Day 4: Doha agricultural reform prospects and implications for Iran

1. Day 4: Doha agricultural reform prospects and implications for Iran 4-day course on Agricultural Trade Policy and WTO Tehran, Iran, 15-18 May 2005

2. Reminder: how an acceding countrybenefits from following Doha Round • Learn more about this aspect of being a WTO member • Gauge how the eventual Doha outcome will benefit their economy due to reforms by WTO members (improved export prospects) • Anticipate how the Doha agreement will increase WTO member expectations of the commitments currently-acceding countries should make

3. This session also illustrates the usefulness of: • The GTAP trade and protection database (and related databases) • A global economy-wide CGE model, in this case the World Bank’s Linkage model • Thinking in economy-wide (rather than just agricultural sector-specific) terms

4. Note also: Middle East has been reforming less than rest of world … • … and now appears to be more trade-restrictive than any other region of the world (see next chart)

5. Trade reform in the past two decades Av. Tariffs % Late 1980s 2004 Overall Trade Restrictiveness Index (OTRI)

6. Questions addressed in this session: • How might Doha free up agricultural (and other merchandise) trade, following the WTO members’ July 2004 Framework agreement? • What are the implications for DCs’ Doha negotiating strategy, and for Iran’s accession negotiations • Reading in folder: Anderson, K. and W. Martin, ‘Agricultural Trade Reform and the Doha Development Agenda’, The World Economy September 2005 (forthcoming, & as a World Bank Policy Research Working Paper, May 2005)

7. Key elements of the Doha Agendaas shown in the July 2004 Framework agreement • 3 agricultural pillars (including cotton) • Non-agricultural market access • Services • What are the implications for developing countries’ Doha negotiating strategies, and for Iran when it becomes an acceding country? • Trade facilitation • Lesser tariff and subsidy cuts for developing countries (DCs) and zero cuts for least-developed countries (LDCs)

8. Our prospective Doha modelling scenarios • We assume no services reform, no new trade facilitation, but: • phase out of agricultural export subsidies • tiered cuts to agricultural domestic support • tiered cuts to agric bound tariffs under various alternative market access packages • With means less cuts to applied tariffs, depending on degree of ‘binding overhang’ (see next slide) • cuts to non-agric bound tariffs

9. Binding overhang in agric tariffs, %

10. Agricultural market access • Tiered formula for cutting bound tariffs (with smaller cuts for DCs) • Tiers in developed countries at 15%, 90% tariff rates, with marginal cuts of 45, 70, 75% • Tiers in developing countries at 20, 60, 120% tariff rates, with marginal cuts of 35, 40, 50 & 60%

11. Agricultural domestic support • Cut in bound AMS need not reduce applied support, because of large binding overhang here as well (with 1986-88 ref. prices) • We apply a tiered reduction in bound AMS • By three-quarters if AMS>20%, otherwise by three-fifths for developed countries (and two-fifths for developing countries except zero for LDCs) • Leads to only 4 members reducing support as of 2001: US 28%, Norway 18%, EU 16%, Australia 10% (and EU and Australia have already done that since 2001)

12. Non-agric market access • Halving of bound rates for high-income countries, cut of one-third for DCs (except again zero for Least Developed Countries)

13. Extent of DC willingness to reform? • We also examine the effects of DCs (including LDCs) becoming full participants in Doha agricultural and non-agricultural cuts • recalling from earlier Rounds that DCs only got what they gave, in terms of increased market access • see Finger (1974, 1976) and Finger and Schuknecht (2001)

14. Results from Doha agric reform • Tiered formula with sizeable cuts gives a $75 billion global gain, but only $9 billion goes to DCs • Small DC gains because of: • their lesser (or zero) cuts, and • their large tariff ‘binding overhang’ • But if HICs claim 2% of agric products are ‘sensitive’ (and DCs claim 4% are ‘sensitive’ or ‘special’), global gain shrinks to $18 billion, and the gain to developing countries disappears

15. What we assumed about opening markets of “sensitive” and “special” products • Liberalization of “sensitive” products is to involve tariff cuts and Tariff-Rate-Quota (TRQ) expansion • But many TRQs are not filled (admin. hassles), so expanding quotas need not always expand trade • Hence we simply assume a cut of just 15% in bound tariffs of “sensitive” and “special” products

16. Applied agric tariffs with sensitive and special products (SSPs) allowed, or full DC participation

17. Adding non-agric market access • Adding 50%/33%/0% cuts to non-agric bound tariffs boosts global gain from agric tiered formula cut from $75 to $96 billion pa • That $96 billion gets the world 1/3rd of the way to the potential gains from complete free trade in merchandise, and DCs 1/5th the way • If DCs and LDCs fully participate in market access opening, global gain goes up to $119 billion and DC gain rises from $16 to $23 billion

18. Effects of Doha lib’n on DC applied tariffs

19. Effects of full & Doha lib’n on DC welfare

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

21. Effects on Brazil’s sectoral self-sufficiency and net exports in 2015

22. Effects on Brazil’s farm export product self-sufficiency and net exports in 2015

23. Effects on Brazil’s other farm product self-sufficiency and net exports in 2015

24. Lessons • Cuts in agric tariffs and domestic support bindings need to be v. 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 or there’s a large expansion in TRQs of ‘sensitive’ products • Adding non-agric market access to Doha package could nearly double the welfare gains to other DCs even with their lesser cuts • and it helps balance the North-South exchange of ‘concessions’

25. Implications for developing countries’ Doha negotiating strategies • Need to seek ambitious outcome on agric market access, not just on subsidies • despite domestic sensitivities (which SSM and ‘special products’ can manage, especially if rural public goods are increased) • Need to also encourage developing countries, not just developed countries, to provide more market access • even if that means not having lesser cuts than developed countries • Otherwise this won’t be much of a development round (or may even be abandoned by developed countries)

26. Implications for Iran’s accession negotiating strategy • Need to realize WTO members are unlikely to tolerate high farm subsidies or high bound tariffs on food products • bearing in mind that average agric tariffs are: • <20% bound in recently-acceding countries • <10% applied in middle-income countries by end of Doha • So need to build that into strategic planning for the sector • In particular, examine non-trade distorting ways of supporting farmers such as greater investments in rural quasi-public goods • more agric R&D, rural education and health, rural transport infrastructure, marketing and communications investments

27. Bottom line for Iran • Doha Round negotiations, like Iran’s WTO accession negotiations, will open new trade opportunities for boosting national economic growth and poverty alleviation • BUT, translating those opportunities into tangible outcomes depends on accelerating domestic reforms and investments that are critical to improving international competitiveness