Doha Round: Where do we stand?

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Presentation given at the WTO during an ICTSD dialogue on the current situation of the Doha Round (22nd March 2010).
Different quantitative estimates are presented based on research conducted at IFPRI and the World Bank.
Papers quoted in this presentation can be downloaded from http://www.ifpri.org/book-6308/ourwork/researcharea/doha-round

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Doha Round: Where do we stand?

  1. 1. Eight years of Doha trade talks: Where do we stand? Why it matters? David Laborde [IFPRI], Geneva 22nd March 2010 d.laborde@cgiar.org
  2. 2. 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.  Check the background paper “Conclude Doha! It matters for a large discussion of this issue”/
  3. 3. 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 IFPRI brief, 2009 and IFPRI Discussion Paper 2010
  4. 4. 8 years of adjusments around the same cake? Trade creation in AMA Trade creation in NAMA with 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
  5. 5. 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
  6. 6. Implications of the 2008 Doha Draft Agricultural and Non-agricultural Market Access Modalities David Laborde [IFPRI], Will Martin [World Bank], Dominique Van Der Mensbrugghe [World Bank] This work represents the views of the authors alone
  7. 7. Technical innovation  In 8 years, negotiations have evolved but research and methods too!  Better aggregation solution  Link between tariff scenario building and CGE simulations  Consistent Tariff Aggregator  Based on Laborde, Martin and van der Mensbrugghe (2009) – implementing the idea of Anderson (2009), we use a Consistent Tariff Aggregator: for the first time, we really capture the effects of tariff harmonization: reduction in tariff average and dispersion.  Increased trade and welfare effects
  8. 8. Issues  Outline of the December 2008 Modalities  Implications for tariffs levied & faced  Implications for welfare
  9. 9. Agricultural Modalities  Abolition of export subsidies  But current level is trivially low  Limits on domestic support  Unclear to what extent they will bind  Market access reform  Likely to bring about substantial reductions in tariffs in some countries
  10. 10. 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%
  11. 11. Specific cases – Our Implementation Tariff Cut from next higher tier applied. In top Escalation tier add 6 percentage points to the cut Products Tropical tariff ≤ 10%: Cut to zero; products 10% <tariff≤ 75%: 70% cut (first list) Tariff >75%, 78% cut Cotton Cut to zero if originated in LDC countries
  12. 12. Product flexibilities: Sensitive Products  Available to all members  Reduced cut  5% of lines for industrial countries; 1/3 more for developing; 2% more if >30% of bindings in top tier. Bonus for countries with bound tariffs at the HS6 level.  Developing countries have a “low cost” option  TRQ enlargement/creation are approximated here by larger tariff cuts (smaller deviation).
  13. 13. Product Flexibilities: Special Products  Developing countries self-designate  14% lines  40% no cut  60% with 15% average cut
  14. 14. 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%
  15. 15. Country flexibilities  Some differences between AMA and NAMA.  Least Developed Countries  No cuts required. Contribute by raising bindings  Small & Vulnerable Economies (SVEs)  Broadly speaking: no liberalization on applied tariffs (relaxed formula + enhanced flexibilities).  Recently-Acceded Members (RAMs)  Reduced cuts + more flexibilities  Delayed implementation  VRAM: no liberalization  [Para 6] Countries (NAMA only)  <35% of tariffs bound  No cuts but must bind most tariffs  Custom unions exceptions
  16. 16. Formula illustration for developed countries 40% 35% 30% Tiered formula for agriculture Band IV : 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%
  17. 17. Approach to implementation:  Apply rules based on the modalities to bound tariff rates  Consider inter-products linkage (for the tariff escalation rule)  Include sensitive/special products  Search to ensure constraints not exceeded  Define optimal “option” selection in NAMA  Check that agric tariff cuts meet minimum average-cut requirement for industrial countries/maximum average-cut for developing countries  Adjust cuts if needed  Cumulative situation: a RAM SVE…  Look at the effects on applied bilateral tariffs [careful treatment of the unit values for AVE. Potential role of tariff simplification rules.]  Cut only on tariffs and not on other charges (e.g. US ethanol case)
  18. 18. Selection for product flexibilities  Highest tariff rule frequently used  Highest bound tariff includes many products with huge binding overhang and no need to cut  Many of the highest applied tariffs are on minor products  Instead, we use a rule derived in Jean, Laborde and Martin (2008,2010)-- based on political objective functions  Political-economy cost of tariff cuts v. simple rule for cost of a particular product. Revealed preferences of policy makers.  Huge adverse impacts on efficiency. Much less on Access
  19. 19. Tariff Scenarios  6 different scenarios analyzed  Presentation limited to 3  The Baseline, scheduled evolution of tariffs without the DDA. e.g. :  recent/new WTO members commitments  new FTA/CU  GATT Article XXVIII – DS related)  ….  B - Formula without flexibilities (pure formula)  D - Formula plus flexibilities (both for countries and products)
  20. 20. Average tariff reduction Applied tariffs faced on exports Applied tariffs on imports Agricultural Market Access Base Formula with flexibilities Base Formula with flexibilities All countries 14.6 9.0 11.9 14.6 9.0 11.9 Developing (non-LDC) 14.3 8.6 11.5 13.3 11.3 13.2 High income countries 15.1 9.3 12.3 15.5 7.5 11.1 LDCs 7.4 6.5 7.1 12.5 12.2 12.5 Non Agricultural Market Access Base Formula with flexibilities Base Formula with flexibilities All countries 2.9 2.0 2.3 2.9 2.0 2.3 Developing (non-LDC) 2.9 1.9 2.1 6.1 4.6 5.3 High income countries 3.0 2.1 2.4 1.6 1.0 1.0 LDCs 2.8 1.5 1.8 10.9 8.0 10.9 AMA NAMA Developing High income Developing High income All countries (non-LDC) countries LDCs All countries (non-LDC) countries LDCs 0% Cut in the average tariff, % -10% -20% -30% -40% -50% Formula Flexibilities Tarif reduction on applied duties, by importer -60%
  21. 21. Welfare gains, optimal weights, $bn with Effects of Formula flexibilities flexibilities Australia/New Zealand 4.8 2.4 -50% EU 27 58.7 39.3 -33% USA 14.5 9.9 -32% Japan 29.2 21.8 -25% Korea & Taiwan 21.2 9.8 -54% Bangladesh -0.2 -0.2 0% Brazil 9.8 4.7 -52% China 9.7 8.9 -8% India 6.1 2.4 -61% Indonesia 1.5 1 -33% Thailand 4.5 2.6 -42% Sub Saharan Africa 6.6 0.6 -91% High income countries 141 90.7 -35% Developing Countries 61.5 30.7 -50% World 202.1 121.4 -40%
  22. 22. Other gains
  23. 23. Tangible improvements in seruing services access 80 60 40 20 0 SAR AFR LAC EAP MENA OECD ECA Offer Improvement (Uruguay Round commitment-Doha Offer) Offer gap(Doha Offer-Actual policy) Actual Policy Source: Martin and Mattoo, 2009
  24. 24. The LDCs initiative  Fighting preference erosion with new preferences?  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  Growing Markets  Remaining tariffs = Value of Preferences  Aid for Trade
  25. 25. Small details = Big differences: From losses to gains 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 Senegal Malawi Mozambique C Scenario: DFQF OECD 97% Source: The Development Promise: Can the Doha Development Agenda Deliver for Least-Developed Countries? A: DFQF: 100% including Bouët, Laborde, and Mevel, 2008, IFPRI’sResearch Brief. China and India MIRAGE simulations
  26. 26. 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] IFPRI brief, 2008 and IFPRI Discussion Paper 2009
  27. 27. 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 Source: Bouet and Laborde, 2009. MIRAGE simulations
  28. 28. The role of Binding: limit in future use of domestic support  “Natural” trend in production and Brazil EU USA prices will increase the size of 5 existing policies Percentage changes in agriclture and agri-businees production  New constraint, if not binding 4 today, will become binding in the future volume in 2025 compared to the baseline  An illustration from a CGE exercise 3 on OTDS With "dynamic" OTDS constraint  More details based on Blandford 2 and Josling estimates available in Without "dynamic" OTDS ITCSD/IPC/IFPRI publications, in constraint particular: 1  “ Implications for the United States of the May 2008 Draft Agricultural Modalities”, Blandford, Laborde and Martin (2008). 0  “ Implications for the European Union of the May 2008 Draft Agricultural Modalities”, Jean, Josling and Laborde. -1 -2 Source: Bouet and Laborde, 2009. MIRAGE simulations
  29. 29. 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
  30. 30. Conclusions  On the overall the DDA will cut significantly existing applied level of protection by at least one-fifth in both AMA and NAMA, a very sensible number compared to previous GATT rounds (and very limited reduction on applied tariffs in AMA during the UR) and the existence of numerous PTA.  The DDA will secure the global trading system, and has an important value as a public good, in particular during a global crisis time.  The Development targets will be achieved, especially if the LDC initiative is generous and followed by MIC countries.
  31. 31. Detailed tables
  32. 32. Agricultural tariffs levied, % Base Formula Flex Australia/New Zealand 2.5 1.5 1.9 Bangladesh 16.4 16.4 16.4 Brazil 4.8 4.7 4.8 Canada 10.7 5.1 8.6 China 7.8 5.3 7.5 EU-27 15.9 6.6 10.2 India 59.2 54.6 59.2 Indonesia 7.6 7.0 7.6 Japan 29.8 14.0 20.4 Korea and Taiwan Pr. 27.8 18.5 27.1 USA 4.8 2.1 3.0 World Bank Classification All countries 14.6 9.0 11.9 Developing (non-LDC) 13.3 11.3 13.2 High income countries 15.5 7.5 11.1 LDCs 12.5 12.2 12.5
  33. 33. Agricultural tariffs faced, % Base Formula Flex Australia/New Zealand 17.3 10.2 13.9 Bangladesh 14.7 12.6 14.4 Brazil 18.8 9.8 13.7 Canada 9.0 5.2 6.8 China 16.8 9.7 13.8 EU-27 16.6 10.6 13.6 India 10.1 7.2 8.9 Indonesia 21.5 19.4 20.4 Japan 14.0 9.9 12.7 Korea &Taiwan Pr. 16.0 10.8 12.8 USA 14.0 8.5 11.3 World Bank Classification All countries 14.6 9.0 11.9 Developing (non-LDC) 14.3 8.6 11.5 High income countries 15.1 9.3 12.3 LDCs 7.4 6.5 7.1
  34. 34. NAMA tariffs levied, % Base Formula Flex Australia New Zealand 3.6 2.4 2.4 Bangladesh 18.3 12.5 18.3 Brazil 8.5 7.4 7.8 Canada 0.9 0.5 0.5 China 5.6 3.9 4.4 EU-27 1.8 1.0 1.0 India 12.9 11.7 12.0 Indonesia 3.9 3.5 3.9 Japan 1.3 0.7 0.7 Korea &Taiwan Pr. 4.0 2.8 3.1 USA 1.5 0.8 0.8 World Bank Classification All countries 2.9 2.0 2.3 Developing (non-LDC) 6.1 4.6 5.3 High income 1.6 1.0 1.0 LDCs 10.9 8.0 10.9
  35. 35. NAMA Tariffs Faced, % Base Formula Flex Australia New Zealand 2.9 2.0 2.6 Bangladesh 3.7 1.7 1.8 Brazil 2.6 1.9 2.2 Canada 0.4 0.3 0.3 China 3.8 2.3 2.5 EU-27 3.6 2.7 3.0 India 4.6 3.1 3.6 Indonesia 3.4 2.2 2.5 Japan 4.5 3.0 3.5 Korea & Taiwan Pr. 3.8 2.6 2.9 Sub-Saharan Africa 2.1 1.4 2.0 USA 1.8 1.4 1.5 World Bank Classification All countries 2.9 2.0 2.3 Developing (non LDC) 2.9 1.9 2.1 High income 3.0 2.1 2.4 LDCs 2.8 1.5 1.8

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