The
scope of this paper is limited to analyzing protecti on in merchandise trade, with special attention to
trade in agriculture and in textiles and clothing—two sectors that are of great export interest for
developing countries. Market access issues in services trade, some of which are equally relevant to
developing countries—such as services that involve the temporary movement of workers—are nottaken up in this paper. A review of barriers to services trade was presented in SM/01/137, Revision 1,
8/23/01, and in the World Bank’s recently released Development, Trade and the WTO: A Handbook
(2002).
Box 1. Market Access at a Glance
Market access refers to the ability of providers of foreign goods and services to sell in a given country. For the
purposes of market access negotiations in the WTO context, tradable items are subdivided into four groups—
agricultural goods, textiles and clothing, industrial goods , and services. As different multilaterally agreed rules
apply to each group, analytical and monitoring work usually follows the same pattern.
Main market access barriers
• Import tariffs and other price-based border measures : government policies usually targeted at restricting
market access in a particular commodity and raising budget revenue. These measures include: import
duties, tariff quotas, and other border duties, levies, and charges.
• Nontariff border measures : government policies that may restrict market access through non-price
instruments. Such measures include: quantitative restrictions (import quotas, direct prohibitions, domestic
content requirements, licensing); contingency measures (antidumping, countervailing, and safeguard
measures); technical barriers to trade (TBT) (regulati ons, standards, testing and certification procedures);
sanitary and phytosanitary measures (SPS) (food, animal and plant health and safety).
• Domestic policy measures : government policies, which may restrict market access if not applied uniformly
to domestic and imported goods and services. These are: tax, competition, credit, and investment policies;
price controls; and fiscal incentives, in particular, trade-distorting export subsidies and domestic support.
Negotiations on market access. The Doha Development Agenda envisages negotiations on market access in all
the above areas. The current negotiating setup and the initial phase of negotiations are described in the
companion staff report, “World Trade Organization—The Doha Development Agenda and Selected Activities
of Interest to the Fund,” (SM/02/225, 7/15/02).
5. The paper is divided in three parts. The firs t examines the broad patterns of protection.
In concluding, it suggests that priority should be given to phasing out tariff peaks and escalation, to
tighter disciplines on trade remedy laws, and to the needs of developing countries in meeting
proliferating product standards and regulations. It also endorses the extension of comprehensive duty-and quota-free access for exports from LDCs to all industrial country markets. Finally, it emphasizes
that market access must be understood as only one  component of a broader strategy to promote a
supply response in developing countries.
6. The second part takes a closer look at agricultural trade.  Recent agricultural policy
initiatives in the OECD countries provide mixed signals about the prospects for reform. The paperpresents the case for a comprehensive approach, covering border protection and subsidies, in
industrial as well as developing countries. This argues for the de-coupling of domestic support from
production. While liberalization has the potential to significantly raise incomes and exports, reform of
agricultural trade may also have complex distributional implications, within and between countries.WT/WGTDF/W/14
Page 9
7. The third part of the paper considers trade in textiles and clothing.  As in the case of
agriculture the efficiency gains from liberalization of trade in this sector would likely be significant
for developing and industrial countries alike. At the same time though, the removal of quota
restrictions—already agreed under the Uruguay Round and set to be completed by 2005—may cause
shifts in competitiveness, and, at least in the ne ar term, affect the balance of payments positions of
those exporters whose market access is effectively protected by the current system. On balance, the
paper concludes that priority should be accorded to accelerating the removal of quotas; the current
backloading may turn what could otherwise be a gradual adjustment process into a shock at the end of
the implementation period. It also concludes that general tariff reductions as well as the elimination of
tariff peaks in this sector and the strengthening of preferential regimes would help to mitigate
adjustment pressures.
II. MARKET ACCESS ISSUES AND POLICY IMPLICATIONS: OVERVIEW
8. In the context of the Doha Development Agenda, WTO members are committed to
negotiations aimed at substantially improving market access for agricultural and industrial
products, in particular for developing countries .4 This section examines the nature of current
market access barriers and attempts to identify where the lowering of barriers is most likely to benefit
developing countries. It focuses on border measur es and on the broad patterns of protection. Measures
of domestic support and the detailed effects of remaining quantitative restrictions are taken up in the
context of those sectors where these measures are particularly prominent, namely agriculture and
textiles and clothing, respectively.5
A. PATTERNS OF PROTECTION
9. Successive rounds of multilateral negotiations have lowered average levels of protection.
Industrial countries have generally set applied tariff rates close to their tariff bindings, enhancing the
predictability and transparency of market access regimes. 6 In contrast, most developing countries
bind their tariffs at levels well above their applied rates so that they could in principle substantially
increase their applied tariffs without infringing their WTO commitments. Applied tariff rates in 2001
varied considerably across country groupings. The highest simple average tariff protection is in sub-Saharan African countries (17.2 percent) and in the Middle East and North Africa (16.8 percent).
Among broad country groupings, it is notable that the average tariff of least developed countries
(LDCs) (17.9 percent) is higher than that of other developing countries (14.0 percent) and well above
that of industrial countries (5.2 percent).
7
10. Averages of most-favored-nation (MFN) applied tariffs by importing country or region
provide, however, an incomplete picture of protection.  First, a number of barriers are not covered
by the standard MFN databases, including specific tariffs (that is an absolute monetary value per unitof imports), tariff rate quotas, prohibitions, contingent protection,
8 the costs of rules of origin, and
environmental and technical standards. Second, the averages do not capture the impact of tariff
                                                     
4 Doha Ministerial Declaration , paragraphs 13 and 16 (WTO Document WT/MIN(01)/DE/W/1).
5 Where relevant, this section updates the analysis of SM/01/137, Revision 1, 8/23/01.
6 Tariff bindings are legally committed maximum tariff rates.
7 Simple averages of applied Most-Favored-Nation (MFN) tariffs (IMF Trade Policy Information
Database).
8 Contingent protection refers to import barriers which, rather than being permanent, are introduced on
a temporary and often selective basis in response to certain events (import surges, alleged unfair tradingpractices).WT/WGTDF/W/14
Page 10
dispersion, in particular tariff peaks and escalation.9 Third, because of preference schemes and
differing export structures, the barriers faced by exporters to the same market can vary widely. And,
finally, uncertainty over market access, related to contingent protection, interpretation of norms and
procedures, and the discretionary nature of many preference schemes, may represent a further
disincentive to exporters.
11. Developing countries generally face higher barriers to their exports than industrial
countries.  However, underlying that general result, there are large variations in market access
conditions depending on the type of product and the particular exporter-importer combination.
Table 1 presents combined ad valorem tariff equivalents (AVEs) of a range of protective measures,
while taking into account preferences and export structures.10 The results suggest that EU protection
is heavily skewed against imports from middle-income developing countries, and U.S. protection
against imports from LDCs. The geographical patterns of Canadian and Japanese protection are lessmarked, although the former’s protection pattern a ppears tilted against LDCs and the latter against
other low-income countries. Levels of protection in other OECD markets, and in middle-income
developing countries as a group tend to be well above those in the Quad. Given the potential for trade
among the developing countries, now at 40 percent of their total exports, barriers to this trade are
increasingly significant.
12. The evidence indicates that impediments to trade in agricultural products remain far
greater than in manufact uring trade (Table 1).  In the context of the Uruguay Round, quantitative
restrictions and other nontariff measures (NTMs) were converted into tariffs. While improving
transparency, the modalities of conversion have in many cases allowed an increase in effective
protection. Specific tariffs and tariff-rate quotas (TRQs), which are most frequent in agricultural
trade, account for a significant share of the AVEs.
11 Ad valorem tariff equivalents of middle-income
developing countries are broadly comparable with those of the Quad. Note that these AVEs cover
neither domestic measures of support nor the effect of export subsidies (discussed in Section III).
                                                     
9 So-called international tariff peaks are defined as tariffs of 15 percent or higher. Escalation refers to
tariffs rising with the degree of processing of imports, and the resultant high levels of effective protection.
10 The Market Access Maps  database has been developed recently by the International Trade Centre,
Geneva, and offers broader coverage of restrictions an d preference schemes than other sources. It incorporates
the market access regimes of 137 countries, including preferential regimes, antidumping measures, and ad
valorem equivalents of specific duties and tariff rate quotas (the current release does not yet incorporate recentpreferential agreements, such as the EU’s “Everything-but-Arms” (EBA) initiative and the United States’African Growth and Opportunity Act  (AGOA), which would further reduce applied tariffs on imports from
LDCs; see footnote to Table 1 for discussion). These da ta are combined with bila teral product-specific trade
flows from the United Nations’ COMTRADE database. Information on tariff and other barriers refers to 2000,
on trade flows to the most recent available year.
11 For instance, the average rate of duty on agricultural imports into Quad markets from LDCs,
excluding specific tariffs and effect of tariff-rate qu otas, is 1.7 percent, see Bacchetta and Bora (2002).WT/WGTDF/W/14
Page 11
Least Other Middle- All
Developed Low-Income Income Developing
Importers Countries Countries Countries Countries OECD
Canada 6.7 5.4 4.4 4.4 …
European Union 2.817.0 10.3 7.2 …
Japan 4.9 6.4 4.5 4.7 …
United States 13.616.2 3.6 4.5 …
Other OECD 8.7 13.1 10.4 10.2 …
Developing Countries … … … 7.5 …
Middle Income Countries 8.1 11.9 12.7 … …
Canada 3.4 18.7 16.3 17.5 33.7
European Union 7.6113.4 24.8 20.0 41.6
Japan 29.1 16.3 21.2 21.9 28.3
United States 28.119.5 13.0 12.7 14.5
Other OECD 19.6 28.0 35.4 32.5 42.1
Developing Countries … … … 17.0 14.5
Middle Income Countries 18.2 18.4 23.1 … …
Canada 7.7 4.2 2.0 2.9 2.0
European Union 0.015.7 5.5 4.5 2.5
Japan 0.1 5.0 1.4 2.5 1.2
United States 8.015.9 2.1 3.6 1.6
Other OECD 5.0 10.8 5.7 7.4 7.4
Developing Countries … … … 6.4 6.9Middle Income Countries 6.0 11.1 10.9 … …
Source: International Trade Centre (ITC).
2 The protection levels of importing countries in this table are weighted by the imports of the reference group 
this country belongs to, with the grouping criteria being GDP per capita.  This is done to minimize the 
potential endogeneity bias of using national import weights (a high tariff can limit imports, and in the extreme 
could carry zero weight if its level is prohibitive).(Total Trade)ExportersTable 1. Effective Ad-Valorem Tariff Equivalents on Bilateral Trade Flows1,2
1 The information in the table does not yet reflect the EU’s EBA initiative and the United States’ AGOA. 
Taking account of the former would reduce AVEs on EU agricultural imports from LDCs significantly, though 
not to zero (restrictions remain on sugar, rice and bananas for a transition period). AGOA would lower AVEs 
on both agricultural and manufactured imports into the United States for some African LDCs and low-income countries, but the extent of the reduction is hard to predict. Of 36 African countries that have qualified in 
principle for AGOA only 15 have met the technical conditions required to benefit from the preferences on 
certain exports; of these, around half are not LDCs.  These data do, however, incorporate the effects of other preferential tariff schemes such as the Generalized System of Preferences (GSP), and the EU's ACP.Trade in Manufactures(Trade in Agriculture)WT/WGTDF/W/14
Page 12
13. As average industrial tariffs fell over successive trade rounds, pockets of protection
have survived in products of particular interest to developing countries.  Between 6 and 14
percent of Quad tariff lines are subject to tariff peaks, in some cases at rates well over 100 percent.
Tariff peaks are also a prominent feature of tariff regimes in developing countries. Most preference
schemes, moreover, offer little relief from tariff peaks (Hoekman and others, 2001). In Canada andthe United States, tariff peaks are concentrated in textiles and clothing, and in the case of the EU and
Japan, in agriculture, food products and footwear. Nota bly, estimates suggest that the capping of all
peaks at the threshold of 15 percent would reduce AVEs in textiles and clothing by around 20 percent
for imports from most source countries into the United States, and by 59 percent for imports from
China. In agriculture and food products, they would decline by 40–60 percent on imports into the
EU.
12
14. The pattern of protection creates particular hurdles for countries taking the first steps
up the technology ladder.  Protection is relatively low for primary products, but increases sharply for
low-technology, labor-intensive food processing and light industries, declines somewhat in the
medium-technology range—such as automotive products—and is lowest at the upper end of the
technology spectrum (Cernat and others, 2002). Since low-income country exports tend to be labor-
intensive, the impact on their exports can be substantial: a recent study shows that revenue fromduties collected by the United States on imports from Bangladesh is similar to that on imports from
France, which are twelve times larger (Gresser , 2002). A similar pattern can be observed within
processing chains, where tariff escalation remains a major concern. By reducing demand for more
processed imports from developing countries, tariff escalation hampers the expansion of their
processing industries and export diversification.
15. Protection is costly to both industrial and developing countries.  Estimates of the static
income gains from eliminating barriers to merchandise trade are substantial, ranging from
US$250 billion to US$620 billion annually, of which around one-third to one-half would accrue to
developing countries. A large share of the gains to industrialized countries would be due to the
elimination of restrictions on trade in apparel and agriculture.
13 Additional dynamic gains would stem
from the supply response to the more favorable international trade regime (World Bank, 2002). Since
much of the remaining protection is in agriculture, food products, and textiles and clothing, its impact
is revisited in Sections III and IV.
B. CONTINGENT PROTECTION14
16. Statutory protection in the form of tariffs and quotas is aggravated by contingent
protection.  Among the trade remedies permitted under WTO rules, antidumping has become by far
the most widely used, in both industrial and developing countries.15 Since 1995 over 1,800
                                                     
12 Bouët and others (2001); this covers reduction in specific tariffs and out-of-quota tariffs.
13 The joint Bank-Fund paper (SM/01/137, Revision 1, 8/23/01) reported simulation results by
Anderson and others (2000) of US $254 billio n annually in income gains from full liberalization, of which
US$108 billion would accrue to developing countries. Subsequently, the Bank’s GEP estimated the global gains
from trade to be US$355 billion measured in 2015 inco me (2002, p. 171), which, adjusting for growth, is
equivalent to US$265 billion and thus comparable to the earlier findings. The same Bank study included a
dynamic estimate (with appropriate qualifications as to sensitivity to assumptions) that included a productivityresponse to trade opening, resulting in income gains by 2015 of US$832 billion.
14 See footnote 7 for a definition.
15 Other trade remedy measures recognized by the WTO are countervailing duties and safeguard
measures. The latter was most recently invoked to raise tariffs on U.S. steel imports, but is less frequentlyresorted to.WT/WGTDF/W/14
Page 13
antidumping investigations have been initiated (Table 2). While industrial countries have traditionally
been the main users of such measures, developing countries have been more active in recent years,
led by India, Argentina, Brazil, and South Africa. In the seven years to 2001, developing countries
initiated almost two thirds of all investigations, well in excess of their share in world trade. However,
developing countries have also been the target of nearly 60 percent of investigations, mostly initiatedby other developing countries.
Initiating CountryIndustrial 
CountriesUnited 
States EUDeveloping 
CountriesTransition 
Countries Total
Number of investigations 511 102 313 1,086 248 1,845
   Industrial countries 128 17 67 363 114 605
       Of which:
            United States 79 0 46 146 30 255            EU 15 6 0 165 66 246   Developing countries 379 85 242 718 131 1,228   Transition countries 4 0 4 5 3 12
Percent of investigations 28 6 17 59 13 100
   Industrial countries 21 3 11 60 19 100       Of which:            United States 31 0 18 57 12 100            EU 6 2 0 67 27 100
   Developing countries 31 7 20 58 11 100
   Transition countries 33 0 33 42 25 100Source: WTO Secretariat.Table 2.  Initiations of Antidumping Investigations, 1995-2001
Affected countries
17. The recent steep rise in antidumping investig ations puts at risk the predictability and
nondiscriminatory application of trade policies.  In principle, antidumping measures are designed
to counter anticompetitive pricing in internationa l trade. However, recent enforcement practices have
raised serious concerns about the influence of special interests on public policy, and may impose
large costs on consumers and downstream industries in importing countries.16 Moreover, the deterrent
effect of an investigation typically reaches well beyond the targeted exporter, and impedes incentivesto pass on efficiency gains (Finger, 1993). Small firms and countries face greater uncertainty as they
often lack the resources to challenge antidumping. Several reform proposals suggest that the
introduction of competition law principles and of public interest clauses, giving affected importers
and users legal standing to argue against protection, would reduce the protectionist bias of
antidumping (Hoekman and Mavroidis, 1996).
C. S
TANDARDS AND NONTARIFF BARRIERS TO TRADE
18. Many developing countries are concerned  that they are ill-prepared to meet
increasingly complex and burdensome standards and regulations.  Standards and regulations on
                                                     
16 Note that, in 2000, 77 percent of Indian antidumping investigations involved chemicals products,
and 80 percent of U.S. antidumping investigations involved steel products. In both sectors, antidumping actionis particularly prevalent at the low end of the technology spectrum.WT/WGTDF/W/14
Page 14
products and production processes play an important role in facilitating trade by ensuring quality,
safety and technical compatibility. However, there is often a risk that such regulations may be
captured by special interests, particularly when regulatory processes are not transparent. Conditions
might then be imposed that are tighter than needed to  achieve the safety and health objectives in order
to serve a protectionist purpose.
19. Technical barriers have become a key concern regarding market access.  Annual
notifications of new technical barriers (including health and safety standards, and product standards)
to GATT/WTO increased steadily from a dozen or  two in the early 1980s to over 400 in 1999. Low-
and middle-income countries reported that over the period from 1996–99 more than 50 percent of
their potential exports of fresh and processed fish, meat, fruit and vegetables into the EU were
“prevented” by their inability to comply with SPS requirements (OECD, 2001b). SPS and other
technical requirements have been viewed by developing country trade officials as a greater constrainton their ability to export than tariffs and quantitative restrictions (Box 2).
17
20. Developing countries have found it difficult to participate in designing standards in
ways that better reflect their concerns and capa bilities, and to challenge them where they were
imposed in a discriminatory manner.  A number of agreements in the Uruguay Round have sought
to address these concerns by strengthening internat ional rules governing product standards in order to
minimize their abuse for protectionist purposes. 18 However, they also entail substantial costs for
product redesign, assessing conformity, creating an administrative system to monitor compliance, and
quality control. Many developing countries will require stepped-up technical and financial assistance
if they are to cope with the challenges posed by proliferating standards.
                                                     
17  See also Otsuki, Wilson, and Sewadeh (2001) on the impact of EU aflatoxin standards on African
exports of nuts, cereals and dried fruits.
18 Among others, these are the Agreement on T echnical Barriers to Trade (TBT, for trade in
manufactured products), and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS,relating to health and safety for humans and animals).WT/WGTDF/W/14
Page 15
Box 2. Technical Standards and Barriers to Trade
One approach to measuring the importance of technical barriers to trade is to submit questionnaires to
exporters or government officials. Henson and others (2000) surveyed government officials in 65 low- andmiddle-income countries. Respondents were asked to consider a range of factors that might impede their
country’s ability to export agricultural and food products to the EU and indicate the significance of each on
a five-point Likert scale from “very significant” (1) at  one extreme to “very insignificant” (5) at the other.
Overall, SPS requirements were considered the most significant impediment to exports to the EU (this doesobviously not imply that these standards are necessari ly unreasonable). Other technical requirements, for
example, labeling regulations or compositional standards were also considered significant impediments totrade.
Mean Significance Scores for Factors Influencing Countries’ Ability
to Export Agricultural and Food Products to the European Union
Rank
Factor
Mean Score
1
SPS requirements
2.1
2
Other technical requirements
2.8
3
Transport and other direct export costs
2.8
4
Tariffs
3.3
5
Quantitative restrictions
3.8
                    Source: OECD (2001b), based on Henson and others (2000).
D. TRADE PREFERENCES
21. Most developing countries have preferential access to industrial country markets for a
wide range of products.  This departure from the traditional nondiscrimination principle of the
GATT has been sanctioned under the so-called “Generalized System of Preferences” (GSP). In 2001,
some 15 such schemes were in effect, though country coverage and preference margins over appliedMFN tariffs varied widely. An important recent development has been the proliferation of bilateralWT/WGTDF/W/14
Page 16
and regional free trade agreements between industrial and developing countries. 19 According to WTO
rules, such agreements have to cover substantially  all trade, unlike GSP schemes. However, some of
the problems of preferential schemes reviewed below—in particular the drawbacks related to rules of
origin—apply in equal measure.
22. The benefits of many GSP schemes have been limited. Typically, preference margins are
smaller for products that the importing country deems to be sensitive—which are also among the
most protected. Moreover, as a large number of countries with often similar export structures tend to
benefit from these and other schemes, the competitive advantage they convey is reduced.20 In
addition, country- and product-specific graduation mechanisms may make exports ineligible for GSP
treatment, and hence detract from incentives to invest in anticipation of continued benefits.21 In this
context, there is evidence to suggest that the availability of unreciprocated market access preferences
has undermined the incentives of benefiting countries to engage in trade liberalization, thus at timesperpetuating anti-export biases in their trade regimes (Ozden and Reinhardt, 2002).
23. Preferential trade regimes invariably bring with  them the monitoring of rules of origin to
avoid trade deflection. This appears to have undermined the benefits expected from such schemes.
Rules of origin are akin to local content requirements (Krishna and Krueger, 1995). Costs arise both
from exporters seeking to benefit from preferences by procuring inputs from less efficient sources(trade diversion), and from the administration of, and accounting for, origin. A recent study found
that, partly as a result of unattractive rules of origin, only one-third of EU imports that were eligible
for preferential treatment did in fact enter the EU market with reduced duties. This problem is
particularly acute for textiles and clothing. In the case of Albanian exports, for instance, 84 percent of
exports to the EU were eligible for preferential treatment, but only 2 percent actually requested or
were granted such preferences (Brenton and Manchin, 2002). Under NAFTA, clothing imports into
the United States market are subject to the “triple transformation rule,” according to which sourcing
at all stages of prior transformation (yarn, fabric, cutting/assembly) must obey value added
thresholds. Cumulation of origin across beneficiary countries can mitigate the burden of rules of
origin, though often at the expense of greater administrative complexity.
22
24. Market access under GSP schemes has recently been enhanced on a regional basis, in
particular for African countries. To date, 36 sub-Saharan African countries have qualified in
principle for preferential access under the Un ited States’ AGOA, adopted in 2000. Margins of
preference are substantial for textile and apparel products as well as for a range of other light
manufactures and food products. In order to benefit from this scheme, countries have to meet, in
addition to relatively tight rules of origin and standard GSP criteria, requirements relating to child
labor and the protection of internationally recognized workers’ rights. The administrative requirementinvolved in documenting eligibility may explai n why only 15 countries had availed themselves of
                                                     
19 Preferential access for developing country exports  on a reciprocal basis (pertaining to GATT
Article XXIV) is a vast topic in its own right and cannot be dealt with here. SM/01/137, Revision 1, 8/23/01,discusses some of the issues involved.
20 In fact, under the EU trade regime only 9 countries are subject to regular MFN treatment, although
these account for over 40 percent of EU imports. In addition, relatively few countries are subject to the EU’sgeneral GSP (many of these are in the Commonwealth of Independent States (CIS)), while many more arebeneficiaries of preferential agreements or free trade schemes.
21 For instance, in 1999 the EU withdrew some of the preferences for shrimp imports from Thailand,
contributing to the drop in Thailand’s market share from 11–12 percent in the mid-1990s to less than 5 percent
in January–October 2001 (see “Comext” database).
22 Thus, the EU’s EBA initiative allows cumulation, subject to certain limits, between LDCs, ASEAN,
SAARC, and EU countries.WT/WGTDF/W/14
Page 17
benefits under this scheme in the year to March 2002, with most of the benefits accruing to four
countries—Gabon, Lesotho, Nigeria, and South Africa—and with fuel accounting for 85 percent of
AGOA imports.23 Nevertheless, since initiation of the scheme, sub-Saharan African exporters have
increased their U.S. market share in textiles and clothing from approximately 1 percent in 2000 to
1.6 percent in mid-2001 (in value terms). Conservative estimates suggest that by 2008 the volume ofAfrican exports to the U.S. market may rise by an additional 6-7 percent (Mattoo and others, 2002).
However, effective preference margins will decline as quotas under the WTO Agreement on Textiles
and Clothing are phased out (see Section IV).
25. A number of industrialized countries have recently granted comprehensive tariff and
quota free access to LDCs.  The EU’s EBA initiative has extended such preferential access since
coming into effect in March 2001. It covers all products, except for sugar, bananas, and rice, which
are to be liberalized more gradually.
24 Unlike the EU’s GSP scheme, benefits under the EBA are
extended on an indefinite basis, subject however to broad safeguards.25 Schemes providing for
virtually unqualified duty- and quota-free access for LDCs have also been adopted by New Zealand,
Norway, and Switzerland. Results of the EBA initiativ e are not yet available, but earlier experience in
the EU has shown that broad-based tariff-free market  access for LDCs can assist in diversifying their
export structures (Bacchetta and Bora, 2002). Recent research suggests that under such schemes, ifadopted by all Quad markets, LDC exports to the Quad might increase by US$2.5 billion, or about
11 percent, with relatively limited cost in terms of trade diversion (Table 3).
                                                     
23 USITC website.
24 Following a phased reduction in tariffs and increase  in quotas, bananas are to be fully liberalized by
2006, and sugar and rice by 2009.
25 The EU Commission has recently been given the mandate to negotiate broader Economic
Partnership Agreements (EPAs) with African, Caribbean and Pacific (ACP) countries, as a successor to theCotonou Agreement which expires in 2008. One feature of the EPAs would be reciprocal free trade agreements,among sub-groups of beneficiary countries and between such regions and the EU. Given the overlap between
ACP countries and EBA beneficiaries, the administration of the schemes would be extremely complex unless
either ACP countries are granted EBA conditions, or EBA countries renounce certain market access privilegeson the EU market.WT/WGTDF/W/14
Page 18
Table 3. Impact of Duty-free Access to Quad Markets for LDC Exporters
(In millions of U.S. dollars and percent)1/
CanadaEuropean
Union JapanUnited
States
Change in LDC exports 1602 185 496 1107
(7.2) (0.8) (2.2) (5.0)
Change in GSP beneficiaries exports -558 -100 -292 -387
(-0.03) (-0.01) (-0.02) (-0.04)
Change in all developing country exports 1013 72 204 654
(0.03) (0.00) (0.01) (0.02)
Source: Hoekman and others (2001).
1/ Simulations based on a Global Trade Analysis Project (GTAP) model (see Annex on
GTAP). Figures in parenthesis are in percentage of values at the base year (1996–98averages).
E. POLICY IMPLICATIONS
26. The phasing out of tariff peaks and escalation is a critical element of the development
dimension of the current round of multilateral trade negotiations.  Tariff peaks and escalation bias
protection in both industrialized and developing countries against agricultural, labor-intensive, and
low technology products. This holds back export-led growth and greater diversification in developingcountries and the poverty reduction that is associated with increased demand for unskilled labor. A
formula-based approach seems likely to be the best way to ensure a compression of tariff schedules
across tariff lines.
26 Experience has shown that formulas are less vulnerable to the influence of vested
interests than the tariff line-item (“request-offer”) negotiations. At the same time, developing
countries should be far more ambitious in binding tariffs at levels close to applied rates, in order toreduce uncertainty and reap the full benefits of liberalization.
27. Disciplines on the application of contingent protection should be strengthened. This
would require the full participation of all the main users.  One approach would be for procedural
rules to give greater weight to consumer concerns in considering trade remedy action. Short of that,
the rules could be reviewed with a focus on methodological weaknesses, the potential for abuse,
possibilities for raising the triggers or making them more rigorous (e.g., higher de minimis margins,
sunset clauses, etc.), and the administrative costs associated with antidumping and countervailingduty actions. Current rules allow national authorities a wide margin of discretion. A related risk is the
possibly protectionist application of health and technical standards, which calls for careful monitoring
and greater assistance to developing countries, both to enable their full participation in negotiations
and in meeting standards.
28. Adoption by all industrial countries of schemes that provide unrestricted market access
for LDCs could have significant benefits withou t imposing undue costs on other suppliers, given
the very small share of LDCs in world trade (around 0.5 percent).  However, trade preferences
can also have drawbacks. Apart from the economic inefficiencies, they risk creating vested interests
                                                     
26 Different formulas have been proposed by negotiating parties, generally entailing more than
proportional reductions in higher tariffs or a capping of maximum tariffs.WT/WGTDF/W/14
Page 19
in the status quo, and should therefore be set firmly within a context of rapid multilateral
liberalization.
29. Improved market access for LDC exports will not be sufficient to engender a sustained
growth performance, but should form part of a broader strategy to promote a vigorous supply
response.  Inefficiencies in key infrastructure sectors like telecommunications, transport, and financial
services often add more to export costs than foreign trade barriers (World Bank, 2002). Protection in
developing countries makes production for the home market more attractive. Further reform of
developing countries’ trade and investment environments and progress on transparency and
governance in the administration of foreign trade will often be necessary complements to better
market access. This includes reducing the average level and dispersion of protection, maintaining an
appropriate exchange rate regime, and liberalizing the policies towards foreign direct investment and
key services sectors. The sequencing of policies often matters greatly; for instance, in a number ofcountries reductions in trade tariffs will need to be combined with a rebalancing of fiscal revenue
sources.
III. MARKET ACCESS ISSUES IN AGRICULTURE
30. Increased market access for agricultural products would work to directly address
poverty reduction in developing countries. While the rapid expansion of demand for unskilled
labor in manufacturing and urban services in many developing countries has sharply reduced rural
poverty, about three-quarters of the world’s poor still live in rural areas, where agriculture is often the
dominant economic activity (IFAD, 2001). Agriculture accounts for about 27 percent of GDP in
developing countries, a similar share of exports and 50 percent of employment. This dependency on
agriculture is most pronounced in LDCs and in sub-Saharan Africa, where, in addition, productiontends to be concentrated in only a small number of commodities.
A. A
GRICULTURE IN THE MULTILATERAL TRADING SYSTEM
31. Agriculture has traditionally been heavily shielded from import competition.  It was not
until the conclusion of the Uruguay Round in 1994 that the sector was brought under effective GATT
disciplines. The Uruguay Round sparked the beginning of a gradual liberalization process inagriculture—initially over six years for industrial countries and ten years for developing countries.
WTO members also made a commitment to engage in negotiations to continue the reform process in
the final year of the six-year implementation peri od—part of the so-called “Built-In Agenda”. The
key aspects of market opening entailed a move away from quantitative restrictions, a binding of
maximum tariff rates, and the reduction of domestic support and export subsidies (Box 3).WT/WGTDF/W/14
Page 20
Box 3. Uruguay Round: Principal Commitments on Agriculture
Market
accessTariffication and bindings : Nontariff measures to be converted  to bound tariffs at the start of
the implementation period with average tariff cuts by industrial countries of 36 percent over sixyears from a 1986-88 base, and a minimum cut of 15 percent on any tariff line.Minimum import access:  Tariff rate quotas were introduced to guarantee minimum market
access by the end of the implementation period.
InternalsupportDomestic support, as measured by the total Aggregate Measurement of Support (AMS), to be
reduced by 20 percent from a 1986-88 base over the implementation period. Exempt aredomestic supports of less than 5 percent, “green box” subsidies allowed for purposes such asdevelopment and technical progress, and “blue box” subsidies linked to output reductionschemes.
Export
subsidiesExport subsidies to be reduced by 36 percent in value and subsidized exports by 21 percent in
volume for each product over the implementation period from a 1986-90 base.
Special
safeguardSpecial safeguard provisions , triggered by volume increases or price reductions, permit the
imposition of additional duties up to specified limits.
DevelopingcountriesGreater flexibility was give n to developing countries  in their commitments to market access,
reductions in domestic and export subsidies (generally 2/3 of developed country commitments
and a longer implementation period of 10 years).
Peace
ClauseFor subsidies excluded from the reduction commitments , the measures will be considered
non-actionable in terms of countervailing duties and legal challenges in the WTO until the end of2003.
32. One of the greatest challenges for the new trade round is to meet development concerns
in agricultural trade.  Despite the achievements of the Uruguay Round, there has been only limited
liberalization thus far, including for products of  export interest to developing countries. Reasons
include the choice of a reference period with exceptionally high levels of protection (1986–88) as the
basis for the initial tariffication, the broadness of product categories for which levels of support werebound (allowing increases for some products), and “dirty tariffication.”
27 By some estimates, this last
practice may have raised the average levels of protection at the conclusion of the Uruguay Round in
1994 (Nogues, 2002). In recognizing the problem of  distortions in agricultural markets, trade
ministers committed in Doha, “without prejudicing the outcome of the negotiations,” to negotiations
aimed at “substantial improvements in market access; reductions of, with a view to phasing out, allforms of export subsidies; and substantial reductions in trade-distorting domestic support.”
B. M
ARKET ACCESS , AGRICULTURAL SUPPORT , AND POLICY TRENDS IN OECD C OUNTRIES
33. OECD agriculture remains heavily protected and receives substantial public sector
support . Several indicators point to the extent of support in OECD countries (Table 4). Total OECD
support for agriculture amounted to US$311 billion or 1.3 percent of GDP in 2001, with producersupport estimated at almost one-third of total farm receipts.
28 Prices received by OECD farmers were
on average 31 percent above world prices (measured at border). The absolute level of producer
                                                     
27 “Dirty tariffication” refers to the practice of inflating the gap between domestic and international
prices, thereby increasing the tariff-equivalent calculation. This practice was particularly common for politically
sensitive commodities (Hathaway and Ingco, 1996).
28 OECD (2002a).WT/WGTDF/W/14
Page 21
support was largest by far in the EU, although, as a share of farm receipts, support levels in Iceland,
Japan, Korea, Norway, and Switzerland were substantially higher. A large share of support is directed
at temperate zone agriculture (grains, oilseeds, dairy), but support for products of interest to tropical
suppliers is often particularly high as a share of producer receipts (sugar, rice, cotton, and tobacco).
Box 4 describes the obstacles facing exports from Argentina and Brazil to the EU, Japanese, and U.S.markets for both temperate zone and tropical products. Other countries with agricultural potential, for
instance in the Commonwealth of Independent States, face similar hurdles.
34. Border measures (import tariffs and export subsidies) are the main mechanism of
market price support (MPS). In 2001, 68 percent of agricultural production in OECD countries
received MPS.  The total value of MPS amounted to US$145 billion, or 63 percent of aggregate
producer support (OECD, 2002a). Direct export subs idies have, however, been reduced significantly
over recent years, in line with Uruguay Round commitments.
29 That said, other forms of export
support may also distort trade, including export credit on favorable terms, certain forms of food aid,
and state trading companies.30
                                                     
29 The main user in 1999—the last period for which notifications are available—was the EU, with
US$6 billion, or around 95 percent of the total reported (OECD, 2002).
30 Anecdotal evidence of the negative impact of export subsidies abounds. For instance, the Tanzanian
“Tanga Dairy Development Program” supported by Dutch Development Cooperation for over 20 years
(€200,000 per year) was reported to be seriously affected by competition from low-priced powdered milkproducts from the EU (€600,000 in export subsidies).WT/WGTDF/W/14
Page 22
Table 4. Summary Indicators of Agricultural Support, 2001
CountryPSE
(in millions of
US$)Percentage
PSE NPC NAC
Australia 827 4 1.00 1.04
Canada 3,928 17 1.11 1.21Czech Republic 585 17 1.06 1.20European Union 93,083 35 1.33 1.54Hungary 580 12 1.01 1.13Iceland 108 59 2.11 2.45Japan 47,242 59 2.36 2.46
Korea 16,838 64 2.64 2.76
Mexico 6,537 19 1.17 1.23New Zealand 52 1 1.00 1.01Norway 2,173 67 2.27 3.00Poland 1,447 10 1.07 1.11Slovak Republic 151 11 1.01 1.12
Switzerland 4,214 69 2.39 3.21
Turkey 3,978 15 1.15 1.18United States 49,001 21 1.15 1.27
OECD 230,744 31 1.31 1.45
   Source: OECD (2001).
PSE: Producer Support Estimate : an indicator of the annual monetary value of gross transfers from consumers
and taxpayers to support agricultural producers. The percentage PSE  is the ratio of the PSE to the value of total
gross farm receipts.
NPC: Nominal Protection Coefficient : an indicator of the nominal rate of protection for producers measuring the
ratio between the average price received by producers and the border price.NAC: Nominal Assistance Coefficient : An indicator of the nominal rate of assistance to producers measuring the
ratio between the values of gross farm receipts including support and gross farm receipts valued at world market
prices without support.
35. The direct costs of market price support fall disproportionately on low-income
consumers who spend a larger share of househ old expenditure on food, while the benefits
accrue primarily to larger farmers.  These measures are also less efficient in transferring income to
farmers or targeting the provision of environmental services, compared with other measures, such as
direct income supports or area payments (OECD, 2001b). In general, the evidence indicates that all
types of farm support have a low transfer margin, less than two-thirds and in some cases as little as
one-quarter of payments on support programs result in additional farm income (OECD, 1995).WT/WGTDF/W/14
Page 23
Box 4. Barriers to Brazilian and Argentine Agricultural Exports
Brazil’s  ability to exploit its export potential is constrained by agricultural policies in other (chiefly OECD) countries. The
principal problems are trade barriers in potential markets a nd export subsidization by potential competitors. In the case of
soybeans, the Producer Support Estimate (which estimates the valu e of transfers to producers) in the United States (Brazil’s
major competitor) increased from 4.5 percent in 1997 to 23.1 percent in 2000, when expressed as a share of gross farmreceipts. Oilseeds enter the EU duty-free, alt hough duties are payable on both vegetable oil and oilseed meal. The sugar market
is particularly protected in both the European Union and the United States, with PSEs in 2000 of 48.9 percent and 47.1
percent, respectively. In both cases, producers typically receive more than three times the world price. This combination ofsupport and protection hurts  Brazilian exporters in particular, who, as relativ ely low cost exporters, lose out from the tariff -rate
quota allocations being made to higher-cost Caribbean producers.  Another area in which Brazil sees scope for further trade is
the U.S. market for frozen orange juice, where a tariff of 8. 32 U.S. cents per liter (about half  of the world price) is imposed  to
protect producers in Florida.
The table below offers a different perspective on exports from Argentina . It lists products that together account for over
50 percent of Argentina’s exports, and that face ad valorem tariff equivalents (AVEs) of more than 10 percent upon export to
either the EU, Japan, or the United States. Most of these are agricultural products or processed foods. Japan’s import regime i s
the most restrictive on this measure, with AVEs on several important products exceeding 100 percent. It is apparent from thispresentation that average MFN tariffs, which are a standard measure of import restrictiveness, can be highly misleadingindicators of the situation facing individual suppliers.
Ad Valorem Equivalent Tariffs (in percent) on Argentine Exports to Major OECD Markets, 2001
(Only AVEs of more than 10 percent displayed)
Product description
European Union
Japan
United States
Share in Argentine exports
Meat and edible meat offal
174.9
46.5
15.3
2.5
Dairy products, natural honey
83.1
195.6
28.3
1.6
Malt, starches, insulin, wheat gluten
62.8
186.5
0.6WT/WGTDF/W/14
Page 24
Cereals
58.1
118.4
10.7
Sugars and confectionary
49.096.424.7
0.5
Prep. of vegetable, fruits, nuts and other plants
42.719.1
16.3
1.2
Prep. of meat, fish or crustaceans
35.0
32.2
0.7
Food industry residues and waste, animal fodder
34.4
10.4
Fruits and nuts
10.7
1.6
Prep. of cereal, flours
10.618.2
0.2
Tobacco and tobacco substitutes
10.4
55.0
0.6
Oil seed, oleaginous fruits
282.7
33.3
4.6
Articles of iron or steel
18.4
1.6
Animal and vegetable fats and oils
12.514.1
8.0WT/WGTDF/W/14
Page 25
Ceramic products
13.8
0.1
Cotton
12.7
0.4
Vegetables and certain roots and tubers
120.7
0.8
Miscellaneous edible preparations
77.9
0.3
Beverages, spirits and vinegar
53.0
0.6
Cocoa and preparations
48.5
0.3
Raw hides and skins, leather
14.2
3.4
Total
50.7
Source: Brazil—OECD (2001b); Argentina AVEs and export shares—ITC Geneva MacMaps databaseWT/WGTDF/W/14
Page 26
36. Despite reductions under the Uruguay Round, agricultural tariffs in OECD countries
remain several times higher than those facing manufactured imports.  Preferential market access
schemes result in a lower level of tariffs for exports from low-income developing countries (Table 1),
but other developing countries continue to face high tariffs. These average tariff levels also conceal
significant variations among OECD countries. EU an d Canadian tariffs, for example, favor LDCs but
are comparatively high for middle-income countries. Japanese and U.S. tariffs, on the other hand, are
particularly significant with respect to imports from LDCs.31 Agriculture and food industries are also
major targets of tariff peaks and escalation. Table 5 shows the product pattern of protection and the
prevalence of tariff peaks, most notably for dairy products, chocolate, tobacco, oilseeds and poultry.
Table 5. MFN Tariff Peaks in Developed Country Markets on
Agricultural Imports from Developing Countries, 1998–99
(In percent)
Weighted Tariff peaks
ProductMFN average
TariffMaximum
MFN tariff(percent of
category)
Beef 12.9 41.5 29.6
Sheep meat 0.8 21.5 3.5
Poultry 8.2 134.3 2.5
Milk 22.7 140.0 17.8Milk concentrates 19.6 308.5 22.2Butter 250.0 336.3 19.5Barley 22.1 101.5 11.4Maize 4.0 50.0 4.0
Wheat 39.5 81.5 9.8
Banana 4.3 27.9 13.6Citrus fruits 4.6 25.7 8.5Other tropical fruits 10.7 33.3 8.1Non-tropical fruits 0.8 17.8 2.9Chocolate 22.7 276.5 14.3
Tobacco 44.9 350.0 6.3
Cigarettes 2.7 30.0 4.2Other tobacco  products 168.6 350.0 17.7Tea 3.8 17.8 11.1
Oil seeds 9.6 171.0 1.0
Vegetable oils 1.4 20.0 1.2
Source: UNCTAD elaborations on UNCTAD TRAINS data.
Ad valorem tariffs only.
37. Policy signals with regard to reform of agricultural support have been mixed. After the
mid-1980s, there was movement towards greater market orientation and lower support and protection
for OECD agriculture. This is demonstrated in Figure 1, which displays total producer support on the
horizontal axis and the share of the most distortionary forms of support, MPS, on the vertical; thecloser a point is to the origin of the chart, the less the distortionary effect of producer support.
Producer support as a share of agricultural revenue was at its lowest in 1997.
32 Subsequently, support
to agricultural producers increased as world prices of major commodities fell, while differences in the
                                                     
31 See footnote to Table 1 regarding U.S. tariffs on imports from LDCs.
32 OECD (1999).WT/WGTDF/W/14
Page 27
level of support among countries widened. In May 2002, the United States introduced a new farm bill,
which will significantly boost agricultural subsidies compared with their declining levels under the
1996 Farm Bill—though not if additional emergency assistance of recent years is taken into
account—and redirect them towards more distortionary forms of support (Box 5).33 However,
negotiating proposals to the WTO put forward by the United States in July 2002 would sharply
reduce support levels. In the EU, the newly unveiled mid-term review of the Common Agricultural
Policy (CAP) proposes to delink farm subsidies from production, a move that would help to reduce
overproduction and hence pressure on world prices (Box 6).34 However, the reform proposals are
silent on import tariffs and export subsidies, and do not envisage a reduction in the overall level of
budgetary support. Certain other OECD countries have established multi-year plans for the
agricultural sector, but none of these plans pro pose long-term reductions in support measures. The
recent Japanese program sets the goal of a higher food self-sufficiency target of 45 percent by 2010,well above its current level of 30 percent. In a few OECD countries, new price support policies were
introduced or existing ones extended to new products in 2000-01.
65707580859095100
10 20 30 40 50 60 70Percentage Producer Support Estimate (PSE)Share of MPS and payments based on output and input use in the PS E
United StatesCanadaJapan
European Union
Source: OECD.1986-1988
1999-2001Figure 1. Quad Countries: Trends in Trade-Distorting Agricultural Supports, 1986-1988 to 1999-2001
                                                     
33 U.S. support was at its lowest in the mid-1990s, at about 14 percent of farm income. It subsequently
rose to 21 percent in 2001 under emergency legislation. It should be noted, however, that producer support as a
share of farm income in the United States is still lower than in many other OECD countries. (See OECD (1996).
34 The mid-term review must still be adopted by the European Council, where aspects of the proposals
face considerable opposition.WT/WGTDF/W/14
Page 28
C. AGRICULTURAL TRADE POLICY IN NON-OECD C OUNTRIES
38. Agricultural subsidies in non-OECD countries are generally limited compared with those in
the OECD, while applied tariff levels are similar on average. However, with non-OECD tariff
bindings tending to be well above applied rates, applied rates in agriculture have occasionally been
subject to ad hoc adjustments. In India, Pakistan and Tunisia, for example, bound rates for allagricultural products are over 100 percent, while applied rates range between 30 percent and 43
percent (Gibson and others, 2001). Most recently, tariffs on sugar have been increased in Indonesia,
and on a range of products in Jamaica (in several cases to levels of well over 100 percent). As a
result, there can be significant uncertainty over market access. High tariffs and other forms of support
in non-OECD countries impede South-South trade,  and, like OECD protection, can depress world
prices for agricultural commodities, and introduce a greater degree of price instability than might
otherwise have been the case.
Box 5. Main Features of the U.S. Farm Security and Rural Investment Act of 2002
In May 2002 President Bush signed the Farm Security and Rural Investment Act  of 2002. The six-year Act will
lock in historically high levels of agricultural su pport provided in recent years as a result of “emergency
assistance,” and is estimated to increase support spending by a projected US$45 billion or 21 percent during
FY2002–07, compared with previous forecasts base d on the 1996 Farm Act (although not if previous
supplemental budgets are included in the baseline). Much of the new spending aims to raise farm incomes in
ways that, while not always tied to current production,  are likely to create incentiv es to increase production or
acreage levels. As a result, it undermines the objectives of the 1996 reforms that sought to gradually reduce
production-distorting supports in favor of income supplements.
The Act’s spending estimates could be overshot if the underlying price forecasts do not materialize and if
minimum prices are not lowered as scheduled. The subsidy estimates are subject to upside risks, especially as
they are likely to raise production levels, in part thr ough assuring greater predictability of assistance to farmers,
and contribute to further price declines in world markets.
The main beneficiaries are producers of corn, sorghum, barley, wheat, soybeans, oilseeds, cotton, and rice. The
Act also extends supports to a broad range of products, some of which had not previously benefited from
assistance (e.g., vegetables, honey, and wool) and includes subsidies for the food stamp program aimed at the
urban poor.
The Act requires that the Secretary of Agriculture adju st spending if U.S. subsidies exceed WTO commitments.
Under the Uruguay Round Agreement, the United States agreed to limit certain trade distorting agricultural
supports to US$19 billion per year. Fo r comparison, the EU limit is US$60 billion, though actual support has
recently been well below this ceiling. However, countries typically notify their support several years after the
fact. The last U.S. notification to the WTO, made in 2001, covered spending in 1998.
Results from Fund staff simulation of the projected impact of increases in U.S. farm assistance after 1996 on
export volumes in the period 2003-07 s uggest that U.S. exports of grains and cotton will be significantly larger
than in the absence of such support, while sub-Saharan African exports of cotton will be far lower. A recent
joint Bank/Fund study of the cotton sector (Badiane and others, 2002) concludes that the complete elimination
of U.S. cotton subsidies, would, in the short run, raise world prices by 25–30 percent and export revenues in
West and Central Africa by US$250 million, although simulations reported in the forthcoming September issue
of the World Economic Outlook  suggest that the impact could be far less marked depending on the types of
subsidies covered and the choice of base year.WT/WGTDF/W/14
Page 29
Box 6. The EU’s Common Agricultural Policy (CAP) Reform Proposals
On July 10, 2002, the European Commission tabled a mid-term review of the CAP. The review consists of a series of
proposals to reform the CAP in line with the objectives, po licy direction and financial framework set in the EU’s “Agenda
2000.” If adopted and implemented, the reform measures would make EU agricultural policy significantly more market-
oriented and have positive effects on agricultu ral exports from the rest of the world.
The main proposals include:
• Decoupling of direct farm subsidies from production, with few exceptions, by establishing consolidated farm
income payments based on historical entitlements;
• Linking direct income and other direct payments more closely to environmental, food safety, animal and
occupational safety standards;
• Reducing direct payments gradually by 20 percent and redirecting the savings to support for sustainable agriculture
and rural development;
• Limiting subsidy payments to individual farmers at euro 300,000 per year; and
• Reducing intervention prices for cereals by 5 percent, rice by 50 percent, and abolishing intervention for rye, in
addition to changes to prices and intervention regimes for durum wheat, dried fodder, beef and nuts.
(i) The key proposal among the above is severing the link between subsidies to farmers and their
production levels, and redirecting resources to less distortionary forms of farm support. Thiswould also encourage farmers to produce more in response to market demand and less to
maximizing subsidies received. However, de-c oupling has in the past not always had as much
of an effect as anticipated (e.g., EU cereals regime, where production actually rose after aswitch to direct income support). The overall CAP budget would remain at €40 billion, andthere are no measures proposed to reduce export subsidies and import tariffs. The proposals
would reduce incentives for overproduction in the EU, and hence potentially reduce subsidized
exports and help reduce pressure on world prices. Adoption of the proposals would also reducethe costs of EU enlargement by avoiding extending the costly CAP in its present form toaccession countries in Central and Eastern Europe, which have large agricultural sectors.
   Source: Based on the Financial Times , Economist  reports, and EU press release available at the EU Website.
39. It is difficult to assess the overall extent of agricultural support in non-OECD countries,
as information on domestic support policies and export subsidies is not available in a format
comparable to the OECD for most developing countries. It appears, however, that the implicit
taxation of agriculture through trade barriers and exchange rate distortions—prevalent before the mid-1980s (Krueger, 1992; Schiff and Valdes, 1992)—may have diminished.
35 While tariffs on
agricultural commodities are still, on average, higher than those on industrial products, there has been
progress in tackling overvalued currencies, and direct interventions in agriculture, such as through
marketing boards and government procurement, have become less frequent.36 Nevertheless, within
agriculture, food staples continue to be more protected than cash crops, which in some markets can
work against the expansion of agricultural exports.
40. While it is difficult to generalize developments in non-OECD countries’ agricultural
policy, it may be helpful to review policy trends in China and India, two of the world’s largest
                                                     
35 Most CIS countries have also liberalized thei r agricultural regimes substantially over the past
decade.
36 Given the presence of other forms of interventi on, a more direct and reliable measure of direct
taxation of agriculture would be to compare producer prices with border prices.WT/WGTDF/W/14
Page 30
agricultural markets.  As in many other developing countri es, both China and India’s agricultural
policies have centered on food self-sufficiency. Government interventions in agriculture are
extensive, especially with respect to food crops, mainly in the form of border restrictions, minimum
support prices and input subsidies. Both countries, however, have also embarked on wide-ranging
economic reforms. In recent years India has reduced  governmental control over agricultural trade,
abolished many quantitative import restrictions, relaxed licensing arrangements, and reduced tariffs.37
China’s accession to the WTO has imposed significant discipline on government policies, includinglimiting trade-distorting forms of support at 8.5 percent of gross output value for every product,
eliminating export subsidies, and introducing a TRQ regime for several sensitive commodities. In-
quota tariffs are minimal (1–3 percent), but out-of-quota rates are high (up to 65 percent) (WTO,
2001c).
D. 
 COSTS OF PROTECTION AND BENEFITS OF LIBERALIZATION
41. Agricultural distortions inflict large costs on the global economy, by some estimates
exceeding those of protection in the industrial sector  (Anderson and others, 2001). Estimates tend
to be derived from simulations with computable general equilibrium models; a footnote and an Annex
describe these models and the important limitations they have.38 Based on static effects alone, the
global income loss from agricultural distortions worldwide may be well over US$120 billion (Table6).
 39 Most of the cost results from market price support measures, of which tariffs are the dominant
form. The losses of export revenues are much larger, by a factor of three to four in the case of
developing countries.
42. Both groups of countries suffer the most from their own restrictive policies. For
developing countries, these policies are responsible for about 71 percent of the total income loss,while for developed countries, the share is as high as 95 percent. Partly due to more limited subsidies
and a smaller absolute level of agricultural trade,  developing countries bear about one-fifth of the
(static) total global income loss while developed countries account for the remaining four-fifths.
Adding dynamic assumptions and projecting to 2015, the effects of this pattern of distortion are
magnified because of the differential growth rates of protected sectors; the World Bank (2002) foundthat agricultural protection in developing countries accounts for about half of global losses.
43. The analysis also highlights the need to  reduce protection across all commodities in
order to maximize the benefits of global liberalization.  But benefits of liberalization would not be
equal across all commodities, given varying rates of existing protection. For example, simulation
results suggest that developing countries would accrue the greatest benefits from the liberalization of
                                                     
37 See USDA website at http://www.ers.usda.gov/briefing/india/policy.htm.
38 Most of the results presented in this section are based on simulations with the GTAP model. While
computable general equilibrium models have the advantage of capturing economy-wide effects of policychanges, they also have important limitations. To allow results to be tracked, these models reduce complex
economic behavior and policies to simple specifications. They are also limited by the availability of up-to-date
economic data and estimates of key parameters governing economic behavior. The model is static and henceunable to capture dynamic effects of trade policies, su ch as capital accumulation or technological change. The
integration of preferential agreements in the GTAP databa se is still incomplete. For these reasons, results in this
section should be taken to represent orders of magnitude only. See the Annex for a brief description of theGTAP model.
39 The forthcoming September issue of the World Economic Outlook  contains a detailed discussion of
the results for individual countries and regions, as well as a breakdown of the effects of subsidies versus tariffs(see Chapter II, Section 2, “How Do Industrial Country Agricultural Policies Affect Poor Countries”).WT/WGTDF/W/14
Page 31
processed food products, followed by sugar, paddy rice, dairy products, and meats.40 These are
sectors where tariff peaks (and TRQs, especially in sugar trade) remain prominent in developed
country markets, but also in developing countries themselves.
Table 6. Costs of Agricultural Distortions, 1997
(In billions of U.S. dollars)
Cost to region:
World OECD Non-OECD
Agricultural policy of: Income loss
World 128.2 97.8 30.4
OECD 101.4 92.7 8.7Non-OECD 26.8 5.1 21.7
Foregone export revenue
World 378.0 255.8 122.2OECD 257.7 234.9 22.8
Non-OECD 120.3 20.9 99.4
Source: Fund staff simulations of the GTAP model.
44. An important benefit of agricultural liberalization would be less instability and
downward pressure on world prices for key commodities.  Border protection and domestic support
(much of which is countercyclical) enhance price stability in protected markets at the expense of price
stability in world markets, by limiting the share of world production and demand that remains price-
sensitive. Developing countries suffer the most from price instability as they have fewer resources
available to smooth consumption and income flows. According to one estimate, the elimination ofpolicies that insulate producers from world prices would reduce instability in food market prices
(measured by the coefficient of variation of world prices) by as much as two-thirds (Tyers and
Anderson, 1992).
45. Agricultural liberalization is likely to have long-term, dynamic effects on world
production and trade.  These dynamic effects, which could include increased farm investment and
enhanced technologies and productivity in response to better market opportunities, would likely
magnify the potential benefits of liberalization as it has in other economic sectors. For developing
countries to reap the full benefits of liberalization, however, requires a framework of supportive
policies—including the elimination of anti-agriculture biases in pricing policies so that (higher) world
prices are passed through to the farm-gate—and esse ntial infrastructure (transport, logistics, credit,
extension services).
E. D
ISTRIBUTIONAL IMPLICATIONS OF REFORM AND ADJUSTMENT NEEDS
46. While global liberalization of both tariffs and subsidies would benefit every region, the
static effect of removing subsidies alone is likely to be negative for developing countries as a
                                                     
40 The liberalization of TRQs in sugar trade may ha ve complex distributional implications, since it
would erode the rents associated with the existing quota allocations. Distributional issues are discussed in the
following section.WT/WGTDF/W/14
Page 32
group and many individual countries .41 Major exceptions include Argentina, Brazil, and India.
Two factors explain this result: (1) changes in food terms of trade, as prices of liberalized products
rise while other prices fall as industrial country producers shift into different crops;42 and
(2) substitution in developing countries, behind high tariff walls, of relatively inefficient domestic
production for imports of products whose prices have risen. Well over half of the income loss fordeveloping countries is attributable to this second effect, which could be mitigated by lowering
tariffs. The effects of industrial country tariff and subsidy reform differ in that the most subsidized
products are those of which developing countries as a group are net importers, so that there is a net
transfer to developing country consumers offsetting the income losses of farmers from lower world
prices.
47. This analysis draws attention to the need for a comprehensive approach to
liberalization . Developing countries can benefit significantly from reforms if:
• these simultaneously cover both agricultural subsidies and market access restrictions, and
• their own agricultural regimes, as well as  those of the industrial countries, become
less restrictive.
48. Even under a comprehensive approach, however, reforms carry distributional
implications both among and within countries.  Certain net food importers might suffer terms of
trade and related net income losses initially as pri ces adjust. They are more likely to experience such
losses if subsidy removal is phased in ahead of tariff reductions. Within individual countries, the
global liberalization of agriculture would generally benefit developing country farmers, but
developing country consumers may face higher prices.43 The potential distributional impact of
agricultural liberalization has motivated calls at the WTO for special consideration of thecircumstances of net food importing countries.
49. Agricultural liberalization will also entail adjustment costs in some developing
countries, particularly those that currently have preferential access to industrial country
markets . Since the GTAP database used in the simulations does not yet incorporate many preferential
schemes, the simulated benefits of trade liberalization for preference-receiving regions are probablyoverstated, even though incorporating such schemes may not alter the broad pattern of results. For
example, Mauritius benefits substantially from pr eferential access for its sugar exports to the EU, as
do the Caribbean nations from banana exports. The U.S. sugar regime similarly subsidizes quota
recipients under TRQs by providing the chance to sell into the high-priced U.S. market. Multilateral
liberalization on an MFN basis would erode the preference margins for these countries and result inloss of market share and income. The resulting adjustment needs would be especially large for
countries with a narrow export base. More research is required to assess the impact of liberalization in
greater detail.
                                                     
41 Staff estimates and also Burfisher, 2001; World Bank, 2002; Cernat and others, 2002; Beghin and
others, 2002; Brown and others, 2001.
42 There is uncertainty as to how easily land use in developed countries can be shifted from one
agricultural industry to another due to climate and soil constraints. The model used assumes a moderate degree
of transformation between land uses by different agricu ltural industries. It also assumes that total land use
remains at the pre-liberalization level.
43 However, note that many consumers in developing countries are at the same time producers.WT/WGTDF/W/14
Page 33
F. POLICY IMPLICATIONS
50. A comprehensive approach to liberalization in agriculture, covering border protection
and subsidies in industrial as well as developing countries, is most likely to produce the greatest
benefit to developing countries . However, the distributional implications of such a broad based
approach to trade policy reform—both in terms of intra-country shares in world trade and domesticincome—are likely to be complex and involve cons iderable adjustment. Consequently, such changes
should be considered within the broader context of development and poverty reduction strategies,
with special attention to food security issues and the concerns of consumers, particularly the urban
poor.
51. The focus in tariff negotiations should be on the MFN reduction of tariffs (both in- and
out-of-quota, where relevant) and the phasing out of TRQs . As in nonagricultural trade, tariff
peaks are an area of particular concern. Experience suggests that the prospects for a substantialreduction or elimination of peaks are best where negotiations are based on some type of formula
approach. A formula approach also allows for “credit” to be given for past unilateral trade
liberalization and can ensure that countries with relatively uniform structures of protection maintain
such regimes.
52. At the same time, there should be ambitious efforts in the OECD countries to de-couple
agricultural support from production.  Market price support measures should be phased out in
favor of more transparent and direct forms of support for farm income and environmental objectives.
Production-linked subsidies are not sustainable from a financial, ecological, or development
perspective. But it is clear that substantial poli tical commitment will be necessary to implement such
reforms. The debate within the EU about the future of the CAP is welcome and an important test caseof this commitment.
IV. BARRIERS TO TRADE IN TEXTILES AND CLOTHING
53. Historically, textiles and clothing (T&C) have played a unique role in economic
development and poverty reduction.  Their contribution to the Industrial Revolution in Western
Europe and North America in the 18
th and 19th centuries is well-known, and they continued to
spearhead industrialization in many developing countries in the 20th century. However, the sector has
also long been a prime target for protectionism. Despite the rapid expansion of developing country
exports of T&C products, the removal of trade barriers would bring significant additional benefits.
A. DEVELOPING COUNTRY EXPORTS OF TEXTILES AND CLOTHING
54. Since textile and clothing production o ften requires only simple technology and is
intensive in unskilled labor, many developing countries have a strong comparative advantage in
these sectors .44 As shown in Figure 2, developing countries as a whole have succeeded in exploiting
this comparative advantage. In the mid-1960s, developing countries accounted for 15 percent of
world textile exports and less than 25 percent of world clothing exports. By 1998, these shares had
reached 50 percent and 70 percent, respectively. Total exports of T&C by developing countries
reached US$213 billion in 1998. However, sub-Saharan Africa contributed less than 2 percent of this
figure, with total T&C exports in 1998 of only US$3.6 billion.
                                                     
44 For the wage and labor cost differentials between T&C and among various countries, see ILO
(2000).WT/WGTDF/W/14
Page 34
55. The rapid growth of developing country T&C exports has created a high dependency on
these products for export earnings (Table 7).  Textiles alone accounted for 51 percent of Pakistan’s
merchandise exports in 1999, clothing for 50 percent of Sri Lanka’s. Among least developed
countries, T&C represented 83 percent of Bangladesh’s merchandise exports (1999), and 87 percent
of Cambodia’s (2000). As discussed below, th e high export dependency on T&C may lead to
vulnerability in these countries’ balance of payments, as scheduled liberalization of the sector will
result in a considerable redistribution of market shares among developing country exporters.
B. TEXTILES AND CLOTHING IN THE MULTILATERAL TRADING SYSTEM
56. The remarkable growth in T&C exports from developing countries has been achieved
despite extensive quantitative restrictions discriminating against developing countries and high
tariffs in developed countries—the main export markets for most developing countries .45 For
nearly half a century, world trade in T&C has been subject to quantitative restrictions underderogation from GATT rules, beginning with Japan’s 1955 “voluntary restraints” on its exports of
cotton fabrics and clothing to the United States, which evolved into the multilateral Short-Term
Arrangement regarding International Trade in Co tton Textiles in 1961, the Long-Term Arrangement
in 1962, and eventually the Multifiber Arrangement (MFA) in 1974.
46 The MFA expanded
quantitative restrictions beyond cotton products to wool and man-made fiber products and wasextended several times until the Uruguay Round Agreement on Textiles and Clothing (ATC) took
effect at the beginning of 1995. In the MFA’s last y ear of operation, six participants (Austria, Canada,
EU, Finland, Norway, and the United States) applied quotas under the Arrangement.
                                                     
45 This points to the importance of supply-side conditions, in addition to market barriers, in
understanding export success.
46 The Short-Term Arrangement, involving the United States and other cotton importing and exporting
countries, prohibited voluntary restraints.WT/WGTDF/W/14
Page 35
Source: GTAP database (ver. 5 ).Figure 2. Exports of Textiles and Clothing by Region, 1965-98
Textiles
0102030405060708090100
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997per
cen
t
Other developing countries
Sub-Saharan Africa
Latin America
Asia
Developed countries
Clothing
0102030405060708090100
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997per
cen
t
Other developing countries
Sub-Saharan Africa
Latin America
Asia
Developed countries
.WT/WGTDF/W/14
Page 36
Table 7. Exports of Textiles and Clothing, 20011/
(In millions of U.S. dollars and percentage)
Value Percent of total
(in millions of U.S. dollars) merchandise exports
World 356,400 5.8
Cambodia 1,149 88.7
Macao SAR 2,121 83.9Bangladesh 4,219 83.4Pakistan 6,676 72.8Mauritius 949 63.6Sri Lanka 2,493 54.4Tunisia
22,504 42.6
Turkey 10,205 38.4
Morocco22,364 33.7
India 10,239 28.2Romania 2,524 24.4
China
252,206 20.9
Hong Kong SAR237,657 18.6
Portugal 4,247 18.2Egypt 633 17.8Bulgaria 800 16.9Jamaica 287 16.5Greece 1,260 16.4Indonesia 8,239 13.3Vietnam 1,975 13.1Croatia 556 12.7Italy 25,175 10.6Korea 15,990 10.6
Taiwan Province of
  China 14,654 9.9
Peru 635 9.1Thailand 6,063 8.8Slovenia 747 8.7Poland 2,653 8.4Slovak Republic 913 7.7Uruguay 165 7.4
Philippines
22,696 6.8
Mexico211,247 6.8
Belgium-Luxembourg 11,514 6.4
Czech Republic21,852 6.4
Colombia 788 6.0
Source: WTO, and IMF staff estimates.
1Or nearest year.
2Includes significant re-exports or exports from processing zones.WT/WGTDF/W/14
Page 37
57. The salient feature of the MFA was bilateral quotas, negotiated between individual
importing (typically developed) and exporting (typically developing) countries . The MFA called
on importing countries to endeavor to grow quota volumes by at least 6 percent per year, but in
practice quota growth was often significantly lower and even negative. Small and new exporting
countries were generally granted more generous quota growth. As compensation for foregone exports,exporting countries were given the right to manage the allocation of quotas, thus enabling them to
capture at least part of the quota rents.
47 For this reason, MFA quotas act like bilateral export
restrictions. As shown in Table 8, the export tax equivalents of these quotas vary substantially across
countries. The most competitive exporting countries, such as China and India, face more stringent
restrictions than the less competitive countries.48 The estimates in Table 8 are very aggregated. For
example, World Bank staff calculations found export tax equivalents of almost 300 percent on exports
of basic goods such as T-shirts from China.
Table 8. Export Tax Equivalents of MFA Quotas and Tariffs
on Textile and Clothing Imports in Quad Countries, 1997
Source: GTAP database version 5.
58. Under the ATC, quota restrictions are being gradually abolished (as products are
“integrated”) over the period 1995-2005 and quotas that have not been removed are subject to a
progressive increase in their growth rates (see Box 7).
                                                     
47 Some research suggests that quota rents are sh ared by developing and developed countries. It is
argued that large corporate buyers from developed count ries often capture at least part of the quota rents
(Krishna and others, 1994).
48 In fact, the upper bounds in Table 8 represent re strictions faced by Chinese and Indian exporters.United States EU Japan Canada
Export tax equivalents of quotas (percent of f.o.b. prices)
Textiles
Average 6.7 4.5 0.0 7.8Range 0-20 0-12 0-0 0-20
Clothing
Average 11.0 5.3 0.0 16.8Range 0-34 0-15 0.0 0-34
Import-weighted tariffs (percent)
Textiles 11.2 9.1 8.5 15.7
Clothing 13.3 11.9 12.5 21.2Other manufactures 2.8 3.6 1.4 3.9WT/WGTDF/W/14
Page 38
Box 7. The Agreement on Textiles and Clothing
Under the Uruguay Round Agreement on Textiles and Clothing (ATC), MFA quotas are to be phased out
progressively over a 10-year period, as shown in the graph below (left panel). The 10-year period cannot beextended. In the first stage, which began on January 1, 1995, WTO Members were required to integrate products
representing not less than 16 percent in volume terms of  their 1990 imports of textile and clothing products. In
stage 2, starting January 1998, not less than a further 17 percent was to be integrated, and in stage 3, from January2002, a further 18 percent. Finally, on January 1, 2005, all remaining products (amounting to a maximum49 percent) are to be automatically integrated. Products not yet integrated are subject to a special transitional
safeguard mechanism, whereby an importing country can apply quantitative restrictions for up to three years on
imports from a particular source of supply which causes or threatens to cause seri ous injury to the domestic
industry. After integration, regular GATT safeguards apply.
In addition to this integration process, the ATC accelerated the growth rates for remaining quotas. The annual
growth rates of quota volumes were increased by a factor of 16 percent for the first stage of the Agreement, by afurther 25 percent for the second stage, and another 27 percent for the last stage. LDCs enjoy one-stageadvancement in the acceleration of quota growth. Three typical trajectories of quota growth under the ATC are
shown in the right panel below.
 
 
Sources: Compiled from WTO and other publications.
C. REMAINING MARKET ACCESS BARRIERS TO EXPORTS OF TEXTILES AND CLOTHING
59. The looseness of the benchmark for integration has enabled importing countries to
effectively backload the integration process.  Liberalization commitments apply to 1990 imports of
T&C as a whole, much of which was not restricted. According to the WTO (2002), while the
integration targets and quota growth under the ATC have been met, the elimination of restrictions hasbeen modest, with the exception of Norway, whose T&C imports have been all but freed from
quotas.
49 As shown in Table 9, only a small percentage of quotas originally in place were eliminated
by the EU and the United States during the fi rst two stages of integration, corresponding to
approximately 20 percent of their imports under restrictions (WTO, 2002a). While there has been a
                                                     
49 Two of the countries that applied quotas under the MFA, Austria and Finland, subsequently joined
the EU regime.WT/WGTDF/W/14
Page 39
slight acceleration of this process during stage 3 of the ATC, which began in January 2002, the vast
majority of restrictions has been left to be abolished at the end of the implementation period.50
Table 9. Number of Quotas Eliminated by Integration in ATC Stages 1 and 2
Total number Number of quotas eliminated
WTO member of quotas By integration By early elimination Total
United States 750 2 11113
EU 219 14 0 14
Canada 295 29 0 29
Norway 54 0 51 51
 1Quotas eliminated only in respect to Romania.
 Source: Kheir-El-Din (2002), based on notifications to the WTO Textile Monitoring Body.
60. In addition to the MFA quotas, T&C imports are subject to exceptionally high tariffs
(Table 8) .51 Despite historically high levels, during the Uruguay Round tariffs on T&C were
generally cut less than those on other manufactures, and tariff peaks and escalation remain common
in this sector. In OECD import regimes, tariff peaks affect 27 percent of total tariff lines on T&C,
nearly twice as many as tariffs under 5 percent (WTO, 2001a). Tariff escalation is evident from
Table 8, with tariffs on clothing higher than those on textiles.
61. Tariffs on T&C in developing countries are also high.  Trade-weighted average (applied)
tariffs for non-OECD countries are 16 percent. This average conceals large variations among
individual countries. The largest developing coun try exporters tend to have higher tariffs. ASEAN,
China, and South Asia all have tariffs in the range of 20–33 percent on textiles, and of 30–35 percent
on clothing. Mexico and the Southern African Cu stoms Union (SACU) also have high tariffs on
clothing.52 Tariff bindings tend to significantly exceed applied rates, creating uncertainty over trade
policies (Bacchetta and Bora, 2002; UNCTAD, 2002).
D. THE COST OF BARRIERS AND BENEFITS OF LIBERALIZATION
62. Remaining barriers to trade in T&C impose a substantial burden on both developing
and industrial countries.  Simulations with the GTAP model (see the Annex) suggest that the
combined income effect for developing countries of quotas and tariffs on industrial country imports
amounts to US$24 billion per year, and the export revenue loss to US$40 billion (Table 10).
Industrial countries suffer around half the income loss but almost the same export shortfall as
developing countries.53, 54 Some of the effects derive from backward linkages. Thus, MFA quotas and
                                                     
50 Quotas integrated by the EU in January 2002 represented 15 percent of restricted imports in 1990,
thus raising the total to 20 percent (WTO, 2002b).
51 High tariffs in industrial countries on quota-restricted imports can be interpreted as an attempt to
capture the quota rents and do not represent additional protection. However, if quota access is priced correctly,the measured tariffs and quota premia must be added to infer the total burden facing exporters.
52 These rates do not reflect the effects of extensive duty exemptions. Revenue collections on T&C
imports into developing countries are often significantly lower than the tariff rates would suggest, especially ontextiles.
53 Note that, since these are general equilibrium simulations, exports lost or gained are not necessarily
in the T&C sector, and income losses in the T&C sector may be partially mitigated by gains in other sectors asfactors of production migrate. The U.S. International Trade Commission (USITC), using a single-country
general equilibrium model, recently estimated losses to  the U.S. economy from U.S. T&C restrictions at
US$13.5 billion per year (USITC, 2002); this figure a ppears large relative to those in Table 10 because theWT/WGTDF/W/14
Page 40
tariffs reduce the demand for fiber crops. According to the same simulations, the full liberalization of
world trade in T&C would boost cotton exports by 9 percent in sub-Saharan Africa, or about US$132
million in 1997.
63. The high tariffs in developing countries have almost equally large costs, for both
exporters and importers.  Intra-developing country trade accounts for about half of their total
exports of textiles and 20 percent of clothing exports. Extending the above simulation to cover full
global liberalization of T&C imports, in both industrial and developing countries, suggests that
removing developing country tariffs would contribute  a large share of their own gains in income and
exports, though it would have a comparatively lo wer impact on industrial countries (Table 10).55
Table 10. Income and Export Revenue Losses Due to MFA Quotas and T&C Tariffs
(In billions of U.S. dollars)
Developed countries Developing
Quotas and tariffs MFA quotas Tariffs country tariffs1World
Income loss
  Developing 23.8 1.7 22.2 28.0 51.8
  Developed 10.9 13.9 -3.0 3.2 14.0
  World 34.7 15.5 19.1 31.1 65.8
Export revenue loss  Developing 39.8 22.3 17.5 41.5 81.2  Developed 46.3 10.3 35.9 9.0 55.4
  World 86.0 32.6 53.4 50.5 136.6
Source: IMF staff simulations with the GTAP model.
1Half of applied tariffs assume d for textiles in order to acc ount for exemptions (full tariff for clothing).
64. The effect of T&C restrictions on employment in developing countries is considerable.
According to staff simulations, as many as 27 million jobs are foregone in developing countries due
to the combined effect of quotas and tariffs.56 On average, each job saved in developed countries by
tariffs and quotas is therefore, estimated to cost 35 jobs in developing countries, many of which are in
China and India. MFA quotas and tariffs tend to be most hurtful to the poor. In developing countries,
T&C industries employ overwhelmingly low-skilled workers, often migrants from rural areas. 
65. Similarly, low-income households in industrial countries bear the brunt of the cost of
MFA quota and tariff restrictions.  The poor spend a larger share of their income on necessities
such as T&C. The products they buy are typically subject to higher tariffs and restrictions than those
bought by the better-off—for instance, imports of silk blend baby trousers face a tariff of 2.8 percent
                                                                                                                                                                    
estimated terms of trade losses are sma ller. Partial equilibrium analyses of T&C restrictions often suggest larger
income losses.
54 In Table 10, the income loss in industrial countries due to the liberalization of tariffs is explained by
terms of trade effects.
55 These estimates assume that effective rates of tariffs on textiles are half the applied rate, as a result
of exemptions.
56 In the simulation, it is assumed that real wages in developing countries remain constant after the
removal of protection in developed countries. Given widespread un- and under-employment, this may be areasonable assumption. Jobs lost cover both direct and indirect employment in all industries. In developedcountries, economy-wide employment is assumed to be constant after the removal of protection, but workers
can move across industries. So even though jobs are lost in the textile and clothing industries as a result of
liberalization, the same number of jobs is created in other industries.WT/WGTDF/W/14
Page 41
in the U.S. market, those of cotton a rate of 15.5 percent, and synthetic fiber trousers a rate of 29.0
percent (Gresser, 2002). This pattern, repeated across a wide range of product categories, is
reinforced by the effect of quotas, which lead to higher percentage mark-ups on lower quality
products than on higher quality ones (Falvey, 1979). Volume quotas also provide a continuous
incentive for exporters to upgrade their products over time within each quota category towards higherunit value products.
57
E. ADJUSTMENT NEEDS FOLLOWING LIBERALIZATION
66. Quotas and tariffs on T&C trade differ in their impact on developing countries.  For
developing countries, the income effect of the current tariff regimes is far more significant than that
of the quotas, largely because they share in the quo ta rents. In turn, quotas dominate the impact on
exports and employment. Because the extent to which quotas are binding differs between
exporters, their elimination could give rise to si gnificant shifts in the competitive position of
suppliers.
67. Among developing countries, quotas are most constraining for China and India. Other
suppliers benefit from this state of affairs as restrictions on more competitive producers enable
them to sell at higher prices into the protected markets .58 In fact, the quotas of many countries
have been underfilled (USITC, 2002). Upon the elimination of quotas, the more competitive suppliersare expected to gain market share from others, including low-income countries (Francois and
Spinanger, 2002; UNCTAD, 2002; and Adhikari and Yang, 2002). A reallocation of production could
undermine external balances and impose high adjustme nt costs, in view of the large share of T&C in
the exports of a number of countries. There is a need for the early identification of problems and
action to diversify exports and strengthen competitiveness.
68. The backloading of effective liberalization under the ATC is particularly unhelpful, as it
turns what could have been a gradual adjustment process into a shock at the end of the
transition period—for both importing and exporting countries .
59 This raises concerns that
political pressures might spark greater recourse to other forms of protection once quotas are phased
out, with trade remedy action and perhaps non-transparent “voluntary” export restraints (prohibited inprinciple under the WTO) becoming a new “line of defense.” In addition, the sudden withdrawal of
quota protection at the end of the transition period is likely to increase resistance to further reductions
in tariffs. So far, use of the transitional safeguards under the ATC has been erratic, and while WTO
statistics show no clear trend in annual antidumping initiations in the textile industry, the total number
of measures in place has increased over time (Lindsey and Ikenson, 2001).
 60
69. One way to mitigate the adjustment shock in developing countries is to accompany
quota removal with tariff reductions (in industrial countries and other large markets for
developing country T&C exports) . Combined action on quotas and tariffs would improve income
and increase export earnings for a broader range of developing countries compared with quota
                                                     
57 In the United States, the quotas are typically specified in number of square yard equivalents, while in
the EU they are often specified in number of kilograms.
58 However, since quotas are often administratively allocated, rather than competitively auctioned,
developing countries often suffer the costs of inefficient allocation (Trela and Whalley, 1995).
59 Even though countries would have an interest in smoothing the adjustment path in anticipation of
quota removal, the same is not true for individual producers whose incentive, given sunk investments, is to takeadvantage of quota rents as long as they are available.
60 The WTO does not report antidumping activity on clothing separately. Also see the WTO website:
http://www.wto.org/english/tratop_e/adp_e/adp_e.htmWT/WGTDF/W/14
Page 42
removal alone, while developed countries also reap substantial benefits. However, for countries
benefiting from preferential access under present conditions, tariff reduction would impose additional
adjustment burdens as the value of these preferences is eroded. 61 Scheduling a gradual path for the
multilateral liberalization of tariffs that starts early—in parallel with quota removal—but provides
time for adjustment, may allow to strike the right balance among the interests of individual countries.
Trade liberalization across a broad range of industries would help compensate some developing
countries for the losses they suffer in the textile and clothing industries.
70. Preferences for LDCs are not a long-term solu tion to problems of competitiveness, but
schemes that provide LDCs with duty- and quota-free market access may ease problems of
transition, especially if combined with liberal rules of origin . Simulation results suggest that duty-
free entry into Quad markets, in a scenario in whic h tariffs on T&C are reduced multilaterally to the
average for other manufactures, might lead sub-Saharan Africa to enjoy an income gain and anincrease in export earnings rather than a loss. However, the benefits of preferential market access can
be substantially reduced and even negated by restrictive rules of origin, either because of the need to
switch to higher-cost sourcing of intermediate goods, or because value added thresholds for
preferential access are hard to meet.
62 In addition to the rules of origin, there is often a fine balance to
strike on social and environmental conditions. As  illustrated in Box 8, minimum wage and other
conditions for preferential access of Cambodian-made garments may have limited the benefits the
country has drawn from these schemes.
71. Industrial countries also face a continuing adjustment problem. While employment is
shrinking, T&C industries have demonstrated an ability to adapt in the past . In the textile
industry, the primary response has been investment in new technology. As a result, the industry hasbecome more capital-intensive and labor productivity has improved continuously over time
(Levinsohn and Petropoulos, 2001; Stengg, 2001). In the clothing industry, the primary response to
import competition has been organizational change in the production process. Local manufacturers
have taken advantage of their geographic proximity to markets and developed quick-response supply
systems.
63 Outsourcing overseas of the labor-intensive (assembly) part of the production process has
also increased substantially in recent years. Nevertheless, employment in the T&C sector has fallen
drastically over the past decades, and is likely to decline further. As discussed, import restrictions are
a very costly way to prevent job loss and increase wages, but some forms of targeted adjustment
assistance have shown positive results (Martin, 1998).
                                                     
61 Simulations suggest that Central America, Mexico and the SACU countries would be particularly
heavily affected by the combined impact of quota removals and preference erosion. The results do not take
account of AGOA and EBA; preferences under the former have been effective at raising T&C exports of certain
African countries to the U.S. market (see Section II).
62 Mattoo and others (2002) estimate that benefits under the AGOA could be reduced by as much as 85
percent because of onerous rules of origin. There are similar problems with EU preferential schemes. In the caseof Bangladesh, for example, the high import content of its garment exports means that a large share of thecountry’s garment exports fails to qualify for duty-free entry into the EU market (Oxfam, 2002).
63 For instance, there has been a substantial shift from the traditional progressive bundle assembly
system to module production which shortens delivery time as well as reducing inventory costs.WT/WGTDF/W/14
Page 43
Box 8. Labor Standards and Cambodia’s Exports of Textiles and Clothing
Cambodia’s garment manufacturing has grown spectacularly since 1995. The industry grew from virtually zero
activity in 1996 to some 200 factories and 150,000 jobs in 2001. Exports expanded from virtually nothing in
1995 to US$965 million in 2000, accounting for 87 percent of the country’s total exports in that year. This
success has been at least partly due to preferential access to the EU and U.S. markets, in the case of the UnitedStates subject to compliance with a number of labor standards and minimum wage conditions.
Protected access to high priced markets has led to a segmentation of the Cambodian labor market ,
engendering various private payments to secure a place in the privileged sector. The growth of the garments
sector since 1997 has led to a massive inflow of about 120,000 young people—mostly women—from ruralCambodia to Phnom Penh. Working conditions are considered good, and following regulations regardingminimum wages and a bonus system, monthly take home pay has risen to about US$70. However, to secure
jobs in the sector workers typically pay an up-front bribe to shop stewards, and pay transport and living
expenses for a month without salary. Fees to secure jobs in the sector have risen four-fold to about US$120,which is beyond the means of most families in rural Cambodia. Moreover, there is a stark contrast betweeninspections of labor conditions in some parts of the sector, and neglect in others.
There are also concerns about the long-term viability of this sector’s growth. Due to the minimum wage and
overtime provisions, costs are considered too high for a number of markets where Cambodia has non-preferredaccess. Investment and employment creation are therefore thought to be constrained. There is also considerableuncertainty regarding the continuation of market access privileges. Given the “footloose” nature of the sector,changes in market access conditions could prove highly disruptive for the country’s development.
Source: Cambodia Integrated Framework, Diagnostic Trade Integration Study , 2002.
F. POLICY IMPLICATIONS
72. It is an urgent priority to accelerate the removal of quotas on textiles and clothing
imports.  Given the risks associated with the backloading of quota removal under the ATC, the
objective should be to limit the adjustment shock at the end of the transition period, for both
importers and exporters. At the same time, T&C exporting developing countries should assess the
competitive position of their industries and determine the need for and scope of adjustment policies in
anticipation of quota liberalization and preference erosion.
73. It should be the aim under the Doha round negotiations to substantially lower tariffs on
T&C trade, in both industrial and developing countries . Tariffs in this sector are exceptionally
high and liberalization can be expected to carry large benefits for developing countries in terms of
exports, employment, and income. Possible approaches to the elimination of tariff peaks and
escalation were discussed in Section II. Tariff reductions would, in a number of developing countries,help to mitigate the adjustment shock from quota removal. In industrial countries, tariff reductions
combined with the removal of quotas are likely to benefit lower-income households on the whole, and
improve income and efficiency.
74. In order to prevent antidumping action from  taking the place of quotas and tariffs once
these are liberalized, trade remedy rules should be reviewed with the aim to limit the scope for
discretion and incorporating consumer interests  (see Section II.E).
V. CONCLUSIONS
75. Market access barriers in world trade remain significant for products of export interest
to developing countries.  This paper suggests that the liberalization of imports, especially forWT/WGTDF/W/14
Page 44
agricultural products and textiles and clothing, can generate large benefits for developing countries in
terms of incomes, exports and employment. These bene fits would derive in part from the elimination
of access barriers to industrial country markets, but also in good part from reform of the trade regimes
of developing countries themselves. In the aggregate, the determined opening of markets is a win-win
proposition—both industrial and developing countries gain. The static income gain alone fordeveloping countries, suggested by model simulations, compares favorably with levels of
development assistance. Overseas development assistance levels have been on the order of US$50–60
billion over recent years, roughly equivalent to the estimated income effect on developing countries
of removing barriers to trade in textiles and clothing. In addition, there are likely dynamic effects.
Many developing countries have been able to develop vigorous and diversified export sectors despite
the existing market access hurdles, but better access would no doubt ease the task.
76. The paper identifies a number of priorities for making progress towards a multilateral
trading system that takes special account of the interests of developing countries . These include
eliminating tariffs peaks and escalation, essentially in agriculture, textiles and clothing; tightening
disciplines on trade remedy action; increasing cap acity-building assistance to help developing
countries navigate technical and health-related barriers; extending full duty- and quota-free access for
LDC exports; pursuing a comprehensive approach to liberalization in agriculture, including the de-
coupling of domestic support to agriculture; accelerating the phase-out of MFA quotas in textiles and
clothing trade combined with tariff reductions; and strengthening preference schemes, for example,
by simplifying and liberalizing rules of origin and other conditions.
77. This report has not dealt with services. Developing countries, however, are likely to
benefit significantly from further domestic liberalization and the elimination of barriers to their
exports  (World Bank, 2002a). The income gains from services liberalization are estimated to be
multiples of those from liberalization of trade in goods. This is not surprising given the key
infrastructural role of services like transport, finance and telecommunications and the high barriers to
foreign provision, despite substantial liberalization in recent years. Despite the growing scope for
cross-border delivery, the movement of service-supplying personnel remains a crucial means ofdelivery for most developing countries. The current round of services negotiations at the WTO
provides developing countries an opportunity to push both for accelerated reform at home and
improved access to markets abroad.
78. Together with the benefits of liberalization come a number of risks and adjustment
needs. It is important to identify these early and take appropriate action . Liberalization in
agricultural trade can have complex distributional effects. While this is true for most economic
reforms the food sector will tend to be particularly sensitive. Where the affected groups areeconomically vulnerable, supportive policies might be called for; these should, however, be
embedded in broader poverty reduction or development strategies, and it must be recognized that
trade policy instruments are rarely efficient tools of social policy. While associated with continuing
large income losses for the world economy as a whole, the gradual pace of any likely path of
agricultural liberalization should help to ease adjustment.
79. Another risk is related to quota liberalization in textiles and clothing trade, which will
expose the lack of competitiveness of some developing country exporters . Liberalization has
already been agreed, and the extension of the implementation period under the ATC is explicitly
excluded under the agreement. It is crucial that it should take place in a way that minimizes the
adjustment pressures and balance of payments impact, given the high dependency of some countrieson textiles and clothing exports. Accelerating quota removal must be part of such an approach, as
must the lowering of tariff barriers, in order to mitigate the shock at the end of the implementationWT/WGTDF/W/14
Page 45
period. Improving preference schemes might provide some support, but it will also be necessary for
developing countries to assess their competitive position in a post-MFA world and prepare early for
adjustment.WT/WGTDF/W/14
Page 46
ANNEX I
Modeling the Effect of Trade Liberalization
This annex provides a brief introduction to the Global Trade Analysis Project (GTAP) model,
which was used to generate some of the results presented in the main text, and guidance for the
interpretation of these results. The GTAP model is a comparative static, global general equilibrium
model based on neo-classical trade theory. Firms maximize their profits while consumers maximizetheir utility. All markets are assumed to be perfectly competitive, and constant returns to scale prevail
in all production and trading activities.
On the supply side, firms use both a composite of primary factors and a composite of
intermediates to produce their output according to Leontief production technology. The primary
factor composite is a constant elasticity of subs titution (CES) function of labor, capital, land and
natural resources, while the intermediate composite is a Leontief function of material inputs, whichare in turn CES blends of domestically produced goods and imports. Imports are sourced from all
regions, with their share depending on trading prices (the Armington approach).
On the demand side, each country or region is assumed to have a “super” household
disposing of regional income in fixed proportions in the form of private consumption, governmentexpenditure and savings. Household consumption is assumed to be a constant difference in elasticities
(CDE) function of various consumer goods while government expenditure is based on a CES function
of various commodities. Both household and government consumption are CES blends of
domestically produced goods and imports, which are in turn sourced from all trading regions based on
the Armington approach.
Regional savings are assumed to be homogenous and contribute to a global pool of savings,
which is then allocated among regions for investment  according to regional expected rates of return.
Regional investment can either change proportionally so that regional returns may vary or such
changes in returns can be equalized across regions, thus giving capital (i.e., savings) greater mobilityacross regions. However, capital stocks are immobile across regions, although they are perfectly
mobile within a region, as is labor. Land and natural resources are industry-specific, and only limited
transformation of their uses among industries is possible.
The simplicity of the GTAP model makes its simulation results easier to interpret, but limits
its capacity to deal with more complex economic issues, such as the adjustment path over time and
long-term effects of trade policies associated with investment cumulation, technology and
productivity change. Also absent in the model are adjustment costs associated with trade
liberalization. These limitations must be kept in mind when interpreting the results presented in this
paper. Attention should also be paid to the considerable uncertainty over elasticity values, which have
strong influence over the terms of trade effects of policy changes.
The GTAP database provides data on key trade policies, as well as on a large number of
countries and commodities. The base year for the data is 1997, and for this reason, many recent
preferential arrangements are not incorporated in the database. Some efforts were made by staff to
incorporate the 2002 U.S. Farm Bill, but the update is very preliminary.WT/WGTDF/W/14
Page 47
The modeling results should be primarily used to gain an understanding of the mechanism
behind the economic impact of various policy options, and to provide broad indications of the
direction and the magnitude of change in economic variables. Such an approach is particularly
warranted when interpreting results for individual countries.WT/WGTDF/W/14
Page 48
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