World Investment Report 2009: Transnational Corporations - Unctad

CHAPTER V 183
Box V.11. Trade barriers and developing countries’ exports of agricultural commodities
Although the Uruguay Round made some
progress in global agriculture and trade policy reform,
most developing countries are disappointed about the
continuing high levels of protection and subsidies for
agricultural goods, mainly in developed countries.
These measures hamper developing-country exports of
agricultural products, and undermine the effective use
of their comparative advantages. Most of the trade-
distorting domestic support in developed countries is for
temperate products such as milk, but subsidies are also
high for some products for which developing countries
produce substitutes, such as sugar, or for their traditional
products such as tobacco, cotton or oilseeds. This, along
with the overall long-term downward trend in world
market prices observed in the past, and the considerable
compete with developed countries in the world market
or local markets (UNDP, 2003).
Agricultural subsidies in developed countries
have contributed to years of underinvestment in this
sector in developing countries (World Bank, 2007;
UNCTAD, 2008i). Reducing subsidies in developed
countries could encourage FDI in poor countries.
These subsidies have been the subject of intense
and controversial negotiations in the WTO, leading
to calls for their substantial reduction or elimination
(UNCTAD, 2008j). The fact that many developing
countries are net food importers that would be
confronted with higher food bills as a consequence
of agricultural liberalization complicates the matter.
Therefore, effective strategies to mitigate adjustment
costs as a consequence of further agricultural
liberalization, such as longer repayment periods
for export credits, facilitating imports into net
food-importing developing countries, and even
more important, support for increasing agricultural
productivity, especially in LDCs, in order to enhance
their agricultural production and their competitiveness
are essential.
Another concern that has been raised is that
structural adjustment programmes that encouraged
low import tariffs, and fiscal austerity and abandoned
or weakened the role of marketing boards and
commodity stabilization funds for both cash crops
and food staples have contributed to low investments
in agriculture in developing countries. Therefore,
viable alternatives should be put in place (UNCTAD,
2008i).
d. R&D-related policies
Increases in agricultural productivity are closely
linked to R&D (see chapters III and IV). Host-country
policies aimed at increasing agricultural production
through TNC participation therefore need to consider
price fluctuations and demanding standards, has made it
difficult for many exporters of commodities to sustain
their exports.
A recent World Bank estimate suggests that
developed-country agricultural policies cost developing
countries about $17 billion each year – a cost equivalent
to about five times the current levels of development
assistance to agriculture. The benefits for exporting
developing countries from liberalization of agricultural
policies in developed countries would mainly result from
better market access and higher prices for commodities.
With full trade liberalization, world market prices would
increase on average by 5.5%, while those for cotton
would rise by 21% and those for oilseeds by 15%.
Source Source: : WTO Domestic Support notifications; World Bank, 2008: 11; and Ingco and Nash, 2004.
what role – if any – R&D activities of these companies
could play. While most TNC activities in this field are
still undertaken at headquarters in the home country,
there has been a trend in recent years towards shifting
R&D partially to developing countries in order to
adapt the development of seeds and products to local
and regional conditions (e.g. climate, soil, tastes and
traditions) (see also chapter III).
An initial question for policymakers is
whether they wish to encourage TNCs to undertake
agricultural R&D in their countries. The benefits
of agricultural R&D derive from its potentially
significant contribution to productivity gains and
quality improvements; but there are also some risks
and uncertainties involved, in particular in the case
of biotechnology (see chapter IV). There is strong
opposition in some countries to GMOs, because
they are associated with damage to the surrounding
environment (e.g. harm to biodiversity), an increase
in the debt burden of local farmers, and a loss of
“traditional” food, not to mention possible, though
yet unproven, health threats.
Second, if the host country considers, in
principle, that agricultural R&D by foreign affiliates
is desirable, it needs to assess whether it is a suitable
location for this. An essential condition for a country’s
capability to benefit from TNC-led R&D programmes
is that it should already have some relevant basic R&D
capacity in domestic universities, laboratories and
research centres, so that they are able to work with
and learn from TNC affiliates’ innovation activities
(Rama and Wilkinson, 2008). Host-country policies
aimed at capacity-building may be necessary, and
ODA funds and international development assistance
agencies can play a significant catalytic role. A
number of developing countries have well-established
domestic research capabilities in this area, but most
other developing countries lag far behind.