Transcript Document 7304375

Agricultural policy reform
under the WTO and Doha
Kym Anderson
Development Research Group, World Bank
PREM Week, Washington DC, 25 April 2005
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 numerous populous
DCs (eg Brazil, China, India, Indonesia,
Pakistan, Vietnam)
Hence they may harm more poor farmers
(through trade diversion) than they help
Questions re. past, present, & future of
agriculture in the WTO
Why the Uruguay Round (but not earlier
GATT rounds) addressed agriculture
extent of pre-WTO growth in agricultural
protectionism
How URAA addressed agriculture, and
its economic effects
Challenges for Doha round and beyond
Why the UR (but not earlier GATT
rounds) addressed agriculture
The long history of government interventions
that distort agricultural markets
Distinctive features of distortions across
countries and over time
Reasons for those features, & for agriculture
being neglected by GATT prior to 1986
Why agriculture was included in the UR
History of government interventions in
agricultural markets
Been going on for millennia
see Old Testament, e.g.
Sometimes to raise tax revenue
Sometimes to boost food self-sufficiency/food
security
Sometimes to reduce domestic price
fluctuations
consumers concerned with peaks
producers concerned with troughs
Three past features of agricultural
distortion patterns
1. The domestic-to-border price ratio
was greater for agriculture relative to
that for manufacturing, the higher a
country’s per capita income, cet. par.
i.e. poor (rich) countries tended to depress
(raise) incentives for farmers relative to
manufacturers vis-a-vis international
market price ratios
Three past features of agricultural
distortion patterns (continued)
2. Agricultural protection was greater,
the higher a country’s comparative
disadvantage in agric, cet. par.
i.e. countries that would be net food
exporters (importers) under free trade
tended to depress (raise) incentives for
farmers relative to manufacturers
Three past features of agricultural
distortion patterns (continued)
3. All countries tended to use trade
policy measures to reduce fluctuations
in domestic food prices and quantities
with agric-protective countries mainly
reducing troughs in farmer prices
and agric-taxing countries mainly reducing
peaks in consumer prices of food
Implications for agricultural protectionism
As economies grew and their agric.
comparative advantage declined, they
tended to gradually reduce their
discouragement of farmers (and
support for food consumers), and to
replace it with increasing support for
farmers (at the expense of consumers
and/or taxpayers)
Implications for food prices in int’l markets
Over time, the decline in agric taxation
and growth in agric protectionism that
accompanied economic growth put
downward pressure on int’l agric prices
And the use of trade policy to stabilize
domestic food markets exacerbated
fluctuations in int’l food prices
Political economy of agricultural protection
Why was this pattern is observed across
countries and over time?
Since each country’s policy choice
exacerbates the long-run downward
trend and fluctuations in int’l food
prices, it encouraged other countries to
follow suit
So why did countries not agree multilaterally
to desist before the 1990s?
What was different about the 1980s that
brought agric to the Uruguay Round?
CAP-generated surpluses led to disposal
via EU export subsidies
US (& Canada) retaliated in kind
Pushed real food prices in int’l markets
to century’s lowest level by 1986
which more than doubled the welfare costs
of agricultural protection over the 1980s
(Tyers and Anderson 1992)
Who brought agriculture into the UR?
US farmers were hurt more by EU
policies than EU farmers were by US
policies
Australia/NZ and food-exporting DC
farmers were affected hugely
led to formation of Cairns Group in 1986,
whose sole aim was to keep agriculture
high on UR agenda
• its ag. exports = Japan’s man. exports
How URAA addressed agriculture
Sought commitments to reduce
protectionist interventions in 3 areas:
cut agricultural export subsidies
cut domestic subsidies to farmers
cut barriers to agric and food imports
• with SPS Agreement to reduce the likelihood of
re-instrumentalization
How URAA addressed agriculture
(continued)
Explicit cuts were agreed to on all three
types of measures
but in each case there was lots of ‘wriggle
room’, such that in practice very little
reform has occurred
1. Agric export subsidies to be cut:
36% by value, 21% by volume over six
years to 2000 (or, for DCs, by 2/3rds those
rates by 2004)
How URAA addressed agriculture
(continued)
2. Amber box domestic subsidies to
farmers to be cut by 20% in aggregate
by 2000 (or 13.3% for DCs by 2004)
but blue box and green box and de minimis
exceptions ensure almost no cuts have
taken place
How URAA addressed agriculture
(continued)
3. Import market access:
tariffication of NTBs
tariffs bound and reduced by 36%
(unweighted average) and by 15+% on
each item
minimum access of 3-5% of domestic
market to be guaranteed by tariff rate
quotas (TRQs)
How URAA addressed agriculture
(continued)
‘Dirty tariffication’ meant very little
increased market access in practice
It also left most countries with the
opportunity to vary their applied tariffs
upward if desired (e.g. to keep
domestic price from falling)
so the hoped-for reduction in international
price fluctuations did not materialized
How URAA addressed agriculture
(continued)
Tariff rate quotas (TRQs) have several
undesirable features:
they legitimize a role for STEs
they generate quota rents
• recipients of which now oppose TRQ expansion and cuts
to applied out-of-quota tariffs
they can discriminate between import-supplying
countries
they reduce welfare more than similarly protective
tariffs (especially as int’l prices fall)
Challenges for Doha and beyond
The UR brought agric into the GATT
mainstream, but:
export subsidies are still allowed
a form of QR still restricts imports
few OECD countries have reduced their
assistance to farmers since 1995
Hence agriculture remains by far the
most protected goods sector post-UR
Challenges ahead (continued)
If tariff rate quotas in agric prove as difficult
to remove as QRs on textile trade, they may
be still with us in 2050!
43 WTO members have TRQs, and more than
half use them
The gap between the in-quota and out-ofquota tariffs provides huge gains to license
holders
which means some previous supporters of agric
trade reform are now less so
The Doha round’s progress
Rocky start (Seattle 1999, Cancun 2003),
but by July 2004 WTO members had put
together a Framework agreement that
focused mostly on resolving agric issues
If implemented, how much economic
impact would it have, including relative to
a move to complete free trade?
This was the subject of a DECRG research
project over the past 12 months
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&D for DCs’ reform
It ‘adds up’ the consequences of current policies
and prospective Doha reforms using data from
CEPII/ITC & Bank’s Linkage model, incorporating:
• bound as well as applied tariffs at the HS6 level
• non-reciprocal as well as reciprocal preferential tariffs
• key trade policy changes to the start of 2005
Questions addressed
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 might Doha get to completely
freeing merchandise trade, in welfare and trade
terms, based on July 2004 Framework
agreement?
Modeling Doha reform packages
using World Bank’s Linkage Model
Recursive dynamic CGE model
We start with GTAP 2001 protection data and
project on-going reforms from 2001 to end-2004
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 studies
Welfare effects are smaller than when
GTAP Version 5 database for 1997 is
used (as in GEP2004, e.g.) because
Much liberalization since 1997, including
implementation of unilateral reforms and
regional and UR agreements
Non-reciprocal preferences are now in
database
New provider (CEPII/ITC) of protection data
Current applied tariffs (%)
Agriculture Textiles and
Other
and food
clothing merchandise
Low-income
countries
22
18
15
Middleincome
countries
High-income
countries
17
17
7
16
8
1
Linkage model’s gain by 2015 from
removing current protection policies
Global benefit from removing current
tariffs on all goods plus agricultural
subsidies would be $287 billion per year
by 2015
(Would have been about $350 billion if we
included key reforms during 2001-04)
2/3rds accrues to high-income countries
But as % of GDP, the benefit to DCs is
twice that for developed countries
Full liberalization: global gain ($bn)
Agric &
food
Textiles
clothing
Other
manuf
TOTAL
High-income
countries
133
16
9
159
(55%)
Developing
countries
42
24
58
126
(45%)
182
(62%)
38
(14%)
$ billion due to
reform by:
All countries’
policies
67
287
(24%) (100%)
Full lib’n: gains to developing countries
Agric &
food
Textiles &
clothing
Other
manuf.
TOTAL
High-income
countries
26
15
4
44
(50%)
Developing
countries
27
9
6
45
(50%)
54
(62%)
22
(27%)
$billion due to
reform by:
All countries’
policies
10
86
(11%) (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:
Welfare gain from full Liberalization
(percentage change from baseline income in 2015)
Thailand
Korea & Taiwan
HK & Singapore
Rest of E Asia
Brazil
Selected SSA countries
Turkey
Other Latin America
Argentina
ME&NA
Other Sub-Saharan Africa
Japan
Australia
South Africa
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
Ag & food output rise from full lib’n
(percentage change from baseline income in 2015)
-1.5
Brazil
Australia/NZ
Argentina
Rest of LAC
Thailand
South Africa
Rest of SSA
3.5
8.5
13.5
18.5
23.5
28.5
33.5
38.5
Real farm income rise from full lib’n
(percentage change from baseline income in 2015)
-1.5
Brazil
Argentina
Rest of LAC
Australia/NZ
Thailand
South Africa
Rest of SSA
8.5
18.5
28.5
38.5
48.5
58.5
Effects of full lib’n on DC agric & food
% change in:
Real
Real
Real
value of value of
net
agric
agric and
farm
and food
food
income
output
exports
Brazil
34
121
52
Sub-Saharan
Africa
2
48
9
All developing
countries
2
67
5
Effects of full lib’n on DC factor rewards
Farm
land
Unskilled
wages
Skilled
wages
Brazil
1.8
2.7
1.4
Sub-Saharan
Africa
4.9
6.0
4.3
All developing
countries
0.9
3.5
3.0
% change in:
Take-away messages from full lib’n
Potential gains from further trade reform are large
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
Agricultural reforms are the highest priority for
goods, from global and DC viewpoints, and if Doha
is to be pro-development and pro-poor
Take-away messages (continued)
Removal of agric export subsidies: great achievement
Removing cotton subsidies in US and EU would raise
DC share of global cotton exports from 56% to 85%
and price of Brazil’s cotton exports by >8%
Reducing/disciplining other trade-distorting agric
domestic support is crucial too, not least to prevent reinstrumentation of agric protection when tariffs are cut
But, gains to DCs from agric subsidy cuts could be
multiplied many-fold by also cutting agric tariffs
with half those potential market access gains coming from
South-South trade growth
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)
Our prospective Doha scenarios
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
Binding overhang in agric tariffs, %
Bound
Applied
Mercosur
34
13
LDCs
78
13
All DCs
48
21
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 (15%) 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
Tiered ag tariff formula: line-by-line
Tiers in developed countries at 15 & 90%
bound tariffs
Harbinson: cuts of 40, 50 and 60%
Deeper cuts: marginal cuts 45, 70 & 75%
Tiers in developing countries at 20, 60, 120%
bound tariffs
Harbinson: cuts of 25, 30, 35 and 40%
Deeper formula: marginal cuts 35, 40, 50 & 60%
Agricultural domestic support
Cut in bound AMS need not reduce applied
support, because of binding overhang here as
well (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)
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 $75 billion global gain
Even then, only $9 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’
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
(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 DC applied tariffs
Baseline
2015
Doha
(with
lesser
cuts by
DCs)
Doha-All
Brazil
9.5
9.2
8.5
Middle-income
countries
7.2
6.3
5.6
15.6
14.6
13.4
% applied tariff in:
Low-income
countries
Effects of full & Doha lib’n on DC welfare
Full
global
lib’n
Doha (with
lesser cuts
by DCs)
Doha-All
Brazil
1.5
0.55
0.59
Middle-income
countries
0.8
0.15
0.21
Low-income
countries
0.8
0.18
0.30
% change in real
income in:
Doha welfare gains
(Percent change from baseline income in 2015)
Korea and Taiwan
Thailand
Brazil
Japan
Australia & New Zealand
Argentina
Indonesia
Hong Kong and Singapore
EU 25 plus EFTA
Turkey
India
South Africa
Russia
Canada
China
United States
Bangladesh
Mexico
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Importance of 3 agric pillars to
LICs’ welfare gain from Doha
Under Doha with S&D, gain to low-income
countries is $3.6 billion per year
If agric export subsidies and domestic
support were not cut, gain would still be
$3.6 billion
=> which confirms that most of gains from
agric reform come from increased market
access, not from subsidy cuts
Effects of full & Doha lib’n on DCs’ exports
$ billion p.a.
change in
exports of:
Full
global
lib’n
Doha
Doha
Doha
(exports
to all
countries)
(exports to
just highincome
countries)
(exports to
other DCs)
Agriculture and
food
210
41
31
10
Other
merchandise
399
37
31
6
Effects of full & Doha lib’n on DC share of
agric and food production that is exported
Baseline
2015
Full
global
lib’n
Doha (with
lesser cuts
by DCs)
17
29
22
Middle-income
countries
7
11
8
Low-income
countries
8
12
8
% in:
Brazil
Key cotton findings for DCs
Removal of cotton subsidies in US and
EU would:
raise DC share of global cotton exports from
56% to 85%, and
raise Brazil’s export price by >8%, but SSA’s
by <2%
Lessons and implications
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 or there’s a
large expansion in TRQs of ‘sensitive’ products
DCs 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 OECD agric markets including ‘sensitive’ products
Lessons and implications (cont)
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
New working papers and forthcoming book
Anderson, K. and W. Martin, ‘Agricultural Trade Reform
and the Doha Development Agenda’, The World Economy
September 2005 (forthcoming, also as a WB Policy
Research Working Paper, May 2005)
Anderson, K., W. Martin and D. van der Mensbrugghe,
‘Would Multilateral Trade Reform Benefit Sub-Saharan
Africa?’ (forthcoming as a WB Policy Research Working
Paper, May 2005)
Anderson, K. and W. Martin (eds.), Agricultural Trade
Reform and the Doha Development Agenda, Washington
DC: World Bank, forthcoming summer 2005 but draft
chapters now available on World Bank website