Global Economic Prospects 2004: Realizing the Development Promise of the Doha Agenda

1. Global Economic Prospects 2004:Realizing the Development Promiseof the Doha Agenda Mick Riordan and Richard Newfarmer World Bank Sept 3, 2003

2. Main messages… • Global recovery, though still fragile, is now underway, and developing countries are likely to grow faster than rich countries. • The Doha Agenda has the potential to speed growth, raise incomes, and reduce poverty, and all countries have an interest in its success. • But to realize this potential, governments have to tackle inequities in the world trading system – and to forge an agreement than benefits the poor.

3. The rich countries: a moderate recovery... Real GDP, percent change High income countries Forecast East Asia financial crisis Early 1990s recession 2001 downturn Early 1980s recession

4. Global prospects The rich countries: investment now rising.... Real fixed investment, percent change at annual rates Japan Euro Area United States

5. The international environment improves... Percentage change 2001 2002 2004 2003 Export market growth /1 -0.2 2.5 6.8 8.0 Non-oil commodity prices -9.1 5.1 6.9 1.1 U.S. LIBOR (%) 3.5 1.8 1.0 2.0 610 Emerging market spread (bp) 797 728 ... Source: World Bank. Note: /1 import demand in partner markets.

6. The international environment improves... Percentage change 2001 2002 2004 2003 Export market growth /1 -0.2 2.5 6.8 8.0 Non-oil commodity prices -9.1 5.1 6.9 1.1 U.S. LIBOR (%) 3.5 1.8 1.0 2.0 610 Emerging market spread (bp) 797 728 ... Source: World Bank. Note: /1 import demand in partner markets.

7. The international environment improves... Percentage change 2001 2002 2004 2003 Export market growth /1 -0.2 2.5 6.8 8.0 Non-oil commodity prices -9.1 5.1 6.9 1.1 U.S. LIBOR (%) 3.5 1.8 1.0 2.0 610 Emerging market spread (bp) 797 728 ... Source: World Bank. Note: /1 import demand in partner markets.

8. Global prospects ... But risks remain • Longer-term structural problems persist in the rich countries • Potential for additional geopolitical shocks • And macro policy has largely run its course— may be insufficient to meet new challenges

9. Global prospects ... But risks remain Market interest rates • Longer-term structural problems persist in the rich countries • Potential for additional geopolitical shocks • And macro policy has largely run its course— may be insufficient to meet new challenges - Interest rates at lows US 10-yr Note EURIBOR US LIBOR

10. Global prospects ... But risks remain General government financial balances, % GDP • Longer-term structural problems persist in the rich countries • Potential for additional geopolitical shocks • And macro policy has largely run its course— may be insufficient to meet new challenges - Interest rates at lows - Fiscal deficits widen across the rich countries 2001 2002 2003 Source: OECD data and projections.

11. Global prospects ... But risks remain General government financial balances, % GDP • Longer-term structural problems persist in the rich countries • Potential for additional geopolitical shocks • And macro policy has largely run its course— may be insufficient to meet new challenges - Interest rates at lows - Fiscal deficits widen across the rich countries Hence, addressing the structural issues is key 2001 2002 2003 Source: OECD data and projections.

12. The developing countries: a robust outlook Real GDP, percent change for developing countries Forecast Early 1980s debt crisis 2001 Global downturn East Asia financial crisis 1990s recession Transition countries

13. The developing countries: a robust outlook Real GDP, percent change for developing countries Forecast Early 1980s debt crisis 2001 Global downturn Trend growth East Asia financial crisis 1990s recession Transition countries

14. Global prospects Near-term step up in growth across regions... Real GDP growth, 2001-2005

15. Global prospects ... and improved per-capita growth longer term Real GDP per capita growth, 1990s and 2006-2015

16. The Doha Agenda has the potential to accelerate growth A “good” agreement could boost incomes $270-520 b. US $billions change in real income in 2015 relative to baseline Dynamic gains Static gains

17. More people would be lifted above the poverty line…140 million…many in Africa $2 per day change in the number of poor in 2015 relative to the baseline $1 per day Source: World Bank staff simulations.

18. But to realize development promise, an agreement has to reduce barriers to the products the poor produce • Agriculture is a priority, particularly reducing border protection and subsidies in rich countries • Reducing protection on manufactures, particularly in the South • Helping low-income countries reduce reliance on trade preferences and increase competitiveness exports

19. Developing countries have failed to penetrate agricultural markets of rich countries Developing countries’ share of total world exports Manufacturing Agriculture 30 25 Exports to rich countries Exports to rich countries 20 15 10 Exports to poor countries Exports to poor countries 5 0 1980 1990 2000

20. 300 250 200 Border protection 150 100 50 0 99-01 86-88 86-88 99-01 86-88 99-01 86-88 99-01 Japan US EU Other industrial Protection in rich countries is high and unchanged since the Uruguay round… Industrial countries: Producer Support Direct subsidies percent* * As a percent of output at world prices Source: OECD

21. 300 250 200 Border protection 150 100 50 0 99-01 86-88 86-88 99-01 86-88 99-01 86-88 99-01 Japan US EU Other industrial Protection in rich countries is high and unchanged since the Uruguay round…though developing countries have reduced barriers Developing countries: average tariffs for agriculture Industrial countries: Producer Support Estimate Direct subsidies percent* percent 1990 1995 2000 * As a percent of output at world prices Source: OECD Source: TRAINS

22. Rich countries levy higher tariffs on imports from developing countries Av tariffs of industrial countries charged to exporters from various regions, 1997 (percent)

23. …and so do other developing countries Protection rates faced by Latin American exporters of manufactures, 1997 percent

24. Developing countries pay more of their foreign tariffs to rich countries and to neighbors Share of tariff burden, percent Rest of world Intra-region Industrial Developing countries have an interest in reducing protection in the South as well as the North

25. EU Source: WITS. Low income countries have relied too much on trade preferences..with only marginal success Share of LDCs in EU and US imports, 1966–2002 (percent) US

26. CBI EU AGOA Andean Source: WITS. Low income countries have relied too much on trade preferences..with only marginal success Share of LDCs in EU and US imports, 1966–2002 (percent) Share of preferential programs in US imports, 1966–2002 (percent) US

27. Improving trade logistics can be as important as cutting tariffs…ports, customs, transport Average number of days to clear customs for sea cargo Development assistance is key to improving ports, customs and trade infrastructure Source: International Exhibition Logistics Associates, based on a sample of countries in each region

28. For the development promise of the Doha agenda to be realized, all countries have to take responsibility • Rich countries have to lead in agriculture, labor- intensive manufactures, and development assistance as well as in services (mode 4) • Middle-income countries have to be willing to lower high external tariffs—benefiting themselves and their neighbors • Low-income countries have to rely less on preferences and reform trade-related institutions.

29. Global Economic Prospects 2004:Realizing the Development Promiseof the Doha Agenda Mick Riordan and Richard Newfarmer World Bank Sept 3, 2003