Developing nations didn't get everything they had hoped for in the Uruguay Round. But in the first true exchange of trade concessions with the industrial world, they did make some gains. Between now and 2005 a boom in world trade should benefit everyone. The real question is not who did best, but how it will all get implemented. And the key is politics, not economics.
Exporters in both developing and industrial countries already have substantial markets in each other's territories (see table). Manufactured products worth about $176 billion flow annually from developing to industrial economies. About 14 percent more, some $200 billion, goes the other way. The liberalization agreed to in the Uruguay Round obviously will help both sides. But determining the gains---whether the developing nation exporters will find larger markets in the industrial countries or whether the industrial group will do even better in the developing world---is no easy task.
One complication is that comparing the effect of pre-Round and post-Round rules and tariffs is not the only consideration. If the GATT negotiations had failed, things would have gotten worse---not stayed the same---as a wave of increased protectionism washed over us. Even so, just assessing the impact of the new schedules and rules is difficult. There's no consensus on how to measure liberalization properly. More important, how fast and how extensively different countries will carry out the agreements is almost impossible to predict.
One thing is clear. The Uruguay Round yielded real gains for traders in all countries: worldwide, market access will be improved by an increase in tariff bindings (agreements not to increase a tariff above a specified level except by negotiation), by significant tariff reductions, and by a reduction of nontariff protection devices such as voluntary export restraints. Average duties faced by exporters in both developing and industrial markets will be reduced. At the same time, important gains will result from the dismantling of the Multifibre Arrangement (MFA) and from new rules on subsidies and countervailing measures.
Developing countries gained less than they had hoped on such issues as the speed with which the MFA will be dismantled and the extent of tariff reduction in industrial countries. The industrial nations didn't forget one another. They cut tariffs on trade with one another proportionately more than they did on imports from the developing world. But average tariffs on all classes of industrial products bought by the industrial nations from the developing world will decline (see figure). Japan, for one, is slashing tariffs on its purchases from developing nations by 50 percent.
Developing country exporters still face one old problem---tariff escalation: add value, and the tariff goes up. After the Round the escalators generally remain in place. On average, industrial nation tariffs on industrial imports from the developing world (other than petroleum) now step up from 2.1 percent on raw materials to 5.4 percent on semimanufactures and 9.1 percent on finished products. The Uruguay Round reduces all these, but the escalator remains: 0.8 percent on raw materials, 2.8 percent on partially processed products, and 6.2 percent on finished items.
Despite the liberalization, textiles and clothing still face significant barriers in industrial countries---to the marked disadvantage of developing countries. But these countries do get some relief in the form of a 10-year phaseout of the Multifibre Arrangement. The trade barriers imposed by the MFA are frequently twice as restrictive as the corresponding tariffs and will be completely eliminated. Getting through the 10 years is the problem. Quotas will be progressively abolished during the transition period, but almost half the restrictions will remain in place for the entire 10 years. And concern remains that the industrial countries will stretch out the liberalization program with safeguards or other protectionist devices.
Unlike previous sessions, the Uruguay Round was a truly reciprocal negotiation. The industrial nations did not grant concessions---instead, they exchanged them for concessions by the developing economies. The developing economies agreed to reduce tariffs, to increase the use of tariff bindings, and to limit and control the use of nontariff barriers.
While the developing economies made substantial tariff cuts across the board, some of their suppliers still get better treatment than others. Average tariffs on European Union (EU) products are higher than those on imports from the United States and Japan. Regionally, the developing nations in Asia lead the group in liberalization. Average tariffs in Latin America, despite much progress, remain two to three times higher than those in developing Asia. The treatment of Japan and its own slashing of tariffs for developing country exporters reflect a reality of world trade. Japan buys 24 percent of the industrial exports of the developing Asian nations. In turn, it supplies 44 percent, $66 billion, of their imports from industrial countries.
Nontariff liberalization by the developing countries is also significant. But in many cases there has already been a shift toward trade liberalization in even the most interventionist developing countries. The Round continues a general move from quantitative restrictions to price-based measures---as well as an effort to reduce the protectionist impact of import licensing systems and preshipment inspection arrangements. Broadening such efforts through the Uruguay agreement is a good step. But if liberalization is to proceed, developing country governments must not imitate the industrial countries by making more use of antidumping and countervailing actions as a way to restore selective protection.
Another feature of the Uruguay Round for developing nations is compulsory dismantling of export subsidies. The process can be extended over an eight-year period, but eight drops to two if a nation attains "export competitiveness"---3.25 percent of world trade in a given product for two consecutive years. The agreement does little to assist the poorest nations in reducing subsidies: it allows least developed countries and some countries with per capita incomes below $1,000 to retain otherwise prohibited subsidies unless these countries are deemed to have achieved export competitiveness.
Overall, the results of the Round reflect realities---the leverage of the main contracting parties, particularly the United States and the European Union, with the European Union resisting even a modest liberalization of agricultural trade. While most developing nations recognized the advantages of coalitions, efforts to join together in common cause were largely ineffective even in textiles. In the end the industrial nations reduced tariffs on goods imported from the developing world slightly more than the developing countries did on imports from the industrial countries. Yet a dismantling of nontariff barriers in the industrial world could prove to have a more important effect in expanding trade than changes in tariffs.
The Round will benefit all. Developing countries may gain more absolutely, but industrial countries will reap larger gains as a share of GDP. Some recent studies forecast a quarter-trillion-dollar increase in annual global income as a result of the Uruguay Round (see box). In all scenarios the importance of trade liberalization is overwhelming. But final results will depend on implementation. Political will was crucial to the conclusion of the Uruguay Round. It remains crucial to its implementation.
See Marcelo de Paiva Abreu, "Trade in Manufactures: The Outcome of the Uruguay Round and Developing Country Interests," presented at the World Bank conference on the Uruguay Round and the Developing Economies, Washington, DC, January 26-27, 1995. To obtain a copy of this paper or of the paper referred to in the box, contact Nellie Artis at the World Bank's main address or by fax at 202-676-1341.
