Trade safeguards would hurt, not help, developing countries

Sep 07, 2010 by Brian Wallheimer

Allowing developing countries to increase import tariffs based on price and supply triggers under proposed World Trade Organization rules would actually harm those countries, according to a Purdue University economic analysis.

A major factor in the breakdown of the Doha Development Agenda, which aimed to set new rules for agricultural trade under the WTO, was disagreement over whether a special safeguard mechanism should be included to allow to increase tariffs if imports surged or world prices dropped past certain trigger points. Developing countries lobbied for those safeguards, believing the measures would protect producers from cheap commodities flooding their markets.

But Thomas Hertel, a Purdue distinguished professor of agricultural economics and executive director of the Global Trade Analysis Project, said those safeguards actually would increase price volatility with developing countries faring the worst.

"Rather than stabilizing domestic producers' incomes, it could destabilize them. It would also raise faced by the poor," said Hertel, who ran an economic analysis on the effects of the proposed safeguards. "The analysis shows this is a really bad idea."

Hertel and his co-authors, Will Martin of the World Bank, and Amanda Leister, a USDA National Needs doctoral fellow in international trade in Purdue's agricultural economics department, used world import and export data in Purdue's GTAP model to evaluate the impacts the safeguards would have on developing countries using wheat as a model. The results were published in the current issue of the journal World Bank Economic Review.

If developing countries implement higher tariffs when domestic supplies fall and there is an import surge, prices in those countries would rise. That would raise food prices for the poor and, if many countries do so, it would destabilize prices globally.

Hertel said that developing country exporters are particularly vulnerable to the special safeguard price trigger. This is because their products are already priced below the world average, so a modest decline in world prices tends to trigger safeguards against their products.

"In general, this just isn't achieving the things the developing countries are trying to achieve," Hertel said.

Hertel said future work would evaluate long-term implications of the safeguard proposal on developing countries. The funded his research.

Explore further: Study looks at stock market performance of polarizing brands

add to favorites email to friend print save as pdf

Related Stories

Sustainable fisheries needed for global food security

Feb 11, 2010

Increased aid from developed countries, earmarked specifically for sustainable seafood infrastructure in developing countries, could improve global food security, according to a policy paper by an international working group ...

Three billion Asians face food crisis threat: research

Oct 28, 2008

(PhysOrg.com) -- The escalating cost of rice and other foodstuffs across Asia could cause the reversal of policy reforms, social unrest and deepening poverty for over 3 billion Asians – according to new ...

Recommended for you

Which foods may cost you more due to Calif. drought

Apr 17, 2014

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 0

More news stories

Study finds law dramatically curbing need for speed

Almost seven years have passed since Ontario's street-racing legislation hit the books and, according to one Western researcher, it has succeeded in putting the brakes on the number of convictions and, more importantly, injuries ...