Globalization Of Trade And Capital Markets

Over the last 20 years, the volume of trade between countries has expanded remarkably as a result of the reduction of trade barriers, as well as decreasing costs in transport and communications and the increased mobility of capital across international boundaries. International and regional trade agreements have been the primary mechanism by which trade barriers have been lowered, such as the General Agreement on Trade and Tariffs (GATT), and subsequently the World Trade Organization (WTO) at the global level, and North American Free Trade Agreement (NAFTA), the European Community, and MERCOSUR3 as examples of regional blocs.

Liberalization has also occurred in agricultural trade markets, although this is one of the most contentious areas of international trade policy and one where significant distortions still exist, particularly among developed countries. Indeed it was deadlock over agricultural trade which caused the breakdown of negotiations at the 2003 WTO meeting in Cancun. Nonetheless, there has been considerable movement towards the liberalization of agricultural trade markets, and more is expected in the future. In the United States, there is a move towards converting commodity support programs towards "green payments," e.g., paying for environmental services. In Europe, the expansion of the European Union is creating pressures to reform the Common Agricultural Policy (CAP) and reduce production supports. Farmers are increasingly expected to rely on insurance instruments provided by the private sector and sometimes subsidized by the government for the management of production and revenue risk. Future markets and forward contracts are also likely to play a major role in reducing risk in agriculture.

In basic grain markets, the impact has been a shift in production from high cost to a few lower cost producers such as the United States, Argentina, and Australia, as well as Thailand and Vietnam. At the same time many developing countries as well as the transition economies of Eastern Europe have become net importers of grain, and this trend is expected to continue with liberalization (Bruinsma, 2003).

3 El Mercado ComĂșn del Sur, includes Brazil, Argentina, Paraguay, and Uruguay.

If indeed agricultural support prices in developed countries are reduced, producer prices for some agricultural commodities are likely to increase in developing countries and new market opportunities created. One impact of these changes may be increased incentives for the adoption of new yield-increasing biotechnologies. Agricultural trade liberalization increases competitive pressures among producers and creates incentives for increasing yields and reducing costs in agriculture. It also exposes producers to the demand requirements of a larger group of consumers. This may expand the demand for both yield-increasing and pest-controlling biotechnology products. For example, the ability to export to markets in Japan, Canada, and other countries may be determined by the ability to control pest problems with minimal or no chemical residues. Concern about ozone depletion is leading to regulations banning the use of methyl bromide and other chemicals. These measures provide increased incentives for the adoption of pestcontrolling biotechnology products.

By reducing investment barriers, trade liberalization creates the potential for investors such as multinational companies to invest in both production and marketing infrastructure in developing countries with promising commercial market potential, or which establish incentives to attract mobile capital. Profound changes are occurring in the organization of the food sector in developing countries due to globalization, as well as urbanization, increasing incomes, and the opportunity costs of food purchasing and preparation. The rise of multinational retail chains, supermarkets, fast food chains, and other forms of pre-prepared foods are manifestations of this change. The developments in the structure of food markets raise challenges and opportunities for local and global suppliers, and have implications for both agricultural biotechnology and biodiversity.

On the one hand, food producers can potentially take advantage of the income-earning opportunities created in a dynamic and rapidly expanding market. This could increase the demands for agricultural biotechnology and incentives to adopt among producers in order to remain competitive. On the other hand, small producers unable to adapt to the required institutional and organizational changes, and the technology and management requirements that they entail, risk marginalization in terms of market participation. Some evidence of this trend is available with concentration in the food supply chain linked to increased farm consolidation and reduced market participation among small producers (Reardon et al., 2003; Berdegué et al., 2003). It is not clear what impact this will have on either agricultural diversity or biotechnology, although it is likely to lead to a higher demand for biotechnology products from both the commercial farm sector and the food processing industries, but will reduce demand from small farmers

While agricultural trade liberalization may result in increased incentives for producers in developing countries to adopt agricultural biotechnology, the extent to which adoption actually will occur depends on the types of innovations biotechnology delivers, and the degree to which these substitute for scarce factors of production and address key production and consumption constraints (see Chapters 13 and 17). At present, agricultural biotechnology innovations are being developed primarily to reduce production costs or increase yields under conditions present in developed countries, which constitute the main market for these products. In many developing countries, production constraints are of a different nature than those in developed countries; barriers to productivity increases are often more related to controlling for the incidence of drought, poor soil quality, and high rates of pest and disease, whereas in developed countries reducing management costs and pesticide use are more important concerns. Trade liberalization may exert some positive influence on the commercial attractiveness of developing innovations to address these needs through its impact on the global demand for inputs; however, this will only apply to technologies that have the potential for a significant commercial market.

Even where technologies are suitable for the production conditions in developing countries, it will be necessary for countries to have in place an adequate level of research, extension, and regulation to achieve dissemination and adoption of such technologies (see Chapters 3, 14, 15, and 16) The institutional requirements are significantly higher and more sophisticated than has been the case in the past for the adoption of improved agricultural technologies. Issues such as biosafety regulation, the negotiation of intellectual property rights (IPRs), and the technological capacity to modify technologies to suit local conditions place fairly significant burdens on the research and development (R&D) infrastructure of developing countries, and the capacity to meet such demands varies widely among them.

An important effect which the liberalization of trade may have on both agricultural biotechnology adoption and the management of biodiversity is the degree to which consumer concerns for the environment and food safety are allowed to be manifested through trade regulations and labeling (Anderson and Nielsen, 2001). The key principle of the WTO is nondiscrimination among member states, e.g., a standardization of product definition and treatment. However, consumer preferences for the environmental and health attributes of agricultural products are heterogeneous across national boundaries and could potentially be manifested in trade regulations. The ability of countries to regulate trade based on environmental and food safety concerns and specifically the degree to which countries may apply their own standards to reflect such concerns are governed by two agreements made under the WTO: the Agreement on Sanitary and Phytosanitary Measures (SPS) and the Agreement on Technical Barriers to Trade (TBT) (Anderson and Nielsen, 2001; Josling, 1999). These agreements allow members to impose restrictions on trade based on environmental and food safety concerns, but they also seek to ensure that such regulations are no more trade restrictive than necessary by imposing restrictions on the use of such "nontariff barriers to trade." In addition, they do not apply to the processes by which agricultural and other goods are produced, but only to the products themselves, which limits the degree to which environmental and food safety concerns can be used to establish trade barriers (Anderson and Nielsen, 2001). Nonetheless, consumer concerns over the environment and food safety could potentially impact the production practices in exporting countries. Ultimately, this impact will depend on the type of specific attributes that are demanded, the willingness to pay among consumers for such attributes, the capacity to distinguish such characteristics in products (e.g., labeling), and the degree to which the expression of such preferences is allowed under the WTO regulations.

The WTO includes another important agreement that has major implications for the dissemination of biotechnology and the management of biodiversity: the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The main thrust of this agreement is to facilitate trade in products that have a high intellectual property content. The agreement mandates a minimum standard for IPRs among member states, but leaves them free to determine the appropriate method of implementing them under their own legal system. Article (27.3(b)) of the agreement explicitly refers to the protection of plant varieties and stipulates that new varieties need to be protected either by patents or an "effective sui generis" system such as that of the International Union for the Protection of New Varieties of Plants (UPOV). Under the UPOV system of plant protection, plant breeders' and farmers' rights may be recognized; e.g., breeders have the right to use protected genetic materials in the development of new varieties, and farmers may have the right to save and re-use seeds from protected varieties for their own use (Heifer, 2002). The TRIPS agreement also allows members to exclude from patentability inventions whose use would seriously prejudice the environment. Implementation of this agreement is likely to increase the incentives for the developers of biotechnology innovations to expand into new markets, due to the increased protection it provides for their investment into the technology. Since agricultural biotechnology innovations are being produced mostly by the private sector, this protection is critically important for creating incentives among the suppliers of the technology for its dissemination.

The TRIPS agreement also has implications for the conservation and sustainable use of agricultural biodiversity. Agricultural biodiversity is maintained through systems of access and exchange from the farm to the international level, and property rights to plant genetic resources are likely to effect current patterns of exchange. There are several options for property rights over plant genetic resources, and their impacts on diversity are expected to be varied (Correa, 1999). Property rights and their degree of enforcement are also likely to impact the extent and nature of transgenic crop adoption, which will have implications for both spatial and temporal agricultural diversity (see Chapter 3; also Wright, 1998) The increased value of plant genetic resources as an input to breeding under private breeding programs may lead to increased demand for diversity (see Chapter 19). Concern that the establishment of property rights will lead to reduced levels of access and exchange of plant genetic resources and thus reduced levels of agricultural biodiversity have also been raised (FAO, 1998; Crucible Group, 1994). This includes concerns about the potentially negative impacts on access imposed by farmers' rights mechanisms (Gollin, 1998).

The agreements made under the WTO are not the only international agreements which drive the way the globalization of trade networks proceeds and impacts on biotechnology and biodiversity; there are several environmentally related conventions and agreements which are discussed in the following section and which may have an impact on the ways the WTO agreements are interpreted and implemented. However, the framework laid out under the WTO is the most important in determining what the potential impacts of trade liberalization on biodiversity and biotechnology will be, as this agreement has wide and expanding membership and its signatories include some of the key national players in this arena, which is not the case with many of the environmentally related agreements discussed below.

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