Day 4: Doha agricultural reform prospects

and implications for Iran

4-day course on Agricultural Trade Policy and WTO

Tehran, Iran, 15-18 May 2005

Reminder: how an acceding countrybenefits from following Doha Round

Learn more about this aspect of being a WTO memberGauge how the eventual Doha outcome will benefit their economy due to reforms by WTO members (improved export prospects)Anticipate how the Doha agreement will increase WTO member expectations of the commitments currently-acceding countries should make

This session also illustrates the usefulness of:

The GTAP trade and protection database (and related databases)A global economy-wide CGE model, in this case the World Bank’s Linkage modelThinking in economy-wide (rather than just agricultural sector-specific) terms

Note also: Middle East has been reforming less than rest of world …

… and now appears to be more trade-restrictive than any other region of the world (see next chart)

Trade reform in the past two decades

0

5

10

15

20

25

30

35

40

SAS SSA LAC EAP MNA ECA OECD

Late 1980s

2004

Av. Tariffs %

Overall Trade Restrictiveness Index (OTRI)

Questions addressed in this session:How might Doha free up agricultural (and other merchandise) trade, following the WTO members’ July 2004 Framework agreement?What are the implications for DCs’ Doha negotiating strategy, and for Iran’s accession negotiationsReading in folder:

Anderson, K. and W. Martin, ‘Agricultural Trade Reform and the Doha Development Agenda’, The World Economy September 2005 (forthcoming, & as a World Bank Policy Research Working Paper, May 2005)

Key elements of the Doha Agenda as shown in the July 2004 Framework agreement

3 agricultural pillars (including cotton)Non-agricultural market accessServicesWhat are the implications for developing countries’ Doha negotiating strategies, and for Iran when it becomes an acceding country?

Trade facilitationLesser tariff and subsidy cuts for developing countries (DCs) and zero cuts for least-developed countries (LDCs)

Our prospective Doha modelling scenarios

We assume no services reform, no new trade facilitation, but:

phase out of agricultural export subsidiestiered cuts to agricultural domestic supporttiered cuts to agric bound tariffs under various alternative market access packages• With means less cuts to applied tariffs, depending

on degree of ‘binding overhang’ (see next slide)

cuts to non-agric bound tariffs

Binding overhang in agric tariffs, %

Bound Applied

High-income countries

27 14

Developing countries

48 21

of which LDCs 78 13

Agricultural market access

Tiered formula for cutting bound tariffs (with smaller cuts for DCs)

Tiers in developed countries at 15%, 90% tariff rates, with marginal cuts of 45, 70, 75%

Tiers in developing countries at 20, 60, 120% tariff rates, with marginal cuts of 35, 40, 50 & 60%

Agricultural domestic supportCut in bound AMS need not reduce applied support, because of large binding overhang here as well (with 1986-88 ref. prices)

We apply a tiered reduction in bound AMSBy three-quarters if AMS>20%, otherwise by three-fifths for developed countries (and two-fifths for developing countries except zero for LDCs)

• Leads to only 4 members reducing support as of 2001:

US 28%, Norway 18%, EU 16%, Australia 10% (and EU and Australia have already done that since 2001)

Non-agric market access

Halving of bound rates for high-income countries, cut of one-third for DCs (except again zero for Least Developed Countries)

Extent of DC willingness to reform?

We also examine the effects of DCs (including LDCs) becoming full participants in Doha agricultural and non-agricultural cuts

recalling from earlier Rounds that DCs only got what they gave, in terms of increased market access• see Finger (1974, 1976) and Finger and

Schuknecht (2001)

Results from Doha agric reformTiered formula with sizeable cuts gives a $75 billion global gain, but only $9 billion goes to DCsSmall DC gains because of:

their lesser (or zero) cuts, andtheir large tariff ‘binding overhang’

But if HICs claim 2% of agric products are ‘sensitive’ (and DCs claim 4% are ‘sensitive’ or ‘special’), global gain shrinks to $18 billion, and the gain to developing countries disappears

What we assumed about opening markets of “sensitive” and “special” products

Liberalization of “sensitive” products is to involve tariff cuts and Tariff-Rate-Quota (TRQ) expansion

But many TRQs are not filled (admin. hassles), so expanding quotas need not always expand trade

Hence we simply assume a cut of just 15% in bound tariffs of “sensitive” and “special” products

Applied agric tariffs with sensitive and special products (SSPs) allowed, or full DC participation

% av. tariff imposed by:

Base-line 200

5

Doha (with SSPs

)

Doha (no

SSPs)

Doha (full DC)

High-income countries

16 14 8 8

Middle-income countries

12 11 10 9

Low-income countries

22 22 21 18

WORLD 15 14 10 9

Adding non-agric market accessAdding 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, and DCs 1/5th the way

If DCs and LDCs fully participate in market access opening, global gain goes up to $119 billion and DC gain rises from $16 to $23 billion

Effects of Doha lib’n on DC applied tariffs

% av tariffrate for allgoods in:

Baseline 2005

Doha (with lesser

cuts by DCs)

Doha (with

full cuts by DCs)

High-income countries

2.9 1.6 1.6

Middle-income countries

7.2 6.3 5.6

Low-income countries

15.5 14.6 13.4

Effects of full & Doha lib’n on DC welfare

% change in real income in:

Full global lib’n

Doha (with lesser

cuts by DCs)

Doha (with full cuts by DCs)

Middle East and North Africa

1.2 -0.05 0.01

All middle-income countries

0.8 0.15 0.21

Low-income countries 0.8 0.18 0.30

Effects of full & Doha lib’n on DC share of agric and food production that is exported

% in:

Baseline 2015

Full global lib’n

Doha (with lesser

cuts by DCs)

Brazil 17 29 22Argentina 25 33 27Middle East & North Africa

6 11 7

All developing countries

8 12 8

Effects on Brazil’s sectoral self-sufficiency and net exports in 2015

Baseline % self-

sufficiency

Post-Doha % self-

sufficiency

Change in net

exports ($ billion)

All agr. and food

116 122 12

Other primary 172 166 -1

Manuf. excl. food

92 89 -9

Services 99 99 -2

Effects on Brazil’s farm export product self-sufficiency and net exports in 2015

Baseline % self-

sufficiency

Post-Doha % self-

sufficiency

Change in net

exports ($ billion)

Coarse grains 144 153 0.5

Oilseeds 226 241 1.3

Sugar 121 124 0.4

Meats 131 187 10.7

Effects on Brazil’s other farm product self-sufficiency and net exports in 2015

Baseline % self-

sufficiency

Post-Doha % self-

sufficiency

Change in net exports ($ billion)

Rice 92 92 0.0

Wheat 20 19 -0.1

Cotton 116 116 0.0

Dairy 97 97 -0.1

Other food 108 107 -0.1

Lessons Cuts in agric tariffs and domestic support bindings need to be v. large to get beyond binding overhangEven 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

Adding non-agric market access to Doha package could nearly double the welfare gains to other DCs even with their lesser cuts

and it helps balance the North-South exchange of ‘concessions’

Implications for developing countries’ Doha negotiating strategies

Need to seek ambitious outcome on agric market access, not just on subsidies

despite domestic sensitivities (which SSM and ‘special products’ can manage, especially if rural public goods are increased)

Need to also encourage developing countries, not just developed countries, to provide more market access

even if that means not having lesser cuts than developed countries

• Otherwise this won’t be much of a development round (or may even be abandoned by developed countries)

Implications for Iran’s accession negotiating strategy

Need to realize WTO members are unlikely to tolerate high farm subsidies or high bound tariffs on food products

bearing in mind that average agric tariffs are:• <20% bound in recently-acceding countries• <10% applied in middle-income countries by end of Doha

So need to build that into strategic planning for the sector

In particular, examine non-trade distorting ways of supporting farmers such as greater investments in rural quasi-public goods

• more agric R&D, rural education and health, rural transport infrastructure, marketing and communications investments

Bottom line for Iran

Doha Round negotiations, like Iran’s WTO accession negotiations, will open new trade opportunities for boosting national economic growth and poverty alleviationBUT, translating those opportunities into tangible outcomes depends on accelerating domestic reforms and investments that are critical to improving international competitiveness