The Doha Development Agenda: Agriculture

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The Doha Development AgendaAgriculture
Carlos A. Primo Braga Senior Adviser,
International Trade Department The World Bank
Ensuring Coherence Between Africas Trade
Agenda And Long-Term Development
Objectives Lausanne, Switzerland May 13-14, 2005
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Why the focus on agriculture in the DDA?

• even though it provides less than 4 of global
  GDP and 9 of intl merchandise trade
• OECD manufacturing tariffs have fallen by 9/10ths
  over the past 60 years to lt4, while agricultural
  protection has risen
• Agric. applied (bound) tariffs now average nearly
  5 (10) times manufactures tariffs globally
• Also, the vast majority of the worlds poor rely
  on farming for a living, and may be hurt by agric
  protection policies of rich countries

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Usual concerns about the implications of
agriculturalliberalization

• The harm to some DgC farmers from rich-country
  agricultural protection is reduced via
  non-reciprocal preference schemes such as the
  ACPs Lome Agreement, EBA and AGOA
• And as a consequence MFN liberalization entails
  the risk of preference erosion. But this risk
  tends to be dominated by productivity impacts and
  market access expansion in non-preferred products
  (not to mention the shortcomings of preferences
  e.g., strict ROO)
• Need to address concerns of net food importers
• Food security impact on subsistence farmers

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Africas potential in agriculture
SSA China India
Agricultural land per worker (hectares/workers) 5.1 1.1 0.7
Crop land per worker (hectares/worker) 0.9 0.3 0.7
Cereal production per worker (metric tons/worker) 0.42 0.78 0.85
Including pastures Src FAO, WB staff Including pastures Src FAO, WB staff Including pastures Src FAO, WB staff Including pastures Src FAO, WB staff
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Trade reform in the last two decades
Av. Tariffs
Late 1980s
2004
Overall Trade Restrictiveness Index (OTRI)
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Still large scope to increase certainty of trade
policy by binding tariffs at low levels

• Average binding coverage for manufactures is 45
  of tariff lines, but this masks wide
  discrepancies
• 15 countries have bound less than 10 of tariff
  lines
• Of which 7 are non-LDCs

African Tariffs Agriculture Manufacturing
Bound average 70.4 29
Applied average 17.7 12
Bound maximum 597 200
Applied maximum 100 100
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Role of African countries crucial in negotiations
outcome

• Though Africa accounts for less than 2 of world
  trade
• African countries represent about 25 of the 148
  WTO members
• A Doha Development Agenda without Africa is a
  contradiction in terms

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What is in it for Africa?

• Opportunities to explore
• More open and less subsidized global agricultural
  markets (e.g. sugar, cotton, ground nuts)
• Reduction of barriers in NAMA (especially
  South-South)
• Opportunity to discipline own trade regimes
  (reduce uncertainty and rent-seeking)
• Aid for Trade
• Downside risks limited
• low binding coverage in Africa
• actuals much lower than bindings
• special treatment
• Implementation periods
• Lower commitments
• Special products

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Modeling Doha reform packages using World Banks
Linkage Model

• Recursive dynamic CGE model
• We start with GTAP Version 6.05 protection and
  trade data for 2001
• We project on-going reforms from 2001 to end-2004
  (Uruguay Round including ATC, EU25 enlargement,
  WTO accession for China, etc.)
• Then we assume no further reform as global
  economy grows to 2015 (according to World Bank
  population, income, etc. projections), to get our
  global baseline scenario for 2015, against which
  to compare reform scenarios

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Linkage models welfare cost of current
protection policies by 2015

• Global cost of current tariffs on all good plus
  agricultural subsidies would be 278 billion p.a.
  by 2015
• 2/3rds accrues to high-income countries
• But as of GDP, the cost for DgCs is twice that
  for developed countries

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Full liberalization global gain (bn)
billion due to reform by Agric food Textiles clothing Other manuf TOTAL
High-income Countries 124 16 9 150 (55)
Developing countries 40 24 58 124 (45)
All countries policies 173 (61) 39 (15) 67 (24) 278 (100)
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Full libn gains to developing countries
bn due to reform by Agric food Textiles clothing Other manuf. TOTAL
High-income countries 26 15 4 44 (50)
Developing countries 26 9 6 45 (50)
All countries policies 55 (63) 22 (25) 10 (12) 87 (100)
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Full Liberalization(percentage change from
baseline income in 2015)
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Effects of full libn on SSA factor rewards
change in Farm land Unskilled wages Skilled wages
South Africa 10.7 2.8 2.2
Other Southern Africa 5.3 6.4 1.2
Other SSA 6.4 8.4 5.7
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The WTO General Council Decisions (August 1, 2004)

• Agriculture
• Parallel elimination of all forms of export
  subsidies, including all export measures with
  equivalent effect which are not in accordance
  with strengthened disciplines to be established
  (e.g., export credits, export credit guarantees
  or insurance programs, trade-distorting practices
  of exporting state-trading enterprises, and food
  aid)
• Substantial reductions of trade-distorting
  support, encompassing amber and blue boxes, as
  well as de minimis subsidies. In the first year
  of implementation of the agreement, countries are
  expected to cut at least 20 per cent of the
  overall level of trade-distorting support based
  on the sum of the Final Bound Total AMS,
  permitted de minimis and the Blue Box capped at 5
  per cent of a Members average total value of
  agricultural production during a historical
  period to be agreed.

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The WTO General Council Decisions (cont.)

• Agriculture (cont.)
• Tariff reductions are expected to be made from
  bound rates using a tiered (banded) formula
  that will foster greater harmonization of tariff
  regimes with deeper cuts in higher tariffs. In
  the case of sensitive products, substantial
  improvement is to be achieved through
  combination of tariff quota expansion and tariff
  cuts.
• Cotton will be dealt with in the agricultural
  negotiations. To facilitate the prioritization of
  the cotton issue in the three pillars of the
  negotiations, a subcommittee on cotton will
  report periodically on progress achieved to the
  Special Session of the Committee on Agriculture.
• NAMA back to a qualified Derbez text.
  Consensus still missing
• Services new timetable for revised offers (May
  2005).
• Begin negotiations in trade facilitation and
  agreement that other SI are outside the single
  undertaking.
• New timetable to agree on SDT issues (July
  2005).
• Extension of the DDA deadline with the next
  Ministerial scheduled for Hong Kong in December
  2005.

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Prospective Doha packages

• We focus on agric market access in particular
• because it is by far the biggest potential
  contributor to global and DC welfare gains
• So we assume no services reform, no new trade
  facilitation, but
• phase out of agricultural export subsidies
• tiered cut to agricultural domestic support
• And tiered cut to agric and non-agric bound
  tariffs under various alternative market access
  packages

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Agricultural market access

• Tiered formula for cutting bound tariffs (with
  smaller cuts for DCs)
• Formula sought by Harbinson yielded almost no
  gains to DCs
• especially if lesser cuts for 2 of products that
  are sensitive and another 2 of DC products
  that are special
• So we increased each cut by 10 percentage points
  more than Harbinson

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Agricultural domestic support

• Cut in bound AMS need not reduce applied support,
  because of binding overhang (with 1986-88 ref.
  prices)
• and overhang can be increased by abolishing admin
  prices used to calculate market price support
• We apply a tiered reduction in bound AMS
• 75 if AMSgt20, otherwise 60 for developed
  countries (40 for developing, zero for LDCs)
• Leads to only 4 members reducing support
• US 28, Norway 18, EU 16, Australia 10

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Non-agric market access, and extent of DgC
willingness to reform

• 50 cut in bound rates for high-income countries,
  33 for DgCs, 0 for LDCs
• We also examine the effects of DgCs (including
  LDCs) becoming full participants in Doha agric
  and NAMA cuts (Doha-All scenario)
• recalling from earlier Rounds that DgCs tipically
  got what they gave, in terms of increased market
  access

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Services and trade facilitation

• These areas offer great potential gains,
  especially for developing countries
• But few significant signs of commitment have been
  forthcoming yet
• and quantification of their effects is
  problematic
• Hence we assume zero changes for these items in
  our modeled Doha scenarios.

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Results from Doha agric reform

• Tiered formula cut as per Harbinson gives the
  world 54 billion, but little goes to DgCs
• So we increased all cuts by 10 percentage points,
  which gave a 73 billion global gain
• Even then, only 8 billion go to DCs
• if HICs exempt just 2 sensitive products
  (DCs 4), global gain shrinks to 18 billion, and
  DCs gain disappears
• although a 200 tariff cap reduces much of that
  shrinkage
• Small DgC gains because of their (a) lesser cuts
  and (b) large tariff binding overhang

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Binding overhang in agric tariffs,
Bound Applied
All DgCs 48 21
South Africa 52 13
SSA LDCs 63 13
Other SSA 105 26
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Adding non-agric market access

• Adding 50/33/0 cuts to non-agric bound tariffs
  boosts global gain from agric tiered formula cut
  from 73 to 95 billion pa
• That 95 billion gets the world 1/3rd of the way
  to the potential gains from complete free trade
  in merchandise
• If DgCs and LDCs fully participate in market
  access, global gain goes up to 119 billion

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Effects of Doha libn on SSA applied tariffs
applied tariff in Baseline 2015 Doha (with lesser cuts by DgCs) Doha-All
South Africa 6.6 6.0 5.0
Other Southern Africa 8.7 8.5 8.4
Other SSA 16.1 15.7 15.4
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Effects of full Doha libn on SSA welfare
change in Full global libn Doha (with lesser cuts by DgCs) Doha-All
South Africa 1.0 0.25 0.49
Other Southern Africa 1.7 0.19 0.26
Other SSA 1.2 -0.02 0.13
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Areas of concern

• Agriculture
• calculation of AVEs
• the criteria for selection of sensitive products
  (and special products) the greater the
  flexibility on this front, the smaller the
  potential for substantive improvement in market
  access through tariff cuts
• the definition/implementation of the tiered
  formula not only in terms of the type of tariff
  reduction mandated by band, but also with respect
  to the question whether tariff line caps will be
  established that could control for strategic
  behavior at the level of product classification
• the profile of implementation of new disciplines
  in each one of the three pillars the more
  back-ended is the reform, the less substantial
  will be its impact in present-value terms
• the choice of the historical period for capping
  the Blue Box and the size of the cuts required on
  trade-distorting domestic support
• Cotton expectations of quick solutions vs.
  timetable of negotiations/domestic reform
  calendar in countries relying on subsidies.

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South-South liberalization important for Africa
Average applied tariffs EU US Brazil China India Thailand
Coffee, Tea, Spices 3.1 0.7 11.5 13.9 62.5 36
Cocoa and cocoa preps 6.1 5.8 17.3 11.0 30 13.1
Fruit and nuts 7.1 5.5 12.1 18.7 38.2 36
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Cottons contribution to total merchandise
exports (percent, 1998-99)
30
Cottons contribution to GDP (percent, 1998-99)
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Real Price Indices(19801.0)
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Cottons Share in Total Fiber Consumption and
Polyester to Cotton Price Ratio
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Prospects for Reforms

• US No major change expected until 2007 (new Farm
  Bill). DS outcome may influence reform path
• EU Reformed its cotton regime in 2004, effective
  in 2006
• China Reforms are underway, including reduction
  of stocks, creation of futures exchange, and
  privatization of processing.

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Policy distortions in developing countries

• Reform programs in many developing countries have
  been largely incomplete
• even if cotton prices increase, it will do no
  good to poor producers if such increase is
  absorbed by bankrupt parastatals or debt-ridden
  cooperatives
• In such cases, reforms should become the
  immediate focus of policy makers

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WTO negotiations (and other trade negotiations)
provide new opportunities, not guaranteed
outcomes.

• .....Translating opportunities into outcomes
  depends on accelerating domestic reforms and
  investments that are critical to international
  competitiveness. This is especially true in
  Africa.

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Concluding remarks

• For the development promise of the Doha agenda to
  be realized, all countries have to take
  responsibility
• Rich countries have to lead in terms of
  concessions in agriculture, labor intensive
  manufactures, and development assistance as well
  as in services (modes 1 and 4, in particular).
• Middle income countries have to be willing to
  provide new access in services, increase the
  coverage/binding of their services policies
  under GATS (mode 3 in particular) and increase
  market access both in NAMA and agriculture --
  benefiting themselves and their neighbors.
• Low-income countries, while seeking donor
  assistance and flexibility on resource-intensive
  rules, have to be willing to reform their own
  border protection and to gradually assume greater
  commitments vis-à-vis the multilateral trade
  system.

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Concluding remarks (cont.)

• Agriculture the main potential source of welfare
  gains in the DDA
• High binding overhang, sensitive and special
  products greatly diminish liberalization
  potential
• Gains to developing countries larger with bigger
  cuts in own protection.

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Concluding remarks (cont.)

• A non-ambitious Doha would give SSA only a
  fraction of their potential gains from a move to
  global free trade
• If DgCs (including LDCs) were to fully
  participate, their gain more than doubles
• Removal of cotton subsidies in US and EU would
  raise DgC share of global cotton exports from 56
  to 85
• Some LDCs could lose slightly, as could some
  households within DgCs that gain, if they reform
  little.

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Concluding remarks (cont.)

• Aid for Trade Agenda
• Adjustment
• Preference erosion
• Higher food prices
• Lower fiscal revenue
• Effects on the poor
• Supply response/competitiveness
• Transport infrastructure
• Power and water
• Meeting sanitary standards
• Customs modernization
• Capacity and institutional reforms
• Investment climate

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More information

• www.worldbank.org/trade
• cbraga_at_worldbank.org
• References
• Primo Braga, C.A., 2005, The DDA A Brief
  Update, mimeo.
• World Bank, 2003 and 2004, Global Economic
  Prospects. (Washington, DC The World Bank).

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Working paper and web address for forthcoming
book chapters

• Anderson, K., W. Martin and D. van der
  Mensbrugghe, Would Multilateral Trade Reform
  Benefit Sub-Saharan Africans? World Bank Policy
  Research Working Paper, April 2005.
• Anderson, Kym and Will Martin (eds.),
  Agricultural Trade Reform and the Doha
  Development Agenda, Washington DC World Bank,
  forthcoming mid-2005 but chapters now available
  on World Bank website at http//web.worldbank.org
  /WBSITE/EXTERNAL/TOPICS/TRADE/0,,contentMDK203660
  35pagePK210058piPK210062theSitePK239071,00.h
  tml