xxiv SUMMARY


activities for a significant share of their incomes. In other words, agricultural protection is a costly and imprecise tool with which to address the problem of rural poverty.


Complementary Policies


The impact of trade liberalization on small farmers and other poor households in the MENA region partly depends on nontrade policies. Several studies have indicated that the size of the gains from trade liberalization will be greater when there are flexible factor markets that allow land, labor, and capital to be reallocated from formerly protected sectors to newly profitable sec- tors. Regulations that constrain the response of these factor markets reduce the positive impact of liberalization. In agriculture, flexibility is likely to be enhanced by effective agricultural services such as extension and market information systems that can provide farmers with useful information about the agronomic and economic aspects of shifting into new commodities. Another type of policy that enhances the economic effect of trade liberal-


ization is trade facilitation. This refers to measures that reduce the trans- action costs related to trade, including the costs of excessive documentation requirements, the need to obtain authorizations from multiple agencies, unclear or subjective criteria for applications of duties, and delays and uncertainties related to customs clearance. One study found that the gains from trade liberalization are twice as large if combined with trade facilita- tion measures.


Under WTO rules, the agricultural sector can be directly supported through


a variety of green box expenditures, such as investments in agricultural research and extension, pest and disease control, inspection services, marketing infra- structure, market information services, environmental protection programs, and regional assistance programs. Most of these investments involve the provi- sion of public goods, implying that they may be justified in terms of economic efficiency as well as in terms of supporting poor farmers. One type of green box support does not involve the provision of public


goods: decoupled payments to farmers. Payments are decoupled when they are based not on current production but rather on some fixed measure such as production or area planted in a base year. Over the past 15 years, econo- mists and policymakers have become increasingly interested in agricultural reform that shifts from producer subsidies and import protection toward decoupled payments to farmers. This type of reform has been tried in the E.U., Mexico, Turkey, and the United States with some success. At the same time, it should be recognized that switching from import protection to a program of decoupled payments implies both a loss in tariff revenue and significant new expenditure.


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