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The linkages between regional integration and agriculturaltrade strategy are of increasing interest to developingcountries as they confront the challenge of opening uptheir economies to competition while mitigating the asso-ciated adjustment costs. Countries around the world havestepped up their efforts to establish regional preferentialtrade agreements (PTAs) and to coordinate trade relationswith other regions. Agricultural trade is a core componentof many of these trade initiatives, and a large part of thegains from regional integration depends on the inclusionof agricultural and food products in PTAs. Agriculturaltrade policy and regional integration agreements cantogether serve as instruments for accelerating growth andcontributing to poverty alleviation.

Although the motivation for PTAs is often political,these agreements have significant implications for agricul-ture and other sectors of the economy. Many North-Southagreements were concluded after a country gained inde-pendence, in order to maintain trading links developed inthe colonial era—typically, for trade in raw materials andagricultural products. Other PTAs were instituted as part ofthe development of alliances and to bolster regimes thatwere under threat. Agricultural products often providedtrade opportunities that reinforced such alliances. PTAshave long been used by developed countries to pursueoverseas developmental objectives through the provision ofpreferential market access, often for primary products.Such access, however, has frequently been constrainedwhen sensitive domestic agricultural products wereinvolved.

More recent thinking has cast doubt on the longer-termbenefits of PTAs, on the grounds that they tend to lockexporting countries into a particular pattern of exports,often of unprocessed raw materials and farm products,while competitors develop other markets and diversifytheir range of export products. A further problem, from the

viewpoint of developing countries, has been that the termsof the PTAs are largely at the discretion of the preference-granting country, with little guarantee that the agreementswill not be changed if they lose domestic political backing.This asymmetry also implies that the granting country cancontinue to extract from the preference-receiving partnerpolitical benefits such as support for economic and politi-cal positions.

The role of PTAs in agricultural development variesgreatly, from strategic and deliberate to largely passive andreactive. Countries can choose to plan their agriculturalstrategies on a regional basis to take advantage of scaleeconomies and overcome some of the constraints facingsmall national markets. Often, however, agriculture isbrought into regional agreements through extraneouscircumstances rather than careful planning; agriculturebecomes one element in a broader set of complex trade-offs.PTAs often have an underlying rationale of contributing toincreased regional cohesion and political integration, andthe treatment of the agriculture sector becomes of inter-est, beyond strictly commercial considerations. Foodsecurity and the coordination of food policies and mar-keting infrastructure may be important reasons for theinclusion of a strong agricultural component in regionalpolicies. Thus, the key issues in addressing agriculturaltrade in PTAs are whether regional integration promotesor hinders the development of a sustainable, competitiveagriculture sector and whether agricultural trade consid-erations contribute to or detract from the benefits ofregional integration.

This chapter attempts to put into perspective what weknow and do not know about the economic impact ofPTAs on agricultural development. The next section sur-veys the arguments for and against preferential trade inte-gration as a development strategy for agriculture. Thesearguments relate, in general, to the effects of opening up

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which regional integration can provide the scale needed forsuch cost reductions depends on specific circumstances,but, in principle, the achievement of economies of scale canbe a positive argument for regional integration. If the part-ner with the inefficient agriculture sector can make use ofscale economies to become efficient, costs will decrease.But to treat PTAs as a nursery for potentially competitivesectors is controversial at best: the infant may becomedependent on the protected market within the PTA andmay not have an incentive to become competitive outsidethe area. Moreover, import-competing sectors will tend toshrink with regional integration and may lose some bene-fits of scale. Thus, the larger question is whether there is apossibility of a broad restructuring of the agriculture sec-tors of each of the PTA partners so that economies of scalecan be exploited and resources redeployed to take advan-tage of regional (as opposed to national) cost advantages.

Fluctuations in output often mark agricultural markets,and trade is a vital means for offsetting the impact on avail-able consumer supplies. The easier trade is, the less is thecost of market disruption to consumers. Greater regionalfood security is thus another plausible argument for inte-gration of the regional partners’ food supply network. Allparties to a PTA that includes an open internal agriculturalmarket will enjoy the advantages of more secure access toregional supplies. Even where weather and other relateddeterminants of yield variations are regionally correlated,there can still be benefits from pooling risks. Storage facili-ties can be collectively operated, and regionally coherenttransportation systems can improve distribution. Theremay, however, be a political cost because of loss of the abil-ity to control domestic markets.

Agricultural trade in PTAs can benefit from some of theconsiderations of spatial or economic geography that applyto trade in goods. Some of these have to do with the provi-sion of public goods, where the good concerned is valued(and underprovided) across local jurisdictions. More gen-erally, both public and private sector actions can beexpanded to a regional scale with advantage. Greater coor-dination of export strategies, more reliable supply chainsfor buyers, shared control over the quality and safety ofexports, a better bargaining position with importers inother countries, and the possibilities for branding andlabeling of regional products are all likely to result inexpansion of export markets.

Preferential Agricultural Trade and MultilateralCommitments

As noted by Baldwin and Freund (ch. 6 in this volume), akey tension between bilateral or regional trade rules and

trade among selected trade partners, as opposed to relyingon either unilateral or multilateral actions. The rationalesalso cite possible economies in the joint production ofpublic goods that benefit agriculture, ranging fromresearch and extension to food security reserves. The sec-ond section then reviews what is known empirically aboutthe impact of PTAs on agricultural trade. The third dis-cusses some ways in which PTAs have dealt in practice witha set of problems that are commonly encountered whenagriculture is included in PTA provisions. Both regionaland bilateral PTAs are considered, as the agricultural prob-lems differ somewhat in the two types of agreement.

Economics of Agricultural Trade in PTAs

In most respects, the economics of agricultural trade inPTAs is no different from the economics of nonagriculturaltrade. As with trade in nonfarm goods, agricultural trade inPTAs benefits from static gains related to expanded marketaccess and from more dynamic gains related to the spreadof ideas, innovations, and know-how (see Baldwin, ch. 3 inthis volume).

Two important initial questions frame any agriculturaltrade strategy in PTAs: (a) how high are domestic (tariffsand nontariff) barriers relative to those of regional partnersand other countries, and (b) how efficient are the exportsectors within the region? If the region includes suppliers ofagricultural products whose costs are lower than those ofmore distant exporters, then the regional strategy carriesbenefits similar to the unilateral or multilateral lowering oftariff barriers. Regional supplies can be integrated into acountry’s food policy, and ensuring access to those supplieswill be an element in food security policy. The higher theexisting tariffs (and other trade barriers) that restrictregional trade in these products, the greater will be the ben-efits of preferential liberalization to consumers. But this alsoimplies greater disruption to domestic producers, who pre-sumably have not had to face regional competition. Whenthere are other products that could gain from the exportopportunities that would open up with regional trade, abeneficial transfer of resources from the import-competingto the exporting agriculture sector may be possible. Butif the agriculture sector in the regional partner is not effi-cient, the reduction in trade barriers may merely substitute ahigh-cost partner product for a more efficient third-countrysupply. Under these conditions, the advantages are likely tobe small and the costs high.

These considerations need to be seen in a dynamic con-text. Inefficient agricultural suppliers could become lowcost if their inefficiencies had been the consequence of lim-ited markets and diseconomies of scale. The extent to

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multilateral trade rules arises from the latter’s requirementthat PTAs eliminate tariffs and other trade measures on“substantially all trade” and that the level of preference be100 percent. (The multilateral rules in question are those ofthe General Agreement on Tariffs and Trade, or GATT, asnow embodied in the World Trade Organization, orWTO.)1 Although there has as yet been no agreement onthe interpretation of “substantially all trade,” agriculture isthe sector most often excluded or treated differently; man-ufactures are far more likely to benefit from tariff reduc-tions in PTAs than are agricultural goods (Fiorentino2005). The prospect that competing exporters will chal-lenge the exceptional treatment of agriculture in PTAs isremote, however, because these competitors tend to benefitfrom it. Exporters within the PTA have implicitly agreed tothe exclusion and would be reluctant to challenge a partnerwith respect to mutually agreed decisions.

The requirement for movement toward full internal freetrade (100 percent preference) has also been problematic.In some PTAs, partners gain an advantage from preferentialtariffs but still face nonzero rates. Despite the inconsistencywith GATT Article XXIV, several of these preferential tariffschemes have been permitted. As noted, there would be lit-tle outside interest in challenging such schemes, given thatthe lack of 100 percent preference works to the advantageof the excluded supplier.2 The WTO requirement that thefree trade area encompass “substantially all trade” (which,for most developing countries, includes agriculture)imposes costs on PTAs that include high-cost agriculturesectors. It may be therefore better in economic terms forsuch PTAs to exclude highly protected sectors, includingagriculture.

The complementarity of preferential tariff reductionwith multilateral trade developments can be part of a posi-tive strategy for agriculture: the multilateral system couldwork to lower most favored nation (MFN) tariffs andreduce trade-distorting subsidies, making it easier and lesscostly to negotiate PTAs. The coordination of multilateralstrategy among the regional partners also offers other pos-sibilities for regional negotiating strategies and negotiatinggroups and opens an opportunity to develop strategies thatcombine regional and multilateral integration.3

There are indications that PTAs may be more successfulthan multilateral agreements in opening markets for agri-cultural goods. It often seems easier to fine-tune marketaccess within discriminatory agreements, through selectiveinclusions. The European Union (EU) provides limitedaccess for sensitive agricultural products to the many coun-tries that have signed such agreements, including theMediterranean countries, the African, Caribbean, andPacific (ACP) countries, South Africa, and Mexico.4 Within

the North American Free Trade Agreement (NAFTA), theUnited States is moving toward a free internal agriculturalmarket with Mexico and Canada, with few exceptions.More recently, the United States has negotiated agreementswith Chile, Central America, the Dominican Republic, andAustralia giving those countries preferred, although notfree, access to U.S. markets. Less sensitive food products arealso included in generalized system of preferences (GSP)schemes. Substantial amounts of agricultural trade thus doface barriers less restrictive than MFN tariffs. Presumably,much of this trade is diverted from lower-cost suppliers.

Yet the short-term market access gains from a PTA haveto be weighed against the possible adverse effects on themultilateral trading system. Many of the problems thatmake the incorporation of agriculture in a PTA regime dif-ficult also prevail in a multilateral context. A prominentissue in this regard is the extent to which disciplines ondomestic farm subsidies can be included in PTAs. It is oftenassumed that the conduct of domestic policy is outside therealm of PTAs, but this is not always the case. The move-ment toward “decoupled” policies, encouraged by theWTO Agreement on Agriculture, has the advantage ofmaking it easier to have free trade in a commodity and stillmaintain domestic support policies (box 7.1). Neverthe-less, the existence of an active domestic support policy,involving subsidies and market management, complicatesthe negotiation of free trade in those products. If agricul-tural trade can be omitted from PTA provisions, thequestion of domestic support does not arise. Conversely,if agriculture cannot be excluded without violating WTOprovisions, the potentially problematic issue of domesticsupport policies cannot be avoided.

The treatment of export subsidies in PTAs is similarlyproblematic. Various trade agreements include provisionsthat countries may not employ export subsidies in mutualtrade. Although this sounds like a logical stipulation, it isnot easy in practice to ban subsidies paid on internal tradewithout creating an incentive to import from outside and adisincentive to export within the PTA. In effect, exportsubsidies also have to be controlled at the WTO level.

The current Doha Round of WTO negotiations would,if successfully completed, make a significant difference tothe ease with which agricultural trade could be opened upwithin PTAs. Under the provisions of the 2008 draftmodalities, tariff levels for developed countries woulddecline by more than 50 percent for agricultural products,and tariff-rate quotas (TRQs) for sensitive commoditieswould be expanded. This would reduce both the degree ofpreference for partner suppliers (and hence the risk oftrade diversion) and the adjustment for import-competingsectors. Given an agreed schedule of WTO tariff reductions,

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preferred partner with less threat to domestic agriculturesectors. Regional and bilateral PTAs, however, cannot dealeffectively with agricultural export subsidies and domesticfarm support, and so it is likely that the WTO will continueto be needed as a complement (Josling 2009). Meanwhile,regionalism poses problems for the multilateral system.PTAs may pick the easiest agriculture sectors to liberalize,leaving the most difficult products to the WTO. PTAs canalso lead to investment in the “wrong” countries, just to getaccess to their agricultural markets. Moreover, too manysimultaneous negotiations can overstretch resources. SomePTAs can be “strategic”: an example is the efforts of theSouthern Cone Common Market (Mercosur, or MercadoComún del Sur) to get the rest of South America into itscamp before dealing with the United States and NAFTA.Some can be competitive, as when the EU and the UnitedStates compete for the Mercosur market. Such activities arelikely to distract from the WTO, or they might distort themultilateral nature of the Doha Round.

These issues have been discussed in the literature oftrade strategy. Analyses by Zissimos and Vines (2000) andby Andriamananjara (2002) suggest that joining a PTA canbe the best “safe-haven” strategy when other countries arealso doing so. But this does not imply that the end result isone large free trade area, given that PTA membership con-fers a terms-of-trade gain on members at the expense ofnonmembers. Some members, at least, will be better offlimiting PTA membership than allowing expansion to coverthe world as a whole. The effect is similar to that suggestedby the domino theory of the dynamics of regional tradeblocs (see Baldwin, ch. 3 in this volume). As PTAs expand,the attraction of being within the bloc (or the cost of beingoutside) increases, but the marginal gain to existing members

the marginal impact of quicker reductions for regional orbilateral partners may be more tolerable. In addition,export subsidies would finally be eliminated—a step thathas proved difficult to accomplish within PTAs. But themain contribution that the WTO negotiations on agricul-ture can make to the process of regional and bilateral tradeliberalization may be to push countries to abandon pricesupports in domestic markets and embrace direct pay-ments for public goods or for income relief. Such policieswill be more compatible with PTAs, as well as beneficial forthe multilateral trading system.

Because of the slow pace of the Doha Round negotia-tions on agriculture, regional negotiations may have tobear the brunt of attempts to further liberalize agriculturaltrade and to open access to new markets for agriculturalexports. Thus, in agriculture there is a strong degree ofcomplementarity in trade negotiations. Plurilateral agree-ments can erode market access barriers, but they can alsofoster less advantageous trade flows by discriminationamong suppliers. Multilateral talks can reduce the scopefor such trade diversion. The multilateral process can han-dle subsidy reduction, which, in turn, makes it easier forcountries to agree to opening up regional or bilateraltrade. This complementarity, however, depends onprogress at the multilateral level. Currently, that is thestumbling block.

Economic Integration as an Agricultural Strategy

Is regionalism a better approach to agricultural trade pol-icy than reliance on improved market access though themultilateral system? PTAs may be better than tariff reduc-tions through the WTO at improving market access for the

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Box 7.1. The WTO Agreement on Agriculture

The Agreement on Agriculture entered into force with the establishment of the World Trade Organization (WTO) on January 1,1995. The preamble to the document cites the agreed long-term objective of the Uruguay Round reform program: to establish afair, market-oriented agricultural trading system. The program includes specific commitments to reduce support and protection inthe areas of domestic and export subsidies and market access and through the establishment of strengthened and moreoperationally effective General Agreement on Tariffs and Trade (GATT) rules and disciplines. The Agreement on Agriculture alsotakes into account nontrade concerns, such as food security and the need to protect the environment, and it provides for specialand differential treatment for developing countries, including an improvement in the opportunities and terms of access foragricultural products of particular export interest to these members.

In principle, all WTO agreements and understandings on trade in goods apply to agriculture. These include GATT (incorporatedinto the WTO agreements as GATT 1994) and WTO agreements on such matters as customs valuation, import licensing procedures,preshipment inspection, emergency safeguard measures, subsidies, and technical barriers to trade. Where there is any conflictbetween these agreements and the Agreement on Agriculture, the provisions of the latter prevail. The WTO General Agreement onTrade in Services (GATS) and the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement are also applicable toagriculture.

Source: WTO Agreements series: Agriculture.


of adding one more (small) market to the bloc, and theextra administrative and political cost of a large member-ship, will act as a brake. The implication is that each suchagreement will tend to find its equilibrium size, where thecosts and benefits of enlargement are in balance.5

So, is the pursuit of PTAs a short-term or a long-termstrategy in agricultural liberalization? Pursuing bilateralNorth-South PTA arrangements at the regional level maylead to short-term benefits of access to agricultural mar-kets for participating developing countries. But developingcountries should be aware that preferential access is likelyto be eroded as more countries sign such deals, reducingthe value of preferences (García-Alvarez-Coque 2002). ForPTAs to be beneficial in the longer term, governments andstakeholders should implement a set of reforms to helpsustain the growth of domestic agriculture and reduce thepoverty of the agricultural population.

As noted, this type of discriminatory trade agreementhas both positive and negative aspects. On the positive sideis the ease of reaching an agreement among a small group ofadjacent countries. Often, the countries involved will sharehistorical and social perspectives on trade and agriculture.But this ease of reaching agreement comes at a cost. PTAstend to “cherry-pick” the easiest trade areas in which to con-clude a deal, leaving the more difficult ones to the WTO.The ease of reaching an agreement may reflect the willing-ness of the parties to avoid hard decisions by excluding sen-sitive sectors such as agriculture from the deal.

Those PTAs that have been most effective in opening upagricultural markets have tended to include as membersmajor agricultural exporters that see the advantages ofexpanding markets. Countries that are mainly importers offarm products are less likely to agree to open up markets,and hence the benefits to the sector may be small.

In PTAs among members in different regions, the temp-tation to exclude sensitive sectors of agriculture is evengreater, as there is less probability that the deal will includeprovisions of benefit to agricultural export interests. Giventhat bilateral PTAs often involve countries which are notgeographically close, there is often an opportunity to nego-tiate with a country with a complementary agriculturalpattern, to take advantage of trade opportunities. In prac-tice, this often works in reverse, as countries cherry-pickpartners so as to avoid conflicts over agriculture. The exis-tence of political tensions in trade agreements usually indi-cates potential economic benefits that could be realizedfrom changes in trade patterns.

The positive and negative aspects of PTAs are com-pounded by the apparent advantage that nonreciprocalpreferences give to the recipient country relative to others.But overall, the limiting factors mentioned above, together

with the restrictive rules of origin for many processedproducts, have severely limited the role of trade preferencesin encouraging agricultural diversification in developingcountries.

Tariffs introduce a wedge between the world price of aproduct and the price on the domestic market. Trade pref-erences allow products from the beneficiary country toenter the partner country with lower import duties thanare applied to other countries’ products under the partnercountry’s MFN tariffs and hence capture some of thewedge. They give suppliers in beneficiary developing coun-tries access to part or all of the price premium that nor-mally accrues to the importing country government as tar-iff revenue. The acquisition of these rents raises returns inthe developing country and, depending on the nature ofcompetition in domestic product and factor markets, stim-ulates expansion of the activity concerned, with implica-tions for wages and employment.

Developing countries, especially the least developedcountries (LDCs), face much higher trade-related coststhan other countries in getting their products into inter-national markets. Some of these costs may reflect institu-tional problems within the countries themselves, such asinefficient practices and corruption, and these require adomestic policy response. But some reflect weak trans-portation infrastructure and firms’ lack of access to stan-dard trade-facilitating measures such as insurance andtrade finance.

Empirical Evidence on Agricultural Trade and PTAs

What might a theoretical approach to the issue of agricul-tural trade and regional agreements suggest? Would oneexpect the proliferation of PTAs to have brought abouttrade expansion in agricultural products? In his analysisof the economic impact of regional integration on agricul-tural trade, Goto (1997) concludes that the higher the levelof preintegration protection, and the lower the degree ofproduct differentiation, the greater the impact of regionalintegration. He hypothesizes that “regionalism has more[of an impact] on agricultural trade than on manufactur-ing [trade], because the initial level of protection is higherand the degree of product differentiation is lower for agri-cultural products.” On the basis of this theoretical conclu-sion, PTAs could be expected to have a significant role inagricultural liberalization, and this hypothesis will beexplored in the brief review of the empirical literature thatfollows.

The literature on agricultural trade issues in PTAs isthin and scattered, and there is very little by way of detailed

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health and safety regulations for regional trade. Thesemodels do not evaluate the trade policies themselvesand cannot indicate whether a particular trade strategy isdesirable.

The third group of studies consists of ex ante evalua-tions of prospective agreements. These studies often usecomputable general equilibrium (CGE) models to calcu-late trade flows and the welfare implications of policies.Most of the few studies that focus on agriculture take asimilar approach, analyzing the significance of trade agree-ments for agricultural trade.

Each of the three sets of studies has strengths and weak-nesses. The study findings are reviewed below, and issues ofrelevance to the specific question of the empirical evalua-tion of trade preferences are then addressed.

Regional Trade Flows

The steady growth in world trade in relation to world out-put is seen as an indicator of the success of the multilateraltrade rules put in place by the GATT and reinforced by theWTO. The assumption has been that the elimination oftrade barriers and the extension of trade rules have stimu-lated trade flows. But has trade tended to be concentratedamong regions? The literature (e.g., Lloyd 1992; Andersonand Blackhurst 1993) tentatively concludes that the tradingsystem has not developed into a series of intensively trad-ing blocs, with decreased interbloc trade.6 Trade amongblocs remained resilient, despite the burst of “regionalism”in trade policy that characterized the decade from 1985 to1995. Nevertheless, evidence of increased intrabloc tradehas been a widespread, if not a dominant, feature of thetrading system.

Several studies find that intraregional trade in agricul-tural and food products grew during the 1980s and 1990s(Vollrath 1998; dell’Aquila and Kuiper 2003). With regardto the effects of particular trade blocs, Diao, Roe, andSomwaru (1999) find that, on average, agricultural tradeunder NAFTA, the European Union (then consistingof 15 countries), Mercosur, and Asia-Pacific EconomicCooperation (APEC) grew more rapidly than did totalworld agricultural trade.7 In particular, growth in intrare-gional agricultural trade exceeded the growth in extrare-gional agricultural trade for these PTAs.

Trade Flows and Preferences

A PTA increases trade among members through preferen-tial treatment. The question is whether that growth comesat the expense of the rest of the world. Despite a number oftheoretical and empirical contributions in recent years, the

and comparative analyses of the arrangements made foragriculture in regional PTAs. Bilateral PTAs are somewhatbetter documented, as they tend to be focused on a morelimited number of products, and the trade flows and con-ditions of market access are watched closely by the domes-tic sectors concerned. Unilateral preferences are again thesubject of study, in part because of their dependence onperiodic renewal and in part because of their direct impacton competing suppliers. An example of a case for whichthere is adequate information and several empirical analy-ses would be the EU’s regime for bananas, where the WTOcase has brought much transparency to the way in whichthe ACP countries sell their bananas to Europe and to themarketing choices of the excluded suppliers. Sugar sales tothe United States and the EU under PTAs have also beenclosely analyzed, and adequate data exist for calculating theeffects of such trade arrangements.

Absent such comprehensive and detailed studies dealingwith the amount and type of agricultural products tradedwithin PTAs, the assessment of the costs and benefits ofagricultural trade in PTAs has tended to rely on more con-ceptual studies. These studies can be grouped by theirfocus on one of three questions:

• Has regional trade increased faster than trade with thirdcountries?

• Does the existence of PTAs explain trade flows amongthe partners in such agreements?

• What are the gains and losses from participation inregional or bilateral PTAs?

The first group of studies essentially consists of explo-rations of the extent to which world trade is becoming moreor less regionalized. It is difficult to derive direct implica-tions from the outcome of such studies because regionaltrade could well increase rapidly even in the absence ofregional agreements. The nature of agricultural and foodtrade itself is changing over time, and the goods and serv-ices that are traded across continents may vary with theregional composition of trade. But it is still useful to havethese studies as a way of putting the regionalization of agri-cultural trade policy in context.

The second group of studies generally involves ex postexplanations of trade flows. The most commonly usedtechnique is a gravity model. By inserting dummy variablesfor the existence of PTAs in regression equations, thismethod aims to determine the significance of such tradepolicies in the explanation of trade flows. Agriculturaltrade flows can be isolated in these studies, and the impor-tance of the trade policy for agriculture can be determined.One application has been to look at the implications of

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effects of PTAs on trade in agrifood products have not beenevident from the literature because most of the studieshave dealt with merchandise trade. It remained for sometime an open empirical question, to what extent agrifoodtrade among PTA partners has increased and how muchof the increase could be attributed to trade diversion.

Recently researchers have tried to answer this questionbut have come to mixed conclusions. Jayasinghe and Sarker(2008) analyzed NAFTA’s trade creation and trade diver-sion effects on trade in six selected agrifood products from1985 to 2000. The results show that the share of intrare-gional trade within NAFTA is growing and that NAFTA hasdisplaced trade with the rest of the world. Countries par-ticipating in NAFTA have moved toward a diminisheddegree of relative openness in their agrifood trade with therest of the world. Grant and Hertel (2005), however, find,with only a few commodity exceptions, that PTAs haveincreased trade with nonmembers even as members haveincreased trade among themselves. As these examplesshow, the impact of PTAs on agriculture varies amongregions and among agricultural products.

Evaluating Trade Preferences

A major problem with the standard databases on tariff lev-els is that they rarely incorporate preferential tariffs. Giventhe amount of world trade that enters countries underpreferential (or zero) tariffs, the picture of market accesspresented in these databases is misleading. This omission isgradually being rectified; one notable advance has been thedevelopment by the French research organization Centred’Études Prospectives et d’Informations Internationales(CEPII) of a database that includes full information on thepreferential tariffs accorded developing countries. Analysisof the extent to which PTAs promote the development ofagriculture by opening up markets remains difficult but isnow subject to empirical exploration.

Trade preferences, both reciprocal and nonreciprocal,can provide the premium over the normal rate of returnthat is required to encourage investment in developingeconomies. The increase in agricultural trade attributableto preferences leads to more output and, if there are scaleeconomies, to lower costs, stimulating further trade. Thus,the search for preferential access to foreign markets is nat-urally a component of national trade policy. The degree ofpreference, however, can be fleeting if others are also nego-tiating market access. The benefits may be those of the firstmover and can be eroded steadily over time.

The granting of trade preferences is also a policy deci-sion subject to evaluation. The key question is whether thepartner receiving the preference is able or likely to be able

to meet import requirements at a reasonable cost. Loweringtariffs against third countries, even if done unilaterally, isa strategy that would minimize the cost of giving prefer-ence to high-cost imports. Making exceptions for tariff-free access for high-cost partner supplies would seem lessdesirable. Too stringent rules of origin will also add to thepossibility of trade diversion because it will discourageprocessing of third-country raw materials in the partnercountry.

The main drawback to relying on preferences for exportproducts for agricultural development is the effect on thepattern of domestic agricultural production. A few exportcommodities will benefit from preferences, but this will setthe economic context for other products that have to com-pete for land and labor. In addition, the guarantee of accessunder unilateral preference schemes may be a Faustian bar-gain, as the supplying economy becomes more dependentover time on the continuation of the preference margin.Preferences can create a degree of dependence that con-strains flexibility and diversification and results in high-costproduction of preferred products (Topp 2001). Moreover,other countries will have an interest in reducing thosepreference margins over time. The most highly protectedproducts have the highest potential margins of preference,but these are also the products that are likely to lose themost protection through WTO negotiations.

Many preferences are, in any case, quantity constrained.When preferences are granted on products for whichdomestic prices in industrial countries are much higherthan world prices, such as sugar in the EU and the UnitedStates, quantities are limited, to avoid undermining the dis-tortionary policies that generate the large divergencebetween domestic and world prices. In these instances,preferential access can lead to substantial gains for pre-ferred suppliers but little hope of market expansion, andhigh probability that the gains will be eroded.

In addition, some of the preference rents may not beavailable for development. How much of the available rentis actually obtained by suppliers in developing countriesdepends on the nature of competition in the industry andthe regulations governing the granting of preferentialaccess, among other factors. If there is little effective com-petition among buyers, exporters may be unable to capturemuch of the price premium. Olarreaga and Özden (2005)find that only a third of the available rents for Africanexports of clothing to the United States under the AfricanGrowth and Opportunity Act (AGOA) actually accrue toexporters. Furthermore, satisfying the rules governingpreferences raises costs and reduces the extent to which thepreferences increase actual returns. The costs of satisfyingthe rules of origin (ROOs) in preference schemes have

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liberalization, whereas for others, it will be a move towardgreater protection.

Gravity models and other models that seek to “explain”trade flows are of limited use in evaluating the value ofpreferences. Ex post analysis of why trade has taken placedoes not answer the fundamental question of whether dif-ferentiating one’s own tariff schedule in exchange for simi-lar differentiation by others is beneficial. If the gravitymodel identifies “natural” trade partners, then the questionis, why is that natural trade, based on proximity andincome, not taking place already? The answer could be thatthe trade policy of the partner country precludes suchtrade, but many other explanations could intrude. And the“best” trade partners may well be on other continents. So,gravity models are an interesting way of looking at tradepatterns, but a shaky guide to policy action.

CGE models also have drawbacks for the evaluation ofpreferences, although they do address the key issue of theeconomic benefits and costs. The difficulties stem fromwhether the situation to be analyzed can be specified inenough detail. The trade policy question may requireknowledge of particular market conditions, such as qualityand production cost. The device of assuming that eachcountry produces a somewhat different version of tradedproducts masks the question of whether and how such dif-ferentiation can be created and exploited. An exporter willask, “What are the regional markets that can open up formy product, and how can I adjust to meet the marketrequirements?” The CGE model will reply that the relevantsubstitution elasticity is already in the model and is not apart of the policy space.

This, then, is the dilemma facing analysts in this area.Every PTA is different, in its coverage and treatment ofproducts. Moreover, members’ motivations and interestscan differ widely, making the overall analysis of the agree-ment of limited use to individual countries. And withineach country, the calculation of costs and benefits will bespecific to conditions in particular sectors. In brief, the taskof analyzing any particular decision for a country on thebasis of the benefits to be gained from a trade agreement isheavily data intensive, context specific, and time related. Itis not surprising that the models do not produce satisfyinganswers to such questions.

Does this mean that the study of PTAs and their varia-tions is pointless? Clearly, one needs to continue to evalu-ate the overall impact of a fragmentation of the rule systemin world trade and the ways in which regional and multilat-eral trade can coexist and become more complementary.But in addition to that work, there is considerable scope forfocusing on the practical issues of decision making in thearea of trade policy. Such work would help countries—in

been cited as a major reason for low rates of utilization ofpreferential access in some cases (UNCTAD 2001; Brentonand Ikezuki 2005).

Tariff preferences can lead to other adverse effects thatneed to be taken into account. Negotiations in the DohaRound have shown that existing preferences can lead tosupport for highly protectionist policies in industrial coun-tries and can weaken proposals that would substantiallyreduce such levels of protection. This not only causes a riftamong developing-country negotiating positions but alsoperpetuates policies that depress world markets and rein-force dependence on preferences for export revenue.

Differences and inconsistencies between preferenceschemes can prevent developing-country suppliers fromevolving global market strategies. Furthermore, the prefer-ence schemes may not be directly consistent with povertyreduction objectives: beneficiaries of trade preferences arenot always the poorest constituents in developing coun-tries. Although rents do accrue to the developing country,they will tend to benefit the owners of the most intensivelyused and the most limiting factors.

Relatively few studies have directly measured the valueof preferences. The value depends on the difference inreturns in different markets. The rents accrue to the holderof the preference, but those rents are usually subject to thetrade policy of the preference-giving country. A recentexample of this view of preferences is given in Paggi,Yamazaki, and Josling (2005): the value of improved accessto Central American markets by U.S. exporters as a resultof the Central America Free Trade Agreement (CAFTA)and its extension to the Dominican Republic (CAFTA–DR)depends on who else has such preferences in those marketsand how long any advantage over other competitors willlast. The United States competes with the Mercosur coun-tries and with the EU in Central American agriculturalmarkets, and evaluation of the value of CAFTA for U.S.exporters is as much a function of the state of trade rela-tions among these other countries as of the details ofCAFTA as such.8

One problem with calculating the value of regional andbilateral preferences in agriculture is that the models tra-ditionally used do not adapt well to such questions. Thestudy of trade flows and the impact of regionalism maynot capture the strategic and dynamic aspects of PTAs. Acountry contemplating joining a PTA does not need toknow whether that PTA has been trade creating or tradediverting; the issue is whether acceding to the agreementcreates beneficial trade flows, either from better marketaccess or from reliable low-cost imports. In the case of acustoms union, the height of the common tariff holdsthe key—for some countries, accession will lead toward

134 Tim Josling


particular, those with limited internal analytical capacity—face the challenges of the day.

The Practice of Agricultural Trade in PTAs

Regional PTAs have the capacity to develop strongregional agricultural systems, but the path may be politi-cally difficult. Bilateral PTAs are free of the problem ofregional competition but often have issues with the liber-alization of trade in particular products, where there maybe links between the two economies concerned. RegionalPTAs are considered first because most of the difficultquestions surrounding the incorporation of agriculturearise in these cases. The EU, the European Free TradeAssociation (EFTA), NAFTA, and Mercosur provide richexamples of the ways in which the issues have been tack-led. The recent growth of bilateral PTAs across regionsoffers many other cases of the treatment of agriculture. Inparticular, the bilateral PTAs negotiated with the EU andwith the United States represent (different) standards forthe way in which developing countries can seek to gainsecure market access in major developed-country mar-kets. These bilateral agreements tend to be “lighter” in thearea of agricultural policy, avoiding the problems thataccompany the development of regional agricultural andfood markets (Josling 2009).

Agricultural Provisions in Regional PTAs

The inclusion of agricultural trade in a regional PTA is achallenge for negotiators. Relatively high levels of protec-tion in agricultural markets, combined with a heightenedsensitivity to issues bearing on the maintenance of adomestic production base for staple foods, makes for ten-sions. Countries in the same region are likely to have sim-ilar production patterns. Where there has been a historyof agricultural trade among the countries, the tensionsmay be a minor political problem, but in many cases,trade with neighbors in a regional group may raise majorconcerns.

Some PTAs have chosen to omit agriculture from theirprovisions. EFTA was created in 1960 by seven countriesthat had opted out of the European Economic Community(EEC, the precursor of the EU). Several members (Austria,Finland, Sweden, and Switzerland) had high-cost farmingsectors because of climate or topography and did not wishto compete directly with the United Kingdom or Denmark.EFTA accordingly chose to exclude agriculture (and fish-eries) from the free trade provisions. Each country was ableto maintain its own agricultural policy through tariff pro-visions and domestic support.9

The decision to leave agriculture and fisheries out of theEFTA agreement led to the exclusion of the sector from theterms of the European Economic Area (EEA), the set ofbilateral PTAs that the EU negotiated with EFTA membersas a way of keeping them close to the EU in terms of eco-nomic regulation and price levels. The EEA allowed for freetrade in manufactured goods and cooperation in regula-tory issues. In effect, it extended the previous bilateralPTAs to several aspects of trade that had been incorporatedinto the 1992 Single Market of the EU. Although somequotas on agricultural goods were expanded, there was noprogress toward incorporation of the rural sector into eco-nomic integration, as would be stimulated by enlargement.Later, EFTA countries found themselves unable to includeagriculture in bilateral agreements that they negotiatedwith countries such as Canada and had to settle again forsmall bilateral trade deals.

At the other extreme, the countries that formed the EEC(later, the European Union) made a conscious decision toinclude all trade, including agriculture, in their trade liber-alization. As integration progressed, more internal agricul-tural trade took place, some of it displacing lower-costimports. In addition, the agricultural market became moreintegrated as firms were able to locate in other memberstates, and a European food industry began to emerge. Thedevelopment of a Common Agricultural Policy (CAP),with common financing and uniform support mecha-nisms, advanced farther in the EU than in other PTAs.More recently, harmonized regulations on food safety andquality controls have reinforced the development of aregional industry.

The polar cases of EFTA and the EU bracket the degreeof incorporation of agriculture in PTAs. Almost all otherPTAs have included agricultural trade in the liberaliza-tion process, to varying degrees. The agricultural contentof the PTAs can be explored by identifying some issuesthat arise in most cases. These categories are not confinedto agricultural trade, but they do form a set of negotiatingissues that frame the agricultural agenda. They includethe schedule for cutting tariffs and the use of TRQs as away of increasing access; safeguards against import surges;subsidies to domestic firms and to firms dependent onexports; the provision of public goods, both environmen-tal and related to food security; and market structuresand institutions.

Tariff cutting. Elimination of tariffs among partners isthe defining feature of a PTA, and the inclusion of agricul-tural tariff lines in the reduction schedules is a key decision.For some products, the tariff cuts are made at the time thePTA enters into force; for others, a schedule of reductionsis agreed. Agricultural tariff cuts, at least for sensitive

Agriculture 135


in tariffs should imports surge. Agricultural products inPTAs are often subject to specific safeguard provisions tohelp guard against sudden shifts in trade patterns. Thenature of the safeguards for agriculture is usually in theform of a “snapback” to a previous tariff, no higher thanthe MFN tariff rate, for a limited period of time. Similarprovisions in NAFTA were used on several occasions dur-ing the transition period to react to trade surges. Coun-tries generally reserve the right to take action under WTOsafeguard provisions, although not in addition to regionalsafeguards. The EU is again an exception; its regulationsprohibit safeguard action against trade from anothermember state.

Domestic and export subsidies. The thorny issue ofdomestic subsidies in PTAs has been dealt with in two dif-ferent ways. Generally, the decision is made in negotiationsnot to attempt any constraints on subsidies. Indeed, it isusually assumed that PTAs could not regulate domesticsubsidies because to do so on inter-PTA trade but not onextra-PTA sales would be impractical at best and self-defeating at worst. The emphasis in several PTAs is, accord-ingly, on acknowledging the multilateral process as thelocation of decisions on subsidy reduction. Hence, NAFTAcontains the injunction to “endeavor to work towardsdomestic support measures” that have minimal trade-distorting effects or that would be exempt under a futureGATT agreement (the so-called “green box” policy instru-ments). It recognizes, however, the right of parties to changedomestic support measures subject to GATT obligations.This light treatment of a contentious area enabled nego-tiators to say that they were not altering domestic policy.

The EU took a different tack. All subsidies by memberstates are constrained by the competition regulations of theEU, and farm subsidies are not excluded from this provi-sion. The CAP became (in principle) the only vehicle forgranting agricultural subsidies, although some exceptionshave survived the attempts by the European Commissionto enforce this regulation. One result of the commonnature of the CAP has been that the EU can negotiatereductions in domestic support as a single WTO member,which individual members of other PTAs are not in a posi-tion to do.

Export subsidies for agricultural products pose similarissues. Several PTAs have contemplated banning exportsubsidies on intrabloc trade, but this is easier said thandone. The NAFTA provisions again give a good example ofthe dilemma facing PTA negotiators. The text states thatparties “share the objective of the multilateral eliminationof export subsidies for agricultural goods” and promisescooperation in the GATT to this end. The zeal for multilat-eral elimination of such policies does not, however, extend

products, are usually introduced over time. The timetablefor liberalization in NAFTA provides an example.

NAFTA set in process the removal of all trade barriersto goods moving between countries in North America.The detailed market access provisions were embedded inthree bilateral agreements, of which the one between theUnited States and Canada essentially continued a previousbilateral agreement. For the U.S.–Mexico bilateral agree-ment, the time period for most sectors to achieve marketintegration was 10 years, but markets for some sensitiveagricultural products (beans and corn for Mexico, andtomatoes and citrus products for the United States) weregiven 15 years to adjust. The adjustment period has ended,and the U.S.–Mexico agricultural market is now effectivelyopen.10

Another success in removing tariff barriers on trade infarm products has been in the Australia–New Zealandregional market.11 The Australia–New Zealand Closer Eco-nomic Relations Trade Agreement (ANZCERTA) takes thetwo countries farther toward effective market integrationthan does NAFTA in North America, although by nomeans as far as the EU. Both countries are major agricul-tural exporters. The product mix of exports is somewhatsimilar, reducing the scope for trans-Tasman trade, butthere are natural trade flows based on climatic differences,such as sales of Australian wheat to New Zealand andexports of New Zealand dairy goods to Australia. Theseflows were hampered by tight restrictions on trade withindomestic marketing legislation. It took bold political deci-sions, coupled with a significant reduction in the power ofthe marketing agencies, to allow trade in agricultural prod-ucts to flow freely.

In most respects, tariff cutting in agricultural marketshas been successful in Latin American PTAs. Among Mer-cosur countries, agricultural trade is nominally free;indeed, agricultural products are widely traded among themember states, notably from Argentina to the others. Mer-cosur has relatively few provisions that apply specifically toagriculture. There are two likely reasons for this relativelyliberal treatment of the sector. First, Mercosur includesmajor exporters of temperate agricultural products, eachof which would like to strengthen its agriculture industryand promote regional exports. Second, as a result of sweep-ing structural reforms, the countries concerned have elimi-nated many of the state marketing monopolies that previ-ously controlled trade.12 This, together with the reductionof subsidies and support prices, has allowed a fuller incor-poration of agriculture within Mercosur than in manyother PTAs.

Safeguards. As a complement to tariff cutting, PTAs fre-quently include safeguards that allow temporary increases

136 Tim Josling


to their internal use. Article 705.2 of NAFTA merely holdsit “inappropriate” for a party to grant export subsidies onsales to another party unless the importing country is ben-efiting from export subsidies paid by other countries.13 Inother words, matching of EU export subsidies in Mexico isallowable by the United States and Canada until suchpractices are stopped multilaterally. Indeed, if the export-ing and importing parties agree to an export subsidy onintra-NAFTA trade, that subsidy is allowed. This provi-sion, no doubt, was included to take account of the con-siderable importance to the United States of retaining themeans to stay competitive with EU export subsidies in theMexican market.

PTA discussions about the impact of different market-ing structures and institutions raise some interestingissues. This is particularly true for state marketing insti-tutions in agricultural products, where historical differ-ences in policies can lead to problems for integration. Anearly example was the difficulty posed for the EU at thetime of U.K. accession (1973) by the existence in Englandand Wales of the Milk Marketing Board (MMB), whichheld a monopoly on milk sales and on imports of milkproducts. This situation was clearly inconsistent with thecompetition regulations of the EU, and so the MMB hadto change its policies and give up its control over the milkmarket. A more recent example appears in the 1986U.S.–Canada free trade agreement. Canada was able toexclude from the free trade provisions the products of itssupply-managed sectors, primarily dairy and poultry,which were managed largely by provincial marketingboards. Neither the United States nor Canada wished toface the task of harmonizing marketing systems for theseproducts, and it was felt that the operation of the boardsrequired control of all imports, including those from theUnited States. As a result, the integration of these sectorswas delayed indefinitely.

Public goods. It is widely recognized that agricultureprovides certain public goods (as well as negative exter-nalities in the way of water and soil pollution). In richcountries, these public goods are often identified as thestewardship of the landscape and the provision of locallygrown healthy foods; in less affluent societies, the benefitsare food security, rural development, and poverty allevia-tion. Whether society is adequately compensating thefarm sector for the provision of these public goods is asubject of debate in many countries. The collective provi-sion of a public good within a PTA can sometimes beadvantageous, in particular where agricultural and envi-ronmental conditions are defined more by geography andclimate than by political boundaries. Similarly, coordina-tion of rural infrastructure within a regional PTA could

form the basis for improvement of the economic capacityof an agricultural area.

One particular public good associated with agriculturedeserves separate mention. Food security refers to the abil-ity of a country to provide the conditions under whichfood is available to (and relatively affordable by) the popu-lation. Economic, social, and political imperatives convergehere. The contribution of PTAs to the attainment of thisobjective is generally positive, as discussed above, but theissue does pose some challenges for negotiators. A balancehas to be struck between the benefits of open trade for theregionwide sharing of risk and the ultimate nationalresponsibility for ensuring food supplies. The issue thatmay cause regional friction is whether a partner in a PTAmay restrict supplies to another partner when its own sup-plies are scarce. The stronger PTAs, with regional foodmarkets and coordinated policy reactions, will tend torestrain the ability of one country to impose an export banon a partner, whereas the weaker agreements tend to leavethis possibility open.

Many PTAs include provisions that relate to the healthand safety aspects of agricultural and food trade, such asthe harmonization (or the mutual recognition of) healthand safety regulations. (See, in this volume, Maur andShepherd, ch. 10, and Stoler, ch. 11, on standards in PTAs.)Most such provisions are based on the WTO Sanitary andPhytosanitary (SPS) Agreement and do not require mem-bers to go far beyond those standards. In some cases,however, such as ANZCERTA, the establishment of jointagencies to oversee such regulations acts as a guard againsttrade frictions (Almeida, Gutierrez, and Shearer 2009).

Institutions. Institutional innovations are also com-mon, although some of the bodies set up seem to havelittle role in policy decisions. The NAFTA trilateral agri-cultural agreement, for instance, set up a Committee onAgricultural Trade to administer the arrangements and anAdvisory Committee on Private Commercial Disputesregarding Agricultural Goods to deal with private dis-putes. But there is little evidence that these bodies havehad any significant impact on agricultural trade policyover the 15 years of their existence.

Agricultural Provisions in Bilateral PTAs

The treatment of agriculture in bilateral PTAs is oftenmarkedly different from that in regional agreements.14

The motivation for such PTAs ranges from strategic topractical, but most often it is the exchange of preferentialaccess for goods and services, with little regard for thelonger-run economic relationship. No regional integra-tion of the agriculture sectors is envisaged, and many of

Agriculture 137


sector as a whole; only for certain products have specificconcessions for liberalization been determined. A concernfor the non-EU Mediterranean countries is that, with theconclusion of PTAs between the EU and other countries inAsia and Latin America, the competitive advantage thatthey themselves used to enjoy in EU markets may beeroded, and they may become marginalized.

The deferral of substantive negotiations on liberaliza-tion of trade in agricultural products has been a constantfeature of the Euro-Mediterranean partnership (Asbil2005). The principal reason has been the reluctance on thepart of European farmers to compete with Mediterraneancountries that are not EU members. The southern enlarge-ment of the EU in the 1980s redefined its relation with theMediterranean partners. Greece, Portugal, and Spain com-pete directly in agricultural products with the countries ofNorth Africa, and these members’ political influencelargely explains the limits on trade concessions throughtariff quotas and reference quantities (García-Alvarez-Coque 2002). Agriculture has become a key sector in thedebate between the EU and its Mediterranean trade part-ners because it is seen as a necessary element in theestablishment of a balance of commercial opportunitiesthrough increases in both industrial and agriculturalexports from the region.

The other problem that Mediterranean countries needto consider is the shortcomings in the diversification andcompetitiveness of their production structures. SeveralMediterranean countries have very similar product com-positions of exports. Algeria, Cyprus, Israel, Morocco, andSpain all have agriculture sectors oriented toward specialtyproducts—mainly, fresh fruit and nuts, olive oil, and wine.The similarity of agricultural products means that, espe-cially since the enlargement of the EU to include Cyprus,Greece, Malta, Portugal, and Spain, EU members find iteasy to replace supplies from nonmember Mediterraneancountries with supplies from EU members.

The current negotiations between the EU and the ACPcountries (the signatories to the Lomé and Cotonou Agree-ments) have advanced through six regional talks. The EUhas succeeded in agreeing on a comprehensive economicpartnership agreement (EPA) with Caribbean ACP coun-tries through CARIFORUM and the Caribbean Commu-nity (CARICOM) Regional Negotiating Mechanism.15 Inthe case of the African countries, negotiations are beingchanneled through four of the main regional agreements.The Economic Community of West African States(ECOWAS), in collaboration with the West African Eco-nomic and Monetary Union (WAEMU; in French, UnionÉconomique et Monétaire Ouest-Africaine, UEMOA), isthe negotiating partner for 16 West African states. Eight

the tensions around farm policies that occur in regionalpacts are absent. The main characteristics of bilateralPTAs are usually determined by the dominant partner,often a developed country, and the discussion of thesePTAs is therefore conveniently organized according tothe dominant partner—in these examples, the EU andthe United States.

EU agreements. In the network of agreements involv-ing the EU and nonmembers, agriculture is still treated asbeing largely outside the realm of unrestricted free trade.The Euro-Mediterranean agreements now being finalizedbetween the EU and the countries of North Africa and theMiddle East have so far avoided including unrestrictedaccess for sensitive agricultural products, and the same istrue for the customs union that was negotiated withTurkey. The negotiation of a free trade agreementbetween the EU and South Africa was held up by thereluctance of the EU to grant improved access to goodsthat would have directly competed with those covered bythe CAP. The agreement between the EU and Mexico wasalso difficult to negotiate until Mexico abandoned itsattempt to win easy access to the EU market for a fullrange of agricultural products.

Similarly, Mercosur and the EU are finding it difficult toovercome the problems that improved access to the EUmarket would seem to pose for European agriculture. TheCotonou Agreement between the EU and ACP countries,which mandated the negotiation of a transformation of theexisting nonreciprocal agreements into full free trade areasafter eight years, attempted to address agricultural tradeissues, but these negotiations were hampered by inconsis-tency with the CAP. The unilateral PTA between the EUand the least developed countries (the Everything ButArms agreement) broke significant new ground in thisrespect by providing duty-free and quota-free access foragricultural goods, with only temporary derogations forthe most sensitive commodities—rice, sugar, and bananas.

Traditionally, the EU has used the policy of trade prefer-ences as a strategy of cooperation for development and hasunilaterally granted trade concessions to other countries.Now, Euro-Med agreements are taking further stepstoward trade liberalization on a bilateral and reciprocalbasis. Since the first Euro-Mediterranean Conference inNovember 1995, the EU and 12 Mediterranean countrieshave been engaged in negotiating association agreements(the Barcelona process). The overall objective is to form,eventually, a single Euro-Mediterranean free trade areafrom the separate agreements in place. Yet trade in agricul-ture is subjected to weak liberalization, within the presentframework of the association agreements. No explicit liber-alization road map has been defined for the agriculture

138 Tim Josling


Central African states have been negotiating through theEconomic and Monetary Community of Central Africa(CEMAC, Communauté Économique et Monétaire del’Afrique Centrale) in conjunction with the EconomicCommunity of Central African States (ECCAS), withwhich CEMAC has plans to merge. Seven Southern Africanstates are negotiating through the Southern African Devel-opment Community (SADC), although some of thosestates are not SADC members. Another 15 are representedby the Common Market for Eastern and Southern Africa(COMESA), even though some of them do not participatein other COMESA activities. With the exception of theagreement with the Caribbean, the EPAs are still not fullyin operation. Some countries have signed partial (“goodsonly”) agreements, but more than half of the ACP coun-tries failed to reach an agreement before the January 1,2008, deadline, when the WTO waiver that allowed the EUto negotiate these agreements expired. Renewal of thewaiver would encounter some opposition. Countries thathave shown opposition to the EPAs include South Africa,which already has a free trade agreement with the EU, andNigeria, with its oil-based economy. A bold move by Chinato develop trade and investment links with African coun-tries appears to be causing a rethink of the desirability ofcontinuing close ties with the EU if these come with politi-cal constraints.

U.S. agreements. U.S. policy toward regional and bilat-eral PTAs changed dramatically in the mid-1980s. Long achampion of the multilateral system and of nondiscrimi-nation, the United States has now become an active supporter of bilateral PTAs as a complement to its commit-ment to the WTO and its membership in NAFTA. TheUnited States has completed, or is currently in the midst of,trade negotiations with 27 countries aimed at creatingabout 20 separate PTAs.16 The United States has economicand geopolitical reasons for expanding its commercial ties;the attraction for other countries is to secure preferredaccess to the large U.S. market.17

The first of these recent PTAs was signed with Israel in1985, as an expression of political and economic supportfor that country. The free trade agreement with Canadafollowed in 1986, largely at Canada’s request. It wasdesigned to consolidate existing sector agreements,encourage U.S. investment north of the border, and giveCanadian firms some protection from aggressive use oftrade remedy provisions (i.e., antidumping and counter-vailing duty measures). In 1990 Mexico requested similarconditions, to ensure overseas investors’ access to the largeU.S. market. Canada opted to join the United States andMexico in NAFTA, which incorporated the earlier bilateralagreement with Canada. A free trade agreement with Jordan

was concluded in 2001, again as a show of political supportand economic assistance.

The United States began to negotiate additional bilateralPTAs in 2002, as an expression of a policy of “competitiveliberalization” articulated by the U.S. trade representative.This policy consisted of offering swift negotiations to anycountry that was willing to conform to terms consistent withthe mandate of the U.S. administration, as specified in theTrade Promotion Authority Act. The list of willing tradepartners with which PTAs were concluded includes Bahrain,Morocco, Oman, Peru, and Singapore. Among other com-pleted bilateral PTAs with a more significant agriculturalcomponent were those with Chile and Australia. Talks withBolivia, Ecuador, Peru, the Southern African Customs Union(SACU), and the United Arab Emirates (UAE) are currentlysuspended.18 Agreements with Colombia, the Republic ofKorea, and Panama await ratification. A new front has beenopened up in the Asia-Pacific region, as the United States hasbegun to explore the possibility of a Trans-Pacific Part-nership (TPP) agreement, to include Australia, BruneiDarussalam, Chile, New Zealand, Singapore, and possiblyMalaysia and Thailand. Recent agreements have often beendesigned as “templates” for future PTAs within a region.Thus, the PTAs with Bahrain, Oman, and the UAE are seenas building blocks toward a Middle East free trade area, andthe negotiations with Malaysia and Thailand (along with theone already in place with Singapore) were originally sup-posed to pave the way for other bilateral PTAs with ASEANcountries—although this prospect has been overtaken bythe TPP. The PTAs themselves usually follow from trade andinvestment framework agreements (TIFAs) and bilateralinvestment treaties (BITs). The United States has a consider-able number of TIFAs and BITS in place that would form thebasis for bilateral PTAs.

Although all the PTAs have provisions for tariff reduc-tions that affect many food and agricultural goods, theagreements, with few exceptions, control trade in a range ofproducts considered politically sensitive in one or bothpartners. For the United States, these sensitivities includesugar, citrus fruits, peanuts, and dairy products; for thepartners, the list includes corn, beans, and rice.

Three current agreements have the greatest actual orpotential impact on U.S. agricultural markets and hence onthe environment in which policy is formed: the recentPTAs with Chile and Australia, and the CAFTA–DR agree-ment. Table 7.1 summarizes the main characteristics ofeach agreement.

The United States and five Central American countries—Costa Rica, El Salvador, Guatemala, Honduras, andNicaragua—began negotiations on CAFTA in 2003, andthe agreement took effect in 2006. Negotiations with the

Agriculture 139


Tab

le 7

.1.

Sum

mar

y of

Pro

visi

ons

Affe

ctin

g A

gric

ultu

re in

NA

FTA

, U.S

.–C

hile

, U.S

.–A

ustr

alia

, and

CA

FTA

Agr

eem

ents

Pro

visi

on

NA

FTA

Ch

ile F

TAA

ustr

alia

FTA

CA

FTA

Tarif

f cut

sSo

me

tarif

fs e

limin

ated

, oth

ers

stag

edov

er 5

, 10,

and

15

year

sSo

me

tarif

fs e

limin

ated

, oth

ers

stag

edov

er 4

, 8, 1

0, a

nd 1

2 ye

ars;

som

e cu

tsde

laye

d fo

r 2

and

4 ye

ars

Mos

t ta

riffs

elim

inat

ed, o

ther

s st

aged

over

4, 1

0, a

nd 1

8 ye

ars

Som

e ta

riffs

elim

inat

ed, o

ther

s st

aged

over

5, 1

0, a

nd 1

5 ye

ars;

oth

er c

uts

dela

yed

for

6 or

10

year

s; d

uty-

free

aft

er15

or

20 y

ears

TRQ

sIn

trod

uced

dur

ing

tran

sitio

n p

erio

d fo

rse

nsiti

ve p

rodu

cts

No

use

of T

RQs

intr

oduc

edTR

Qs

for

imp

orts

of a

voca

dos,

cot

ton,

pea

nuts

, tob

acco

, bee

f, an

d da

iry

pro

duct

s in

to t

he U

nite

d St

ates

exp

ande

d; a

bove

-quo

ta d

utie

s fo

r be

efp

hase

d ou

t ov

er 1

8-ye

ar p

erio

d; c

urre

ntsu

gar

TRQ

s no

t in

crea

sed:

no

cuts

inab

ove-

quo

ta t

ariff

TRQ

s fo

r se

nsiti

ve p

rodu

cts

in A

nnex

3.3;

rul

es o

n ad

min

istr

atio

n of

TRQ

s (in

add

ition

to

GAT

T A

rtic

le X

III)

Agr

icul

tura

l sa

fegu

ards

TRQ

s al

low

ed a

s sp

ecia

l saf

egua

rd fo

rho

rtic

ultu

ral c

rop

s (A

nnex

703

.3)

Add

ition

al d

utie

s lin

ked

to p

rice

trig

ger

(Art

icle

3.1

8) fo

r go

ods

liste

d in

Ann

ex3.

18; t

otal

dut

ies

not

to e

xcee

d M

FNra

te; s

afeg

uard

not

op

erat

ive

afte

r 12

year

s, o

r w

hen

zero

-dut

y st

age

reac

hed

Add

ition

al c

usto

ms

dutie

s lin

ked

top

rice

trig

ger

for

hort

icul

tura

l pro

duct

s(A

nnex

3-A

, sec

tion

A)

and

to q

uant

itytr

igge

rs fo

r be

ef (

Ann

ex 3

-A, s

ectio

n B)

;p

rice

trig

gers

use

d fo

r be

ef in

19t

h ye

arof

agr

eem

ent

(Ann

ex 3

-A, s

ectio

n C

);sa

fegu

ard

not

oper

ativ

e w

hen

zero

-dut

y st

age

reac

hed

Add

ition

al d

utie

s lin

ked

to t

rigge

rq

uant

ities

(A

rtic

le 3

.14)

for

pro

duct

slis

ted

in A

nnex

3.1

4; t

otal

dut

ies

not

toex

ceed

MFN

rat

e; s

afeg

uard

not

oper

ativ

e w

hen

zero

-dut

y st

age

reac

hed

Oth

er safe

guar

dsSa

fegu

ards

(C

hap

ter

8A):

sna

pba

ck t

op

revi

ous

year

’s t

ariff

on

bila

tera

l tra

de

or M

FN t

ariff

Trad

e re

med

ies

(Cha

pte

r 8)

; GAT

T 19

94A

rtic

le X

IX s

afeg

uard

sSa

fegu

ards

(C

hap

ter

9); G

ATT

1994

Art

icle

XIX

saf

egua

rds

Trad

e re

med

ies

(Cha

pte

r 8)

; GAT

T 19

94A

rtic

le X

IX s

afeg

uard

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esp

ectiv

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reem

ent.

140


Dominican Republic that would fully integrate that countryinto CAFTA were concluded in 2004. In addition, ratifica-tion of the pending agreement with Panama, if successful,would round off the establishment of free trade agreementsbetween the United States and almost all of the countries ofCentral America (see Paggi, Yamazaki, and Josling 2005).

CAFTA is intended to help foster economic growth andimprove living standards in the Central American regionby reducing and eliminating barriers to trade and invest-ment. It essentially converts the nonreciprocal and discre-tionary benefits that these countries derive from theCaribbean Basin Initiative (CBI) into permanent andreciprocal access to the U.S. market. CAFTA covers alltrade, but the agricultural component is one of its mostimportant aspects (see table 7.1). The key to the agricul-tural agreement is market access; the arrangement containsrelatively few provisions in the areas of export subsidiesand sanitary and phytosanitary regulations, and it does notcover domestic subsidies.

Agricultural trade barriers in the Central Americancountries are higher than those for manufactured goods,and CAFTA will create improved market opportunities forU.S. agricultural products and for related goods and serv-ices. CAFTA locks in the applied duty rates for many prod-ucts and ensures that permanent U.S. access to the marketis preserved. Its short-term impact on U.S. exports may,however, be modest because the terms of the agreementdelay the full benefits of increased access to the countries ofthe region for U.S. agricultural products of interest. Thelengthy phase-in period for increased market access andthe back-loading of commitment levels suggest that thebenefits of the agreement may only be realized many yearsin the future.

Increased access to the U.S. market for Central Ameri-can goods will also be a consequence of CAFTA. Here,however, the effect is likely to be even more limited becausemost CAFTA countries have had permanent duty-freeaccess to the U.S. market since the late 1960s under the GSPand since 1990 under the provisions of the CaribbeanBasin Initiative (CBI) and the Caribbean Basin EconomicRecovery Act (CBERA), which implements the CBI. TheCBI was enhanced in 2000 under the terms of theCaribbean Basin Trade Partnership Act (CBTPA) to grantaccess more equivalent to that enjoyed by Mexico underNAFTA. In fact, approximately 99 percent of CAFTAexports already enter the U.S. market duty-free. Duties arepaid only on over-quota imports, as part of the U.S. tariff-rate quota regimes for sugar, dairy products, cotton, meats,and peanuts.19

The bilateral PTA with Chile was easier to negotiatethan either NAFTA or CAFTA. Chile is an important

exporter of agricultural products, particularly fruits, veg-etables, and wine, but the different seasonality makes theproduce complementary to rather than competitive withU.S. production. The beneficiaries were supermarkets,which gained the assurance of year-round supplies. Chile isone of the more liberal Latin American countries, even onagricultural products, so that opening up to U.S. exporterswas not such a big move for its farmers. Aside from somecontroversy over wine labels, the talks went smoothly. Itmay have helped that Chile is not a significant sugarexporter.

The U.S. agreement with Australia also involved aSouthern Hemisphere country and thus offered someadvantages of complementary production. Australia, how-ever, is a major exporter of meats, dairy products, cereals,and sugar, and so tight rules had to be built in to the agree-ment to protect U.S. farmers from competition fromimports. Reluctantly, Australia accepted long transitionperiods for dairy products and beef, and an exclusion alto-gether of any relaxation of protection for the U.S. sugarsector. This decision may have an effect on the politics offuture bilateral PTAs.

The most ambitious bilateral agreement to have beennegotiated since NAFTA is still awaiting approval by Con-gress at present. The Korea–U.S. Free Trade Agreement(KORUS) would establish a free trade area between theUnited States and a major economy in East Asia. There wasno doubt from the beginning of the talks that agriculturewould be a stumbling block, with the Korean government,in particular, not wishing to open up its highly protectedrice market to U.S. exports. The U.S. position had been toinclude rice, even if access for U.S. rice were to be intro-duced slowly over a transition period. In the end, the ricesector was essentially excluded from the agreement. Thisestablishes a precedent in case KORUS were to act as a tem-plate for an agreement with Japan.

Summary

Agricultural trade is becoming increasingly governed byconditions negotiated in preferential trade agreements(PTAs), whether regional or bilateral. Regional integrationof agricultural markets through open trade can have a pos-itive effect on the development of a competitive and sus-tainable agriculture sector, although complementary poli-cies at the multilateral level are needed to prevent tradediversion. PTAs can yield benefits in the area of food secu-rity and the provision of public goods, but the empiricalanalyses required to quantify these benefits are scarce, inpart because of the very diverse treatment of agriculture inPTAs. If concluded with the right partner countries, PTAs

Agriculture 141


Argentina has essentially liberalized imports of agricultural goods,although some export taxes have reappeared in recent years.

13. The language about and treatment of export subsidies is muchsofter in NAFTA than in the U.S.-Canada Free Trade Agreement, whichbanned the use of export subsidies between the two countries.

14. Bilateral PTAs involving Singapore do not face the same politicalproblems in including agriculture and food products as do most otheragreements. Singapore has no significant agricultural production and noimport barriers. Other countries, however, may be concerned about thepossibility of trade deflection through Singapore. Japan, for instance, hasnot agreed to open its agricultural market to imports from Singapore intheir bilateral free trade agreement.

15. CARIFORUM includes the Dominican Republic, as well as theCARICOM countries.

16. It is worth recalling that in the late 1930s, U.S. trade policy took asimilar direction. The Reciprocal Trade Agreements (RTA) Act of 1934was an open-ended mandate to negotiate bilateral trade agreements withother countries, and about 30 such agreements were signed.

17. In many cases, access is already covered by existing agreements,but the negotiation of a formal PTA reduces uncertainty as to whetherthese preferences will continue.

18. SACU is made up of Botswana, Lesotho, Namibia, South Africa,and Swaziland.

19. For more details on CAFTA and its potential impact on U.S. agri-culture, see Paggi, Yamazaki, and Josling (2005).

References

Almeida, Juliana Salles, Carlos M. Gutierrez, Jr., and Matthew Shearer.2009. “The Treatment of Agriculture in Regional Trade Agreements inthe Americas.” Integration and Trade Sector, Inter-American Develop-ment Bank, Washington, DC.

Anderson, Kym, and Richard Blackhurst, eds. 1993. Regional Integrationand the Global Trading System. New York: St. Martin’s Press.

Andriamananjara, Soamiely. 2002. “On the Size and Number of Preferen-tial Trading Arrangements.” Journal of International Trade and Eco-nomic Development 11 (3): 279–95.

Andriamananjara, Soamiely, and Maurice Schiff. 1998, “Regional Group-ings among Microstates.” Policy Research Working Paper 1922, WorldBank, Washington, DC. http://econ.worldbank.org/external/default/main?pagePK=64165259&theSitePK=469372&piPK=64165421&menuPK=64166093&entityID=000009265_3980625102911.

Asbil, Alexandre. 2005. “The Barcelona Process and Trade Liberalisation inAgriculture.” Presentation to conference of the Food and AgricultureOrganization of the United Nations (FAO), Rome, October 10–14.

Brenton, Paul, and Takako Ikezuki. 2005. “The Impact of AgriculturalTrade Preferences, with Particular Attention to the LDCs.” In GlobalAgricultural Trade and Developing Countries, ed. M. Ataman Askoyand John C. Beghin. Washington, DC: World Bank.

dell’Aquila, Crescenzo, and Marijke Kuiper. 2003. “Which Road to Liber-alisation? A First Assessment of the EuroMed Association Agree-ments.” Working Paper 2, European Network of Agricultural andRural Policy Research Institutes (ENARPRI), Centre for EuropeanPolicy Studies, Brussels.

Diao, Xinshen, Terry Roe, and A. Somwaru. 1999. “What Is the Cause ofGrowth in Regional Trade? Trade Liberalization or RTAs? The Case ofAgriculture.” Working Paper 14605, International Agricultural TradeResearch Consortium, University of Minnesota, St. Paul, MN.

Fiorentino, Roberto. 2005. “Regional Trade Agreements and the WTO:Theory and Practice of WTO Provisions on RTAs.” Presentation toconference of the Food and Agriculture Organization of the UnitedNations (FAO), Rome, October 10–14.

García-Alvarez-Coque, José María. 2002. “Agricultural Trade and theBarcelona Process: Is Full Liberalization Possible?” European Review ofAgricultural Economics 29 (3): 399–422.

can avoid the disadvantages of trade diversion. If the termsof the agreements are appropriate, such PTAs can furtherfull integration into the global economy and stimulateneeded investment and the transfer of technology.

Notes

1. A full account of the interpretation of GATT Article XXIV is pro-vided in Hudec and Southwick (1999). Srinivasan (1998) presents a critique of the systemic issues posed by PTAs. A type of agreement notconsidered in this chapter is the partial-scope agreement, which coversonly a subset of goods. These agreements are not generally notified underArticle XXIV.

2. It is perhaps ironic that the insistence on both the inclusion of sub-stantially all trade and 100 percent preference increases the likelihood oftrade diversion. Exclusion of those sectors where protection is high,and the partial liberalization of internal trade in those high-cost sectorsthat are covered, would reduce trade diversion, although it would alsolimit trade creation. The strict rules were presumably inserted to discour-age trade agreements that merely “picked low-hanging fruit” by confiningthemselves to nonsensitive sectors or small reductions in tariffs.

3. For a discussion of the benefits of coordinating trade strategies forsmall countries see Schiff (1997, 2002); Andriamananjara and Schiff (1998).

4. Adjustment of market access provisions is made easier by the nego-tiation in the Uruguay Round of tariff-rate quotas (TRQs) that ensurecontinued access for those countries with negotiated quotas. Allocation topreferred partners of TRQs allowed in WTO schedules is a principal linkbetween the multilateral and preferential trade regimes. These allocationsappear contrary to the spirit of Article XIII of the GATT, which providesthat the distribution of quotas should be nondiscriminatory and shouldreflect market conditions.

5. Analytical devices such as that applied here are sometimes difficultto reconcile with a world of actual countries and diverse trade strategies.In fact, some new members may be willing to pay the price for entry, andsome old members may have strong reasons for excluding newcomers.

6. The “completion” of the European Community’s (EC’s) internalmarket reform, which was incorporated in the 1992 program, was theproduct of an attempt to remove remaining barriers between EC mem-bers in goods, services, labor markets, and capital markets. The success ofthe European Commission in pushing through this program caused a stirof interest in other regions.

7. The inclusion of APEC in this list is of interest, as no preferentialtariff reductions were specified in that agreement. APEC’s modusoperandi was and is a loosely coordinated process of unilateral liberaliza-tion among its members, with no discrimination against outsiders.

8. This analysis also points up the importance of timing in tradeagreements. The advantage of being first to reach a deal may be consider-able. And the negotiation of long transition periods may be of little valuein easing adjustments if other countries can enter into agreements with ashorter time horizon.

9. A side agreement guaranteed access for Denmark to the Britishmarket for pigmeat products and for limited quantities of dairy goods.

10. Canada declined to join the open market between Mexico and theUnited States because that would have required liberalization of the sup-ply-managed sectors (dairy products and poultry), as well as sharplyincreased prices for sugar in Canada.

11. The original ANZCERTA suffered from a lack of ambition andpolitical support (Lloyd 1991). A 1988 review of its operations led to anacceleration of the process of liberalization, with July 1990 set as the datefor the removal of remaining tariff and nontariff barriers. In addition,export subsidies on intrabloc trade were to be removed.

12. In 1991 Argentina eliminated export taxes on agricultural goods,which had long been a source of government revenue. A small tax onoilseed exports remained, together with a fee to pay for research.

142 Tim Josling


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Grant, J., and Tom Hertel. 2005. “Regionalism in World AgriculturalTrade: Lessons from Gravity Model Estimation.” Global EconomicAnalysis conference, Lübeck, Germany, June.

Hudec, Robert, and James D. Southwick. 1999. “Regionalism and theWTO Rules: Problems in the Fine Art of Discriminating Fairly.” InTrade Rules in the Making: Challenges in Regional and MultilateralNegotiations, ed. Miguel Rodríguez Mendoza, Patrick Low, and BarbaraKotschwar. Washington, DC: Brookings Institution Press.

Jayasinghe, Sampath, and Rakhal Sarker. 2008. “Effects of Regional TradeAgreements on Trade in Agrifood Products: Evidence from GravityModeling Using Disaggregated Data.” Review of Agricultural Econom-ics 30 (1): 61–81.

Josling, Tim. 2009. “Agriculture.” In Commentary and Analysis. Book 1 ofBilateral and Regional Trade Agreements: Commentary, Analysis andCase Studies, ed. Simon Lester and Bryan Mercurio. Cambridge, U.K.:Cambridge University Press.

Lloyd, Peter. J. 1991. “The Future of CER: A Single Market for Australiaand New Zealand.” Committee for Economic Development of Australia(CEDA) and Institute for Policy Studies, Wellington.

———. 1992. “Regionalisation and World Trade.” OECD Economic Studies18 (Spring). Organisation for Economic Co-operation and Development(OECD), Paris.

Olarreaga, Marcelo, and Çaglar Özden. 2005. “AGOA and Apparel: WhoCaptures the Tariff Rent in the Presence of Preferential MarketAccess?” World Economy 28 (1, January): 63–77.

Paggi, Mechel S., Fumiko Yamazaki, and Tim Josling. 2005. “The CentralAmerican Free Trade Agreement: What’s at Stake for California Agri-culture?” Center for Agricultural Business, California State University,Fresno, CA.

Schiff, Maurice. 1997. “Small is Beautiful: Preferential Trade Agreementsand the Impact of Country Size, Market Share, Trade Policy, andSmuggling.” Journal of Economic Integration 12 (3, September):359–87.

———. 2002. “Regional Integration and Development in Small States.”Development Research Group, Trade, World Bank, Washington, DC.

Srinivasan, T. N. 1998. “Regionalism and the WTO: Is NondiscriminationPassé?” In The WTO as an International Organization, ed. Anne O. Krueger, 329–49. Chicago, Il: University of Chicago Press.

Topp, Vernon. 2001. “Trade Preferences: Are They Helpful in AdvancingEconomic Development in Poor Countries?” Australian Bureau ofAgriculture and Resource Economics (ABARE), Canberra.

UNCTAD (United Nations Conference on Trade and Development).2001. “Trade Negotiation Issues in the Cotonou Agreement: Agriculture and Economic Partnership Agreements.” UNCTAD,Geneva.

Vollrath, Thomas L. 1998. “RTAs and Agricultural Trade: A RetrospectiveAssessment.” In Regional Trade Agreements and U.S. Agriculture, ed.Mary Burfisher and Elizabeth Jones. Agricultural Economic Report771. Economic Research Service, U.S. Department of Agriculture,Washington, DC.

Zissimos, Ben, and David. Vines. 2000. “Is the WTO’s Article XXIV a Free Trade Barrier?” CSGR Working Paper 49/00, Centre for the Study of Globalisation and Regionalisation, University of War-wick, U.K.

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