Some Thoughts on Global Trade Reform Will Martin World Bank

Two Issues Effects of unilateral trade reform Expanding market access

Radical changes in trade patterns

Why this change? Price changes? High protection in OECD agriculture? But agricultural protection there has been falling – even if it remains too high Factor accumulation has been important Global production sharing driven by falls in communication and transport costs But also a dramatic change in protection policies in developing countries

Declines in developing country protection Tariffs down by around two thirds From 30 to 11 percent NTB coverage has fallen dramatically And exchange rate overvaluation has also declined Many countries have developed export processing arrangements

ERP ’ s Exporting from India

Additional effects of protection Protection policy doesn ’ t just reduce exports Also forces countries into the “ wrong ” cone of diversification even without considering real exchange rate effects Products in which you have a comparative advantage disappear from your exports Sensible “ value-adding ” no longer pays Protected countries end up dependent on agriculture and raw materials And it ’ s hard to stop with just a little protection!!

Doha Agenda Agricultural Proposals on market access Harbinson Draft Derbez Draft G-20 Amendments

Market Access Not accidentally, the Doha agric mandate does not require redns in high tariffs, or in escalation These apparent oversights prepared the ground for the reappearance of the average-cut routine Countries argued they needed flexibility Line-by-line reductions too demanding If so, an agreement to reduce average tariffs by x percent might be an option Provides flexibility, but rewards reductions in high tariffs

Linguistic and Statistical Confusion Average-cut sounds like a cut in the average But an average-cut is no cut at all Or a rigid, minimum cut To the extent any meaningful cuts are made, they are in lower tariffs Increase tariff escalation, making potentially welfare-reducing reductions in low tariffs Also lowers tariff revenues disproportionately How could anything so absurd be on the agenda after three years of work?

Example: 50 percent cut Initial tariff1100 Cut1000 Final tariff0100

Harbinson draft Accepted the average-cut routine Tried to reduce the damage by dividing tariffs into three groups, with higher average-cuts for higher tariffs Tariff escalation-creation within groups, reduction between groups

Derbez draft Continues with three groups of tariffs But these are now self-selected  1. Average-cuts with minimum  2. Swiss formula  3. Zero tariffs  Plenty of scope for abuse here  Stir a few near-zero tariffs in with the high tariffs; use the Swiss formula on the rest of the low tariffs, etc

G-20 Amendments Retains the three self-selected groups But requires proportional reductions in the first group Aims for an overall discipline on tariff cuts via an overall “ average-cut ” Retains average-cuts for developing countries

Conclusions Unilateral reform can change your world Market access reform is the most important part of the WTO agriculture agenda But there ’ s a risk it will be negated by statistical, linguistic conjuring tricks