WTO’s Doha Development Agenda and South Asian Agriculture Kym Anderson Development Research Group, World Bank SASAR seminar, World Bank, Washington DC, 8 June 2006

The issue India (with the G20) has been offensive on agric subsidy cuts in the DDA, but has been defensive on agric market access … presumably because the government fears tariff cuts would add to rural poverty and erode its rural political base The US would bear the brunt of adjustment to cuts to domestic ag subsidies, the EU to cuts in ag export subsidies, so in exchange both want more market access in DCs (ag and non-ag)

Multilateral DDA offers opportunity for easier trade reform than if unilateral Access to foreign goods & services markets increases at same time, making adjustment to own-reform easier Easier to sell the reform message domestically if other countries are adjusting at same time: ‘shared pain for mutual gain’

The key question If the DDA were to conclude this year (a big IF), and agric and other reform commitments were to be phased in over the next decade, how would South Asian economies, and especially their agricultural sectors, be affected?

Answer depends on the region’s … net trade position of various industries the region is close to 100% self-sufficient in agric and food products current levels of actual own-protection and DDA commitments to change them the region’s ag and food tariffs are well above the DC and global averages, but has few ag subsidies assumptions in global models used to address the question

We use two global models GTAP model, based on 2001 baseline WB’s recursive Linkage model (with slightly higher elasticities), whose baseline is projected to 2015 Both use the GTAP protection database of 2001 (which includes all key preferential tariffs), revised to 2005 to account for: China’s accession to WTO EU expansion to 25 members, and end of Uruguay Round implementation (including phase-out of textile and clothing quotas)

Results are necessarily lower-bound estimates because they ignore: Dynamic growth effects of reform Pro-competitive effects of reform Impact of increase in product variety Gains from (most) services trade and investment reform The risk that, without Doha, agricultural protectionism could rise Complementary domestic reforms

Why this issue also matters for the rest of the world Because both models suggest almost 2/3rds of cost of current agric and trade policies to the world, and to developing countries, are due to agricultural policies as agric. applied (bound) tariffs now average nearly 5 (10) times manufacturing tariffs globally Because the majority of world’s poor depend directly or indirectly on ag for their livelihood And because most of the costs of agric policies are due to tariffs, not subsidies with the notable exception of cotton

Relative importance of 3 agric pillars (Anderson, Martin and Valenzuela 2006) Welfare gains from: % of gain to: Agric market access Agric domestic support Agric export subsidies All agric policies Developing countries 106 2 -8 100% World 93 5

How large are South Asian tariffs in GTAP database (%)? Primary agric Processed food Textiles/ clothing Other manuf India 26 76 27 24 Bangladesh 7 21 30 16 Other S. Asia 14 32

How large are costs to South Asian overall economies of global distortions (% of base income)? GTAP model, 2001 Linkage model, 2015 India 0.4 Bangladesh -0.5 0.2 Other S. Asia 0.5 All devel. countries 0.8 All high-income 0.6

GTAP model (incl. services) How large are costs to South Asian farmers of global distortions (% of base net farm income)? GTAP model, 2001 GTAP model (incl. services) Linkage model, 2015 India -2.5 -0.7 -8.1 Bangladesh -1.5 -4.4 Other S. Asia 4.4 4.6 -1.3 All devel. countries 5.0 5.7 2.9

Effect on costs to South Asian farmers of global distortions if own-agric tariffs are zero (% of base net farm income)? GTAP model, 2001 (incl. services lib’n) Default tariffs Zero own-ag tariffs India -0.7 4.1 Bangladesh -1.5 3.3

Change in agric VA due to lib’n (%) Own lib’n Other DCs’ lib HIC lib’n Total global lib India -4.1 -0.5 3.8 -0.7 Bangladesh -2.7 -1.4 2.6 -1.5 Brazil 1.6 1.9 39 43

Elements of the Doha Agenda as in July 2004 Framework agreement & HK Dec 05 3 agricultural pillars Non-agricultural market access Services Lesser tariff and subsidy cuts for developing countries (DCs) and zero cuts for least-developed countries (LDCs) What would it do for S. Asia, compared with full global lib’n?

Key agricultural elements of the Doha Agenda to watch Reduction in tariff and subsidy ‘binding overhang’ Treatment of ‘sensitive’ and ‘special’ products (SSPs) Tariff cap, and whether it applies to SSPs Extent of Special and Differential Treatment (SDT) invoked by developing and least-developed countries in terms of their willingness to reform

Our modelled Doha scenarios 75% tiered cut to bound agric tariffs without & with sensitive and special products without & with a tariff cap of 200% with & without Special and Differential Treatment (SDT) 75% tiered cut to domestic ag subsidy ceilings Abolition of agric export subsidies 50%/33%/0% cut in bound non-agric tariffs Services policies unchanged

Big bound cuts needed to reduce applied agric tariffs, because of binding overhang Base With S&D Without S&D India 50 46 37 Rest of S. Asia 21 17

Effects of full & Doha lib’n on DC welfare % change in: Full global lib’n Doha (with lesser cuts by DCs) Doha (with full cuts by DCs) Latin America 1.0 0.29 0.33 South Asia 0.4 0.21 0.36 Sub-Saharan Africa 1.1 0.10 0.27 All developing countries 0.80 0.16 0.30

Effects of full & Doha lib’n on ag incomes (%) % change in: Full global lib’n Doha (with lesser cuts by DCs) India -8.1 02. Rest of S. Asia -1.3 1.8 All S. Asia -6.8 0.5 All DCs 2.9 2.0

Real farm income rise from Doha (percentage change from baseline income in 2015)

Lessons for the Doha round Agric subsidy cuts alone will contribute only a tiny gain Cuts in bound agric tariffs (and domestic support) need to be very large to get beyond binding overhang Even large cuts in agric tariffs do little if ‘sensitive’ and ‘special’ products are subjected to lesser cuts Adding non-agric market access to Doha package could nearly double the welfare gains to South Asia and other DCs even with their lesser cuts and it helps balance the North-South exchange of ‘concessions’

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