Overview of the Multilateral Trade Negotiations

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

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

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


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)


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


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


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.


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


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


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)


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

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


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


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 %)


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%


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


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


What flexibilities are likely available?

• Sensitive Products

• Special Products

• Special Safeguard Mechanism
• A very conflictual issue in the negotiations
• Triggers
• Discipline


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


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


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?


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


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%


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


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


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)

Subsidies move to green box

From Jales, ICONE, 2008

Assessing the DDA

From Bouet, 2008


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.

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

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

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.

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


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

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



Applied rates (inc. Pref) Bound rates Applied rates (inc. Pref) Bound rates

NAMA AMA


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



Egypt

Egypt

Egypt

Egypt
Applied rates (inc. Pref) Bound rates Applied rates (inc. Pref) Bound rates


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


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!


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


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


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

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

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
• …


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

Threat points?

Source: Bouet and Laborde, 2009


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.

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

Overview of the Multilateral Trade Negotiations

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