Long-term economic growth will be accelerated with the passage and implementation of GATT beginning in 1995. Although the initial increases in GDP due to GATT are likely to be very small, the trade agreement will give a substantial boost to many economies over time.
In 1994, all developed countries experienced economic growth following the recession of the early 1990s. However, not all of these countries exhibited robust growth.
Following a slight contraction in the economic activity of the region, the European Union economy grew by 2.4 percent in 1994. Long-term growth rates are projected to be slightly above 2.5 percent with fairly low inflation. In a departure from previous forecasts, the ECU is expected to depreciate slowly against the dollar throughout the projection period.
The Japanese economy continued to be sluggish in 1994, but is projected to increase growth to approximately 4 percent by 1997 and thereafter. In the short to medium term, the effects of the earthquake in Kobe could affect Japan's trade and the costs of rebuilding could be a drain on the Japanese economy.
The United States is not expected to be able to sustain the 3.6 percent growth it experienced in 1994, and growth will fall to less than 2.5 percent in the long run. Inflation is projected to remain low and the dollar to depreciate relative to the currencies of Canada, Australia, and Japan.
Although political and economic reforms are continuing in Eastern Europe, the economies of this region, as a whole, expanded in 1994 for the first time since 1988. It is projected that this region will increase growth rates through 1998, before stabilizing to long-term growth of approximately 4 percent.
The economies of the former Soviet Union suffered continued severe economic contraction in 1994. Projections indicate that the economic slide will continue in 1995 and begin to taper off in 1996. Growth is expected for 1998 following eight consecutive years of decline. Growth rates of more than 5 percent are projected by the turn of the century.
As a group, the developing countries exhibited higher rates of growth than either the developed nations or former centrally-planned economies. This growth was led by strong economies in Asia. The developing countries are expected to remain the fastest growing group.
China continued double-digit growth in 1994 and is expected to do so in 1995 as well. After that time, growth is projected to "slow" to approximately 9.5 percent.
Newly industrialized countries such as South Korea and Taiwan are projected to have real GDP growth rates in the 6.5 percent range throughout the projection period, with low to moderate rates of inflation. Their currencies are expected to remain fairly stable against the dollar.
As a whole, Latin America is expected to show moderate to strong economic growth. The Brazilian economy, the largest in the region, is projected to grow at approximately 5 percent from the late 1990s, with inflation stabilizing at 15 percent before the turn of the century.
Argentina is projected to grow approximately 6 percent per year for most of the projection period. Inflation is expected to be moderate, with annual increases of less than 5 percent by 2004.
Mexico's healthy economy has been disrupted by the more-than-50 percent depreciation of the peso late in 1994. While this is not expected to be an ongoing weakening, projections are for adjustment over the next two years. Slight economic contraction is expected in 1995, but recovery to the 5 percent range is projected for 1997 and later years. Inflation is expected to fall to 10 percent with approximately 7 percent depreciation in the value of the peso on an annual basis.
African nations, as a whole, are expected to have the lowest GDP growth rates of all developing regions, but the rates will generally be above those of developed countries. High population growth will limit per capita GDP growth.
In previous FAPRI baselines, continuation of current agricultural policies has been assumed for most countries. In this baseline, that assumption is carried as far as possible, but adjustment or elimination of certain policies occurs in keeping with implementation of the GATT agreement. Other exceptions are the former Soviet Union and Eastern Europe where agricultural sectors are in transition toward competitive market behavior.
Phase in of CAP reform in the European Union is continuing in 1994/95. Cereal intervention prices fall to 107 ECUs per metric ton. Pork basic prices were reduced to 1300 ECUs per metric ton to compensate for the feed price reduction. Beef intervention and milk target prices were reduced as well. The 1995/96 cereal set-aside rates will be reduced to 12 percent.
Although the Blair House oilseeds agreement limits European Union oilseed area to 5.128 million hectares, production of oilseeds for industrial uses is allowed on set-aside. With the allowed production for industrial use, oilseed area is not expected to be significantly constrained.
GATT constraints on European Union subsidized grain exports will limit wheat exports to 13.4 mmt and coarse grain exports to less than 10.0 mmt by 2000. Subsidized export quantities and expenditures will be limited for beef, pork, poultry, and dairy products. A variety of agricultural products will be subject to import access commitments.
Government procurement prices for rice, wheat, and barley in Japan are held at current levels because AMS constraints are not expected to be binding on this country under the GATT agreement. Although state trading of rice, wheat, and barley is expected to continue, minimum access commitments will require that Japan import more than 750 tmt of rice annually. However, Japan has made no commitment to reduce tariff equivalents for grains.
Although the reduction in the Japanese beef import tariff was completed in 1993 when tariff equivalents were cut by 50 percent, further tariff reduction is scheduled under GATT.
The introduction of NAFTA in Mexico has provided an expanded market for many U.S. agricultural products. The corn market is accessible to U.S. exporters, and lower prices resulting from PROCAMPO are providing incentives for increased consumption of corn, edible beans, soybeans, sorghum, wheat, rice, and cotton.
In the former Soviet Union, the transformation to market economies is assumed to continue, although at different rates for various republics. Credit availability is assumed to be adequate. Policies are assumed to be successful in avoiding a complete breakdown of the production and distribution systems. However, only modest improvements in reducing waste and increasing efficiency are assumed. Price liberalization, especially in Russia, is assumed to proceed over the next several years.
Projections for the United States incorporate both NAFTA and GATT. FACTA-90 mandates a freeze in target prices for grains and cotton, and loan rates for sugarcane and sugar beets. FACTA-90 also specifies that the milk support price cannot be reduced below $10.10 per cwt.
The Conservation Reserve Program (CRP) in the United States is continued in these projections, with some contracts re-enrolled as they expire. By 2003/04, a total of nearly 7.2 million hectares remain in the CRP.
Per unit subsidies under the EEP in the United States are assumed to be reduced to reflect a 36 percent reduction in export subsidy expenditures, and to induce a 24 percent reduction in subsidized export quantities of wheat, barley, soybean oil, and rice. DEIP subsidies are also reduced to be consistent with GATT commitments.