Overview of the Multilateral Trade Negotiations

Where do we stand in the

multilateral trade

negotiations?

David Laborde Debucquet, IFPRI

[email protected]

WBI Course on Agricultural Trade and

Export Development

Vienna, April 2010

mailto:[email protected]

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

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


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 developingcountries• 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)


1

1

Coalitions in Cancun, 2003

Cairns

AustralieNouvelle Zélande

Canada

Indonésie*

Afrique

du Sud

Argentine

BrésilG-20

Inde*

Egypte

Chili

PMA

UA

Botswana

Angola

Mali Bénin

Burkina-Faso Tchad

Madagascar Mozambique

BangladeshNépal

Myanmar

UE

Corée

Malaisie*

Singapour

Salvador

Bolivie

Pérou

Mexique

Haiti Maldives

ACP

G-90

Chine

Japon

Colombie Costa Rica

Guatemala Equateur

G-10

Thaïlande

Philippines

Uruguay Paraguay

Turquie

Pakistan*

Venezuela

Taïwan Suisse

Norvège

Maurice*

(...)Israël

USA

Développés En développement

Tunisie

Bulgarie

R. Dominic.*

Nigeria

Côte d'Ivoire

Ouganda*

Kenya*

Sénégal

Cuba*

(...)

(...)(...)

(...)

Source: Fontagne and Jean, 2004

To read: The WTO: in

the Trough of the Trade

Round, Fontagne and Jean,

2004, La Lettre du CEPII .

http://www.cepii.fr/anglaisgraph/publications/lettre/summary/2003/let226ang.htm












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

G20European

Union

Requires cut in agricultural tariffs

Requires cut in domestic support

Requires cut in industrial tariffs

To read: WTO Trade Talks:

a Bird in the Hand is Worth Two in

the Bush, Fontagne, Laborde And

Mitaritonna, 2007, La Lettre du

CEPII .












Tariff cut

Preferential Margins

Binding overhang

MFN applied

Bound Tariffs

Preferential tariff

I

II

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

•

• Cuts tariff peaks, tariff escalation

• More ambitious than the Uruguay Round and the agricultural formulas

)(

.

0

0

1Ta

TaT


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

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%

Base rate

Fin

al ra

te


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

0

5

10

15

20

25

30

35

40

45

50

2009 2010 2011 2012 2013 2014 2015

Billio

n $

AMS limit

Total AMS

BB limit

BB

OTDS limit

OTDS

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.

http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2009/11/18/000158349_20091118112934/Rendered/PDF/WPS5135.pdf









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


8 years of adjusments around the same cake?

Trade creation in AMA with

different proposals

Trade creation in NAMA

with different proposals

0

20

40

60

80

100

120

140

160

Ag

ricu

ltu

ral

Wo

rld

Tra

de, U

SD

Bln

s,

an

nu

al

ch

an

ges b

y 2

025

0

50

100

150

200

250

300

350

400

450

500

No

n-A

gri

cu

ltu

ral

Wo

rld

Tra

de, U

SD

Bln

s,

an

nu

al

ch

an

ges b

y 2

025

Source: Bouet and Laborde, 2009 – MIRAGE model simulations


Eight years of Doha trade talks: where do we stand?

Applied protection in AMA – different scenarios

0.0

5.0

10.0

15.0

20.0

25.0

Developed WTO Developing WTO non LDCs

Normal Developing WTO RAM WTO SVE WTO

Baseline 2003 HG 2005 G20 2005 EU 2005 US 2008 package

To Read: Eight years of negotiations:

where do we stand, Bouët and Laborde,

2009, IFPRI’s Issue Brief.

Source: Bouet and Laborde, 2009

http://www.ifpri.org/publication/eight-years-doha-trade-talks




Eight years of Doha trade talks: where do we stand?

Applied protection in NAMA – different scenarios

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Developed WTO Developing WTO non LDCs

Normal Developing WTO RAM WTO SVE WTO

Baseline 2003 HG 2005 G20 2005 EU 2005 US 2008 package



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


MENA, selected countries, Average

protection (%)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Eg

yp

t

Mo

rocco

Tu

nis

ia

Un

ite

d a

rab

em

ira

tes

Eg

yp

t

Mo

rocco

Tu

nis

ia

Un

ite

d a

rab

em

ira

tes

Eg

yp

t

Mo

rocco

Tu

nis

ia

Un

ite

d a

rab

em

ira

tes

Eg

yp

t

Mo

rocco

Tu

nis

ia

Un

ite

d a

rab

em

ira

tes

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

NAMA AMA

Initial Pure Formula

With flexibilities


MENA, selected countries, Protection faced

(%)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Eg

yp

t

Mo

rocco

Tu

nis

ia

Un

ite

d a

rab

em

ira

tes

Eg

yp

t

Mo

rocco

Tu

nis

ia

Un

ite

d a

rab

em

ira

tes

Eg

yp

t

Mo

rocco

Tu

nis

ia

Un

ite

d a

rab

em

ira

tes

Eg

yp

t

Mo

rocco

Tu

nis

ia

United a

rab e

mirate

s

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

Initial Pure Formula

With flexibilities


MENA focus, changes compared to the

baseline by 2025, %

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Exports (val) Terms of trade Welfare

HG G20 EU US DecModalities


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

-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5

Bangladesh

Angola

Senegal

Mauritania

Cambodia

Dem. Rep of Congo

Djibouti

Mozambique

Nepal

Niger

Benin

Maldives

Togo

Lesotho

Central African Republic

Burundi

Rwanda

Solomon Islands

Guinea-Bissau

Chad

Myanmar (Burma)

Zambia

Tanzania

Mali

Uganda

Madagascar

Burkina Faso

Malawi

To Read: Agricultural Trade

Liberalisation: Its Ambiguous

Consequences on Developing

Countries, Bouët, Bureau, Decreux

and Jean, 2004. La Lettre du CEPII.















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) - %

-6

-4

-2

0

2

4

6

8Sub-Saharan Africa - Low Income

Bangladesh

Cambodia

Madagascar

Malawi

Mozambique

Senegal

Tanzania

Uganda

Zambia

Central

A

C

To Read: The Development

Promise: Can the Doha

Development Agenda Deliver for

Least-Developed Countries? Bouët,

Laborde, and Mevel, 2008,

IFPRI’sResearch Brief

C & Central Scenario: DFQF

OECD 97%

A: DFQF: 100% including

China and India

http://www.ifpri.org/PUBS/ib/in14.asp















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

http://css.escwa.org.lb/EDGD/1154/7.ppt





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]

IFPRI brief, 2008 and IFPRI Discussion Paper 2009


Threat points?



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

rld

an

nu

al R

ea

l In

co

me

ch

an

ge

s, $

Bln

sb

y 2

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

en

tag

e c

han

ges i

n a

gri

clt

ure

an

d a

gri

-bu

sin

ees

pro

du

cti

on

v

olu

me in

2025 c

om

pare

d t

o t

he b

aselin

e

With "dynamic" OTDS constraint

Without "dynamic" OTDS constraint

Source: Bouet and Laborde, 2009. MIRAGE simulations

Overview of the Multilateral Trade Negotiations

Documents

initial pure

special safeguard

agricultural

middle income

doha trade

ten years

agricultural

market access