Doha Round: Where do we stand?

Eight years of Doha trade talks:

Where do we stand? Why it matters?

David Laborde [IFPRI], Geneva 22nd March 2010

[email protected]

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”/

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 adjusmentcosts

Fairness of the outcome between WTO members

The role of flexibilities

IFPRI brief, 2009 and IFPRI Discussion Paper 2010

8 years of adjusments around the same

cake?

Trade creation in AMA

with different proposalsTrade creation in NAMA

with different proposals

0

20

40

60

80

100

120

140

160

Ag

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Wo

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Tra

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SD

Bln

s,

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025

0

50

100

150

200

250

300

350

400

450

500

No

n-A

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cu

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ral

Wo

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SD

Bln

s,

an

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Source: Bouet and Laborde, 2009 – MIRAGE model simulations

Fairness and Ambition

Source: Bouet and Laborde, 2009. MIRAGE model simulations

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

Full liberalization Harbinson-Girard (2003)

G20 (2005) EU (2005) US (2005) Last modalities (2008)

Real

inco

me c

han

ges b

y 2

025,

Perc

en

tag

e

WTO members High Income Countries

Middle Income Countries Least Developed Countries

Standard deviation in average gains

The exact design of

the DFQF will be

crucial to cancel these

losses

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

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

Outline of the December 2008 Modalities

Implications for tariffs levied & faced

Implications for welfare

Issues

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

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%

Specific cases – Our Implementation

Tariff

Escalation

Products

Cut from next higher tier applied. In top

tier add 6 percentage points to the cut

Tropical

products

(first list)

tariff ≤ 10%: Cut to zero;

10% <tariff≤ 75%: 70% cut

Tariff >75%, 78% cut

Cotton Cut to zero if originated in LDC countries

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).

Product Flexibilities: Special

Products

Developing countries self-designate

14% lines

40% no cut

60% with 15% average cut

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%

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

Formula illustration for developed countries

0%

5%

10%

15%

20%

25%

30%

35%

40%

0% 20% 40% 60% 80% 100% 120%

Swiss formula. Coef 8.

Tiered formula for agriculture

Band I :Cut 50% Band II :

Cut 57,5%

Band III :Cut 64%

Band IV :Cut 70%

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)

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

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)

Average tariff reductionApplied 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

-60%

-50%

-40%

-30%

-20%

-10%

0%

All countries Developing (non-LDC)

High income countries LDCs All countries

Developing (non-LDC)

High income countries LDCs

AMA NAMA

Cu

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ve

rag

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ari

ff,

%

Tarif reduction on applied duties, by importer

Formula Flexibilities

Welfare gains, optimal weights, $bn

Formulawith

flexibilities

Effects of

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%

Other gains

Tangible improvements in seruing services

access

02

04

06

08

0

Serv

ices tra

de r

estr

ictive

ne

ss inde

x

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

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

Small details = Big differences: From losses

to gains

Export variations by 2025 (as compared to the baseline) - (Vol, no

intra) - %

-6

-4

-2

0

2

4

6

8Sub-Saharan Africa - Low Income

Bangladesh

Cambodia

Madagascar

Malawi

Mozambique

Senegal

Tanzania

Uganda

Zambia

Central

A

C

Source: The Development Promise: Can the Doha

Development Agenda Deliver for Least-Developed Countries?

Bouët, Laborde, and Mevel, 2008, IFPRI’sResearch Brief.

MIRAGE simulations

C Scenario: DFQF OECD

97%

A: DFQF: 100% including

China and India

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

The role of Binding: Protection vs the risk of

tariff increase

-400

-350

-300

-250

-200

-150

-100

-50

0

50

100

DDAIncrease to UR

bound tariffsIncrease to post

DDA bound tariffs

Increase to last ten years tariff

peaks within UR limits

Increase to last ten years tariff

peaks within DDA limits

Wo

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Bln

sb

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02

5

Source: Bouet and Laborde, 2009. MIRAGE simulations

Direct gains from the DDA

“Insurance” value of the DDA, extreme

case

“Insurance” value of the

DDA, intermediate case

The role of Binding: limit in future use of

domestic support “Natural” trend in production and

prices will increase the size of existing policies

New constraint, if not binding today, will become binding in the future

An illustration from a CGE exercise on OTDS

More details based on Blandford and Josling estimates available in ITCSD/IPC/IFPRI publications, in particular: “ Implications for the United States of

the May 2008 Draft Agricultural Modalities”, Blandford, Laborde and Martin (2008).

“ Implications for the European Union of the May 2008 Draft Agricultural Modalities”, Jean, Josling and Laborde.

-2

-1

0

1

2

3

4

5

Brazil EU USA

Perc

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clt

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an

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pro

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on

v

olu

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2025 c

om

pare

d t

o t

he b

aselin

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With "dynamic" OTDS constraint

Without "dynamic" OTDS constraint

Source: Bouet and Laborde, 2009. MIRAGE simulations

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

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.

Detailed tables

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

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

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

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