Doha Deal Would Lock In Existing Liberalisation, Say Experts; Can Members Agree?

3 November 2010

The biggest gains from an agreement in the Doha Round of global trade talks may have less to do with securing new trade-opening than with locking in the considerable reforms governments have already made, trade experts said in Geneva on Tuesday.

But it will be a challenge for WTO members to reach any agreement in the long-struggling negotiations, a point that was underlined later that day when envoys from leading WTO members in Geneva clashed over what they thought was needed to secure a Doha deal.

It is notoriously difficult to accurately project the gains from a complex trade negotiation that is likely to have cumulative, dynamic effects on the way goods and services will be traded. Estimates of the value of a Doha Round accord have varied wildly over its nine-year history, not least because of analysts' very different assumptions about the shape of a prospective accord.

Projected gains of even hundreds of billions are modest when compared to a roughly $60 trillion global economy, and there have been few signs that governments would be willing to make vastly improved offers of market access or subsidy reform. In recent years, therefore, many trade experts and WTO officials have shifted their emphasis to the Doha Round's value as an insurance policy against protectionism. Currently, most countries could currently raise tariff (or subsidy) levels considerably without running up against their legally binding constraints. (WTO Director-General Pascal Lamy maintains that the gains from tariff and subsidy cuts under the Doha Round would nonetheless far exceed those from any prior trade round.)

The Tuesday meeting brought several prominent trade economists to WTO headquarters in Geneva to compare estimates for what a Doha Round agreement would be worth, both in terms of liberalisation obtained and potential protectionism avoided. The meeting was organised by the WTO, the World Bank, and the International Centre for Trade and Sustainable Development, a Geneva-based civil society think tank. (Disclosure: ICTSD is the publisher of the Bridges series of news periodicals.)

Estimating the value of binding existing tariff liberalisation is not easy, Aaditya Mattoo, a senior World Bank researcher, acknowledged at the outset. "The value of bindings depends on the probability of reversal," he said. Given that countries by and large resisted the temptation to raise tariffs during the financial and economic crisis, it suggests that the probability of reversal is low - which diminishes the value of binding tariffs at their currently applied levels.

Nevertheless, David Laborde an economist with the International Food Policy Research Institute in Washington, tried to quantify the value of binding tariffs on the basis of the terms outlined in draft agreement texts on agriculture and non-agricultural market access (NAMA) dating back to 2008.

He estimated that if countries were to raise tariffs to the maximum level possible under their existing WTO commitments, the losses to the world economy would amount to some $350 billion. Two-thirds of this loss, he reckons - worth over $200 billion - would be offset if governments were constrained by the ceilings likely to arise from a Doha Round accord. In a more plausible scenario, in which governments would raise tariffs not to the maximum extent possible, but to the highest levels they had actually applied during the past 13 years, the losses would be over $100 billion - but a Doha agreement would offset the lion's share of these losses.

Jeffrey Schott, of the Peterson Institute of International Economics, estimated that as things stand, a Doha Round agreement would produce global welfare gains of the order of $60 billion - not enough, he argued to secure ratification of a Doha agreement in government legislatures. He called for substantially more market access on services, an area in which the World Bank's Mattoo demonstrated that governments' offers of binding market-opening fell well short of their existing levels of openness, along with cooperation in other areas such as trade facilitation to smooth access to merchandise markets.

Any differences of opinion between the trade economists paled in significance to the divide between ambassadors from the US, Brazil, China, and India on what is needed to bring the Doha Round to a close.

US Ambassador Michael Punke complained that the current Doha Round deal would be impossible to sell in Congress because the "pain" - concessions demanded of the US, such as farm subsidy reform and cuts to tariff peaks on textiles - was clear, while the "gains" were obscured by unclear flexibilities for developing countries. Punke called for increased liberalisation, particularly from fast-growing developing countries, in agriculture, NAMA, and services, with cuts to applied levels of market-opening.

The Brazilian and Chinese ambassadors, meanwhile, said that realism demanded concluding an agreement on the basis of the chair's draft texts. Brazilian Ambassador Roberto Azevedo noted that that the US was hardly alone in not knowing where it stood to gain: Brazilian farmers did not know whether farm subsidy spending in competing countries would actually be reduced as a result of the round, nor did they know whether they would still be facing three-digit tariffs after an agreement.

"You can't expect at this point in the negotiations, you will change the result by several orders of magnitude," Azevedo said, warning that excessive demands for liberalisation would run aground in Brazil's legislature. "And believe me," he said, in a comment clearly directed at the US ambassador sitting across from him, "We have a Congress too."

ICTSD reporting.

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