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Where do we stand in the
multilateral trade
negotiations?
David Laborde Debucquet, IFPRI
WBI Course on Agricultural Trade and
Export Development
Vienna, April 2010
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Overview
• Post war negotiations
• The International Trade Organization failure
• The GATT in 1947 (23 countries including 12
industrial countries)
• Negotiation Rounds
• Countries negotiate reciprocal concessions
• Offers and requests
• Formulas
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Rounds
Place / Name Year Participants Topics
GATT Oct 1947 25 Gatt treaty
La Havana March 1948 53 Project of the ITO
Geneva 1947 23 Tariff reduction
Annecy 1949 33 Tariff reduction
Torquay 1951 34 Tariff reduction
Dillon 1960-1961 35 Tariff reduction
Kennedy 1964-1967 48 Tariff red. + anti dumping
Tokyo 1973-1979 99 Tariff red+ NTB +
Agreements (subsidies, TBT,
Public procurement,
aeronautics)
Uruguay 1986-1993 120 Tariffs, NTBs, Agriculture,
Services, IPR, rules, Dispute
setttlements WTO
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GATT outcomes
• Tariff reductions and bindings
• A club for “rich countries” that has delivered a strong liberalization in non agricultural products
• Interests of developing countries neglected• Agriculture
• Textile, wearing
• Difficulties to solve dispute
• Strong dynamic effects and attractiveness
WTO and the Marrakech agreement (1994)
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The WTO
• Fact sheet:• Location: Geneva, Switzerland
• Established: 1 January 1995
• Created by: Uruguay Round negotiations (1986-94)
• Membership: 153 countries on 23 July 2008
• Budget: 189 million Swiss francs for 2009
• Secretariat staff: 625
Head: Pascal Lamy (Director-General)
• Functions:• Administering WTO trade agreements• Forum for trade negotiations• Handling trade disputes• Monitoring national trade policies• Technical assistance and training for developing countries• Cooperation with other international organizations
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Goals
• To Promote economic growth through trade
liberalization
• Cooperative setting
• Locking mechanism
• Dispute settlements
• Only governments participate to negotiations
• “Enlighted mercantilism”…
• To Continue GATT efforts
• To provide special treatments and assistance to
Developing countries
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Core principles
• No discrimination• Most favoured nation
• National treatment
• Reciprocity
• Fair competition
• Transparency and stability• Binding process
• Notifications
• Trade Policy Review
• Single undertaking• Still some flexibilities: plurilateral agreements etc.
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Main exceptions
• Safeguards and contingent protections• Anti dumping and the role of being a « market economy »
• Agriculture subsidies
• During a transition period: the Multi Fiber Agreement (MFA) on textile and wearing
• RTA: Article XXIV
• Special and Differentiated treatment for developingcountries• 1979: enabling clause
• Less than reciprocity
• LDCs, Developing countries and self declaration
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
WTO achievements
• Increasing number of members
• Strength of the multilateral framework
• Efficiency of the Dispute Settlement Body
• “democratic” system
One of the most efficient multilateral institutions
But
• The MFN rate is less and less relevant
• Poorest countries still have difficulties to participate
• Complexity to deliver new trade liberalization
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
The Doha Round
• First round of negotiations of the WTO era
• A test for the institution
• More than 20 different subjects
• Started in 2001… April 2010, “draft” modalities still under
development (see WTO website):
• AMA: Agricultural Market Access
• 3 pillars: market access, domestic support, export subsidy
• Domestic support: colored boxes
• NAMA: Non Agricultural Market Access
• Rules: Subsidies and Anti-dumping
• Services ??? (contrasted interests of players)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
1
1
Coalitions in Cancun, 2003
Cairns
AustralieNouvelle Zélande
Canada
Indonésie*
Afrique
du Sud
Argentine
BrésilG-20
Inde*
Egypte
Chili
PMA
UA
Botswana
Angola
Mali Bénin
Burkina-Faso Tchad
Madagascar Mozambique
BangladeshNépal
Myanmar
UE
Corée
Malaisie*
Singapour
Salvador
Bolivie
Pérou
Mexique
Haiti Maldives
ACP
G-90
Chine
Japon
Colombie Costa Rica
Guatemala Equateur
G-10
Thaïlande
Philippines
Uruguay Paraguay
Turquie
Pakistan*
Venezuela
Taïwan Suisse
Norvège
Maurice*
(...)Israël
USA
Développés En développement
Tunisie
Bulgarie
R. Dominic.*
Nigeria
Côte d'Ivoire
Ouganda*
Kenya*
Sénégal
Cuba*
(...)
(...)(...)
(...)
Source: Fontagne and Jean, 2004
To read: The WTO: in
the Trough of the Trade
Round, Fontagne and Jean,
2004, La Lettre du CEPII .
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Explaining difficulties
• Many countries, Many issues
• The Quad (US, EU, Canada, Japan) do not define the rules anymore.
Coalitions of developing countries have appeared (Cancun 2003)
• China in the WTO: new challenges
• The main oppositions:USA
G20European
Union
Requires cut in agricultural tariffs
Requires cut in domestic support
Requires cut in industrial tariffs
To read: WTO Trade Talks:
a Bird in the Hand is Worth Two in
the Bush, Fontagne, Laborde And
Mitaritonna, 2007, La Lettre du
CEPII .
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Tariff cut
Preferential Margins
Binding overhang
MFN applied
Bound Tariffs
Preferential tariff
I
II
III
To Read: Doha: No Miracle Formula, Fontagne and Laborde, 2006, La Lettre du
CEPII
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Agricultural tariff cuts under DDA
• Four tiers of tariffs
• Highest tiers will have the largest cuts
• Need to convert specific tariffs (15 USD per
Kilogram ) in ad valorem tariffs (X %)
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The Tiered Formula for Agriculture
Developed Developing
Band Range Cut Range Cut
A 0-20 50 0-30 33.3
B 20-50 57 30-80 38
C 50-75 64 80-130 42.7
D >75 70 >130 46.7
Average cut Min 54% Max 36%
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Developing country exceptions
• No cuts in for least-developed countries (30 members)
• Smaller cuts in small & vulnerable economies (around 50 SVEs),
incl Nigeria and Côte d’Ivoire
• Cuts [10%] smaller
• Additional flexibilities
• Regional agreements
• Recently Acceded Members (RAMs)
• Very RAM : no cut
• Other RAM (inc. China) Cuts 7.5 percentage points smaller & an extra
2 years to implement
• Only 40 WTO economies under “normal” discipline (including
special and differentiate treatment).
• Egypt, Morocco, Tunisia, Turkey, UAE
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Why flexibilities?
• Formula-based negotiations generally involve flexibilities• Typically most of the negotiations are about these flexibilities
• Can probably achieve more liberalization with some flexibilities than without
• But it is hard to know what is the right amount of flexibility• Too much and there is no market access gain.
• Too little and there may not be an agreement
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What flexibilities are likely available?
• Sensitive Products
• Special Products
• Special Safeguard Mechanism
• A very conflictual issue in the negotiations
• Triggers
• Discipline
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Sensitive products
• Likely to be 4 or 6 % of tariff lines
• 1/3 more for developing countries
• No. of tariff lines provides little discipline
• Depth of cut is a more important discipline
• Cuts on sensitive prods linked to Tariff Rate Quotas (TRQ)
expansion
• 1/3 < formula if TRQ increase is 3/5% consumption
• 2/3 less than formula if TRQ increase 4/6%
• Opens options for tactical behavior
• Makes them unsuited for developing countries
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Special products for developing countries
• Completely understandable that developing countries seek
flexibilities
• Products to be chosen based on criteria of food security,
livelihood security & rural development
• At least 12 percent of tariff lines
• With small reductions in tariff bindings
• Likely that countries will choose their own special products
• A concern: If these products are chosen & protection option is used,
impacts on poverty could be adverse
• Subsistence farmers don’t benefit
• Poor consumers spend 75% of their income on staples
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Special Safeguard Mechanism
• SSM allows an additional duty to be added if
prices decline below a trigger
• Or if imports increase above a trigger level
• A great deal depends on design
• If quantity trigger depends on import levels, imports
could be incrementally reduced
• Will they be limited to Uruguay Round bindings?
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Non Agriculture: Swiss formula
• First used in the Tokyo Round, mid-1960s
• Ingeniously simple
•
• Cuts tariff peaks, tariff escalation
• More ambitious than the Uruguay Round and the agricultural formulas
)(
.
0
0
1Ta
TaT
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
NAMA modalities
• Swiss formula: stronger than a tiered formula
• Developed: Swiss Coefficient a: 8
• Developing. Options:• x. a= 20 with sensitive products
i. No cuts/unbound on 6.5% of lines on ≤ 7.5% of imports, or
ii. ½ cuts on 14% of lines ≤ 16% imports
• y. a= 22 with
i. No cuts/unbound on 5% of lines on ≤ 5% of imports, or
ii. ½ cuts on 10% of lines ≤ 10% imports
• z. a= 25 with no flexibilities
• Base rate for unbound lines = MFN 2001 + 25%
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Formula illustration for developed countries
0%
5%
10%
15%
20%
25%
30%
35%
40%
0% 20% 40% 60% 80% 100% 120%
Swiss formula. Coef 8.
Tiered formula for agriculture
Band I :Cut 50% Band II :
Cut 57,5%
Band III :Cut 64%
Band IV :Cut 70%
Base rate
Fin
al ra
te
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Domestic support No real changes in the short run
• End of the export subsidies applied by
developed countries by 2013… already the case.
Still some possibilities for developing countries.
• Food aid
• Cut in the blue box. Only a real constraint for the
US… but not now
• Playing with box
• The Cotton initiative
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
US Domestic support - Projection
Figure 4. Projected US AMS, Blue Box and OTDS limits
0
5
10
15
20
25
30
35
40
45
50
2009 2010 2011 2012 2013 2014 2015
Billio
n $
AMS limit
Total AMS
BB limit
BB
OTDS limit
OTDS
From Blandford, Laborde and Martin (2008)
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Subsidies move to green box
From Jales, ICONE, 2008
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Assessing the DDA
From Bouet, 2008
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Methodology applied
• Step 1: Assessing tariff cut effects. • Needs a global database at a detailed level (at least HS6) with bound and applied
tariffs, including preferential agreements. Here MAcMapHS6v2 (see Laborde 2008, Boumellassa, Laborde and Mitaritonna 2009)
• Step 2: Plugging information in an economic model. • Most powerful/used tool = Computable General Equilibrium Model, multi country, multi
sector, dynamic. Here:
• The MIRAGE model used at IFPRI
• the LINKAGE model used at the World Bank
• Caveats: • We do not consider:
• the effects of the liberalization in Services;
• Trade Facilitation;
• the links between FDI and trade;
• the pro-competitive/productivity enhancement effects of trade liberalization;
• The product diversification (new products).
• The absolute value of model results should be considered carefully, their relative values across scenarios teach us much more.
To Read: “Conclude Doha: it
matters” Hoekman, Mattoo, and
Martin. World Bank Discussion
Paper. 2009.
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Where do we come from and where do we
stand?
• Difficult negotiations from the beginning, the emptiness of the “core”:
• Why is the Doha development agenda failing? And what can be done? Bouet and Laborde, 2004 & 2008
• A trade-off between:• Ambition and efficiency
gains
• Domestic political constraints and adjusment costs
• Fairness of the outcome between WTO members
• The role of flexibilities
IFPRI brief, 2009 and IFPRI Discussion Paper 2010
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
8 years of adjusments around the same cake?
Trade creation in AMA with
different proposals
Trade creation in NAMA
with different proposals
0
20
40
60
80
100
120
140
160
Ag
ricu
ltu
ral
Wo
rld
Tra
de, U
SD
Bln
s,
an
nu
al
ch
an
ges b
y 2
025
0
50
100
150
200
250
300
350
400
450
500
No
n-A
gri
cu
ltu
ral
Wo
rld
Tra
de, U
SD
Bln
s,
an
nu
al
ch
an
ges b
y 2
025
Source: Bouet and Laborde, 2009 – MIRAGE model simulations
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Eight years of Doha trade talks: where do we stand?
Applied protection in AMA – different scenarios
0.0
5.0
10.0
15.0
20.0
25.0
Developed WTO Developing WTO non LDCs
Normal Developing WTO RAM WTO SVE WTO
Baseline 2003 HG 2005 G20 2005 EU 2005 US 2008 package
To Read: Eight years of negotiations:
where do we stand, Bouët and Laborde,
2009, IFPRI’s Issue Brief.
Source: Bouet and Laborde, 2009
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Eight years of Doha trade talks: where do we stand?
Applied protection in NAMA – different scenarios
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Developed WTO Developing WTO non LDCs
Normal Developing WTO RAM WTO SVE WTO
Baseline 2003 HG 2005 G20 2005 EU 2005 US 2008 package
Source: Bouet and Laborde, 2009
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Fairness and Ambition
Source: Bouet and Laborde, 2009. MIRAGE model simulations
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
Full liberalization Harbinson-Girard (2003)
G20 (2005) EU (2005) US (2005) Last modalities (2008)
Real
inco
me c
han
ges b
y 2
025,
Perc
en
tag
e
WTO members High Income Countries
Middle Income Countries Least Developed Countries
Standard deviation in average gains
The exact design of
the DFQF will be
crucial to cancel these
losses
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
MENA, selected countries, Average
protection (%)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Eg
yp
t
Mo
rocco
Tu
nis
ia
Un
ite
d a
rab
em
ira
tes
Eg
yp
t
Mo
rocco
Tu
nis
ia
Un
ite
d a
rab
em
ira
tes
Eg
yp
t
Mo
rocco
Tu
nis
ia
Un
ite
d a
rab
em
ira
tes
Eg
yp
t
Mo
rocco
Tu
nis
ia
Un
ite
d a
rab
em
ira
tes
Applied rates (inc. Pref) Bound rates Applied rates (inc. Pref) Bound rates
NAMA AMA
Initial Pure Formula
With flexibilities
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
MENA, selected countries, Protection faced
(%)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Eg
yp
t
Mo
rocco
Tu
nis
ia
Un
ite
d a
rab
em
ira
tes
Eg
yp
t
Mo
rocco
Tu
nis
ia
Un
ite
d a
rab
em
ira
tes
Eg
yp
t
Mo
rocco
Tu
nis
ia
Un
ite
d a
rab
em
ira
tes
Eg
yp
t
Mo
rocco
Tu
nis
ia
United a
rab e
mirate
s
Applied rates (inc. Pref) Bound rates Applied rates (inc. Pref) Bound rates
Initial Pure Formula
With flexibilities
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
MENA focus, changes compared to the
baseline by 2025, %
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Exports (val) Terms of trade Welfare
HG G20 EU US DecModalities
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Some significant cuts in protection
• The latest modalities involve larger cuts, particularly in
low tariffs
• But the reductions in bindings could have more value
than they appear– and our conventional measures seem
to imply
• Agricultural protection is variable over time, and has
been trending up
• Flexibility matters!
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Why losers?
• What you do is what you get….
• Preference erosions
• Increased agricultural prices: The role of terms
of trade and the situation of net food importers
-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5
Bangladesh
Angola
Senegal
Mauritania
Cambodia
Dem. Rep of Congo
Djibouti
Mozambique
Nepal
Niger
Benin
Maldives
Togo
Lesotho
Central African Republic
Burundi
Rwanda
Solomon Islands
Guinea-Bissau
Chad
Myanmar (Burma)
Zambia
Tanzania
Mali
Uganda
Madagascar
Burkina Faso
Malawi
To Read: Agricultural Trade
Liberalisation: Its Ambiguous
Consequences on Developing
Countries, Bouët, Bureau, Decreux
and Jean, 2004. La Lettre du CEPII.
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The LDCs initiative
• Market access
• From full Market access to 97%
• Flexibility: Distribution of tariff revenue collected on WTO LDCs
exports by destination market
• The role of MICs
• Aid for Trade
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Small details – Big differences
Export variations by 2025 (as compared to the baseline) - (Vol, no
intra) - %
-6
-4
-2
0
2
4
6
8Sub-Saharan Africa - Low Income
Bangladesh
Cambodia
Madagascar
Malawi
Mozambique
Senegal
Tanzania
Uganda
Zambia
Central
A
C
To Read: The Development
Promise: Can the Doha
Development Agenda Deliver for
Least-Developed Countries? Bouët,
Laborde, and Mevel, 2008,
IFPRI’sResearch Brief
C & Central Scenario: DFQF
OECD 97%
A: DFQF: 100% including
China and India
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
But also
A more sustainable environment:• Fishery policies cost the world economy $50
billion (60% of the landed value of the global catch); EU and US production support > $1bn per year
• Important for food security & livelihoods of many small developing countries/coastal regions
• Potential for tariff reductions on environmental goods – averaging some 10% in low-income countries
• For a complete overview:
• Conclude Doha: It Matters!, Hoekman, Mattoo and
Martin
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Additional remarks
• IF the DDA fails?
• Role of WTO as a litigation arena
• RTAs
• Global governance
• Rising protectionism?
• The WTO, the DDA and new issues:
• Climate change
• Food price surges and Food security
• Financial crisis
• …
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WTO as a public good
• WTO: a place for cooperation vs a place of litigations
• Value of an agreement to secure existing trade liberalization and bound current distortions
• Status quo is not always the best counter factual for the DDA:
• If there is no strong evidence of rising protectionism today, at least until March 2009. However, it is also clear that trade policies happen to be changed by policymakers as a reaction to economic situation. Current economic conditions could contribute to a complete change of mood in terms of trade policies implemented.In fact, even the post Second World War period, which is a remarkable period of history in terms of trade policies becoming freer and freer, trading partners, including WTO members, frequently augmented tariff protection when needed. This is in particularly true for Middle Income Countries in all sectors and OECD countries in agriculture. [Laborde and Bouet, 2009]
IFPRI brief, 2008 and IFPRI Discussion Paper 2009
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Threat points?
Source: Bouet and Laborde, 2009
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The role of Binding: Protection vs the risk of tariff
increase
-400
-350
-300
-250
-200
-150
-100
-50
0
50
100
DDAIncrease to UR
bound tariffsIncrease to post
DDA bound tariffs
Increase to last ten years tariff
peaks within UR limits
Increase to last ten years tariff
peaks within DDA limits
Wo
rld
an
nu
al R
ea
l In
co
me
ch
an
ge
s, $
Bln
sb
y 2
02
5
Source: Bouet and Laborde, 2009.
MIRAGE simulations
Direct gains from the DDA
“Insurance” value of the DDA, extreme
case
“Insurance” value of the
DDA, intermediate case
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The role of Binding: limit in future use of domestic
support
• “Natural” trend in production and prices will increase the size of existing policies
• New constraint, if not binding today, will become binding in the future
• An illustration from a CGE exercise on OTDS
• More details based on Blandford and Josling estimates available in ITCSD/IPC/IFPRI publications, in particular:
• “ Implications for the United States of the May 2008 Draft Agricultural Modalities”, Blandford, Laborde and Martin (2008).
• “ Implications for the European Union of the May 2008 Draft Agricultural Modalities”, Jean, Josling and Laborde.
-2
-1
0
1
2
3
4
5
Brazil EU USA
Perc
en
tag
e c
han
ges i
n a
gri
clt
ure
an
d a
gri
-bu
sin
ees
pro
du
cti
on
v
olu
me in
2025 c
om
pare
d t
o t
he b
aselin
e
With "dynamic" OTDS constraint
Without "dynamic" OTDS constraint
Source: Bouet and Laborde, 2009. MIRAGE simulations