the potential cost of a failed doha round

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the potential cost of a failed doha ?round

• Antoine Bouet, IFPRI CATT/UPPADavid Laborde
  Debucquet, IFPRI

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The Potential Cost of a Failed DohA ?Round

• after seven years of negotiations, WTO
  participants could not reach a final agreement on
  the Doha Round liberalization modalities
• incentives to conclude the Doha Round are weak
• large market access gains have already been
  achieved in the manufacturing sectors of
  developed country markets
• remaining issues are more difficult to negotiate,
  
• the political costs are high
• the gains are more difficult to assess

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The Potential Cost of a Failed DohA ?Round

• in parallel, impact assessments using a
  computable general equilibrium (CGE) model have
  pointed out shrinking gains associated with the
  Doha Round
• do the real gains go far beyond tariff-reduction
  effects and can they be found outside the
  standard model?
• the goal of this study is to re-examine the value
  of an agreement by considering potential gains
  and losses in a moving landscape of trade policies

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The Potential Cost of a Failed DohA ?Round

• traditional impact studies compare the
  consequences of the negotiation modalities to the
  status quo baseline
• we study five protectionist scenarios which are
  characterized
• by different approaches in the way protectionism
  is implemented
• and by various orders of magnitude

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The Potential Cost of a Failed DohA ?Round

• another point of view is to consider the WTO
  agreement as an insurance scheme against
  potential trade wars.
• so we compare
• a resort to protectionism when the DDA is
  implemented
• with a resort to protectionism when the DDA is
  not implemented

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The Potential Cost of a Failed DohA ?Round

• the purpose of this section is to provide a
  detailed background
• we consider the recent wave of protectionist and
  beggar-thy-neighbor policies adopted since
  early 2008
• we examine historical data on world protectionism
  and point out that trade policies offer a moving
  landscape
• a worldwide resort to protectionism is a
  realistic scenario, but there is no
  straightforward evidence that the threat of trade
  wars has recently increased

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The Potential Cost of a Failed DohA ?Round

• Border measures have been recently implemented
• non-automatic licensing requirements by
  Argentina
• tariffs on steel products by India
• Numerous bail-out measures, apparently related
  to the banking and financial crisis theBuy
  American provision
• Big publicity around these measures
• Most of the figures do not make any temporal
  comparisons or compare it with 2007 as a year of
  reference ??

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The Potential Cost of a Failed DohA ?Round

• Moving landscape of trade policies in the very
  long term
• US Protectionism 1891-2005
• (Amount of import duties divided by dutiable
  imports US Source US ITC)

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The Potential Cost of a Failed DohA ?Round

• economic theory of protectionism
• Big countries
• Strategic trade policy
• Stolper Samuelson theorem
• political economy of trade policy trade policies
  are less supportive of free trade in times of
  economic recession
• economic theory of trade retaliation
• a worldwide resort to protectionism is today a
  realistic scenario

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The Potential Cost of a Failed DohA ?RoundTrade
disputes handled at the WTO Dispute Settlement
Body 1995-2009 Q1 by quarters - Cumulated on
four consecutive quarters
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The Potential Cost of a Failed DohA ?Round

• Moving landscape of trade policies in the medium
  term
• Frequency of MFN tariff augmentation from 1995
  until 2006 defined as the number of
  augmentations/(eleven yearsnumber of HS6
  products)
• Source TRAINS and authors calculations

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The Potential Cost of a Failed DohA ?Round
Frequency of MFN tariff augmentation from 1995
until 2006 by groups of countries (WTO vs. non
WTO level of income LDC/MIC/OECD) Source
TRAINS and authors calculations
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The Potential Cost of a Failed DohA ?Round

• we intend to study
• - what the gains of trade cooperation are when
  the alternative is noncooperation,
• - but also how a negotiated DDA can protect the
  world trading system from a rise in protectionism
• scenarios
• DDA July 2008 modalities (detailed
  implementation)
• Up to Bound Non FTA applied tariffs increased to
  existing bound levels.
• BoundDDA Implementation of July 2008 modalities
  plus non FTA applied tariffs increased to new,
  post DDA, bound level.
• Up to Max Non FTA applied tariffs increased to
  their last 10 years maximum level, capped by
  existing bound tariffs.
• MaxDDA Implementation of July 2008 modalities
  plus non FTA applied tariffs increased to their
  last 10 years maximum level, capped by new, post
  DDA, bound tariffs.

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The Potential Cost of a Failed DohA ?Round

• use of the MIRAGE Computable General Equilibrium
  model of the world economy
• protection data comes from the MAcMapHS6 database
  
• tariff reforms are implemented at the level of
  5,113 products, 170 importing countries, and 208
  exporting countries
• the interaction between bound duties and MFN
  applied duties is taken into account. Same for
  preferential duties.
• a new historical database on MFN applied
  protection

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The Potential Cost of a Failed DohA ?Round

• a baseline is implemented from 2008 to 2025,
  which depicts the world without a new
  multilateral agreement.
• concerning trade reform, several agreements since
  2004 have been included in the baseline (EPAs,
  FTA in Asia)
• twenty-seven regions are identified in the model
• the sectoral decomposition is highly detailed in
  terms of agriculture and agrifood business
  (twelve sectors) thirteen industrial sectors and
  two service sectors.

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The Potential Cost of a Failed DohA ?Round

• in the Up-to-Bound scenario, for unbound lines,
  the existing average binding overhang is applied
  to compute new tariff targets
• technically, we estimate the following relation
  for each country Bound_Rate a MFN_rate b
• reciprocal agreements are maintained
• the only non-reciprocal program that is
  maintained is the EU Everything but Arms

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The Potential Cost of a Failed DohA ?Round

• in the Up-to-Max scenario, calculation of the
  Maximum non FTA tariff applied on each line
  during the period 1995-2006
• a new database on applied protection during the
  period 1995-2006 has been developed source
  TRAINS
• a special procedure was adopted to ensure
  comparability of MFN tariff rates between
  MacMapHS6 and TRAINS

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The Potential Cost of a Failed DohA ?Round

• World Average Tariffs by scenario (2025 level)
• the Doha scenario will reduce world protection by
  22 percent
• moving to bound tariffs will nearly double the
  level of protection on average.
• if the DDA is implemented, current protection
  increases by only 41 percent when countries
  resort to bound levels
• the variations in protection are more contrasting
  when focusing on agriculture

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The Potential Cost of a Failed DohA ?Round

• Protection applied by category of countries
• Implementation of the DDA gives a better access
  to HICs markets
• while variation in protection applied by MICs is
  small
• the DDA gives world exporters an insurance
  against potential rise in applied protection by
  HICs and MICs, in particular in agriculture

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The Potential Cost of a Failed DohA ?Round

• Protection faced by category of countries
• the Doha scenario delivers homogeneous market
  access gains with an average decrease by 20
  percent
• the two protectionist scenarios have similar
  effects for HICs and MICs
• the LDCs are more severely affected due to
  losses of nonreciprocal preferences
• consequently, the implementation of a DDA is of
  great interest for LDCs as it locks unilateral
  schemes and in particular the most recent
  initiatives

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The Potential Cost of a Failed DohA ?Round

• Global results led by tariffs and domestic
  support changes Change compared to the
  baseline in 2025
• under the Doha scenario, world trade is augmented
  by a mere 1.9 percent (US 363bn) and world real
  income by US 59bn in 2025
• in case of the Up to Bound scenario, world trade
  would contract by 9.9 percent (US 1,899bn) and
  world real income by US 353bn
• the DDA implementation can prevent a potential
  loss of US 809bn of trade

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The Potential Cost of a Failed DohA ?Round

• variations in welfare by countries Percentage
  change compared to the baseline in 2025
• the Doha scenario implies gains for all regions
  except Mexico
• a rise of protectionism would mainly hurt MICs
  and LDCs (in particular Asian Dg Countries)
• the implementation of the DDA is important for
  these countries as an insurance against the risk
  of trade wars

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The Potential Cost of a Failed DohA ?Round

• relative impacts of foreign and domestic policies
  on welfare results Up to Max scenario
• a country will be affected by both changes in its
  own tariffs (domestic policy effect) and in its
  partner tariffs (foreign policy effect)
• for domestic tariff increase
• a positive effect on welfare related to the
  optimal tariff argumentation
• a negative effect on welfare led by increasing
  distortions in domestic economy
• for foreign tariff increase
• a positive effect for exporters benefiting from
  preferences on increasingly protected markets
• a negative effect for exporters facing increased
  barriers.

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The Potential Cost of a Failed DohA ?Round

• variations in factor remunerations by countries
  Percentage change compared to the baseline in
  2025
• the Doha scenario implies gains for landowners
  and agricultural unskilled workers in Brazil, and
  skilled workers in the EU, Japan and the US
• and losses for landowners and agricultural
  unskilled workers in the EU, Japan and the US
• the opposite holds in case of Up-to-Bound
  scenario

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The Potential Cost of a Failed DohA ?Round

• recent studies assessing the potential impact of
  the DDA have concluded that there would be modest
  augmentation in world trade and world real income
• the failure of a WTO agreement would be a clear
  sign of international noncooperation
• the WTO is a public good offering insurance
  mechanism against potential trade wars