1. Day 4: Doha agricultural reform prospects and implications for Iran 4-day course on Agricultural Trade Policy and WTO Tehran, Iran, 15-18 May 2005

2. Reminder: how an acceding country benefits from following Doha Round Learn more about this aspect of being a WTO member Gauge how the eventual Doha outcome will benefit their economy due to reforms by WTO members (improved export prospects) Anticipate how the Doha agreement will increase WTO member expectations of the commitments currently-acceding countries should make

3. This session also illustrates the usefulness of: The GTAP trade and protection database (and related databases) A global economy-wide CGE model, in this case the World Bank ’ s Linkage model Thinking in economy-wide (rather than just agricultural sector-specific) terms

4. Note also: Middle East has been reforming less than rest of world … … and now appears to be more trade- restrictive than any other region of the world (see next chart)

5. Trade reform in the past two decades Late 1980s 2004 Av. Tariffs % Overall Trade Restrictiveness Index (OTRI)

6. Questions addressed in this session: How might Doha free up agricultural (and other merchandise) trade, following the WTO members ’ July 2004 Framework agreement? What are the implications for DCs ’ Doha negotiating strategy, and for Iran ’ s accession negotiations Reading in folder: Anderson, K. and W. Martin, ‘ Agricultural Trade Reform and the Doha Development Agenda ’, The World Economy September 2005 (forthcoming, & as a World Bank Policy Research Working Paper, May 2005)

7. Key elements of the Doha Agenda as shown in the July 2004 Framework agreement 3 agricultural pillars (including cotton) Non-agricultural market access Services What are the implications for developing countries ’ Doha negotiating strategies, and for Iran when it becomes an acceding country? Trade facilitation Lesser tariff and subsidy cuts for developing countries (DCs) and zero cuts for least- developed countries (LDCs)

8. Our prospective Doha modelling scenarios We assume no services reform, no new trade facilitation, but: phase out of agricultural export subsidies tiered cuts to agricultural domestic support tiered cuts to agric bound tariffs under various alternative market access packages With means less cuts to applied tariffs, depending on degree of ‘ binding overhang ’ (see next slide) cuts to non-agric bound tariffs

9. Binding overhang in agric tariffs, % BoundApplied High-income countries 2714 Developing countries 4821 of which LDCs 7813

10. Agricultural market access Tiered formula for cutting bound tariffs (with smaller cuts for DCs) Tiers in developed countries at 15%, 90% tariff rates, with marginal cuts of 45, 70, 75% Tiers in developing countries at 20, 60, 120% tariff rates, with marginal cuts of 35, 40, 50 & 60%

11. Agricultural domestic support Cut in bound AMS need not reduce applied support, because of large binding overhang here as well (with 1986-88 ref. prices) We apply a tiered reduction in bound AMS By three-quarters if AMS>20%, otherwise by three-fifths for developed countries (and two-fifths for developing countries except zero for LDCs) Leads to only 4 members reducing support as of 2001: US 28%, Norway 18%, EU 16%, Australia 10% (and EU and Australia have already done that since 2001)

12. Non-agric market access Halving of bound rates for high-income countries, cut of one-third for DCs (except again zero for Least Developed Countries)

13. Extent of DC willingness to reform? We also examine the effects of DCs (including LDCs) becoming full participants in Doha agricultural and non- agricultural cuts recalling from earlier Rounds that DCs only got what they gave, in terms of increased market access see Finger (1974, 1976) and Finger and Schuknecht (2001)

14. Results from Doha agric reform Tiered formula with sizeable cuts gives a $75 billion global gain, but only $9 billion goes to DCs Small DC gains because of: their lesser (or zero) cuts, and their large tariff ‘ binding overhang ’ But if HICs claim 2% of agric products are ‘ sensitive ’ (and DCs claim 4% are ‘ sensitive ’ or ‘ special ’ ), global gain shrinks to $18 billion, and the gain to developing countries disappears

15. What we assumed about opening markets of “sensitive” and “special” products Liberalization of “ sensitive ” products is to involve tariff cuts and Tariff-Rate- Quota (TRQ) expansion But many TRQs are not filled (admin. hassles), so expanding quotas need not always expand trade Hence we simply assume a cut of just 15% in bound tariffs of “ sensitive ” and “ special ” products

16. Applied agric tariffs with sensitive and special products (SSPs) allowed, or full DC participation % av. tariff imposed by: Base- line 2005 Doha (with SSPs) Doha (no SSPs) Doha (full DC) High-income countries 161488 Middle-income countries 1211109 Low-income countries 22 2118 WORLD1514109

17. Adding non-agric market access Adding 50%/33%/0% cuts to non-agric bound tariffs boosts global gain from agric tiered formula cut from $75 to $96 billion pa That $96 billion gets the world 1/3 rd of the way to the potential gains from complete free trade in merchandise, and DCs 1/5 th the way If DCs and LDCs fully participate in market access opening, global gain goes up to $119 billion and DC gain rises from $16 to $23 billion

18. Effects of Doha lib’n on DC applied tariffs % av tariff rate for all goods in: Baseline 2005 Doha (with lesser cuts by DCs) Doha (with full cuts by DCs) High-income countries 2.91.6 Middle-income countries 7.26.35.6 Low-income countries 15.514.613.4

19. Effects of full & Doha lib’n on DC welfare % change in real income in: Full global lib ’ n Doha (with lesser cuts by DCs) Doha (with full cuts by DCs) Middle East and North Africa 1.2-0.050.01 All middle-income countries 0.80.150.21 Low-income countries0.80.180.30

20. Effects of full & Doha lib’n on DC share of agric and food production that is exported % in: Baseline 2015 Full global lib ’ n Doha (with lesser cuts by DCs) Brazil 172922 Argentina 253327 Middle East & North Africa 6117 All developing countries 8128

21. Effects on Brazil’s sectoral self-sufficiency and net exports in 2015 Baseline % self- sufficiency Post-Doha % self- sufficiency Change in net exports ($ billion) All agr. and food11612212 Other primary172166 Manuf. excl. food92 89 -9 Services99 -2

22. Effects on Brazil’s farm export product self- sufficiency and net exports in 2015 Baseline % self- sufficiency Post-Doha % self- sufficiency Change in net exports ($ billion) Coarse grains1441530.5 Oilseeds2262411.3 Sugar121 124 0.4 Meats13118710.7

23. Effects on Brazil’s other farm product self-sufficiency and net exports in 2015 Baseline % self-sufficiency Post-Doha % self- sufficiency Change in net exports ($ billion) Rice92 0.0 Wheat2019-0.1 Cotton116 0.0 Dairy97 -0.1 Other food108107-0.1

24. Lessons Cuts in agric tariffs and domestic support bindings need to be v. large to get beyond binding overhang Even large cuts in agric tariffs do little if ‘sensitive’ and ‘special’ products are subjected to lesser cuts Unless a tariff cap of, say, 100% is enforced or there’s a large expansion in TRQs of ‘sensitive’ products Adding non-agric market access to Doha package could nearly double the welfare gains to other DCs even with their lesser cuts and it helps balance the North-South exchange of ‘concessions’

25. Implications for developing countries’ Doha negotiating strategies Need to seek ambitious outcome on agric market access, not just on subsidies despite domestic sensitivities (which SSM and ‘ special products ’ can manage, especially if rural public goods are increased) Need to also encourage developing countries, not just developed countries, to provide more market access even if that means not having lesser cuts than developed countries Otherwise this won ’ t be much of a development round (or may even be abandoned by developed countries)

26. Implications for Iran’s accession negotiating strategy Need to realize WTO members are unlikely to tolerate high farm subsidies or high bound tariffs on food products bearing in mind that average agric tariffs are: <20% bound in recently-acceding countries <10% applied in middle-income countries by end of Doha So need to build that into strategic planning for the sector In particular, examine non-trade distorting ways of supporting farmers such as greater investments in rural quasi-public goods more agric R&D, rural education and health, rural transport infrastructure, marketing and communications investments

27. Bottom line for Iran Doha Round negotiations, like Iran ’ s WTO accession negotiations, will open new trade opportunities for boosting national economic growth and poverty alleviation BUT, translating those opportunities into tangible outcomes depends on accelerating domestic reforms and investments that are critical to improving international competitiveness