Transcript The role of subsidies in agricultural trade reform

Global Trade Reform Under The
Doha Development Agenda:
Implication for Sub-Saharan Africa
Kym Anderson and Will Martin
Development Research Group
The World Bank, Washington DC
[email protected]
Why much of the focus in DDA
must be on agriculture …
… even though it provides less than 4% of
global GDP and 9% of int’l merchandise trade
OECD manufacturing tariffs have fallen by
9/10ths over the past 60 years to <4%, while
agricultural protection has risen
Agric. applied (bound) tariffs now average nearly
5 (10) times manufactures tariffs globally
Also, the vast majority of the world’s poor
rely on farming for a living, and may be hurt
by agric protection policies of rich countries
Why focus on agriculture (cont.)
True, the harm to some DC farmers from richcountry agricultural protection is reduced via
non-reciprocal preference schemes such as the
ACP’s Lome Agreement, EBA and AGOA
But those schemes contravene the core WTO
rule of non-discrimination
In particular, they exclude some populous DCs
(eg China, India, Indonesia, Pakistan, Vietnam)
Hence they may harm more poor farmers
(through trade diversion) than they help
Two new working papers and
two forthcoming books
Anderson and Martin, ‘Agricultural Trade Reform and the
Doha Development Agenda’, The World Economy
September 2005 (forthcoming)
Anderson, Martin and van der Mensbrugghe, ‘Would
Multilateral Trade Reform Benefit Sub-Saharan Africans?’
WB Policy ResearchWorking Paper, April 2005
Anderson and Martin (eds.), Agricultural Trade Reform
and the Doha Development Agenda, Washington DC:
World Bank, forthcoming mid-2005 but chapters now
available on World Bank website
Hertel and Winters (eds.), Putting Development Back
Into the Doha Agenda: Poverty Impacts of a WTO
Agreement, Washington DC: World Bank, due fall 2005
What differentiates our new study?
Its point of departure is the WTO’s July 2004
Framework agreement
It examines in detail each of the 3 agricultural
pillars plus preferences, cotton subsidies, nonagricultural tariffs, and S&DT for DCs’ reform
And it ‘adds up’ the consequences of current
policies and prospective Doha reforms using the
new GTAP protection database which includes,
for the first time:
• bound as well as applied tariffs
• non-reciprocal as well as reciprocal preferential tariffs
• key trade policy changes to the start of 2005
Outline of presentation
What are the potential welfare gains from full
goods trade reform, by country/region, due to:
developed relative to developing countries’ policies?
agriculture relative to manufacturing policies?
within agric., tariffs relative to export subsidies and
domestic support?
How close could Doha get to completely freeing
merchandise trade, in welfare and trade terms,
based on July 2004 Framework agreement?
Implications for southern and other SubSaharan Africa
Modeling Doha reform packages
using World Bank’s Linkage Model
Recursive dynamic CGE model
We start with GTAP Version 6.05 protection and
trade data for 2001
We project on-going reforms from 2001 to end2004 (Uruguay Round including ATC, EU25
enlargement, WTO accession for China, etc.)
Then we assume no further reform as global
economy grows to 2015 (according to World
Bank population, income, etc. projections), to
get our global baseline scenario for 2015,
against which to compare reform scenarios
Comparison with earlier models
Welfare effects are smaller than when GTAP
Version 5 database for 1997 is used, because:
Much reform since 1997, incl. implementation of
unilateral reforms and regional and UR agreements
Non-reciprocal preferences are now in database
New provider (CEPII/ITC) with different sources
Welfare effects are larger than from
Hertel/Keeney’s GTAP-AGR estimates as of
2001, because Linkage Model:
projects world economy to 2015
includes some dynamics
Linkage model’s welfare cost of
current protection policies by 2015
Global cost of current tariffs on all good
plus agricultural subsidies would be
$278 billion p.a. by 2015
2/3rds accrues to high-income countries
But as % of GDP, the cost for DCs is
twice that for developed countries
Full liberalization: global gain ($bn)
Agric &
food
Textiles
clothing
Other
manuf
TOTAL
High-income
Countries
124
16
9
150
(55%)
Developing
countries
40
24
58
124
(45%)
173
(61%)
39
(15%)
$ billion due to
reform by:
All countries’
policies
67
278
(24%) (100%)
Full lib’n: gains to developing countries
$bn due to
reform by:
Agric &
food
Textiles &
clothing
Other
manuf.
TOTAL
High-income
countries
26
15
4
44
(50%)
Developing
countries
26
9
6
45
(50%)
55
(63%)
22
(25%)
All countries’
policies
10
87
(12%) (100%)
Relative importance of 3 agric pillars
Welfare gains
from:
Agric
market
access
Agric
domestic
support
Agric
export
subsidies
All agric
policies
Developing
countries
106
2
-8
100%
World
93
5
2
100%
% of gain to:
Full Liberalization
(percentage change from baseline income in 2015)
Thailand
Korea & Taiwan
HK & Singapore
Selected SSA countries
Rest of E Asia
Brazil
Argentina
Other Latin America
Turkey
Australia/NZ
Other Sub-Saharan Africa
Middle East & N Africa
South Africa
Japan
Indonesia
Rest of S Asia
Russia
EU-EFTA
Rest of ECA
India
Canada
Mexico
China
Bangladesh
USA
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
Effects of full lib’n on SSA agric & food
Real value
of agric
and food
exports
Real net
farm
income
South Africa
56
16
Other Southern Africa
50
11
Other SSA
45
8
% change in:
Effects of full lib’n on SSA factor rewards
Farm land
Unskilled
wages
Skilled
wages
South Africa
10.7
2.8
2.2
Other Southern
Africa
5.3
6.4
1.2
Other SSA
6.4
8.4
5.7
% change in:
Key elements of the Doha Agenda
as shown in the July 2004 Framework agreement
3 agricultural pillars (including cotton)
Non-agricultural market access
Services
Trade facilitation
Lesser tariff and subsidy cuts for
developing countries (DCs) and zero cuts
for least-developed countries (LDCs)
Prospective Doha packages
We focus on agric market access in particular
because it is by far the biggest potential
contributor to global and DC welfare gains
So we assume no services reform, no new
trade facilitation, but:
phase out of agricultural export subsidies
tiered cut to agricultural domestic support
And tiered cut to agric and non-agric bound tariffs
under various alternative market access packages
Agricultural market access
Tiered formula for cutting bound tariffs
(with smaller cuts for DCs)
Formula sought by Harbinson yielded
almost no gains to DCs
• especially if lesser cuts for 2% of products that
are ‘sensitive’ and another 2% of DC products
that are ‘special’
So we increased each cut by 10 percentage
points more than Harbinson
Agricultural domestic support
Cut in bound AMS need not reduce applied
support, because of binding overhang (with
1986-88 ref. prices)
and overhang can be increased by abolishing
admin prices used to calculate market price
support
We apply a tiered reduction in bound AMS
75% if AMS>20%, otherwise 60% for developed
countries (40% for developing, zero for LDCs)
• Leads to only 4 members reducing support:
US 28%, Norway 18%, EU 16%, Australia 10%
Non-agric market access, and
extent of DC willingness to reform
50% cut in bound rates for high-income
countries, 33% for DCs, 0% for LDCs
We also examine the effects of DCs (including
LDCs) becoming full participants in Doha
agric and NAMA cuts (Doha-All scenario)
recalling from earlier Rounds that DCs only got
what they gave, in terms of increased market
access (see Finger 1974, 1976; Finger and
Schuknecht 2001)
Services and trade facilitation
These areas offer great potential gains,
especially for developing countries
See Hertel/Keeney chapter of our book
But few significant signs of commitment have
been forthcoming yet
and quantification of their effects is problematic
Hence we assume zero changes for these
items in our modeled Doha scenarios
Results from Doha agric reform
Tiered formula cut as per Harbinson gives the
world $54 billion, but little goes to DCs
So we increased all cuts by 10 percentage
points, which gave a $73 billion global gain
Even then, only $8 billion go to DCs
& if HICs exempt just 2% ‘sensitive’ products
(DCs 4%), global gain shrinks to $18 billion,
and DCs’ gain disappears
• although a 200% tariff cap reduces much of that shrinkage
Small DC gains because of their (a) lesser
cuts and (b) large tariff ‘binding overhang’
Binding overhang in agric tariffs, %
Bound
Applied
All DCs
48
21
South Africa
52
13
SSA LDCs
63
13
Other SSA
105
26
Adding non-agric market access
Adding 50%/33%/0% cuts to non-agric bound
tariffs boosts global gain from agric tiered
formula cut from $73 to $95 billion pa
That $95 billion gets the world 1/3rd of the way
to the potential gains from complete free trade
in merchandise
(but that share is smaller as % of gains from
removing also all services trade barriers, unless
services markets also are opened up)
If DCs and LDCs fully participate in market
access, global gain goes up to $119 billion
Effects of Doha lib’n on SSA applied tariffs
Baseline Doha (with
2015
lesser cuts
Doha-All
by DCs)
% applied tariff in:
South Africa
6.6
6.0
5.0
Other Southern
Africa
8.7
8.5
8.4
16.1
15.7
15.4
Other SSA
Effects of full & Doha lib’n on SSA welfare
Doha (with
lesser cuts
by DCs)
Doha-All
% change in:
Full
global
lib’n
South Africa
1.0
0.25
0.49
Other Southern
Africa
1.7
0.19
0.26
Other SSA
1.2
-0.02
0.13
Effects of full & Doha lib’n on SSA exports
$ billion p.a.
change in
exports of:
Full
global
lib’n
Doha
Doha
Doha
(exports
to all
countries)
(exports to
just SSA
countries)
(exports to
other DCs)
Agriculture and
food
18
2.6
0.4
0.8
Other goods
15
-1.4
-0.4
0.7
All merchandise
34
1.2
0.0
1.5
Effects of full & Doha lib’n on share of
agric and food production that is exported
Baseline Doha (with
2015
lesser cuts
% in:
by DCs)
Full
global
lib’n
South Africa
12.7
13.5
20.2
Other Southern
Africa
18.0
19.2
25.8
Other SSA
15.8
16.5
23.7
Implications for southern Africa
Doha would give SSA only a small fraction of
their potential gains from a move to global free
trade
If DCs (including LDCs) were to fully
participate, their gain more than doubles
To gain more, SSA DCs have to reduce bound
tariffs further, so that applied tariffs fall more
Isn’t it better to do that under Doha, so as to
get reciprocity and/or more aid, rather than
unilaterally – especially as that would lead to
less trade diversion when EPAs are signed
with the EU?
Other lessons and policy implications
Potential gains from further trade reform are huge
Even after UR and recent accessions to WTO and EU
Must find the political will for Doha success
DCs would gain disproportionately from reform
Notwithstanding non-reciprocal tariff preferences
But as much would come from South-South as SouthNorth trade growth, hence importance of DC lib’n too
After outlawing export subsidies, agric tariff cuts
are the highest priority from a welfare viewpoint
and if Doha is to be pro-development/pro-poor
Lessons and implications (cont)
Cuts in agric tariffs and domestic support bindings
need to be 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
DCs in SSA and elsewhere would have to make
few cuts because of their huge binding overhang
So can afford to tone down their demands for lesser
cuts (and ‘special’ products) and exchange it for greater
access to HIC markets (& fewer HIC ‘sensitive’
product exemptions)
Lessons and implications (cont)
Removal of cotton subsidies in US and EU would
raise DC share of global cotton exports from 56% to
85%
Adding non-agric market access to Doha package
could double the welfare gains to DCs even with
their lesser cuts, and it helps balance the NorthSouth exchange of ‘concessions’
Some LDCs could lose slightly, as could some
households within DCs that gain, if they reform
little – the focus of the following presentations
Working paper and web address
for forthcoming book chapters
Anderson, K., W. Martin and D. van der Mensbrugghe,
“Would Multilateral Trade Reform Benefit Sub-Saharan
Africans?” World Bank Policy Research Working Paper,
forthcoming April 2005 (request a copy from
[email protected])
Anderson, Kym and Will Martin (eds.), Agricultural
Trade Reform and the Doha Development Agenda,
Washington DC: World Bank, forthcoming mid-2005
but chapters now available on World Bank website at:
http://web.worldbank.org/WBSITE/EXTERNAL/TO
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