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Unformatted text preview: ‘ , :\ \‘l E :\ 95“.“\ $3 i,.\ V. i x : ~ ‘\ t “a. \\. \\ \\ x (V ‘ k \~‘ .:\\.. t \,.~‘§ .\m‘\p ‘ \‘ ‘ (I \ \ \“ ~ at i \_ \ \ \ =\;se\r\: HMO: EMA E \ \ x ~ ‘\ \ ““ \ ~ \ ‘\ ¢\ ‘ .~‘\ ~ \ ‘ ~\ \ r \‘ :\w \A rt‘ :\w\ ‘\§ :\\re‘ \ x“: E so \ '\\ \ N .~\‘.. What is at stake in the stand— off between the United States, Europe and developing countries over agriculture in the World Trade OrganiZation’s (WTO) Doha Development Round of trade talks? What impact would an agreement based on greater or lesser levels of ambition have on developing countries, Whose economies depend heavily on agriculture? Trade liberalization is a potential stimulus for growth in poor countries and the Doha Round was launched with the objective of drawing theSe countries more fully into the global trade system. Yet, two years after the WTO talks broke down in Canctfln, reform of the heavily and diversely protected and subsidized developed—country agricultural sectors remains a major impediment to progress, despite reforms undertaken during the last 15 years. The December 2005 Hong Kong ministerial showed little finality in the negotiations, even though members agreed to eliminate agricultural export subsidies in 2013 and that less developed countries (LDCs) Will gain free access to OECD markets for at least 97 per cent of agricultural and manufacturing tariff lines. \Vhether a final Doha Round trade agreement will eventually produce something substantially more positive 40 2:: EuroChoices 5(2) ; _/ "rm// for developing countries is open to question. Using the MIRAGE computable general equilibrium model of the global economy (see Box 1) we © The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2006 compare possible scenarios for the Doha outcome, taking real numbers from the proposals put on the table by the European Union (EU) and the United States (US). The results from these scenarios demonstrate the high stakes of this negotiation given the positions articulated by key WTO members. A global reform outcome based on the most ambitious components of the US and EU negotiating proposals could deliver noticeably more benefits than an unambitious outcome, although clearly less than full trade liberalization. Heterogeneity among developing countries Both developed and developing countries are heterogeneous in terms of their own trade policies, the trade barriers they face, and their net agricultural trade positions. The first two points are illustrated in Figure 1 through a comparison of the duties applied by each country on their imports versus the duties faced on their exports to the rest of the world, each measured relative to the world average. Among the developing countries, some face high tariffs on their exports (for example, Argentina, Brazil, Malawi, Uruguay, and Zimbabwe). Differences among countries arise from differences in the products they export and differences in the destinations of their exports. Many developing countries impose relatively high tariffs on their imports, so their tariff average often exceeds the world average The third point is illustrated in Figure 2. In terms of agricultural trade, both large net food importers and substantial food exporters exist among middle-income countries (MICs) and LDCs. The net trade positions are crucial since global trade liberalization is expected to increase world agricultural prices, as production contracts and consumption expands in response to lower tariffs and subsidies in most countries. This will be beneficial for developing countries Figure 1. Applied protection on their imports and faced on exports of countries in 2001 ,M“““M.““mm\ttNt\“m1swam“\..\\M“M“mmmmmmm\ttt\\ttt\ttttttttttt\tttttttttt\\\\“ttttt..“mt.\ttttttm“tttttt“mmtt..tttmw.mw“m“ zeigen auf we we! bei dieser Verhandlung auf dem Spiel steht eine erfolgrei— Che Runde konnte sowohl auf globaler Ebene als auch filr die Entwickiungslénder tatséchlich von Vorteil sein. XV § like Brazil, Argentina, or Thailand, but it will cause a deterioration of terms of trade (the ratio of a country’s export prices to its import prices) for food—importing developing countries like Venezuela, Bangladesh or the Philippines. A Canada Malaysia Madagascar‘ Philippines I .vanezuala \‘ § \ i i i Malawi § § \ s I t \ t s 3 § § i i E \ § t a, k 429% I m 5 E g I Umguay S 9 s I = t t “ t i '2 3 i c \ t o E t t - t : § Argentina I Z‘mbabwe § u I 3:936 I i w i s .2 g 3 16‘ t i ._ § § _ i 2 § BraZII 3 g t I i o s Australia/NZ i t t a- : I I \ x g S ‘D \ 49% I i I: i ' i o t . - ‘ >‘ E Cdombm Tlfiand Tanzania § u : ~ 3 3 I india 3 u t ‘ .2 I .- .— t t D- t . t (a g USA EU a Mozambique .China Tunisia § F .9924, I . . = I I ,l S -1 0% 00% . I . 10.00/ Mm“, 20.0% 3033% . Chile Zambia \ Singapore I '- Peru Bangladesh 3 \ I 3 t \ t \ 3 i S : aufluaflafluaflm 7 © The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2006 M exico W“ttttt‘tttt‘ttttmtt\\tt\t\ttttt“4tg95‘Mt\\\\tttttttttttttt‘ttttt\.ttatttttVtt\\\t\ttttt.tt\\ttttttttttt\tttt“NttttMW.Wt“m“th“wmm“ttaxxMmtwmmtmm Applied duty on imports relative to world average / EuroChoices 5(2) 41 Figure 2. Agricultural trade balance of selected developing countries in 2005 (billion US dollars) Devolqaing psia ‘g Mdawl' Uruguay Peru Zn’bm Colmbia Viet Nam lmia Malaysia South Mican Customs Union Indonesia 550939170 _ r ‘ Vonuuula m ‘: Bandadun rrrrr ‘I mum“, _______ ,, China .r _ Tmisia Mcxanbiqug Zan'h'a ' Moroem Madaflmar Ugmda Tmzania mi W- W' Wm' §‘§&\§\\\-\\\\\K\\\K\Q — W’ — Chill """""""""""""""""""""""" “ Thailmd """"""""""""""""""""""""""""""""""""""" “ antina Brazil _______________________________________ N i 4.0 -7_o 0.0 7.0 4.0 5.0 3.0 10.0 17.0 14.0 US and EU agricultural protection and subsidies Criticism has been directed at developed countries for protecting and subsidizing agriculture, which stifles trade opportunities. The US and EU follow somewhat different regimes. The US has relatively low tariffs, but its domestic agricultural support was increased in the most recent (2002) farm bill which expires in 2007. The US provides relatively less preferential access than does the EU for selected developing—country trade partners. The 42 EuroChoices 5(2) © The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2006 EU, in contrast, has higher agricultural (but similarly low industrial) tariffs and has recently realigned its agricultural support, which remains quite high, toward policy instruments that are less trade distorting than in the past. In these US—EU policy differences lie the seeds of different approaches to the trade negotiations. Similarities and differences in the US and EU proposals The Doha Round negotiations may reach a final agreement on agriculture and other provisions of a trade deal in 2006, but the outcome is still far from certain in the spring. No proposal was complete even after the Hong Kong ministerial. The US and EU proposals have some broad commonalities, such as progressive tariff and domestic- support cuts and the elimination of export subsidies. But the specifics of the proposals deviate on matters such as rates of reduction of tariffs and domestic support and the number of sensitive or special products (the latter for developing countries only) that will be subject to lesser disciplines. In terms of an ambitious agenda for agricultural trade liberalization, strong points of the US proposal include sharper reductions in bound tariff l’enjeu Un accord a la fin des négocia— tions pourrait permettre de vrais gains, aussi bien pour les pays en développement que pour Ie monde en général. . \ / "I © The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2006 rates and a lower cap on maximum allowable tariffs; few sensitive or special products; and moderately tough bindings on domestic support that encourage decoupling of subsidies from production. Strong points of the EU proposal in terms of trade liberalization lie in the call for free access of LDCs to OECD markets, a specific initiative for cotton to help West Africa, and a push for lower industrial tariffs worldwide. What difference will the Doha outcome make? What difference will the Doha Round’s outcome make to global trade and welfare and to developing countries in particular? To examine this question using numbers from the negotiating table, we define a relatively ambitious reform SCenario with strong trade liberalization components from the US and EU proposals and contrast this with a less ambitious outcome drawn from the lower—end elements (see Box 2). On market access, our ambitious proposal includes most elements of the US formula. The US proposal prior to the Hong Kong meeting called for cuts of 85—90 per cent in agricultural tariffs above 60 per cent for developed countries and lesser cuts in three bands of IOWer initial tariffs, while the EU called for less ambitious cuts (60 per cent in agricultural tariffs above 90 per cent for developed countries and similarly less ambitious cuts for lower initial tariff bands). Both proposals allow lesser cuts by developing countries. The ambitious scenario adds to the US tariff formula the EU proposal for free access by LDCs to EuroOhoices 5(2) :-'i-.- 43 8‘ \ OECD markets, imposes tariff caps in agriculture, and defines an exception regime for sensitive/special products of only 1 per cent of agricultural tariff lines per country. Applied trade- distorting domestic agricultural support is cut by 20 per cent. Strong manufacturing tariff reductions are imposed on developed and developing countries (including LDCs) using a ‘Swiss formula’ that reduces higher tariffs fastest until the rates among products converge to a given level (lower for developed countries than for Mle or LDCs). In contrast to the ambitious scenario, our unambitious scenario adopts the EU formula for less deep tiered tariff cuts for agriculture by developed countries (with corresponding smaller cuts for Mle and no cut for LDCs). The unambitious scenario does not impose any cap on agricultural tariffs, and adds fewer liberalizing elements on {\ sensitive/special products (exceptions _ for 8 per cent of tariff lines), the tariff- reduction Swiss formula for industry (higher tariff targets for developed countries and MICs and no cuts by LDCs), and free OECD access for LDCs only with some exceptions retained. No cuts are assumed in applied domestic agricultural support of developed countries. Our application of the MIRAGE model to assess the effects of an ambitious versus unambitious Doha outcome focuses on the heterogeneity among developing countries and the relatively high levels of protection within agriculture and textiles and apparel. Of 41 regions identified in the model, 33 are developing countries or groups of countries. Among the 18 sectors considered, 10 are agricultural and the textiles and apparel sectors are separated from other manufacturing. Results for the ambitious versus unambitious Doha outcomes Summary results for our ambitious and unambitious scenarios are shown in Tables 1, 2 and 3 and Figure 3. As a benchmark, we also report the outcomes of a MIRAGE simulation of full global trade liberalization. With full liberalization (which includes elimination of border protection, domestic support and export subsidies in agriculture and industry) world protection (averaging 5.4 per cent as measured by a weighted aggregate statistic) is eliminated. World trade expands by 12.0 per cent, and the total annual real income (welfare) gain worldwide is US$158 billion (in constant 2001 dollar value, 0.5 per cent of expected world income without a Doha agreement). This is less income gain than reported in October 2005 by the World Bank (US$287 billion) mainly because we use more conservative ‘tr‘ade elasticities’ (production and consumption responses to shifting prices). Although not shown in the table, full liberalization is slightly progressive in the sense that the share of welfare gains for developing countries as a group (2 1.3 per cent) is greater than their initial share of world income (19.4 per cent). But results differ widely among individual countries, and even the aggregate gain is small for the LDCs. The unambitious scenario leads to global real—income gains of US$383 billion, just 24 per cent of the gain from full liberalization. World protection measured by the weighted 44 --::: EuroChoices 5(2) © The Agricultural Ecomornics Society and the European Association of Agricultural Economists 2006 s //’%,. ///.’”///,. & the high stakes of ' this negotiation. . .a successful round could deliver real gains both globally and for developing countries. aggregate statistic declines by 1.2 per cent. This is 22 per cent of the decline (to zero protection) with full liberalization. World trade expands by just 1.6 per cent. In comparison to unambitious liberalization, a substantially greater movement is observed under the ambitious scenario. Global welfare increases by US$767 billion, 49 per cent of the gain from full liberalization. World protection falls by 1.9 per cent, which is 35 per cent of the effect of full liberalization, and trade expands by 2.8 per cent. Most of these income and trade gains come from lower agricultural protection in wealthy countries, whereas little reduction in applied agricultural protection occurs among developing countries in the ambitious scenario. The gain in world real income is proportionally much larger than the reduction in average protection because the ambitious scenario reduces the dispersion of tariffs among products in rich countries, due to the caps imposed on agricultural Figure 3. Agricultural protection before and after a potential Doha agreement (Applied duties) 0'6 0.5 0.4 0.3 0.2 0.1 l IIIIIItIII”IIIllIlIIr1I’ll/IIIIII/IIIIII/Izlhl Australia/New Zealand Developed Asia European Union Rest of OECD Argentina t I .//z4///////////////" all/anal,” Malawi Zambia Bangladesh Elnitial protection (2005) After ambitious scenario El After unambitious scenario © The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2006 tariffs and the limited number of sensitive products. The impact of the two scenarios on market access of selected countries is illustrated in Figure 3. The ambitious scenario implies a much larger liberalization in those rich countries where protection is initially highest and unevenly distributed (the rest of OECD, developed Asia, and the EU). The binding overhang phenomenon (see Box 1) is so large in developing countries that even the ambitious scenario has a mitigated impact in agricultural protection except in India and Morocco. The heterogeneity among developing countries is illustrated by divergence in the real-income effects of the alternative liberalization scenarios. In terms of individual developing MICs that might benefit from trade liberalization, the unambitious scenario delivers very little real—income gain for two reasons. First, these countries gain little from improved terms of trade in world markets despite the somewhat reduced protection among wealthy countries. Second, they gain little from ‘allocation efficiency’ (realignment of resource use Within their economies) largely because they make so few changes to their EuroChoices 5(2) 45 own policies. Were they to make such changes, it would reduce consumer prices, which would increase domestic consumption and economic activity Furthermore, own—liberalization would expand domestic competitiveness due to reduced prices of intermediate consumption and capital goods and to increased competitive pressure. The same results occur for the LDCs that might gain from trade liberalization—terms—of—trade gains and allocation efficiency gains are very small under the unambitious scenario. Other developing countries (both MICs and LDCs) face smaller potential gains, or net losses, from full global liberalization because they are net food importers or export products (such as coffee, cocoa or oil) which already benefit from excellent market access, or have been conceded preferential access to EU (e.g., EBA, Cotonou) or US (e.g., AGOA) which would be eroded by multilateral reductions in protection. Effects on these countries are also dampened in the unambitious scenario (see Table 2). Under the ambitious scenario, developing countries gain more from trade reform. Among the MICs, gains in real income tend to be about one- half of those under full liberalization. Both terms—of—trade gains (or losses) and allocation efficiency gains are larger under the ambitious scenario than under the unambitious scenario, but they remain less than in the case of full liberalization. While overall global gains are largest for full liberalization, distributional trade—offs among countries are evident from the results for the three scenarios. In the case ofBangladesh for example, full liberalization has a negative effect as it entails complete elimination of its preferential access to Europe in the textile and apparel sectors, while world prices rise for its agricultural imports. Bangladesh does better under the ambitious scenario where it gains preferential duty-free access for its textile and apparel products to all OECD markets, but it does not achieve these gains under the unambitious scenario. Zambia is also a net importer of agricultural commodities while it mostly exports copper which faces low tariffs throughout the world. For Zambia, losses due to higher world agricultural \ \ \ x. - \‘i. “ '~‘ \" 46 «:r: EuroChoices 5(2) © The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2006 prices dominate the welfare effects under all three scenarios. In contrast, Malawi’s gains are impressive under all three scenarios and largest with full liberalization due to it being an agricultural exporter and its economic size (trade reform often has magnified impacts in small countries). Trade liberalization also has a substantial impact on the pattern of production among countries (see Table 3). In the case of full trade liberalization, the increases of agricultural and food (agro—food) production are large in Australia/New Zealand, Argentina, Brazil, Thailand, Malaysia (particularly due to increased exports of rice to the Developed Asia © The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2006 region and of wheat to India), and Malawi. Conversely the contraction of agro—food production in Developed Asia, Rest of OECD, Developing Asia and to a lesser extent in the EU explains why forces resisting trade liberalization are so strong. Impacts on production are smaller under the Doha scenarios and depend on the level of ambition. The stakes are high We have presented an analysis of an ambitious versus an unambitious Doha Round outcome. Our simulations are based on negotiating proposals from the run—u p to the Hong Kong ministerial meeting but not agreed upon in December 2005y and we compared those outcomes with the estimated effects of full global trade liberalization. The results for the two Doha scenarios demonstrate the high stakes of this negotiation given the positions articulated by the countries involved. A successful round could deliver real gains both globally and for developing countries. However the magnitude of those gains depends on the shape of the agreement. A reform outcome based on the most ambitious components of the negotiating proposals of the US and EU delivers noticeably greater benefits than an unambitious EurOChoices 5(2) 47 outcome based on the lower- end elements of their proposals. The details matter in the differing proposals, such as the tariff and domestic support reduction formulae, tariff caps, and number of sensitive and special products. Negotiating commitment and diligence are needed in 2006 to avoid a hollow Doha outcome given the technical character of these details. Developing countries are heterogeneous in terms of their own policies, the trade barriers they face, and their net agricultural trade. Overall, developing countries gain most—and might achieve the best deal in the negotiations—when they join in the reform process for a global trade agreement. Attention is needed in the case of some of the LDCs and other poor countries that may face declining terms of trade due to higher world agricultural prices or eroding preferences. In addition, many developing countries can achieve the full benefits of trade only with substantial attention to broad develOpment needs that will enhanCe their competitiveness (transportation infrastructure, insurance and credit markets, as well as relevant political and social concerns). This too needs to be part ofa successful Doha Round OUtCOHlC. Note 1 This article is a revised version of a presentation made at a luncheon seminar of the German Marshall Fund of the United States, December 1, 2005, in Washington, DC. and in several sessions in Hong Kong during the WTO meetings at which a somewhat more ambitious reform scenario was analyzed. Further Reading I Anderson. K. and Martin. W (eds. ) (.2005), Tim/e Ref/om: and the Doha .thI'u/a. W hington DC: The World Bank, I Bou” . Bureau]. 2.. Decreux. Y. and Jean. S. (200-3). Multilateral agricultural trade li he contrasting fortunes of developing countries in the I)( Round. [by “or/d Economy, 28(9): 1529—1554. I lSou'et. A” Mevel. S. and Order], D. (200%). More or Less Ambition? Modeling the Development Imp. ‘ ‘ ll Agricultural Proposals in the Doha Round. II'PRI brie/I \‘Vashington. DC: International Food Policy Research Institute. I Fontagne. l... (iuerin. j.-l.. and lean. S. (.3005). i‘lfll‘kcl access liberalization in the I) ha Round: Sunarios and assessment. "79 “hr/t] Economy. 18(8): J()75~1()( I Francois, i. an Meiil. it. and Van Tongt ‘en. F. (2003). ’l‘rade lihentlization in the Doha development round. Economic Pol . 20(13): 549—591. Antoine Bouet, David Orden, and Simon Mevel, International Food Policy Research Institute, Washington, DC, USA, Email.- [email protected]; [email protected]; [email protected] 48 :-:=‘ EuroChoices 5(2) © The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2006 ...
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This note was uploaded on 05/19/2008 for the course REL 228 taught by Professor O'brien during the Spring '08 term at DePaul.

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