It has become a cliché that we live in an interconnected world, but cliché or not, globalization in its many and complex dimensions is one of the defining facets of our times. To make economic globalization work smoothly, sovereign countries need a rules-based trading system sustained with transparency and clarity through multilateral institutions such as the WTO. Since much of the world is impoverished, rules of global trade must work as effectively for the poor as the rich, if the system is to be credible. One can hardly overstate how high the stakes are, that it do so.

Multilateralism is truly at a crossroad. Prompted partly by a lack of progress in the WTO negotiations, a host of bilateral trade negotiations are in progress. Bilateral agreements among large players lead to further marginalization of excluded low-income countries. In this global setting, restoring the effectiveness of multilateralism through the WTO is essential. Doing so will rest in the coming decade both on the substance of its rules and on the transparency and inclusiveness of the process through which they are achieved. Countries emerging as centers of global growth, and poor countries large and small, will only buy into a rules-based world trade system if they are brought into making its decisions. The new rules of the game must be written jointly by rich, middle-income, and poor nations, not just by a few powerful members.

Most of the world's poor depend on agriculture for a key part of their livelihoods. The future of about 350 million small farms and the people employed by them in low- and middle-income countries around the world depends upon improved access to well-functioning markets. Food and nutrition security of the poor is much affected by market and trade reforms in agriculture, as IFPRI research has pointed out. Thus, agriculture is a critical sector in which a rules-based global trade system must work to the benefit of the poor. Yet, agriculture has long been treated as an exception to the rules, as a special case left outside the trade-liberalization process. As a result, extensive subsidies and border protection continue to block opportunities for those poor people who can best make their livings from farming and value-added farm products. If the poor remain losers in agricultural trade, then the trade rules adopted cannot be justified and WTO effectiveness and credibility will be impaired.

We focus on five steps that must be taken to make agricultural trade liberalization work for the poor, and we emphasize the need to combine trade policy reform with development investment to create level playing fields.

Support policies and border protection of the wealthy OECD countries, worth hundreds of billions of dollars each year, cause harm to agriculture among developing countries. These policies include price guarantees, income support measures, and input-related and crop insurance subsidies that stimulate farm production. They also include tariffs and tariff-rate quotas (TRQs) that restrict market access and export subsidies that move high-priced farm products into world markets. The support and border protection policies of the developed countries are "special and differential treatment" for the rich not the poor.

Recent research at IFPRI and elsewhere illustrates the impacts of these policies. By blocking market access and driving down world prices for agricultural commodities, developed country policies reduce agricultural exports from the developing world by $37 billion (25%) annually, according to estimates by researchers at IFPRI. Agricultural GDP (value added) among developing countries is reduced by $23 billion annually. For specific countries and specific commodities, the effects can be critical, as in the case of cotton for the rural poor in a number of African countries, or when Guatemala and other poor countries sell sugar at depressed world prices. IFPRI research presented to the WTO panel in the ongoing case by Brazil against U.S. cotton subsidies analyzed the effects of lower world prices on poverty in cotton export-dependent Benin. Based on detailed household survey information, the results show that a drop of world cotton prices by 20%-as might occur due to developed country subsidies-raises poverty by 4 percentage points (an increase of 10% in the population in poverty) through direct and indirect effects on rural incomes.

Developed countries must end this harm to farmers in the developing world. Because they provide such large subsidies and so much protection, the developed countries must be the first to "come to the table" to offer real reforms in the Doha negotiations.

Nearly one-third of the agricultural trade of developing countries is with other developing countries and this share is growing. But these countries also have substantial trade barriers on agricultural products. Among large developing countries, such as Brazil, China, India, and Mexico, tariffs applied to agricultural products average more than 25%--these are higher tariff levels than imposed by many low-income countries. Developing country governments that are united in seeking the benefits from reduced agricultural subsidies and protection in the rich countries have been divided about what to do about their own agricultural trade barriers. Those countries with strong agricultural export potential have called for more open markets, but those fearful of negative effects on their poor farmers, including among agricultural exporters, have been reluctant to endorse such moves. Many civil society organizations and development advocates are adamant that developing countries be granted room to retain agricultural trade barriers.

Research confirms that what is at stake in reduction of agricultural protection among developing countries is somewhat different than the stakes from developed country reforms. When developing countries join in agricultural trade liberalization, research at IFPRI estimates their overall GDP gains are nearly $40 billion annually. This is more than twice the gain in developing country GDP (of $14.5 billion) when only the developed countries undertake agricultural reforms. The developing country trade policy reforms add an additional $15 billion annually to their aggregated agricultural exports. The additional gains come primarily because food consumers face lower internal prices as countries' own trade barriers are reduced--food consumers benefit in more countries when developing and developed countries reduce agricultural trade barriers.

Trade policy reforms among developing countries thus boost their overall income and agricultural exports. But it also creates distributional impacts between those developing countries that are best able to gain from trade openness versus those less able to do so. The benefits from reduced trade-distorting subsidies and border protection globally will not be universal or evenly distributed among poor countries. Targeted assistance policies will be needed for some countries or regions and population groups, particularly among the very least developed, whose agricultural resources and other circumstances do not leave them well positioned to benefit under new trade rules for agriculture. This includes the need for attention to price instabilities in low-income countries which may hurt the poor, especially when markets are not functioning well, and the step-wise phasing out of food aid dependencies in some countries. The need for targeted assistance should, however, not be an excuse for failing to make changes that create agricultural trade opportunities.

To achieve trade-based gains, developing countries that will benefit from more open markets abroad, especially middle-income developing countries, need to be forthcoming in opening their own markets. They too must come to the table to offer reforms in the Doha Round. As trade barriers are reduced, benefits for poor farmers, and additional gains for food consumers, in countries less able to compete on a global level will come not from multilateral trade policy reform by itself, but from complementary domestic investments and policy improvements, so called "behind the border" reforms--a point we will return to below.

The Uruguay Round created the first comprehensive framework of multilateral disciplines on agricultural subsidies and trade policies. It achieved only modest agricultural trade liberalization. Thus, the Uruguay Round legacy rests on whether it created the conditions for deeper subsequent reform. The question today is whether the Doha Round can deliver on that potential. New coalitions of developing countries play a much larger role in trade and in the negotiations over trade rules in the Doha Round. They stood up to a weak proposal for agriculture in Cancun to make it clear that the Doha Round must not end with a "Blair House" type of U.S.-EU bilateral agreement as marked the close of the Uruguay Round. But will the Doha Round deliver?

As hard as it is proving to reach even a framework agreement in 2004, the negotiating texts in circulation leave room for concern about how much agricultural trade liberalization will be achieved in the Doha Round. Export subsidies are one of the most egregious interventions, prompting calls for protection abroad from such unfair competition. Export subsidies have cost over $5 billion in recent years, 90% of which is by the European Union. Full elimination of export subsidies would fulfill what was perhaps an implicit future promise from the Uruguay Round agreement. The indirect forms of export subsidization, through credit discounts and guarantees, misuse of food aid, and discriminatory pricing policies by state trading enterprises, are harder to measure, but these subsidies also need to be ended. Eliminating direct and indirect export subsidies would send a strong signal of multilateral commitment to imposing new disciplines on agricultural trade distortions. It would make it easier for other countries to lower tariff barriers.

In the complex area of domestic support policies, the developed countries face internal political pressure not to give up too much in a Doha agreement. Both the magnitude and instrumentation of their domestic farm support policies are at issue. Over 60% of the value of OECD agricultural support comes from price-guarantee measures that directly affects production incentives. As various formulas for limiting subsidization under the WTO amber, blue, commodity-specific and non-commodity-specific de minimis categories are proposed, there is potential for much "sleight of hand" to sustain current programs. Those seeking to limit the negative effects of production-stimulating and trade-distorting subsidies will have to be vigilant and forceful.

One complexity is that not all domestic policy support instruments have the same degree of detrimental effects. Most analysis attributes the bulk of expanded agricultural trade and income gains to removal of tariffs and TRQs that block market access and keep domestic prices higher than world levels. This has prompted an argument that it is constructive to have policies in wealthy countries move away from border measures and price support guarantees that stimulate production the most toward income support measures that cause less distortions in world markets. Production stimulating policies cause subsidy "injury" to non-subsidized farmers. Income support that stimulates production less causes less injury

This argument remains controversial. "Dirty" decoupling and rising subsidy levels, especially in the United States as world agricultural prices fell in the late 1990s, has given re-instrumentation of farm support programs a bad name. Farmers in poor countries are suspicious of how much production stimulus any support generates. A dollar of income support may have less production stimulus than a dollar of price support, yet, if the scale of income support is large and increasing, the overall impact on production stimulus may remain substantial. Dirty decoupling of this nature, therefore, has created a political imperative to link subsidy disciplines and trade policy reforms in the Doha negotiations.

Changes in the agricultural trade policies of India since the Uruguay Round illustrate the subsidies/tariffs connection. The political economy of farm policy in India is similar to that in the wealthier United States, but the instruments of policy differ. When the United States began making new direct (emergency) payments to farmers in the late 1990s period of low prices, India, with fewer fiscal resources to marshal for farm support, resorted to high tariffs and freight subsidies to protect its own farmers and compete with the subsidized exports from OECD countries.

To restrain the latitude of the wealthy countries to increase farm subsidies, eliminating blue box and de minimis loopholes, together with substantial reductions in the amber box, can create binding limits. Still, as the Doha Round proceeds, those developing countries that seek reductions in developed country farm support and protection will have to sort out what policies are most damaging and where they can accept more leeway. There is room for shifting some subsidies constructively toward the green box, but even these subsidies have to be closely monitored.

In the area of tariffs and market access, the objective should be to achieve meaningful openings for trade. There are many issues here: whether high tariffs will be reduced on the sensitive commodities for which liberalization would benefit developing countries; whether commitments to lower bound tariffs will result in lower applied tariffs and increased trade; how specific rules for aggregating tariff reductions affect their impacts; or whether TRQs can be expanded, administered effectively to open market access, and ultimately eliminated.

On these issues, both the blended formula and band approaches to tariff reductions being discussed leave room for substantial divergence in tariffs among commodities. As such, any tariff reductions agreed upon may do very little to open market access. Sensitive agricultural commodities have mostly been left out of recently negotiated regional trade agreements--this puts the disciplinary onus on the WTO, but does not bode well for the outcome. Some developing countries have also pressed for special and differential treatment to include limited tariff reductions, new special safeguards, and exemptions from market access commitments for special products. The net result of under various current proposals may well turn out looking much more like Swiss cheese--disciplines full of holes for high protection--than the liberalized regime that would result from application of a tariff-cutting Swiss formula.

What must be avoided in terms of agricultural export subsidies, domestic support and market access is a hollow final agreement that is lauded for its accomplishments, but accomplishes very little. Such an agreement will only harden opposition to trade policy reform worldwide and it will weaken the WTO as an institution providing transparency and clarity to world trade rules. It will leave intact the harm done to agriculture in poor countries by subsidies and protection, and thereby impair credibility of the system of rule setting itself.

The fastest growing world agricultural markets for developing countries are for fruits and vegetables, livestock products and other high-value commodities. Fruits and vegetables alone now account for nearly 20% of developing country agricultural exports.

For these high-value products, regulations and standards related to safety and quality play a large role in determining trade opportunities. The WTO embodies agreements to discipline agricultural and food safety and quality regulatory decisions that are primarily sovereign prerogatives. These WTO disciplines call broadly for countries to achieve legitimate regulatory goals in the least trade-distorting manner. Effectiveness of these disciplines is an important aspect of a rules-based agricultural trade system.

Dispute settlement cases show that the WTO has imposed modest disciplines on unnecessary agricultural and food regulatory measures. The outcomes of these cases suggest that complainants win when a sanitary or phytosanitary (SPS) measure lacks a basis in risk assessment; that even the measures of developed countries with high scientific and regulatory capacity can be successfully challenged; that the WTO will rule to limit unnecessary quality, as well as risk-related, measures; and that developing countries can be successful complainants.

Developing countries have a lot at stake in the rules for food regulation. Stringent developed country regulatory measures to address health, safety and quality goals can close off market opportunities. There is a trend in quality regulation toward HACCP and the required use of certain production methods or required labeling of production and processing attributes. These process-focused measures often demand complex conformity assessment with high compliance costs. Innovations are needed to ensure efficient implementation of such measures.

There are many examples--from the fishing industries in Bangladesh and India, to the groundnut sector in Brazil, to other cases on every continent--in which developing countries have successfully raised food safety and quality standards to meet the requirements of export and domestic markets. But there have also been--and continue to be--costly trade disruptions based on food safety criteria. It is a daunting task for the small-holder economies of many poor nations to implement food safety standards that can be traced and monitored from "fork to farm." New institutions and resources are needed to make it happen. There is, therefore, a great need to build up the capacity of developing countries to produce up to the exacting standards of importing markets. And civil society faces a dilemma: regulations that are well intentioned in some dimension can have the undesirable effect of reducing income-earning opportunities or blocking technology adoption that would benefit the poor.

Determining just how to balance the costs and benefits of particular regulations is more the province of implementation of the WTO agreements than of the Doha negotiations. But the issue of keeping markets open while allowing necessary and beneficial regulation must be kept in mind as the negotiations proceed. The negotiations can provide a forum for seeing that some disputes are addressed. Steps to expedite importing-country risk assessments and regulatory changes that open market access for safe foods from poor countries are constructive forms of special and differential treatment.

Global welfare, development and poverty alleviation will be well served if rules-based, multilateral liberalization of agricultural trade can be achieved in the Doha Round. This would bring gains for developing countries not just from new market opportunities created multilaterally, but from trade-based investment and the technological advances these opportunities induce. Yet for the poor in developing countries greater international market access is only part of what is needed, and more competitive international markets will even bring some distributional adjustment costs. To complement trade policy reforms, public investments are essential. To make the Doha Round truly a "Development Round" requires an innovative combination of trade policy reform with enhanced development finance that facilitates market functioning. This requires closer coordination among the WTO and development finance organizations, such as the World Bank and regional development banks.

Gains for developing countries from strengthening markets will come from simultaneously enhancing their physical and institutional infrastructures for agriculture, reducing domestic marketing channel inefficiencies, and eliminating internal barriers to private investments. To turn the market opportunities created by either multilateral trade agreements or their own trade policy reform into concrete gains requires an investment to make markets work and endow the poor with the assets they need to compete. Responsibility lies primarily within the countries themselves, but developed countries and international institutions need to increase their support for these efforts. Trade policy reform and international assistance to agriculture in poor countries are complements, not substitutes, in creating benefits for the poor people who are concentrated in global agriculture.

For both trade policy and development aid, differentiation is needed among developing countries based on observable quantitative criteria. The traditional distinction between "developed" and "developing" countries no longer holds today and will be even less so in the future. A finer classification is needed for rule-based graduation processes from exemptions to trade rules and allocation of development assistance. One useful principle would be that as per capita income rises and internal markets become increasingly efficient, a country should reduce its agricultural trade barriers and subsidies. This principle would reverse the current pattern of protection and subsidization worldwide. Achieving this result must be brought about not by raising protection or subsidies in the poorest countries, but by bringing them down in countries with higher incomes. Similarly, trade-facilitating aid (e.g. for infrastructure) should be highest for low-income countries and should shrink with raising income and improved market functioning.

The points we have addressed for moving forward toward agricultural trade liberalization in the Doha Round would contribute to positive outcome for the poor. In bullet point brevity, the agenda for agriculture must have five features for this aspect of the Doha Development Round to be judged successful. These are:

• an end to any types of export subsidies;
• reductions in systemically high tariffs that close off market access;
• disciplines on domestic subsidies and bound tariff rates so that beggar-thy-neighbor subsidization and high protection of the late 1990s are not repeated in the event of a post-Doha period of low world commodity prices;
• ongoing efforts to keep trade open while accommodating legitimate regulatory goals; and
• scaled-up investment in development assistance to strengthen agricultural markets in low-income countries.

Progress in reducing agricultural support and protection among the world's wealthy countries would be an important accomplishment for development and strengthening of the multilateral trade system. Developing countries also need to be actively engaged in the multilateral process of agricultural trade liberalization as they have much to gain. There are substantial grounds for agreement about agriculture between advocates of international development and poverty reduction and those advocating strengthened agricultural trade opportunities. There is also a compelling need for investments in rural infrastructure and institutions so that the rural poor can participate effectively in local and global market and gain from a strong Doha agreement.

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