WTO’s Doha Development Agenda and South Asian Agriculture

1. WTO’s Doha Development Agenda and South Asian Agriculture Kym Anderson Development Research Group, World Bank SASAR seminar, World Bank, Washington DC, 8 June 2006

2. The issue • India (with the G20) has been offensive on agric subsidy cuts in the DDA, but has been defensive on agric market access … presumably because the government fears tariff cuts would add to rural poverty and erode its rural political base • The US would bear the brunt of adjustment to cuts to domestic ag subsidies, the EU to cuts in ag export subsidies, so in exchange both want more market access in DCs (ag and non-ag)

3. Multilateral DDA offers opportunity for easier trade reform than if unilateral • Access to foreign goods & services markets increases at same time, making adjustment to own-reform easier • Easier to sell the reform message domestically if other countries are adjusting at same time: • ‘shared pain for mutual gain’

4. The key question • If the DDA were to conclude this year (a big IF), and agric and other reform commitments were to be phased in over the next decade, how would South Asian economies, and especially their agricultural sectors, be affected?

5. Answer depends on the region’s … • net trade position of various industries • the region is close to 100% self-sufficient in agric and food products • current levels of actual own-protection and DDA commitments to change them • the region’s ag and food tariffs are well above the DC and global averages, but has few ag subsidies • assumptions in global models used to address the question

6. We use two global models • GTAP model, based on 2001 baseline • WB’s recursive Linkage model (with slightly higher elasticities), whose baseline is projected to 2015 • Both use the GTAP protection database of 2001 (which includes all key preferential tariffs), revised to 2005 to account for: • China’s accession to WTO • EU expansion to 25 members, and • end of Uruguay Round implementation (including phase-out of textile and clothing quotas)

7. Results are necessarily lower-bound estimates because they ignore: • Dynamic growth effects of reform • Pro-competitive effects of reform • Impact of increase in product variety • Gains from (most) services trade and investment reform • The risk that, without Doha, agricultural protectionism could rise • Complementary domestic reforms

8. Why this issue also matters for the rest of the world • Because both models suggest almost 2/3rds of cost of current agric and trade policies to the world, and to developing countries, are due to agricultural policies • as agric. applied (bound) tariffs now average nearly 5 (10) times manufacturing tariffs globally • Because the majority of world’s poor depend directly or indirectly on ag for their livelihood • And because most of the costs of agric policies are due to tariffs, not subsidies • with the notable exception of cotton

9. Relative importance of 3 agric pillars(Anderson, Martin and Valenzuela2006)

10. How large are South Asian tariffs in GTAP database (%)?

11. How large are costs to South Asian overall economies of global distortions (% of base income)?

12. How large are costs to South Asian farmers of global distortions (% of base net farm income)?

13. Effect on costs to South Asian farmers of global distortions if own-agric tariffs are zero(% of base net farm income)?

14. Change in agric VA due to lib’n (%)

15. Elements of the Doha Agendaas in July 2004 Framework agreement & HK Dec 05 • 3 agricultural pillars • Non-agricultural market access • Services • Lesser tariff and subsidy cuts for developing countries (DCs) and zero cuts for least-developed countries (LDCs) • What would it do for S. Asia, compared with full global lib’n?

16. Key agricultural elements of the Doha Agenda to watch • Reduction in tariff and subsidy ‘binding overhang’ • Treatment of ‘sensitive’ and ‘special’ products (SSPs) • Tariff cap, and whether it applies to SSPs • Extent of Special and Differential Treatment (SDT) invoked by developing and least-developed countries in terms of their willingness to reform

17. Our modelled Doha scenarios • 75% tiered cut to boundagric tariffs • without & with sensitive and special products • without & with a tariff cap of 200% • with & without Special and Differential Treatment (SDT) • 75% tiered cut to domestic ag subsidy ceilings • Abolition of agric export subsidies • 50%/33%/0% cut in bound non-agric tariffs • Services policies unchanged

18. Big bound cuts needed to reduce applied agric tariffs, because of binding overhang

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

20. Effects of full & Doha lib’n on ag incomes (%)

21. Real farm income rise from Doha (percentage change from baseline income in 2015)

22. Lessons for the Doha round • Agric subsidy cuts alone will contribute only a tiny gain • Cuts in bound agric tariffs (and domestic support) need to be very large to get beyond binding overhang • Even large cuts in agric tariffs do little if ‘sensitive’ and ‘special’ products are subjected to lesser cuts • Adding non-agric market access to Doha package could nearly double the welfare gains to South Asia and other DCs even with their lesser cuts • and it helps balance the North-South exchange of ‘concessions’

23. This and all chapters from our book are now available at: www.worldbank.org/trade/wto