Some Thoughts on Global Trade Reform

1
Some Thoughts on Global Trade Reform

• Will Martin
• World Bank

2
Two Issues

• Effects of unilateral trade reform
• Expanding market access

3
Radical changes in trade patterns
4
Why this change?

• Price changes?
• High protection in OECD agriculture?
• But agricultural protection there has been
  falling even if it remains too high
• Factor accumulation has been important
• Global production sharing driven by falls in
  communication and transport costs
• But also a dramatic change in protection policies
  in developing countries

5
Declines in developing country protection

• Tariffs down by around two thirds
• From 30 to 11 percent
• NTB coverage has fallen dramatically
• And exchange rate overvaluation has also declined
• Many countries have developed export processing
  arrangements

6
ERPs Exporting from India
7
Additional effects of protection

• Protection policy doesnt just reduce exports
• Also forces countries into the wrong cone of
  diversification
• even without considering real exchange rate
  effects
• Products in which you have a comparative
  advantage disappear from your exports
• Sensible value-adding no longer pays
• Protected countries end up dependent on
  agriculture and raw materials
• And its hard to stop with just a little
  protection!!

8
Doha Agenda Agricultural Proposals on market
access

• Harbinson Draft
• Derbez Draft
• G-20 Amendments

9
Market Access

• Not accidentally, the Doha agric mandate does not
  require redns in high tariffs, or in escalation
• These apparent oversights prepared the ground for
  the reappearance of the average-cut routine
• Countries argued they needed flexibility
• Line-by-line reductions too demanding
• If so, an agreement to reduce average tariffs by
  x percent might be an option
• Provides flexibility, but rewards reductions in
  high tariffs

10
Linguistic and Statistical Confusion

• Average-cut sounds like a cut in the average
• But an average-cut is no cut at all
• Or a rigid, minimum cut
• To the extent any meaningful cuts are made, they
  are in lower tariffs
• Increase tariff escalation, making potentially
  welfare-reducing reductions in low tariffs
• Also lowers tariff revenues disproportionately
• How could anything so absurd be on the agenda
  after three years of work?

11
Example 50 percent cut
12
Harbinson draft

• Accepted the average-cut routine
• Tried to reduce the damage by dividing tariffs
  into three groups, with higher average-cuts for
  higher tariffs
• Tariff escalation-creation within groups,
  reduction between groups

13
Derbez draft

• Continues with three groups of tariffs
• But these are now self-selected
• 1. Average-cuts with minimum
• 2. Swiss formula
• 3. Zero tariffs
• Plenty of scope for abuse here
• Stir a few near-zero tariffs in with the high
  tariffs use the Swiss formula on the rest of the
  low tariffs, etc

14
G-20 Amendments

• Retains the three self-selected groups
• But requires proportional reductions in the first
  group
• Aims for an overall discipline on tariff cuts via
  an overall average-cut
• Retains average-cuts for developing countries

15
Conclusions

• Unilateral reform can change your world
• Market access reform is the most important part
  of the WTO agriculture agenda
• But theres a risk it will be negated by
  statistical, linguistic conjuring tricks