Global Trade Reform Under The Doha Development Agenda: Implication for Sub-Saharan Africa

1. Global Trade Reform Under The Doha Development Agenda: Implication for Sub-Saharan Africa Kym Anderson and Will Martin Development Research Group The World Bank, Washington DC kanderson@worldbank.org

2. Why much of the focus in DDA must be on agriculture … • … even though it provides less than 4% of global GDP and 9% of int’l merchandise trade • 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 manufactures tariffs globally • Also, the vast majority of the world’s poor rely on farming for a living, and may be hurt by agric protection policies of rich countries

3. 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 ACP’s Lome Agreement, EBA 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

4. Two new working papers and two forthcoming books • Anderson and Martin, ‘Agricultural Trade Reform and the Doha Development Agenda’, The World Economy September 2005 (forthcoming) • Anderson, Martin and van der Mensbrugghe, ‘Would Multilateral Trade Reform Benefit Sub-Saharan Africans?’ WB Policy ResearchWorking Paper, April 2005 • Anderson and Martin (eds.), Agricultural Trade Reform and the Doha Development Agenda, Washington DC: World Bank, forthcoming mid-2005 but chapters now available on World Bank website • Hertel and Winters (eds.), Putting Development Back Into the Doha Agenda: Poverty Impacts of a WTO Agreement, Washington DC: World Bank, due fall 2005

5. What differentiates our new study? • 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&DT for DCs’ reform • And it ‘adds up’ the consequences of current policies and prospective Doha reforms using the new GTAP protection database which includes, for the first time: • bound as well as applied tariffs • non-reciprocal as well as reciprocal preferential tariffs • key trade policy changes to the start of 2005

6. Outline of presentation • What are the potential welfare gains from full goods trade reform, by country/region, due to: • developed relative to developing countries’ policies? • agriculture relative to manufacturing policies? • within agric., tariffs relative to export subsidies and domestic support? • How close could Doha get to completely freeing merchandise trade, in welfare and trade terms, based on July 2004 Framework agreement? • Implications for southern and other Sub-Saharan Africa

7. Modeling Doha reform packages using World Bank’s Linkage Model • Recursive dynamic CGE model • We start with GTAP Version 6.05 protection and trade data for 2001 • We project on-going reforms from 2001 to end-2004 (Uruguay Round including ATC, EU25 enlargement, WTO accession for China, etc.) • Then we assume no further reform 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

8. Comparison with earlier models • Welfare effects are smaller than when GTAP Version 5 database for 1997 is used, because: • Much reform since 1997, incl. implementation of unilateral reforms and regional and UR agreements • Non-reciprocal preferences are now in database • New provider (CEPII/ITC) with different sources • Welfare effects are larger than from Hertel/Keeney’s GTAP-AGR estimates as of 2001, because Linkage Model: • projects world economy to 2015 • includes some dynamics • has larger trade elasticities than GTAP-AGR

9. Linkage model’s welfare cost of current protection policies by 2015 • Global cost of current tariffs on all good plus agricultural subsidies would be $278 billion p.a. by 2015 • 2/3rds accrues to high-income countries • But as % of GDP, the cost for DCs is twice that for developed countries

10. Full liberalization: global gain ($bn)

11. Full lib’n: gains to developing countries

12. Relative importance of 3 agric pillars

13. Full Liberalization(percentage change from baseline income in 2015)

14. Effects of full lib’n on SSA agric & food

15. Effects of full lib’n on SSA factor rewards

16. Key elements of the Doha Agenda as shown in the July 2004 Framework agreement • 3 agricultural pillars (including cotton) • Non-agricultural market access • Services • Trade facilitation • Lesser tariff and subsidy cuts for developing countries (DCs) and zero cuts for least-developed countries (LDCs)

17. Prospective Doha packages • We focus on agric market access in particular • because it is by far the biggest potential contributor to global and DC welfare gains • So we assume no services reform, no new trade facilitation, but: • phase out of agricultural export subsidies • tiered cut to agricultural domestic support • And tiered cut to agric and non-agric bound tariffs under various alternative market access packages

18. Agricultural market access • Tiered formula for cutting bound tariffs (with smaller cuts for DCs) • Formula sought by Harbinson yielded almost no gains to DCs • especially if lesser cuts for 2% of products that are ‘sensitive’ and another 2% of DC products that are ‘special’ • So we increased each cut by 10 percentage points more than Harbinson

19. Agricultural domestic support • Cut in bound AMS need not reduce applied support, because of binding overhang (with 1986-88 ref. prices) • and overhang can be increased by abolishing admin prices used to calculate market price support • We apply a tiered reduction in bound AMS • 75% if AMS>20%, otherwise 60% for developed countries (40% for developing, zero for LDCs) • Leads to only 4 members reducing support: US 28%, Norway 18%, EU 16%, Australia 10%

20. Non-agric market access, and extent of DC willingness to reform • 50% cut in bound rates for high-income countries, 33% for DCs, 0% for LDCs • We also examine the effects of DCs (including LDCs) becoming full participants in Doha agric and NAMA cuts (Doha-All scenario) • recalling from earlier Rounds that DCs only got what they gave, in terms of increased market access (see Finger 1974, 1976; Finger and Schuknecht 2001)

21. Services and trade facilitation • These areas offer great potential gains, especially for developing countries • See Hertel/Keeney chapter of our book • But few significant signs of commitment have been forthcoming yet • and quantification of their effects is problematic • Hence we assume zero changes for these items in our modeled Doha scenarios

22. Results from Doha agric reform • Tiered formula cut as per Harbinson gives the world $54 billion, but little goes to DCs • So we increased all cuts by 10 percentage points, which gave a $73 billion global gain • Even then, only $8 billion go to DCs • & if HICs exempt just 2% ‘sensitive’ products (DCs 4%), global gain shrinks to $18 billion, and DCs’ gain disappears • although a 200% tariff cap reduces much of that shrinkage • Small DC gains because of their (a) lesser cuts and (b) large tariff ‘binding overhang’

23. Binding overhang in agric tariffs, %

24. Adding non-agric market access • Adding 50%/33%/0% cuts to non-agric bound tariffs boosts global gain from agric tiered formula cut from $73 to $95 billion pa • That $95 billion gets the world 1/3rd of the way to the potential gains from complete free trade in merchandise (but that share is smaller as % of gains from removing also all services trade barriers, unless services markets also are opened up) • If DCs and LDCs fully participate in market access, global gain goes up to $119 billion

25. Effects of Doha lib’n on SSA applied tariffs

26. Effects of full & Doha lib’n on SSA welfare

27. Effects of full & Doha lib’n on SSA exports

28. Effects of full & Doha lib’n on share of agric and food production that is exported

29. Implications for southern Africa • Doha would give SSA only a small fraction of their potential gains from a move to global free trade • If DCs (including LDCs) were to fully participate, their gain more than doubles • To gain more, SSA DCs have to reduce bound tariffs further, so that applied tariffs fall more • Isn’t it better to do that under Doha, so as to get reciprocity and/or more aid, rather than unilaterally – especially as that would lead to less trade diversion when EPAs are signed with the EU?

30. Other lessons and policy implications • Potential gains from further trade reform are huge • Even after UR and recent accessions to WTO and EU Must find the political will for Doha success • DCs would gain disproportionately from reform • Notwithstanding non-reciprocal tariff preferences • But as much would come from South-South as South-North trade growth, hence importance of DC lib’n too • After outlawing export subsidies, agric tariff cuts are the highest priority from a welfare viewpoint and if Doha is to be pro-development/pro-poor

31. Lessons and implications (cont) • Cuts in agric tariffs and domestic support bindings need to be 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 • DCs in SSA and elsewhere would have to make few cuts because of their huge binding overhang • So can afford to tone down their demands for lesser cuts (and ‘special’ products) and exchange it for greater access to HIC markets (& fewer HIC ‘sensitive’ product exemptions)

32. Lessons and implications (cont) • Removal of cotton subsidies in US and EU would raise DC share of global cotton exports from 56% to 85% • Adding non-agric market access to Doha package could double the welfare gains to DCs even with their lesser cuts, and it helps balance the North-South exchange of ‘concessions’ • Some LDCs could lose slightly, as could some households within DCs that gain, if they reform little – the focus of the following presentations

33. Working paper and web address for forthcoming book chapters • Anderson, K., W. Martin and D. van der Mensbrugghe, “Would Multilateral Trade Reform Benefit Sub-Saharan Africans?” World Bank Policy Research Working Paper, forthcoming April 2005 (request a copy from kanderson@worldbank.org) • Anderson, Kym and Will Martin (eds.), Agricultural Trade Reform and the Doha Development Agenda, Washington DC: World Bank, forthcoming mid-2005 but chapters now available on World Bank website at: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/TRADE/0,,contentMDK:20366035~pagePK:210058~piPK:210062~theSitePK:239071,00.html