1. Agriculture: the heart of the DDA Kym Anderson Development Research Group World Bank African/LDCs Ambassadors Seminar on Doha, Washington DC, 13 March 2006

2. Why much of the focus in DDA must be on agriculture & food … … even though it provides only 6% of global GDP and 7% of int ’ l trade in goods & services Because: 54% of employment in DCs is in agriculture Two-thirds or more of the world ’ s poor rely on farming for a living, & may be hurt by agric protection policies of other countries

3. Why much of the focus in DDA must be on agriculture & food … And, OECD manufacturing tariffs have fallen by 9/10ths over the past 60 years to <4%, while agricultural protection has risen Agric. applied (bound) tariffs now average nearly 5 (10) times manufacturing tariffs globally

4. Why focus on agriculture (cont.) True, the harm to some DC farmers from rich- country agricultural protection is reduced via non-reciprocal preference schemes such as the EU ’ s ACP & EBA agreements, and AGOA But those schemes contravene the core WTO rule of non-discrimination In particular, they exclude some populous DCs (eg China, India, Indonesia, Pakistan, Vietnam) Hence they may harm more poor farmers (through trade diversion) than they help

5. Questions addressed To what extent are subsidy and trade policies of high- income (and other) countries affecting welfare in DCs? What are the effects of current tariffs and subsidies on DCs, due to: agriculture relative to manufacturing policies? developed relative to developing countries ’ policies? and own- relative to other-countries ’ policies? within agriculture, tariffs relative to export subsidies and domestic support policies? What is needed to ensure Doha partial reforms benefit the poor in Africa and other LDCs?

6. Based on two new World Bank books Anderson, K. and W. Martin (eds.), Agricultural Trade Reform and the Doha Development Agenda, 2006 summarized in an article in The World Economy, Sept 2005 Hertel, T. and L.A. Winters (eds.), Poverty and the WTO, 2006 summarized in an article in The World Economy, August 2005 Additional background papers are available at www.worldbank.org/trade/wto

7. What differentiates our new study? We use the new GTAP protection database which includes, for the first time, non- reciprocal preferential tariffs as of 2001 We amend it to include key trade policy commitments to 2005 We use the Linkage model, which first projects the world economy to 2015, to report the consequences of current policies and of partial reform under the DDA

8. Cost of current protection policies by 2015 Global cost of current tariffs on all goods plus agricultural subsidies: $287 billion p.a. As % of GDP, cost to developing countries is 1/3 rd higher than to high-income countries and nearly twice as high for Sub-Saharan Africa despite a favorable terms of trade effect for DCs These costs are potential gains from liberalization

9. Our 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 (and other) protectionism could rise Complementary domestic reforms

10. Sources of cost to global economy $ billion due to policies in: Agric & food Textiles clothing Other merch. TOTAL High-income countries 135159159 (55%) Developing countries 472358128 (45%) All countries ’ policies 182 (63%) 38 (14%) 67 (23%) 287 (100%)

11. Sources of cost to developing countries $billion due to policies in: Agric & food Textiles & clothing Other merch. TOTAL High-income countries (50%) Developing countries (50%) All countries ’ policies (63%)(25%)(12%)(100%)

12. Relative importance of own reform (% impact on real income) Own- reform Other countries ’ reforms All countries ’ reforms South Africa 0.10.80.9 Rest of Sub- Saharan Africa 0.6 1.2

13. Relative importance of 3 agric pillars % of effects from: Agric market access Agric domestic support Agric export subsidies All agric policies Global welfare 9352100 Global agric trade 8616-2100 Non-OECD farm income 523810100

14. Why agricultural market access dominates subsidies in welfare, trade and farm income 60% of PSE for OECD countries is due to ‘ market price support ” from tariffs and export subsidies Need to add non-OECD agric protection, which mostly comes from tariffs PSE only refers to primary agric; cost of support for processed agric (even net of the inflated prices of protected farm products) is even bigger than for primary agric – and all via trade measures Trade measures are roughly twice as costly as direct producer support, because they also distort the consumer side of the market See Anderson, Martin and Valenzuela, ‘ The Relative Importance of Global Agricultural Subsidies and Market Access ”, Dec. 2005 at www.worldbank.org/trade/wto

15. Effects of full global lib’n on SSA agric % change in: Real value of agric and food exports Real net farm income South Africa 5610 Other Southern Africa 509 Rest of Sub-Saharan Africa 455 All SSAfrica 507

16. What about Arvind Panagariya’s critique? Won ’ t net food-importing DCs have to pay more for imports if agricultural tariffs and subsidies are cut? And won ’ t those DCs receiving preferential access for their agricultural exports to OECD markets lose through preference erosion?

17. Effects of just OECD agric lib’n on SSA $billion change in real income due to change in: Agric and food Non- agric goods Import prices -0.4-0.5 Export prices 0.91.5 Total terms of trade 0.60.9

18. Effects of global lib’n on DC share of global exports (including intra-EU), % Primary agric Processed food Textiles & clothing Other goods Base 47346330 Free trade 62406732

19. Effects of global lib’n on value of DC exports ($billion annual boost) Agric and food Non-agric primary Other goods TOTAL (including services) LICs 366112158 MICs 15623271446

20. Effects of global lib’n on shares of global production exported (%) Primary agric Processed food Textiles/ clothing Other goods base 872824 lib ’ n 12 3526

21. Take-away messages on costs of current policies/benefits from full liberalization Potential gains from further trade reform are large  must find the political will for Doha success DCs, esp. SSA, would gain disproportionately, notwithstanding non-reciprocal tariff preferences  provided DCs reform too, including own-reform Agricultural reforms are the highest priority for goods, from global and DC welfare viewpoints

22. Elements of the Doha Agenda as shown in the July 2004 Framework agreement 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)

23. 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

24. 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

25. Big cuts needed to reduce applied agric tariffs, because of “binding overhang” Bound % Applied % High-income countries 2714 Developing countries (excluding LDCs) 4820 Least developed countries (LDCs) 7813

26. Also big cuts in domestic support limits needed to reduce DS binding overhang US proposal G-20 proposal EU proposal Overhang Applied

27. Doha scenarios: gain in real income from Doha as % of gain from full global trade reform High-income Developing Ag+NAMA—Same as above but includes SDT. Ag Only—Only agriculture, no exemptions, no caps, includes SDT. Ag-SSP—Same as above but no caps. Ag-SSP+Cap—Same as above plus exemptions (HIC-2%, LMY-4%) and caps (200%). Ag+NAMA-SDT—No exemptions, no caps, no SDT.

28. Real farm income rise from 2 nd Doha (percentage change from baseline income in 2015)

29. What about the cotton initiative? Under full lib ’ n, net income from and exports of cotton in SSA would be 31% and 55% greater SSA would enjoy 52% of global welfare gain 76% of SSA gain would be due to subsidy cut See paper by Anderson and Valenzuela, “ The Doha Cotton Initiative: A Tale of Two Issues ”, Feb. 2006 at www.worldbank.org/trade/wto

30. 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 become more fully engaged otherwise, this won ’ t be much of a development round

31. Implications for Sub-Saharan Africa OECD cotton subsidy reform is crucial But SSA and LDCs will get only a small fraction of their potential gains from a move to global free trade unless they fully participates (no SDT) SSA gain would almost treble if it foregoes SDT Better to do that under Doha, so as to get reciprocity and/or more “ aid for trade ”, rather than unilaterally? especially as that would lead to less trade diversion when EPAs are signed with EU