Some Thoughts on Global Trade Reform

1. Some Thoughts on Global Trade Reform Will Martin World Bank

2. Two Issues • Effects of unilateral trade reform • Expanding market access

3. Radical changes in trade patterns

4. Why this change? • Price changes? • High protection in OECD agriculture? • But agricultural protection there has been falling– even if it remains too high • Factor accumulation has been important • Global production sharing driven by falls in communication and transport costs • But also a dramatic change in protection policies in developing countries

5. Declines in developing country protection • Tariffs down by around two thirds • From 30 to 11 percent • NTB coverage has fallen dramatically • And exchange rate overvaluation has also declined • Many countries have developed export processing arrangements

6. ERP’s Exporting from India

7. Additional effects of protection • Protection policy doesn’t just reduce exports • Also forces countries into the “wrong” cone of diversification • even without considering real exchange rate effects • Products in which you have a comparative advantage disappear from your exports • Sensible “value-adding” no longer pays • Protected countries end up dependent on agriculture and raw materials • And it’s hard to stop with just a little protection!!

8. Doha Agenda Agricultural Proposals on market access • Harbinson Draft • Derbez Draft • G-20 Amendments

9. Market Access • Not accidentally, the Doha agric mandate does not require redns in high tariffs, or in escalation • These apparent oversights prepared the ground for the reappearance of the average-cut routine • Countries argued they needed flexibility • Line-by-line reductions too demanding • If so, an agreement to reduce average tariffs by x percent might be an option • Provides flexibility, but rewards reductions in high tariffs

10. Linguistic and Statistical Confusion • Average-cut sounds like a cut in the average • But an average-cut is no cut at all • Or a rigid, minimum cut • To the extent any meaningful cuts are made, they are in lower tariffs • Increase tariff escalation, making potentially welfare-reducing reductions in low tariffs • Also lowers tariff revenues disproportionately • How could anything so absurd be on the agenda after three years of work?

11. Example: 50 percent cut

12. Harbinson draft • Accepted the average-cut routine • Tried to reduce the damage by dividing tariffs into three groups, with higher average-cuts for higher tariffs • Tariff escalation-creation within groups, reduction between groups

13. Derbez draft • Continues with three groups of tariffs • But these are now self-selected • 1. Average-cuts with minimum • 2. Swiss formula • 3. Zero tariffs • Plenty of scope for abuse here • Stir a few near-zero tariffs in with the high tariffs; use the Swiss formula on the rest of the low tariffs, etc

14. G-20 Amendments • Retains the three self-selected groups • But requires proportional reductions in the first group • Aims for an overall discipline on tariff cuts via an overall “average-cut” • Retains average-cuts for developing countries

15. Conclusions • Unilateral reform can change your world • Market access reform is the most important part of the WTO agriculture agenda • But there’s a risk it will be negated by statistical, linguistic conjuring tricks