2. A Quantitative Assessment of the Derbez Text IPC Seminar Achieving Agricultural Development through Agricultural Trade Johannesburg, 29 January 2004 David Vanzetti Trade Analysis Branch UNCTAD, Geneva United Nations Conference on Trade and Development

3. Presentation Overview State of Play in WTO Negotiations The Cancun text The Model Results Implications

4. State of the Play Doha Programme: Negotiations on a range of subjects, including agriculture Divergent positions between EU, US, Developing Countries, … Negotiations were deadlocked for months: Harbinson (WTO chair) draft was found inadequate Deadline to agree on modalities was missed EC-US proposal galvanised the process Cancun: Negotiations about the draft Cancun Ministerial text failed Members expressed their commitment to a multilateral approach and continue with negotiations

5. Alliances and interests EU Japan Switzerlan d Norway Korea Level of ambition Eliminate export subsidies “Multi- functionality” Cuts in domestic support Reduce export credits Developingcountries Degree of special and differential treatment USA

6. Blended formula proposed by EC-US –Swiss formula –Uruguay Round approach –Duty free access Text does not contain specific targets, but paragraphs like “[…]% of tariff lines shall be subject to a […]% average tariff cut and a minimum of […]%, …” Cancun draft Ministerial Text

7. Application of the Blended Formula 1.Uruguay Round high tariffs * 2.Swiss Formulasmall tariffs 3.Duty-freevery small tariffs * Given that countries want to protect their own markets

8. Assumed tariff cuts 1.Tariff reductions and tranches not specified 2.Assume linear cuts 36 (min 15) and 24 (min 10) %. 3.Swiss coefficient 25. 4.Apply to 40, 40 and 20% of lines

9. Hypothetical tariff reductions Swiss coefficient: 25, Average reduction 36%, minimum 15%, (20% of tariff lines cut by 15%, thus, 15% and 41% gives average of 36%)

10. Blended formula: Anti-harmonizing 40% UR, within this category 28% minimal (15%), remaining 72% reduced by 44% (average 36%), 40% Swiss (coefficient 25), 20% duty-free; tariffs equally distributed

11. EU bound rates Two outliers over 200% have been deleted Small number of large tariffs

12. Typical developing country Little variation in bound, but large gap to applied

13. Typical developing country Three outliers over 150% have been deleted

14. Selected Developed Countries: Cut in bound tariff rates Lesser cuts than Harbinson

15. Selected Developing Countries: Cut in bound tariff rates Greater cuts than Harbinson

16. Selected Developing Countries: Cuts in applied rates Minimal cuts in applied rates

17. Remarks on the blended formula Three parts (UR, Swiss, duty-free) allow for flexibility Blended formula is rather anti-harmonizing Countries with dispersed tariffs can take advantage of flexibility Countries with (high) uniform tariffs cannot use flexibility and have to make bigger cuts Countries with “water in the tariff” can take advantage of flexibility so that applied rates are little affected Conclusion: Formula does not serve the main objectives ? (simplicity, transparency, effectiveness, efficiency, equity/fair)

18. Static global trade model 161 x 36 Partial equilibrium model with Armington structure Two way trade TRQs and quota rents UNCTAD, FAO, DFID Agricultural Trade Policy Simulation Model

19. ATPSM commodity aggregation (1) Bovine meat Sheepmeat Pigmeat Poultry Milk, fresh Milk, conc. Butter Cheese Wheat Maize Sorghum Barley Rice Sugar Oil seeds Vegetable oils Pulses Roots, tubers

20. ATPSM commodity aggregation (2) Tomatoes Non-tropical fruits Citrus fruits Bananas Other tropical fruits Coffee green bags Coffee roasted Coffee extracts Cocoa beans Cocoa butter Cocoa powder Chocolate Tea Tobacco leaves Cigars Cigarettes Other tobacco - mfr. Cotton linters

21. ATPSM available from UNCTAD Available free from webside www.unctad.org/tab E-mail: atpsm@unctad.org

22. Developing countries: applied rates

23. Remarks on the blended formula Three parts (UR, Swiss, duty-free) allow for flexibility Blended formula is rather anti-harmonizing Countries with dispersed tariffs can take advantage of flexibility Countries with (high) uniform tariffs cannot use flexibility and have to make bigger cuts Countries with “water in the tariff” can take advantage of flexibility so that applied rates are little affected Conclusion: Formula does not serve the main objectives ? (simplicity, transparency, effectiveness, efficiency, equity/fair)

24. Two simulations CancunHarbinson From bound rate 40%: average cut (36%, 15%) 40%: Swiss 25 20%: duty free DC: Special P. linear cut (24,10) From bound rate average cut 40- 60% (25-40%) minimum cut 25- 45% (15-30%) Special products? AMS cut by 60% (20%) Cut by 80% (70%), eventual elimination Export Subsidies Domestic Support Market Access

25. Results Cancun more flexible, less ambitious, watered down. Smaller average tariff cuts, prices, exports and welfare effects. Many developing country losers

26. Change in world prices Cancun and Harbinson

27. Change in world prices of temperate goods, Cancun proposal

28. Change in world prices of tropical goods, Cancun proposal

29. Change in producer surplus Cancun and Harbinson

30. Change in welfare: Cancun and Harbinson

31. Cancun and Harbinson proposal $m Note large transfer between producers and consumers

32. Winners and losers Net welfare gains $7.2 billion (EU, Jpn) Of 161 countries 112 losers (-$1.6 b) –  Pw –  quota rents –bound > applied tariffs, no cuts.

33. Conclusions Cancun text flexible but lacking ambition Fails test of effectiveness, efficiency, equity and simplicity Plenty of scope for improvements, but negotiated outcome probably hinges on EU reform Losers needed compensation in some form

34. THE END

35. Initial quota rents captured by SSA exporters $414m

36. Comparison of Proposals EU Harbinson USA