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Trade Policy Reform & the Doha Development Agenda

Trade Policy Reform & the Doha Development Agenda. Kym Anderson and Will Martin World Bank, Washington DC Sistema/CEPR Conference 7 April 2006. Two questions addressed. What are the costs of current protection and subsidies, and hence the potential benefits from trade reform?

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Trade Policy Reform & the Doha Development Agenda

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  1. Trade Policy Reform & the Doha Development Agenda Kym Anderson and Will Martin World Bank, Washington DC Sistema/CEPR Conference 7 April 2006

  2. Two questions addressed • What are the costs of current protection and subsidies, and hence the potential benefits from trade reform? • How close might Doha bring the world to completely freeing merchandise trade, in welfare and trade terms?

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

  4. Sources of cost to global economy

  5. Sources of cost to developing countries

  6. Relative importance of 3 agric pillars

  7. 2nd Question: Potential Doha scenarios • 75% tiered cut to boundagric tariffs • With & without sensitive products • With a tariff cap of 200% • With & without Special and Differential Treatment (SDT) • 75% tiered cut to domestic ag subsidy ceilings • Abolish agric export subsidies • 50% cut in non-agric tariffs • Services policies unchanged

  8. Tariff binding overhang: big cuts needed

  9. Current proposals & book scenarios

  10. Sensitive products: a slippery slope

  11. Why such large losses? • Countries can select products where formulas give large cuts in applied rates • ie goods with high tariffs; little binding overhang • We assume little effective liberalization in sensitive products • Results still dramatic with a Grossman-Helpman-type political-economy function to select products

  12. How to deal with Sensitive Products? • Restrict the number tightly • Define the restriction in terms of imports • Insist on large cuts in tariffs • Impose a cap on sensitive products • Require TRQ expansion in all cases

  13. Overhang US Proposal G-20 Proposal EU Proposal Actual Need big cuts in domestic support limits to reduce binding overhang

  14. Gains from Doha Scenarios, %GDP

  15. Real income rise: Doha with SDT, %

  16. Real Farm Income: Doha with SDT, %

  17. Key points • The Doha agenda is important • Agriculture gives the biggest gains • Doha reforms cut bound tariffs & subsidies • Often above applied--need big cuts to reduce protection • with a cap to reduce the highest tariffs • Scenarios show gains from current proposals • Sensitive Products can decimate these gains • Non-agric tariff cuts raise gains & improve distribution • Developing country gains greater if participate fully • expanded south-south trade & improved efficiency

  18. More info and Contact details:www.worldbank.org/trade/wtokanderson@worldbank.orgPhone 202 473 3387wmartin1@worldbank.orgPhone 202 473 3853

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