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A Quantitative Assessment of the Derbez Text
IPC Seminar
Achieving Agricultural Development through Agricultural Trade Johannesburg, 29 January 2004
David Vanzetti
Trade Analysis Branch
UNCTAD, Geneva
United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and Development
Presentation Overview
• State of Play in WTO Negotiations
• The Cancun text
• The Model
• Results
• Implications
State of the Play
• Doha Programme: Negotiations on a range of subjects, including agriculture
• Divergent positions between EU, US, Developing Countries, …
• Negotiations were deadlocked for months: Harbinson (WTO chair) draft was found inadequate
• Deadline to agree on modalities was missed• EC-US proposal galvanised the process• Cancun: Negotiations about the draft Cancun Ministerial text
failed• Members expressed their commitment to a multilateral
approach and continue with negotiations
Alliances and interests
EUEU
JapanJapanSwitzerlanSwitzerlan
ddNorway Norway KoreaKorea
Level of ambition
Eliminateexport
subsidies“Multi-
functionality”
Cuts in domestic support
Reduceexport credits
Developing Developing countriescountries
Deg
ree
of s
pec
ial a
nd
dif
fere
nti
al t
reat
men
t
USAUSA
• Blended formula proposed by EC-US– Swiss formula
– Uruguay Round approach
– Duty free access
• Text does not contain specific targets, but paragraphs like “[…]% of tariff lines shall be subject to a […]% average tariff cut and a minimum of […]%, …”
Cancun draft Ministerial Text
Application of the Blended Formula
1. Uruguay Round high tariffs*
2. Swiss Formula small tariffs
3. Duty-free very small tariffs
* Given that countries want to protect their own markets
Assumed tariff cuts
1. Tariff reductions and tranches not specified2. Assume linear cuts 36 (min 15) and 24 (min
10) %.3. Swiss coefficient 25.4. Apply to 40, 40 and 20% of lines
Hypothetical tariff reductions
Swiss coefficient: 25, Average reduction 36%, minimum 15%, (20% of tariff lines cut by 15%, thus, 15% and 41% gives average of 36%)
Percentage Reduction New Tariff
PercentageReduction New Tariff
5 17 4.2 41 3.010 29 7.1 41 5.9
14 36 9 36 9.0
20 44 11.1 41 11.850 67 16.7 41 29.5
100 80 20 15 85.0
Uruguay RoundSwiss Formula
Initial Tariffin per cent
Blended formula: Anti-harmonizing
40% UR, within this category 28% minimal (15%), remaining 72% reduced by 44% (average 36%), 40% Swiss (coefficient 25), 20% duty-free; tariffs equally distributed
The blended formula
0
20
40
60
80
100
120
140
0 50 100 150 200
New tariff
EU bound rates
EU bound tariffs
0
20
40
60
80
100
120
140
160
0 100 200 300 400 500 600 700
Two outliers over 200% have been deleted
Small number of large tariffs
Typical developing country
Kenya bound and applied tariffs
0
20
40
60
80
100
120
0 200 400 600 800
bound
applied
Little variation in bound, but large gap to applied
Typical developing country
Three outliers over 150% have been deleted
Mauritius bound and applied tariffs
0
20
40
60
80
100
120
140
0 100 200 300 400 500 600 700
Bound
Applied
Selected Developed Countries:Cut in bound tariff rates
Initial values Blended formula Harbinson approachAverage Tariff
Percentage Reduction
Percentage Reduction
% % %
EU 17 22 35
US 6 16 31Japan 21 20 34
Lesser cuts than Harbinson
Selected Developing Countries:Cut in bound tariff rates
Initial values Blended formula Harbinson approachAverage Tariff
Percentage Reduction
Percentage Reduction
% % %
Cameroon 78 4435
Egypt 96 32 28
Kenya 100 43 35
Mauritius 120 50 40Nigeria 150 50 40Zimbabwe 141 55 39
Greater cuts than Harbinson
Selected Developing Countries: Cuts in applied rates
Initial values Blended formula Harbinson approachAverage Tariff
Percentage Reduction
Percentage Reduction
% % %
Cameroon 23 21
Egypt 52 14 9
Kenya 24 0 0.1
Mauritius 29 0.4 3Nigeria 33 5 0.2Zimbabwe 26 0.1 0.5
Minimal cuts in applied rates
Remarks on the blended formula
• Three parts (UR, Swiss, duty-free) allow for flexibility
• Blended formula is rather anti-harmonizing
• Countries with dispersed tariffs can take advantage of flexibility
• Countries with (high) uniform tariffs cannot use flexibility and have to make bigger cuts
• Countries with “water in the tariff” can take advantage of flexibility so that applied rates are little affected
• Conclusion: Formula does not serve the main objectives ? (simplicity, transparency, effectiveness, efficiency, equity/fair)
• Static global trade model 161 x 36
• Partial equilibrium model with Armington structure
• Two way trade
• TRQs and quota rents
• UNCTAD, FAO, DFID
Agricultural Trade Policy Simulation Model
ATPSM commodity aggregation (1)
• Bovine meat
• Sheepmeat
• Pigmeat
• Poultry
• Milk, fresh
• Milk, conc.
• Butter
• Cheese
• Wheat
• Maize
• Sorghum
• Barley
• Rice
• Sugar
• Oil seeds
• Vegetable oils
• Pulses
• Roots, tubers
ATPSM commodity aggregation (2)
• Tomatoes
• Non-tropical fruits
• Citrus fruits
• Bananas
• Other tropical fruits
• Coffee green bags
• Coffee roasted
• Coffee extracts
• Cocoa beans
• Cocoa butter
• Cocoa powder
• Chocolate
• Tea
• Tobacco leaves
• Cigars
• Cigarettes
• Other tobacco - mfr.
• Cotton linters
ATPSM available from UNCTAD
• Available free from websidewww.unctad.org/tab
• E-mail: [email protected]
Developing countries: applied rates
Initial values Blended formula Harbinson approachAverage Tariff
Percentage Reduction
Percentage Reduction
% % %
Cameroon 23 21
Egypt 52 14 9
Kenya 24 0 0.1
Mauritius 29 0.4 3Nigeria 33 5 0.2Zimbabwe 26 0.1 0.5
Remarks on the blended formula
• Three parts (UR, Swiss, duty-free) allow for flexibility
• Blended formula is rather anti-harmonizing
• Countries with dispersed tariffs can take advantage of flexibility
• Countries with (high) uniform tariffs cannot use flexibility and have to make bigger cuts
• Countries with “water in the tariff” can take advantage of flexibility so that applied rates are little affected
• Conclusion: Formula does not serve the main objectives ? (simplicity, transparency, effectiveness, efficiency, equity/fair)
Two simulations
Cancun Harbinson
• From bound rate
• 40%: average cut (36%, 15%)
• 40%: Swiss 25
• 20%: duty free
• DC: Special P.linear cut (24,10)
• From bound rate
• average cut 40-60% (25-40%)
• minimum cut 25-45% (15-30%)
• Special products?
AMS cut by 60% (20%)
AMS cut by 60% (20%)
Cut by 80% (70%), eventual elimination
Cut by 80% (70%), eventual elimination
ExportSubsidies
DomesticSupport
MarketAccess
Results
• Cancun more flexible, less ambitious, watered down.
• Smaller average tariff cuts, prices, exports and welfare effects.
• Many developing country losers
Change in world prices Cancun and Harbinson
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
%
Cancun Harbinson
Change in world prices of temperate goods, Cancun proposal
0123456789
10
%
Change in world prices of tropical goods, Cancun proposal
0
0.5
1
1.5
2
2.5
3
3.5
4
%
Change in producer surplus Cancun and Harbinson
-25'000-20'000-15'000-10'000-5'000
05'000
10'00015'00020'000
$m
CancunHarbinson
Change in welfare: Cancun and Harbinson
-2'0000
2'0004'0006'0008'000
10'00012'00014'000
$m
CancunHarbinson
Cancun and Harbinson proposal
Cancun Harbinson Cancun Harbinson Cancun Harbinson
Developed 20'032 34'735 -16'543 -24'403 7'220 11'983Developing -14'529 -18'023 17'707 19'204 163 1'040Least Developed -1'760 -2'455 1'600 2'230 -141 -199World 3'743 14'256 2'764 -2'970 7'242 12'824SSA -1'650 -2'157 1'502 1'951 -129 -210
Consumer Surplus Producer Surplus Welfare
$m
Note large transfer between producers and consumers
Winners and losers
• Net welfare gains $7.2 billion (EU, Jpn)
• Of 161 countries 112 losers (-$1.6 b) Pw quota rents– bound > applied tariffs, no cuts.
Conclusions
• Cancun text flexible but lacking ambition
• Fails test of effectiveness, efficiency , equity and simplicity
• Plenty of scope for improvements, but negotiated outcome probably hinges on EU reform
• Losers needed compensation in some form
THE END
Initial quota rents captured by SSA exporters
$414m
0
20
40
60
80
100
120
$m
Maurit
ius
Botsw
ana
Ivor
y Coa
st
Camer
oon
Malawi
Tanza
nia
Kenya
Ghana
Niger
ia
Ethiop
ia
Zambia
Madaga
scar
Niger
Comparison of Proposals
0
10
20
30
40
50
60
70
80
90
0 20 40 60 80 100 120 140
Old Rate (%)
New
Rat
e (%
)
EU Harbinson
USA