Overview of the Multilateral Trade Negotiations

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Presentation given in Vienna, on April 6th 2010 during a World Bank Institute workshop for MENA experts.
It provides an overview of the WTO/GATT negotiations and presents quantitative estimates.
Papers quoted in this presentation can be downloaded from http://www.ifpri.org/book-6308/ourwork/researcharea/doha-round

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Overview of the Multilateral Trade Negotiations

  1. 1. Where do we stand in the multilateral trade negotiations? David Laborde Debucquet, IFPRI d.laborde@cgiar.org WBI Course on Agricultural Trade and Export Development Vienna, April 2010
  2. 2. Overview • Post war negotiations • The International Trade Organization failure • The GATT in 1947 (23 countries including 12 industrial countries) • Negotiation Rounds • Countries negotiate reciprocal concessions • Offers and requests • Formulas INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  3. 3. Rounds Place / Name Year Participants Topics GATT Oct 1947 25 Gatt treaty La Havana March 1948 53 Project of the ITO Geneva 1947 23 Tariff reduction Annecy 1949 33 Tariff reduction Torquay 1951 34 Tariff reduction Dillon 1960-1961 35 Tariff reduction Kennedy 1964-1967 48 Tariff red. + anti dumping Tokyo 1973-1979 99 Tariff red+ NTB + Agreements (subsidies, TBT, Public procurement, aeronautics) Uruguay 1986-1993 120 Tariffs, NTBs, Agriculture, Services, IPR, rules, Dispute setttlements WTO INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  4. 4. GATT outcomes • Tariff reductions and bindings • A club for “rich countries” that has delivered a strong liberalization in non agricultural products • Interests of developing countries neglected • Agriculture • Textile, wearing • Difficulties to solve dispute • Strong dynamic effects and attractiveness WTO and the Marrakech agreement (1994) INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  5. 5. The WTO • Fact sheet: • Location: Geneva, Switzerland • Established: 1 January 1995 • Created by: Uruguay Round negotiations (1986-94) • Membership: 153 countries on 23 July 2008 • Budget: 189 million Swiss francs for 2009 • Secretariat staff: 625 Head: Pascal Lamy (Director-General) • Functions: • Administering WTO trade agreements • Forum for trade negotiations • Handling trade disputes • Monitoring national trade policies • Technical assistance and training for developing countries • Cooperation with other international organizations INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  6. 6. Goals • To Promote economic growth through trade liberalization • Cooperative setting • Locking mechanism • Dispute settlements • Only governments participate to negotiations • “Enlighted mercantilism”… • To Continue GATT efforts • To provide special treatments and assistance to Developing countries INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  7. 7. Core principles • No discrimination • Most favoured nation • National treatment • Reciprocity • Fair competition • Transparency and stability • Binding process • Notifications • Trade Policy Review • Single undertaking • Still some flexibilities: plurilateral agreements etc. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  8. 8. Main exceptions • Safeguards and contingent protections • Anti dumping and the role of being a « market economy » • Agriculture subsidies • During a transition period: the Multi Fiber Agreement (MFA) on textile and wearing • RTA: Article XXIV • Special and Differentiated treatment for developing countries • 1979: enabling clause • Less than reciprocity • LDCs, Developing countries and self declaration INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  9. 9. WTO achievements • Increasing number of members • Strength of the multilateral framework • Efficiency of the Dispute Settlement Body • “democratic” system  One of the most efficient multilateral institutions But • The MFN rate is less and less relevant • Poorest countries still have difficulties to participate • Complexity to deliver new trade liberalization INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  10. 10. The Doha Round • First round of negotiations of the WTO era • A test for the institution • More than 20 different subjects • Started in 2001… April 2010, “draft” modalities still under development (see WTO website): • AMA: Agricultural Market Access • 3 pillars: market access, domestic support, export subsidy • Domestic support: colored boxes • NAMA: Non Agricultural Market Access • Rules: Subsidies and Anti-dumping • Services ??? (contrasted interests of players) INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  11. 11. Coalitions in Cancun, 2003 Développés En développement 1ACP R. Dominic.* 1 (...) Haiti Maldives PMA G-10 Japon UA Sénégal Angola (...) Bangladesh Ouganda* Mali Bénin Népal Corée (...) Burkina-Faso Tchad Myanmar Taïwan Suisse Israël Maurice* Madagascar Mozambique Norvège Côte d'Ivoire Kenya* (...) Bulgarie Botswana (...) Nigeria Tunisie G-90 UE Afrique Egypte Malaisie* du Sud Indonésie* Argentine Salvador Brésil Chili USA Australie Bolivie Cuba* G-20 Pérou Nouvelle Zélande Thaïlande Canada Mexique Philippines Colombie Costa Rica Venezuela Guatemala Equateur Chine Uruguay Paraguay Inde* To read: The WTO: in Singapour Pakistan* the Trough of the Trade Cairns Round, Fontagne and Jean, Turquie 2004, La Lettre du CEPII . Source: Fontagne and Jean, 2004 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  12. 12. Explaining difficulties • Many countries, Many issues • The Quad (US, EU, Canada, Japan) do not define the rules anymore. Coalitions of developing countries have appeared (Cancun 2003) • China in the WTO: new challenges • The main oppositions: USA To read: WTO Trade Talks: a Bird in the Hand is Worth Two in the Bush, Fontagne, Laborde And European Mitaritonna, 2007, La Lettre du G20 Union CEPII . Requires cut in domestic support Requires cut in agricultural tariffs Requires cut in industrial tariffs INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  13. 13. Tariff cut Bound Tariffs I Binding overhang MFN applied II Preferential Margins Preferential tariff III To Read: Doha: No Miracle Formula, Fontagne and Laborde, 2006, La Lettre du CEPII INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  14. 14. Agricultural tariff cuts under DDA • Four tiers of tariffs • Highest tiers will have the largest cuts • Need to convert specific tariffs (15 USD per Kilogram ) in ad valorem tariffs (X %) INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  15. 15. The Tiered Formula for Agriculture Developed Developing Band Range Cut Range Cut A 0-20 50 0-30 33.3 B 20-50 57 30-80 38 C 50-75 64 80-130 42.7 D >75 70 >130 46.7 Average cut Min 54% Max 36% INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  16. 16. Developing country exceptions • No cuts in for least-developed countries (30 members) • Smaller cuts in small & vulnerable economies (around 50 SVEs), incl Nigeria and Côte d’Ivoire • Cuts [10%] smaller • Additional flexibilities • Regional agreements • Recently Acceded Members (RAMs) • Very RAM : no cut • Other RAM (inc. China) Cuts 7.5 percentage points smaller & an extra 2 years to implement • Only 40 WTO economies under “normal” discipline (including special and differentiate treatment). • Egypt, Morocco, Tunisia, Turkey, UAE INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  17. 17. Why flexibilities? • Formula-based negotiations generally involve flexibilities • Typically most of the negotiations are about these flexibilities • Can probably achieve more liberalization with some flexibilities than without • But it is hard to know what is the right amount of flexibility • Too much and there is no market access gain. • Too little and there may not be an agreement INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  18. 18. What flexibilities are likely available? • Sensitive Products • Special Products • Special Safeguard Mechanism • A very conflictual issue in the negotiations • Triggers • Discipline INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  19. 19. Sensitive products • Likely to be 4 or 6 % of tariff lines • 1/3 more for developing countries • No. of tariff lines provides little discipline • Depth of cut is a more important discipline • Cuts on sensitive prods linked to Tariff Rate Quotas (TRQ) expansion • 1/3 < formula if TRQ increase is 3/5% consumption • 2/3 less than formula if TRQ increase 4/6% • Opens options for tactical behavior • Makes them unsuited for developing countries INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  20. 20. Special products for developing countries • Completely understandable that developing countries seek flexibilities • Products to be chosen based on criteria of food security, livelihood security & rural development • At least 12 percent of tariff lines • With small reductions in tariff bindings • Likely that countries will choose their own special products • A concern: If these products are chosen & protection option is used, impacts on poverty could be adverse • Subsistence farmers don’t benefit • Poor consumers spend 75% of their income on staples INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  21. 21. Special Safeguard Mechanism • SSM allows an additional duty to be added if prices decline below a trigger • Or if imports increase above a trigger level • A great deal depends on design • If quantity trigger depends on import levels, imports could be incrementally reduced • Will they be limited to Uruguay Round bindings? INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  22. 22. Non Agriculture: Swiss formula • First used in the Tokyo Round, mid-1960s • Ingeniously simple a.T0 T1 • (a T0 ) • Cuts tariff peaks, tariff escalation • More ambitious than the Uruguay Round and the agricultural formulas INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  23. 23. NAMA modalities • Swiss formula: stronger than a tiered formula • Developed: Swiss Coefficient a: 8 • Developing. Options: • x. a= 20 with sensitive products i. No cuts/unbound on 6.5% of lines on ≤ 7.5% of imports, or ii. ½ cuts on 14% of lines ≤ 16% imports • y. a= 22 with i. No cuts/unbound on 5% of lines on ≤ 5% of imports, or ii. ½ cuts on 10% of lines ≤ 10% imports • z. a= 25 with no flexibilities • Base rate for unbound lines = MFN 2001 + 25% INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  24. 24. Formula illustration for developed countries 40% 35% 30% Tiered formula for agriculture Band IV : Final rate 25% Cut 70% 20% Band III : Cut 64% 15% Band I : Cut 50% Band II : 10% Cut 57,5% 5% Swiss formula. Coef 8. 0% 0% 20% 40% 60% 80% 100% 120% Base rate INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  25. 25. Domestic support No real changes in the short run • End of the export subsidies applied by developed countries by 2013… already the case. Still some possibilities for developing countries. • Food aid • Cut in the blue box. Only a real constraint for the US… but not now • Playing with box • The Cotton initiative INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  26. 26. US Domestic support - Projection Figure 4. Projected US AMS, Blue Box and OTDS limits 50 45 40 AMS limit 35 Total AMS Billion $ 30 BB limit BB 25 OTDS limit 20 OTDS 15 10 5 0 2009 2010 2011 2012 2013 2014 2015 From Blandford, Laborde and Martin (2008) INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  27. 27. Subsidies move to green box INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE From Jales, ICONE, 2008
  28. 28. Assessing the DDA From Bouet, 2008 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  29. 29. Methodology applied • Step 1: Assessing tariff cut effects. • Needs a global database at a detailed level (at least HS6) with bound and applied tariffs, including preferential agreements. Here MAcMapHS6v2 (see Laborde 2008, Boumellassa, Laborde and Mitaritonna 2009) • Step 2: Plugging information in an economic model. • Most powerful/used tool = Computable General Equilibrium Model, multi country, multi sector, dynamic. Here: • The MIRAGE model used at IFPRI • the LINKAGE model used at the World Bank • Caveats: • We do not consider: • the effects of the liberalization in Services; • Trade Facilitation; • the links between FDI and trade; • the pro-competitive/productivity enhancement effects of trade liberalization; • The product diversification (new products). • The absolute value of model results should be considered carefully, their relative values across scenarios teach us much more. To Read: “Conclude Doha: it matters” Hoekman, Mattoo, and Martin. World Bank Discussion Paper. 2009. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  30. 30. Where do we come from and where do we stand? • Difficult negotiations from the beginning, the emptiness of the “core”: • Why is the Doha development agenda failing? And what can be done? Bouet and Laborde, 2004 & 2008 • A trade-off between: • Ambition and efficiency gains • Domestic political constraints and adjusment costs • Fairness of the outcome between WTO members • The role of flexibilities INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE IFPRI brief, 2009 and IFPRI Discussion Paper 2010
  31. 31. 8 years of adjusments around the same cake? Trade creation in AMA with Trade creation in NAMA different proposals with different proposals 160 500 Agricultural World Trade, USD Blns, annual Non-Agricultural World Trade, USD Blns, annual 450 140 400 120 350 changes by 2025 100 300 changes by 2025 80 250 200 60 150 40 100 20 50 0 0 Source: Bouet and Laborde, 2009 – MIRAGE model simulations INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  32. 32. Eight years of Doha trade talks: where do we stand? Applied protection in AMA – different scenarios 25.0 Baseline 2003 HG 2005 G20 2005 EU 2005 US 2008 package 20.0 15.0 10.0 5.0 0.0 Developed WTO Developing WTO non Normal Developing WTO RAM WTO SVE WTO LDCs Source: Bouet and Laborde, 2009 To Read: Eight years of negotiations: where do we stand, Bouët and Laborde, 2009, IFPRI’s Issue Brief. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  33. 33. Eight years of Doha trade talks: where do we stand? Applied protection in NAMA – different scenarios 12.0 Baseline 2003 HG 2005 G20 2005 EU 2005 US 2008 package 10.0 8.0 6.0 4.0 2.0 0.0 Developed WTO Developing WTO non Normal Developing WTO RAM WTO SVE WTO LDCs Source: Bouet and Laborde, 2009 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  34. 34. Fairness and Ambition 1.2 WTO members High Income Countries 1 Middle Income Countries Least Developed Countries 0.8 Real income changes by 2025, Percentage Standard deviation in average gains 0.6 0.4 0.2 0 Full liberalization Harbinson-Girard G20 (2005) EU (2005) US (2005) Last modalities (2003) (2008) -0.2 -0.4 The exact design of the DFQF will be -0.6 crucial to cancel these losses -0.8 Source: Bouet and Laborde, 2009. MIRAGE model simulations INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  35. 35. MENA, selected countries, Average protection (%) 140.0 120.0 Initial Pure Formula 100.0 With flexibilities 80.0 60.0 40.0 20.0 0.0 Tunisia Tunisia Tunisia Tunisia Egypt Egypt Egypt Egypt Morocco Morocco Morocco Morocco United arab emirates United arab emirates United arab emirates United arab emirates Applied rates (inc. Pref) Bound rates Applied rates (inc. Pref) Bound rates NAMA AMA INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  36. 36. MENA, selected countries, Protection faced (%) 45.0 40.0 35.0 Initial Pure Formula 30.0 With flexibilities 25.0 20.0 15.0 10.0 5.0 0.0 Morocco Morocco Morocco Morocco Tunisia Tunisia Tunisia Tunisia United arab emirates United arab emirates United arab emirates United arab emirates Egypt Egypt Egypt Egypt Applied rates (inc. Pref) Bound rates Applied rates (inc. Pref) Bound rates INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  37. 37. MENA focus, changes compared to the baseline by 2025, % 1.60 1.40 1.20 HG G20 EU US DecModalities 1.00 0.80 0.60 0.40 0.20 0.00 -0.20 Exports (val) Terms of trade Welfare -0.40 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  38. 38. Some significant cuts in protection • The latest modalities involve larger cuts, particularly in low tariffs • But the reductions in bindings could have more value than they appear– and our conventional measures seem to imply • Agricultural protection is variable over time, and has been trending up • Flexibility matters! INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  39. 39. Why losers? • What you do is what you get…. • Preference erosions • Increased agricultural prices: The role of terms of trade and the situation of net food importers Malawi Burkina Faso Madagascar Uganda Mali Tanzania Zambia To Read: Agricultural Trade Myanmar (Burma) Chad Guinea-Bissau Liberalisation: Its Ambiguous Solomon Islands Rwanda Consequences on Developing Burundi Central African Republic Lesotho Countries, Bouët, Bureau, Decreux Togo Maldives and Jean, 2004. La Lettre du CEPII. Benin Niger Nepal Mozambique Djibouti Dem. Rep of Congo Cambodia Mauritania Senegal Angola Bangladesh -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  40. 40. The LDCs initiative • Market access • From full Market access to 97% • Flexibility: Distribution of tariff revenue collected on WTO LDCs exports by destination market • The role of MICs • Aid for Trade INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  41. 41. Small details – Big differences Export variations by 2025 (as compared to the baseline) - (Vol, no intra) - % Sub-Saharan Africa - Low Income 8 Zambia 6 Bangladesh 4 2 0 Uganda -2 Cambodia -4 Central -6 A C Tanzania Madagascar To Read: The Development Senegal Malawi Promise: Can the Doha Development Agenda Deliver for Mozambique C & Central Scenario: DFQF Least-Developed Countries? Bouët, OECD 97% Laborde, and Mevel, 2008, IFPRI’sResearch Brief A: DFQF: 100% including INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE China and India
  42. 42. But also A more sustainable environment: • Fishery policies cost the world economy $50 billion (60% of the landed value of the global catch); EU and US production support > $1bn per year • Important for food security & livelihoods of many small developing countries/coastal regions • Potential for tariff reductions on environmental goods – averaging some 10% in low-income countries • For a complete overview: • Conclude Doha: It Matters!, Hoekman, Mattoo and Martin INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  43. 43. Additional remarks • IF the DDA fails? • Role of WTO as a litigation arena • RTAs • Global governance • Rising protectionism? • The WTO, the DDA and new issues: • Climate change • Food price surges and Food security • Financial crisis • … INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  44. 44. WTO as a public good • WTO: a place for cooperation vs a place of litigations • Value of an agreement to secure existing trade liberalization and bound current distortions • Status quo is not always the best counter factual for the DDA: • If there is no strong evidence of rising protectionism today, at least until March 2009. However, it is also clear that trade policies happen to be changed by policymakers as a reaction to economic situation. Current economic conditions could contribute to a complete change of mood in terms of trade policies implemented. In fact, even the post Second World War period, which is a remarkable period of history in terms of trade policies becoming freer and freer, trading partners, including WTO members, frequently augmented tariff protection when needed. This is in particularly true for Middle Income Countries in all sectors and OECD countries in agriculture. [Laborde and Bouet, 2009] INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE IFPRI brief, 2008 and IFPRI Discussion Paper 2009
  45. 45. Threat points? Source: Bouet and Laborde, 2009 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
  46. 46. The role of Binding: Protection vs the risk of tariff increase Increase to last Increase to last ten years tariff ten years tariff Increase to UR Increase to post peaks within UR peaks within DDA DDA bound tariffs DDA bound tariffs limits limits 100 World annual Real Income changes, $Blns by 2025 50 Direct gains from the DDA 0 -50 “Insurance” value of the -100 DDA, intermediate case -150 -200 -250 “Insurance” value of the DDA, extreme -300 case -350 -400 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Source: Bouet and Laborde, 2009.
  47. 47. The role of Binding: limit in future use of domestic support • “Natural” trend in production Brazil EU USA and prices will increase the size 5 of existing policies Percentage changes in agriclture and agri-businees production • New constraint, if not binding 4 today, will become binding in volume in 2025 compared to the baseline the future 3 • An illustration from a CGE With "dynamic" OTDS exercise on OTDS constraint • More details based on 2 Without "dynamic" OTDS Blandford and Josling estimates constraint available in ITCSD/IPC/IFPRI 1 publications, in particular: • “ Implications for the United States of the May 2008 Draft Agricultural 0 Modalities”, Blandford, Laborde and Martin (2008). • “ Implications for the European Union of the May 2008 Draft Agricultural -1 Modalities”, Jean, Josling and Laborde. -2 Source: Bouet and Laborde, 2009. MIRAGE simulations INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

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