Trade barriers, mostly erected by rich countries, are eating up US$650 billion that could otherwise be used to improve livelihoods around the world each year and limiting poor countries' sorely needed access to world markets, the IMF and World Bank said on Monday.
Subsidies and tariffs slapped on agricultural products and textiles are doing the most harm, the joint study by the bank and IMF which is set to be a centerpiece for discussion at the institutions' annual meetings at the end of the week, found.
"In Canada and the United States, tariff peaks are concentrated in textiles and clothing; in the EU and Japan, in agriculture, food products and footwear," the report said.
"The effect of these tariffs is aggravated by the subsidization of agriculture in OECD countries, by remaining quotas in textiles and clothing trade, and by high barriers in inter-developing country trade."
Agricultural markets are among the most distorted, the report said, and have the most impact because about three-quarters of the world's poor still live in rural areas, mostly dependent on agriculture.
Top bank and fund officials have repeatedly spoken out against whopping agricultural subsidies put in place by the EU and the United States. The bank created a new department to look at trade issues and the IMF is hoping to work with the WTO to issue reports that would highlight the problems created by the trade policies of rich nations.
In May US President George W. Bush signed a farm bill worth US$51.7 billion over six years. The main beneficiaries of the bill are US producers of corn, sorghum, barley, wheat soybeans, oilseeds, cotton and rice.
A recent bank and fund study of the cotton sector, concluded the complete elimination of US cotton subsidies would in the short run raise world prices by 25 percent to 30 percent and export revenues in West and Central Africa by US$250 million.
Textile barriers are also unreasonably high, the report said. It estimates that rich country restrictions on trade in textiles and clothing have prevented the creation of over 20 million jobs in developing countries.
The solution is the liberalization of world markets and while some countries have taken some tentative steps, more work is urgently needed.
Negotiating proposals put forward by the US to the WTO in July 2002 would sharply cut support levels. And in July, the EU tabled a mid-term review of its Common Agricultural Policy consisting of reform proposals, which if adopted would make EU agricultural policy significantly more market-oriented. Even so, these plans fall short because they do not envisage a reduction in the overall level of budgetary support, the report said.
But the bank and fund also warn that developing countries may be ill-prepared for liberalization and therefore may need supportive policies to help with adjustment. Rapid agricultural liberalization could leave the food supply for some groups vulnerable. And sudden removal of quotas in textiles and clothing trade could expose the lack of competitiveness of some developing country exporters.
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