Agricultural Trade Reform and Doha

One of the advantages of working at the Bank is that I get access to a crazy number of educational seminars, conferences, lectures...It could really be like university again save for the fact that I don't have the time to go to all of them because, well, I'm working. But I am going to make a concerted effort in the future to do so, and went to one during lunch today with another analyst working here - she's on the research and policy side of things, and so has a much better understanding of what is actually going on in this realm. This was actually a book launch for "Agricultural Trade Reform and the Doha Development Agenda".

The Doha round of trade negotiations offers an unprecedented opportunity to reform global trade restrictions and liberalize the world economy. Not everyone agrees with this, particularly the World Bank's critics, but the Bank does not take stances on issues like this lightly, and supports major policy decisions in topics such as these with extensive and well-developed research. The presenters of the lecture I was at today stipulated that there is a potential US$300 billion benefit to be derived from trade reform in global agriculture. This is nothing new, and in fact is lower than previous predictions made by the Bank as over recent years some international trade barriers have, in fact, come down. What was more interesting about the hypothesis presented was that this could be accomplished with little or no investment.

In the previous (Uruguay) round of trade talks, economists formulated 3 "pillars" on which agricultural trade liberalization should be based: i) export subsidies, ii) domestic support of agriculture, and iii) import market access. Although it had been previously believed that all three were equally important to trade reform, recent research has shown that import market access is by far the most important - i.e. not taxing what's coming in. This is relatively easy to adjust, and simply requires that legislation be passed by countries agreeing to do so.

Interestingly, however, although there have already been promises of significant tariff cuts by many of the different negotiating blocs, what looks like a large cut (say, the EU's proposal of 60% or the G20 proposal of 70%), none of these really make the grade. The reason for this is that most countries are not yet abusing tariffs to the maximum limits possible, and so were tariff limitations cut by even up to these amounts, there would be little or no change in the amount actually charged on imports. Only the US proposal of a 90% tariff cut would actually have any significant effect.

One of the other interesting conclusions of this recent research is that, contrary to popular belief, developing countries would benefit disproportionately from import tariff cuts. With the full liberalization of the world economy vis-a-vis imports, it is estimated that developing countries could receive as much as US$86 billion extra in annual revenue. Even if only developing countries themselves eliminate tariffs, and developed countries keep theirs in place, it would still lead to additional annual income amounting to US$23 billion. Even more surprising is that while developing countries receive the proportionately greater part of this benefit, sub-saharan Africa is the greatest beneficiary. This demonstrates that, in fact, trade between developing countries, rather than trade between the 1st and 3rd worlds, is where the most opportunity for gain from free trade lies - at least for the Earth's poor.

One sticking point is the goods on which tariffs are liberalized. Some are sensitive for certain countries who may have a particular political agenda - "sensitive goods". Sugar is protected globally, but is only the second most important agricultural good to liberalize. The first is rice, and this is protected largely by Japan and Korea. Were only these two countries to eliminate their import tariffs on this good, it would have a resounding effect on income for the world's poorest countries.

In sum, Doha remains an exciting opportunity for improving the lot of the poor, but there are four important points to remember regarding the talks: i) the WTO controls tariff cuts, and so it is in this forum that negotiations must take place; ii) the cuts decided upon at the Doha round will need to break boundary tariffs, and not just the tariffs limitations that appear to be currently in place; iii) large gains could be lost because of stubbornness over sensitive products; iv) and developing countries stand to gain the most, assuming they are willing to participate fully. This last point, obviously, could be the largest obstacle.