Day 3: The Doha Development Agenda: Progress and Prospects

1
Day 3 The Doha Development Agenda
Progress and Prospects

• 4-day course on Agricultural Trade Policy and WTO
  
• Tehran, Iran, 15-18 May 2005

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Footnote to Day 2 changes in applied tariffs by
China post-WTO accession
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Why acceding countries need to follow progress
in the Doha Round

• To learn about this aspect of being a WTO member
• To gauge how the eventual Doha outcome will
  benefit their economy due to reforms by WTO
  members (improved export prospects)
• To anticipate how the Doha agreements will
  increase WTO member expectations of the
  commitments currently-acceding countries should
  make

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Doha progress to date

• Launched at the WTO Trade Ministerial meeting in
  Doha in late 2001
• was delayed 2 years by the Seattle debacle of
  1999 at which anti-WTO groups disrupted those
  Ministerial proceedings
• Stalled in late 2003 at the biennial Ministerial
  meeting in Cancun, when DCs demanded action on
  agricultural subsidies (including cotton) before
  engaging in further talks
• Got kick-started again with the July 2004
  Framework agreement

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Whats in the July 2004 Framework?

• For agric, it provides agreement to eliminate
  export subsidies and to use a tiered approach to
  cutting tariffs and domestic support
• With cotton subsidies to be dealt with
  ambitiously, expeditiously and specifically
• All Singapore issues except trade facilitation to
  be dropped
• Special and differential treatment for DCs
• including LDCs (to be given a round for free)
• But little new guidance on NAMA or services

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Agricultural progress

• Decisions on formulae for tiered cuts still to be
  negotiated, as is phase-out date for export
  subsidies
• Sensitive and Special products to be subject
  to lesser reform
• with details still to be negotiated
• SD for DCs to include a Special Safeguard
  Mechanism
• Coloured boxes will remain for domestic support,
  with green box criteria to be tightened
• Measuring the ad valorem equivalent (AVE) of
  specific tariffs has been very controversial over
  the past 2 months
• Important especially in protectionist high-income
  countries (see next slide)

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Specific agricultural tariffs (in AVE) versus ad
valorem tariffs)
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Non-agricultural progress

• A non-linear formula to be used for tariff cuts
  on non-agric goods
• Higher percentage cuts for highest tariffs, to
  reduce tariff peaks and tariff escallation
• But further progress awaits more movement on
  agricultural negotiation
• Services revised offers due this month but little
  indication of significant reform so far
• DCs very keen on opening up under GATS Mode 4
  (movement of natural persons), but rich countries
  are showing no signs of being willing to relax
  their barriers

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Prospects for a Doha agreement

• Early conclusion (end-2006) being targetted to
  ensure legal drafting by mid-2007, before US
  fast-track expires
• in which case a modest outcome may be all that is
  achievable
• More likely is a later (much later?) conclusion
• But it may not be much more substantial in which
  case will it be worth the wait?

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Agricultural Trade Reform Under Doha, and
Implications for Iran

• Kym Anderson and Will Martin
• Tehran, 15-18 May 2005

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Two forthcoming books from just-completed World
Bank research project

• Martin, W. and K. Anderson (eds.), Agricultural
  Trade Reform and the Doha Development Agenda,
  Washington DC World Bank, forthcoming
  late-summer 2005 but draft chapters now available
  on World Bank website
• summarized in Anderson, K. and W. Martin,
  Agricultural Trade Reform and the Doha
  Development Agenda, The World Economy September
  2005 (forthcoming, also as a WB Policy Research
  Working Paper, May 2005)
• Hertel, T. and L.A. Winters (eds.), Putting
  Development Back Into the Doha Agenda Poverty
  Impacts of a WTO Agreement, Washington DC World
  Bank, forthcoming fall 2005

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What differentiates our new studies?

• Its point of departure is the WTOs July 2004
  Framework agreement
• It examines in detail each of the 3 agricultural
  pillars plus preferences, cotton subsidies,
  non-agricultural tariffs, and SD for DCs reform
• It adds up the consequences of current policies
  and prospective Doha reforms
• Uses bound as well as applied tariffs at the HS6
  level
• Has non-reciprocal as well as reciprocal
  preferential tariffs
• Incorporates key trade policy changes to the
  start of 2005
• It then focuses on poverty effects on ten
  countries, using national CGE models with many
  households

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Initial questions addressed

• What are the potential welfare gains from full
  goods trade reform, by country/region, due to
• developed relative to developing countries
  policies?
• agricultural relative to manufacturing policies?
• within agriculture, tariffs relative to export
  subsidies and domestic support?
• How close might Doha bring the world to
  completely freeing merchandise trade, in welfare
  and trade terms, based on July 2004 Framework
  agreement?
• What are the implications for developing
  countries Doha negotiating strategies, and for
  acceding countries such as Iran?

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Modeling Doha reform packages using World Banks
Linkage Model

• Recursive dynamic global computable general
  equilibrium (CGE) model
• We start with GTAP 2001 protection data and
  project on-going reforms from 2001 to end-2004
• Uruguay Round including Agreement on
  Textiles/Clothing
• EU25 enlargement
• WTO accession for China, etc.
• Then we assume no further policy changes 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 gain by 2015 from removing
current protection policies

• Global benefit from removing current tariffs on
  all goods plus agricultural subsidies would be
  287 billion per year by 2015
• (Would have been about 350 billion if we
  included key reforms during 2001-04)
• 2/3rds accrues to high-income countries
• But as of GDP, the benefit to developing
  countries (including Asias NIEs) as a group is
  twice that for developed countries
• Or 1/3rd higher if NIEs are considered
  high-income

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Results are lower-bound estimates because they
ignore

• Dynamic effects
• Pro-competitive effects
• Impact of increase in product variety
• Gains from services trade and investment reform
• The risk that, without Doha, agricultural
  protectionism could rise
• Complementary domestic reforms

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Full liberalization global welfare gain
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Full libn gains to developing countries
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Full libn gains to high-income countries
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Relative importance of 3 agric pillars
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Welfare gain from full Liberalization(percentage
change from baseline income in 2015)
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Ag food output rise from full libn(percentage
change from baseline income in 2015)
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Real farm income rise from full libn(percentage
change from baseline income in 2015)
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Effects of full libn on DC agric food
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Effects of full libn on DC factor rewards
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Take-away messages from full libn

• Potential gains from further trade reform are
  large
• ?must find the political will for Doha success
• DCs would gain disproportionately from reform,
  notwithstanding non-reciprocal tariff preferences
• But DCs would gain as much from South-South as
  South-North trade growth
• ?importance of DC reform too
• Agricultural reforms are the highest priority for
  goods, from global and developing country welfare
  viewpoints
• and possibly Irans, although the analysis has
  yet to be done (requires first breaking Iran out
  of the models Middle East and North Africa
  region)

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Take-away messages (continued)

• Removal of agric export subsidies great
  achievement
• Reducing/disciplining other trade-distorting
  agric domestic support is crucial too, not least
  to prevent re-instrumentation of agric protection
  when tariffs are cut
• But gains to DCs from agric subsidy cuts could be
  multiplied many-fold by also cutting agric
  tariffs
• with half coming from South-South trade growth
• Adding non-agric market access has the potential
  to raise the welfare gains to DCs by gt50, and
  help balance the North-South exchange of
  concessions

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Key elements of the Doha Agenda as shown in the
July 2004 Framework agreement

• 3 agricultural pillars (including cotton)
• Non-agricultural market access
• Services
• Trade facilitation
• Lesser tariff and subsidy cuts for developing
  countries (DCs) and zero cuts for least-developed
  countries (LDCs)

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Our prospective Doha scenarios

• We assume no services reform, no new trade
  facilitation, but
• phase out of agricultural export subsidies
• tiered cut to agricultural domestic support
• tiered cut to agric bound tariffs under various
  alternative market access packages
• With means less cuts to applied tariffs,
  depending on degree of binding overhang (see
  next slide)
• cuts to non-agric bound tariffs

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Binding overhang in agric tariffs,
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Agricultural market access

• Tiered formula for cutting bound tariffs (with
  smaller cuts for DCs)
• Tiers in developed countries at 15, 90 tariff
  rates, with marginal cuts of 45, 70, 75
• Tiers in developing countries at 20, 60, 120
  tariff rates, with marginal cuts of 35, 40, 50
  60

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Agricultural domestic support

• Cut in bound AMS need not reduce applied support,
  because of large binding overhang here as well
  (with 1986-88 ref. prices)
• 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

• 50 cut in bound rates for high-income countries,
  33 for DCs, 0 for LDCs

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Extent of DC willingness to reform?

• We also examine the effects of DCs (including
  LDCs) becoming full participants in Doha agric
  and NAMA cuts
• recalling from earlier Rounds that DCs only got
  what they gave, in terms of increased market
  access
• see Finger (1974, 1976) and Finger and Schuknecht
  (2001)

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Results from Doha agric reform

• Tiered formula even with sizeable cuts gives a
  75 billion global gain, but only 9 billion goes
  to DCs
• Small DC gains because of
• their lesser (or zero) cuts, and
• their large tariff binding overhang
• But if HICs claim 2 of ag products are
  sensitive (and DCs claim 4 are sensitive or
  special), global gain shrinks to 18 billion,
  and DCs gain disappears

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What we assumed about opening markets of
sensitive and special products

• Liberalization of sensitive products is to
  involve tariff cuts and Tariff-Rate-Quota (TRQ)
  expansion
• But many TRQs are not filled (admin. hassles), so
  expanding quotas need not always expand trade
• Hence we simply assume a cut of just 15 in bound
  tariffs of sensitive and special products

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Applied agric tariffs with sensitive and special
products (SSPs) allowed
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Applied agric tariffs faced by exporters
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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 75 to 96 billion pa
• That 96 billion gets the world 1/3rd of the way
  to the potential gains from complete free trade
  in merchandise
• If DCs and LDCs fully participate in market
  access opening, global gain goes up to 119
  billion

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Effects of Doha libn on DC applied tariffs
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Effects of full Doha libn on DC welfare
42
Doha welfare gains(Percent change from baseline
income in 2015)
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Effects of full Doha libn on DC share of agric
and food production that is exported
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Effects on Brazils sectoral self-sufficiency and
net exports in 2015
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Effects on Brazils farm export product
self-sufficiency and net exports in 2015
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Effects on Brazils other farm product
self-sufficiency and net exports in 2015
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Lessons

• Cuts in agric tariffs and domestic support
  bindings need to be v. large to get beyond
  binding overhang
• Even large cuts in agric tariffs do little if
  sensitive and special products are subjected
  to lesser cuts
• Unless a tariff cap of, say, 100 is enforced or
  theres a large expansion in TRQs of sensitive
  products
• Adding non-agric market access to Doha package
  could nearly double the welfare gains to other
  DCs even with their lesser cuts
• and it helps balance the North-South exchange of
  concessions

48
Implications for developing countries Doha
negotiating strategies

• Need to seek ambitious outcome on agric market
  access, not just on subsidies
• despite domestic sensitivities (which SSM and
  special products can manage, especially if
  rural public goods are increased)
• Need to also encourage developing countries, not
  just developed countries, to provide more market
  access
• even if that means not having lesser cuts than
  developed countries
• Otherwise this wont be much of a development
  round (or may even be abandoned by developed
  countries)

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Implications for Irans accession negotiating
strategy

• Need to realize WTO members are unlikely to
  tolerate high farm subsidies or high bound
  tariffs on food products
• So need to build that into strategic planning for
  the sector
• In particular, examine non-trade distorting ways
  of supporting farmers such as greater investments
  in rural quasi-public goods
• more agric RD, rural education and health, rural
  transport and communications investments