Day 3: The Doha Development Agenda: Progress and Prospects 4-day course on Agricultural Trade Policy and WTO Tehran, Iran, 15-18 May 2005

Why acceding countries need to follow progress in the Doha Round To learn about this aspect of being a WTO member To gauge how the eventual Doha outcome will benefit their economy due to reforms by WTO members (improved export prospects) To anticipate how the Doha agreements will increase WTO member expectations of the commitments currently-acceding countries should make

Doha progress to date Launched at the WTO Trade Ministerial meeting in Doha in late 2001 was delayed 2 years by the Seattle debacle of 1999 at which anti-WTO groups disrupted those Ministerial proceedings Stalled in late 2003 at the biennial Ministerial meeting in Cancun, when DCs demanded action on agricultural subsidies (including cotton) before engaging in further talks Got kick-started again with the July 2004 Framework agreement

What’s in the July 2004 Framework? For agric, it provides agreement to eliminate export subsidies and to use a tiered approach to cutting tariffs and domestic support With cotton subsidies to be dealt with “ambitiously, expeditiously and specifically” All Singapore issues except trade facilitation to be dropped Special and differential treatment for DCs including LDCs (to be given a ‘round for free’) But little new guidance on NAMA or services

Agricultural progress Decisions on formulae for tiered cuts still to be negotiated, as is phase-out date for export subsidies “Sensitive” and “Special” products to be subject to lesser reform with details still to be negotiated S&D for DCs to include a Special Safeguard Mechanism Coloured boxes will remain for domestic support, with green box criteria to be tightened Measuring the ad valorem equivalent (AVE) of specific tariffs has been very controversial over the past 2 months Important especially in protectionist high-income countries (see next slide)

Specific agricultural tariffs (in AVE) versus ad valorem tariffs) Total average agric tariffs Ad Valorem part Specific High-income countries 14 4 10 Developing countries 21 19 2 WORLD 17 11 6

Non-agricultural progress A non-linear formula to be used for tariff cuts on non-agric goods Higher percentage cuts for highest tariffs, to reduce tariff peaks and tariff escallation But further progress awaits more movement on agricultural negotiation Services revised offers due this month but little indication of significant reform so far DCs very keen on opening up under GATS Mode 4 (movement of natural persons), but rich countries are showing no signs of being willing to relax their barriers

Prospects for a Doha agreement Early conclusion (end-2006) being targetted to ensure legal drafting by mid-2007, before US ‘fast-track’ expires in which case a modest outcome may be all that is achievable More likely is a later (much later?) conclusion But it may not be much more substantial in which case will it be worth the wait?

Modelling the effects of global agricultural trade policy liberalization

Two forthcoming books from just-completed World Bank research project Martin, W. and K. Anderson (eds.), Agricultural Trade Reform and the Doha Development Agenda, Washington DC: World Bank, forthcoming late-summer 2005 but draft chapters now available on World Bank website summarized in Anderson, K. and W. Martin, ‘Agricultural Trade Reform and the Doha Development Agenda’, The World Economy September 2005 (forthcoming, also as a WB Policy Research Working Paper, May 2005) Hertel, T. and L.A. Winters (eds.), Putting Development Back Into the Doha Agenda: Poverty Impacts of a WTO Agreement, Washington DC: World Bank, forthcoming fall 2005

What differentiates our new studies? Its point of departure is the WTO’s July 2004 Framework agreement It examines in detail each of the 3 agricultural pillars plus preferences, cotton subsidies, non-agricultural tariffs, and S&D for DCs’ reform It ‘adds up’ the consequences of current policies and prospective Doha reforms: Uses bound as well as applied tariffs at the HS6 level Has non-reciprocal as well as reciprocal preferential tariffs Incorporates key trade policy changes to the start of 2005 It then focuses on poverty effects on ten countries, using national CGE models with many households

Key questions to be addressed To be addressed today: What are the potential welfare gains from full goods trade reform, by country/region, due to: developed relative to developing countries’ policies? agricultural relative to manufacturing policies? within agriculture, tariffs relative to export subsidies and domestic support? To be addressed tomorrow: How close might Doha bring the world to completely freeing merchandise trade, in welfare and trade terms, based on July 2004 Framework agreement? And what are the implications for developing countries’ Doha negotiating strategies, and for acceding countries such as Iran?

Modeling Doha reform packages using World Bank’s Linkage Model Recursive dynamic global computable general equilibrium (CGE) model We start with GTAP 2001 protection data and project on-going reforms from 2001 to end-2004 Uruguay Round including Agreement on Textiles/Clothing EU25 enlargement WTO accession for China, etc. Then we assume no further policy changes as global economy grows to 2015 (according to World Bank population, income, etc projections), to get our global baseline scenario for 2015, against which to compare reform scenarios

Linkage model’s gain by 2015 from removing current protection policies Global benefit from removing current tariffs on all goods plus agricultural subsidies would be $287 billion per year by 2015 (Would have been about $350 billion if we included key reforms during 2001-04) 2/3rds accrues to high-income countries But as % of GDP, the benefit to developing countries (including Asia’s NIEs) as a group is twice that for developed countries Or 1/3rd higher if NIEs are considered high-income

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

Full liberalization: global welfare gain $ billion due to reform by: Agric & food policies Textiles Clothing tariffs Other manuf. tariffs All goods trade policies High-income countries 133 17 9 159 (55%) Developing countries 49 21 58 128 (45%) All countries’ policies 182 (62%) 38 (14%) 67 (24%) 287 (100%)

Full lib’n: gains to developing countries % of DC welfare gains due to reform by: Agric & food policies Other manuf. tariffs All goods trade policies High-income countries 29 21 50% Developing countries 33 17 All countries’ policies 62 38 100%

Full lib’n: gains to high-income countries % of HIC welfare gains due to reform by: Agric & food policies Other manuf. tariffs All goods trade policies High-income countries 54 4 58% Developing countries 10 32 42% All countries’ policies 64 36 100%

Relative importance of 3 agric pillars 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

Welfare gain from full Liberalization (percentage change from baseline income in 2015)

Ag & food output rise from full lib’n (percentage change from baseline income in 2015)

Real farm income rise from full lib’n (percentage change from baseline income in 2015)

Effects of full lib’n on DC agric & food % change in: Real value of agric and food output Real value of agric and food exports Real net farm income Brazil 34 121 52 Argentina 12 44 41 Middle East and North Africa -1 64 All developing countries 2 67 5

Effects of full lib’n on DC factor rewards % change in: Unskilled wages Skilled wages Brazil 2.7 1.4 Argentina 2.9 0.5 Middle East and North Africa 4.1 All developing countries 3.5 3.0

Take-away messages from full lib’n Potential gains from further trade reform are large must find the political will for Doha success DCs would gain disproportionately from reform, notwithstanding non-reciprocal tariff preferences But DCs would gain as much from South-South as South-North trade growth importance of DC reform too Agricultural reforms are the highest priority for goods, from global and developing country welfare viewpoints and possibly Iran’s, although the analysis has yet to be done (requires first breaking Iran out of the model’s ‘Middle East and North Africa’ region)

Take-away messages (continued) Removal of agric export subsidies: great achievement Reducing/disciplining other trade-distorting agric domestic support is crucial too, not least to prevent re-instrumentation of agric protection when tariffs are cut But gains to DCs from agric subsidy cuts could be multiplied many-fold by also cutting agric tariffs with half coming from South-South trade growth Adding non-agric market access has the potential to raise the welfare gains to DCs by >50%, and help balance the North-South exchange of ‘concessions’