Agricultural Trade Policy Simulation: Quantitative Assessment

1. United Nations Conference on Trade and Development A Quantitative Assessment of the Derbez TextIPC SeminarAchieving Agricultural Development through Agricultural Trade Johannesburg, 29 January 2004 David Vanzetti Trade Analysis Branch UNCTAD, Geneva

2. Presentation Overview • State of Play in WTO Negotiations • TheCancun text • The Model • Results • Implications

3. State of the Play • Doha Programme: Negotiations on a range of subjects, including agriculture • Divergent positions between EU, US, Developing Countries, … • Negotiations were deadlocked for months: Harbinson (WTO chair) draft was found inadequate • Deadline to agree on modalities was missed • EC-US proposal galvanised the process • Cancun: Negotiations about the draft Cancun Ministerial text failed • Members expressed their commitment to a multilateral approach and continue with negotiations

4. Alliances and interests Developing countries Japan Switzerland Norway Korea EU Reduce export credits USA Cuts in domestic support Eliminate export subsidies Degree of special and differential treatment “Multi- functionality” Level of ambition

5. Cancun draft Ministerial Text • Blended formula proposed by EC-US • Swiss formula • Uruguay Round approach • Duty free access • Text does not contain specific targets, but paragraphs like “[…]% of tariff lines shall be subject to a […]% average tariff cut and a minimum of […]%, …”

6. Application of the Blended Formula • Uruguay Round high tariffs* • Swiss Formula small tariffs • Duty-free very small tariffs * Given that countries want to protect their own markets

7. Assumed tariff cuts • Tariff reductions and tranches not specified • Assume linear cuts 36 (min 15) and 24 (min 10) %. • Swiss coefficient 25. • Apply to 40, 40 and 20% of lines

8. Hypothetical tariff reductions Swiss coefficient: 25, Average reduction 36%, minimum 15%, (20% of tariff lines cut by 15%, thus, 15% and 41% gives average of 36%)

9. Blended formula: Anti-harmonizing 40% UR, within this category 28% minimal (15%), remaining 72% reduced by 44% (average 36%), 40% Swiss (coefficient 25), 20% duty-free; tariffs equally distributed

10. EU bound rates Small number of large tariffs Two outliers over 200% have been deleted

11. Typical developing country Little variation in bound, but large gap to applied

12. Typical developing country Three outliers over 150% have been deleted

13. Selected Developed Countries:Cut in bound tariff rates Lesser cuts than Harbinson

14. Selected Developing Countries:Cut in bound tariff rates Greater cuts than Harbinson

15. Selected Developing Countries: Cuts in applied rates Minimal cuts in applied rates

16. Remarks on the blended formula • Three parts (UR, Swiss, duty-free) allow for flexibility • Blended formula is rather anti-harmonizing • Countries with dispersed tariffs can take advantage of flexibility • Countries with (high) uniform tariffs cannot use flexibility and have to make bigger cuts • Countries with “water in the tariff” can take advantage of flexibility so that applied rates are little affected • Conclusion: Formula does not serve the main objectives ? (simplicity, transparency, effectiveness, efficiency, equity/fair)

17. Agricultural Trade Policy Simulation Model • Static global trade model 161 x 36 • Partial equilibrium model with Armington structure • Two way trade • TRQs and quota rents • UNCTAD, FAO, DFID

18. Bovine meat Sheepmeat Pigmeat Poultry Milk, fresh Milk, conc. Butter Cheese Wheat Maize Sorghum Barley Rice Sugar Oil seeds Vegetable oils Pulses Roots, tubers ATPSM commodity aggregation (1)

19. Tomatoes Non-tropical fruits Citrus fruits Bananas Other tropical fruits Coffee green bags Coffee roasted Coffee extracts Cocoa beans Cocoa butter Cocoa powder Chocolate Tea Tobacco leaves Cigars Cigarettes Other tobacco - mfr. Cotton linters ATPSM commodity aggregation (2)

20. ATPSM available from UNCTAD • Available free from websidewww.unctad.org/tab • E-mail: atpsm@unctad.org

21. Developing countries: applied rates

22. Remarks on the blended formula • Three parts (UR, Swiss, duty-free) allow for flexibility • Blended formula is rather anti-harmonizing • Countries with dispersed tariffs can take advantage of flexibility • Countries with (high) uniform tariffs cannot use flexibility and have to make bigger cuts • Countries with “water in the tariff” can take advantage of flexibility so that applied rates are little affected • Conclusion: Formula does not serve the main objectives ? (simplicity, transparency, effectiveness, efficiency, equity/fair)

23. Two simulations Market Access Domestic Support Export Subsidies

24. Results • Cancun more flexible, less ambitious, watered down. • Smaller average tariff cuts, prices, exports and welfare effects. • Many developing country losers

25. Change in world prices Cancun and Harbinson

26. Change in world prices of temperate goods, Cancun proposal

27. Change in world prices of tropical goods, Cancun proposal

28. Change in producer surplusCancun and Harbinson

29. Change in welfare: Cancun and Harbinson

30. Cancun and Harbinson proposal $m Note large transfer between producers and consumers

31. Winners and losers • Net welfare gains $7.2 billion (EU, Jpn) • Of 161 countries 112 losers (-$1.6 b) •  Pw •  quota rents • bound > applied tariffs, no cuts.

32. Conclusions • Cancun text flexible but lacking ambition • Fails test of effectiveness, efficiency , equity and simplicity • Plenty of scope for improvements, but negotiated outcome probably hinges on EU reform • Losers needed compensation in some form

33. THE END

34. Initial quota rents captured by SSA exporters$414m

35. Comparison of Proposals Harbinson EU USA