11 Impact of the Uruguay Round
Language:
English
Print Publication Date:
15 Apr 1997
Keywords:
BOOK; liberalization; trade; trade liberalization issue; country; post-Uruguay Round agenda; post-Uruguay Round rate; post-Uruguay Round tariff average; Uruguay Round liberalization; results of the Uruguay Round; post-Uruguay Round level; Tariffs; Imports; Trade negotiation; Trade liberalization; Exports; Australia and New Zealand
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Abstract

I would like to preface my remarks by saying that I am here in a personal capacity, and not as a representative of the WTO.

I would like to preface my remarks by saying that I am here in a personal capacity, and not as a representative of the WTO.

The topic this morning is the impact of the Uruguay Round, with an emphasis on the impact on Africa. I shall talk about the impact in general terms; Chapter 12 covers four particular aspects that have come up in the context of discussing the impact on the African countries.

Before turning to the estimates of the trade and income effects, I want to give a few more details on the tariff reductions that were discussed in general terms yesterday. Most of the figures are taken from the GATT’s November 1994 study, “The Results of the Uruguay Round.” The data in the tables are taken from the GATT’s integrated database. The import data are mostly from 1988 or 1989 and refer to imports from MFN or GSP sources. Excluded from the import data is all intra-area trade in free trade areas and customs unions because such trade was not a candidate for liberalization in the Uruguay Round. Also excluded from our data are imports that arrive under contractual preferential arrangements, in particular imports into the European Union under the Lomé Agreement (which is contractual, in contrast to the GSP, which is not) and imports into the European Union from a range of countries across North Africa, where there are contractual preferential arrangements with the European Union.

Table 1 looks at the tariff reductions by developed countries by major industrial product category. In the two broad right-hand columns are the pre- and post-Uruguay Round tariffs and the percentage reductions, weighted first by imports from all sources, and then by imports from developing countries. Weighted by imports from all sources, the reduction is 40 percent, whereas if we weight by imports from developing countries the reduction is 37 percent. One interesting thing to do with this table is to run down the percentage reduction column and see which figures are below or above the 40 percent average. In the middle three columns, under “Imports from all sources,” where the average for all industrial products was 40 percent, one can see that there are some figures substantially smaller: fish and fish products, textiles and clothing, leather and rubber footwear, and transport equipment (mainly motor vehicles). On the other hand, there are categories where the reductions were substantially larger, such as wood, pulp paper, and furniture; metals; nonelectric machinery; and the last category, manufactured articles not elsewhere specified.

Table 1.

Developed Country Tariff Reductions by Major Industrial Product Croup1

(In billions of U.S. dollars unless otherwise indicated)

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Source: GATT Secretariat, “The Results of the Uruguay Round of Multilateral Trade Negotiations” (November 1994).

Excluding petroleum products.

In Table 2, we look at the tariff reductions on industrial products by developed countries weighted by different patterns of trade, that is, by imports from different origins. If you weight the tariff reductions on industrial products in the Uruguay Round by the industrial countries by imports from all sources, you see that you get the 40 percent cut that we have been talking about, and that the pre- and post-Uruguay Round average tariffs are 6.3 and 3.8. If you weight the tariff reductions by imports from developing economies other than least developed, you get only a 37 percent cut. And the pre- and post-Uruguay Round rates are higher. Finally, if you weight them by imports from the least-developed countries, the percentage cut in tariffs is even smaller, 25 percent instead of 40 percent, and the pre- and post-Uruguay Round rates are even higher. In other words, as you go down the development scale for the countries of origin, the level of protection in industrial countries goes up, and the percentage cut in the Uruguay Round goes down. This was not a happy finding.

Table 2.

Tariff Reductions on Industrial Products by Developed Countries from Selected Croups of Countries

(In billions of U.S. dollars unless otherwise indicated)

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Source: GATT Secretariat, “The Results of the Uruguay Round of Multilateral Trade Negotiations” (November 1994).

Excluding petroleum.

In the course of looking for the explanation, we discovered that if we took out two categories of trade—textiles and clothing, and fish and fish products—and recalculated pretending that those two categories of trade did not exist, the picture improved considerably. As you go down the development scale for the countries of origin, the percentage reduction in tariffs in the Round rises from 46 percent, if you weight by imports from all sources; to 50 percent, if you weight by imports from developing countries other than least developed; to 61 percent, if you weight by imports from the least-developed countries. What also looks good in Table 2 is if you look at the post-Uruguay Round tariff averages, they go down, from a 2.9 percent average tariff on imports of products from all sources, 2.4 from developing countries, and 0.7 from least developed countries.

This analysis focuses the concern with the figures in the upper half of the table, which are the real figures, on the two categories textiles and clothing, and fish and fish products. The change for textiles and clothing is better than Table 2 suggests because the tariff reductions in the table refer to cost from the current nominal tariff to the post-Uruguay Round nominal tariff. But since the Multifiber Arrangement (MFA) is being phased out, the relevant comparison is the reduction from the current tariff equivalent of the MFA quotas down to the nominal post-Uruguay Round tariff on textiles and clothing (when there will not be any quotas).

On fish and fish products, you do not have that option. In essence, fish and fish products are important to developing countries. They are particularly important to the least-developed countries, and the tariff reductions of the Uruguay Round in that category of trade were definitely below average.

Table 3 gives a brief look at what happened to tariff bindings by developing countries in the Uruguay Round. Here you can see pre- and post-Uruguay Round levels of tariff bindings by developing economies; expressed either in terms of the share of the lines that are bound, or the share of imports that come under bound tariffs. The Latin American countries bound essentially 100 percent of their tariffs. In other instances, there were fairly sizable increases in the proportion of tariffs bound. India, for example, went from either 4 percent or 12 percent bound depending on how you calculate it, to 62 percent or 68 percent bound. Indonesia went from either 10 percent or 30 percent to 93 percent or 92 percent, depending on the weighting, and so on. You will see that in Senegal there was virtually no change in tariff bindings in the Round and also virtually no change in Zimbabwe. That is, they started from a low level of binding and did not agree to any significant increase in bindings in the Round.1

Table 3.

Bindings on Industrial Products of Individual Developing Economies1

(in millions of U.S. dollars unless otherwise indicated)

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Source: GATT Secretariat, “The Results of the Uruguay Round of Multilateral Trade Negotiations” (November 1994).

Excluding petroleum.

For the same group of countries, Table 4 shows at the pre- and post-Uruguay Round tariff averages. Consider, for example, the line for Indonesia. You will see that the pre-Uruguay Round tariff average was 20.4 percent and that the post-Uruguay Round rate is 36.9 percent. Any normal person would conclude that Indonesia used the Uruguay Round as an opportunity to raise its tariffs, not cut them. That, of course, did not happen. The explanation for the figures is as follows. When we calculated the pre-Uruguay Round tariff averages, we used the bound rate. If a tariff was not bound, the applied rate was used. So if a country did not have very many of its tariffs bound before the Uruguay Round, the majority of tariffs used to calculate the pre-Uruguay Round average were applied tariffs. When calculating the post-Uruguay Round tariff averages, the same routine was used. If the tariff was bound, the bound rate was used, and if it was not bound, the applied rate was used. Where a country engaged in “ceiling bindings,” that is, where they agreed to bind a tariff, but at a level above the applied rate, our calculations used a bigger figure for calculating the average post-Uruguay Round rate than before the agreement. If Indonesia does not change its applied rates, then the pre- and post-Uruguay Round average for Indonesia in terms of applied rates would be the same, but there is a big jump in the security of access to the Indonesian market, because there has been a substantial increase in bindings (see the figures for Indonesia in Table 3). One way of describing an unbound tariff is that it is bound at infinity, because if a tariff is not bound, then a country is free to do anything it wants with that tariff.

Table 4.

Developing Economy Tariff Reduction on Industrial Products by Individual Country1

(In millions of U.S. dollars unless otherwise indicated)

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Source: GATT Secretariat, “The Results of the Uruguay Round of Multilateral Trade Negotiations” (November 1994). Note: Pre- and post-Uruguay Round tariff averages are computed as the weighted average of tariff rates on bound lines and applied tariff rates on unbound rates. Because of the significance of ceiling bindings in post-Uruguay Round tariff averages, no reductions are reported.

Excluding petroleum.

Now, let me go next to the trade and income estimates. One model with three versions was used, where the underlying assumptions were changed from one version to the next. The model became progressively more realistic as one moved from version 1 to version 2 to version 3. In the paper from which the following tables are taken, there is a detailed explanation of the assumptions underlying each of the three versions.2

Table 5 provides estimates of the increase in merchandise exports due to the liberalization of trade in goods in the Uruguay Round (no attempt was made to quantify the impact of the GATS on world trade in services because there is nothing analogous to a tariff cut for serices). Across the top row of Table 5 you will see that the estimated increase in the volume of world trade in goods ranges from around 9 percent for the first two versions of the model to 23.5 percent for the third version. And that would be in 2005 when the full liberalization in the Uruguay Round has been implemented.

Table 5.

Estimated Increase in Merchandise Exports Due to the Implementation of the Liberalization of Trade in Goods: Main Product Croups

(Percentage change in volume)

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Source: GATT Secretariat, “The Results of the Uruguay Round of Multilateral Trade Negotiations” (November 1994). Note: Version 1 assumes constant returns to scale (no economies of scale) and perfect competition; Version 2 assumes increasing returns to scale in industrial sectors and perfect competition; and Version 3 assumes increasing returns to scale and monopolistic competition in industrial sectors.

Excluding intra-European Union trade, and including trade in petroleum.

The marginally smaller gains under the second version of the model, relative to the first version, are the result of resources shifting into production of those product groups whose production was stimulated by the introduction of increasing returns to scale.

Looking at the percentage increases for individual product groups, the two biggest ones you see are for textiles and clothing, by a wide margin. One of the things that comes out of the modeling exercises of the Uruguay Round is that the liberalization of the Multifiber Arrangement drives a lot of the results, because it is a major restrictive regime affecting important categories of world trade.

Table 6 presents the estimated increases in trade by geographic regions or groups of countries. While the world average increase under the third version of the model is 23.5 percent, the increase for the group called “Developing and transition economies” is 36.7 percent, or roughly 50 percent more. That is, the projected increase in exports, for that group of countries is 50 percent more than for the world as a whole. The grouping that gets the smallest boost to its trade from the Uruguay Round in our table is EFTA. That is because a lot of their trade is already duty free because of preferential arrangements with the European Union.

Table 6.

Estimated Increase in Merchandise Exports Due to the Implementation of the Liberalization of Trade in Goods: Main Economies and Country Groups1

(Percentage change in volume)

article image
Source: GATT Secretariat, “The Results of the Uruguay Round of Multilateral Trade Negotiations” (November 1994) Note: Version 1 assumes constant returns to scale (no economies of scale) and perfect competition; Version 2 assumes increasing returns to scale in industrial sectors and perfect competition; and Version 3 assumes increasing returns to scale and monopolistic competition in industrial sectors.

Excluding intra-European Union trade and including trade in petroleum.

In Table 7, we switch from looking at increases in trade to looking at increases in world income or world welfare. This becomes a little more complicated because the three versions of the model are subdivided into two groups. Concentrating on the far right-hand column where the first number is $510 billion—the largest number we have for the in crease in world income—we believe it is the most plausible. Sometimes when people do these kinds of estimates they have three scenarios, pessimistic, normal, and optimistic. This was not that kind of exercise. The intention was to make the models progressively more realistic.

Table 7.

Estimated Increase in Annual Income in 2005 Due to Uruguay Round Liberalization of Trade in Goods: Main Economies and Country Groups

(In billions of 1990 U.S. dollars)

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Source: GATT Secretariat,”The Results of the Uruguay Round of Multilateral Trade Negotiations” (November 1994). Note: Version 1 assumes constant returns to scale (no economies of scale) and perfect competition; Version 2 assumes increasing returns to scale in selected sectors and perfect competition; and Version 3 assumes increasing returns to scale and monopolistic competition in selected sectors.

Although the $510 billion figure is the largest of the various estimates, it almost certainly is a very big underestimate of the likely gains from the Round. It does not take into account any of the dynamic gains that economists have identified but have difficulty quantifying. It assumes that the status quo would have been maintained if the Uruguay Round had failed, and most important of all it does not capture at all that part of the agenda that dealt with services, with intellectual property, with stronger rules, with better dispute settlement, and so on.

The biggest gainer in Table 7 is the European Union with $163.5 billion. Then the United States and the developing and transition economies are fairly close at around $120 billion. There are two reasons why the United States and the European Union gained as much as they did. One is that they are big traders and the other is that they also liberalized the most, not just with fairly substantial tariff cuts, but also by agreeing to get rid of the MFA. More generally, the gains shown in this table for the different groups of countries are a combination of gains that come from getting better access for their products abroad and gains that come from opening up their own market. And, in fact, what drives the gains for the European Union and for the United States is the opening up of their own market. It is not gains that come from better access abroad for their exports.

That the welfare (income) gains that countries get from the Uruguay Round are determined to a large extent by their own liberalization, and not by the better access to their exports abroad, needs to be stressed because the negotiations themselves are carried out largely on exactly the inverse presumption. Reductions in your own barriers are described as “concessions.” When you reduce your own barriers, it is considered a concession, which you are willing to give in order to get better access for your exports abroad. So clearly, from this perspective the goal is better access to your exports and the price that you have to pay is the reductions in your own barriers. But when it comes time to add up who has gained what from the Round, the principal determinant is what you liberalized yourself, not your better access abroad. There are obvious political economy reasons for this apparent inconsistency that everyone here would be familiar with.

Let me conclude with a few general points about the gains to developing countries from the Round and in particular, Africa. Two background comments. One is that the GATT—now the WTO—is not primarily in the business of promoting free trade. Countries are allowed to protect, to have tariffs, and all the WTO says is that if you are going to protect, use a tariff rather than quotas or some other kind of quantitative limitation. The principal function of the WTO is to provide a set of rules and disciplines governing countries’ trade policies, in order to make future market access more predictable. It is the security of future market access that is important. And that brings into the picture the whole set of rules and disciplines and dispute settlement that were key parts of the Uruguay Round.

Under the WTO, all countries have to submit schedules. They have to submit a schedule in goods indicating the tariffs and which ones are bound, and also a schedule of concessions on services indicating their commitments. But the other rules and disciplines in the GATT and the WTO, covering measures that are not in the schedule, are equally important because if you did not control these other kinds of measures with rules and disciplines, then people could get around the bindings by going home and giving generous production subsidies and other things. So, it is these other sets of rules covering other kinds of measures that complement what is in the schedule with the bindings. The goal is predictability of future market access. This is the way that the WTO reduces the degree of uncertainty surrounding transactions across national frontiers. By reducing the uncertainty surrounding transactions across borders, you encourage trade-related investment, and that is where a lot of the gains from trade liberalization come from. Since the gains from trade liberalization depend heavily on the stimulus it provides trade-related investment, the security aspect of the liberalization is crucial. The Uruguay Round was only partly about cutting tariffs and phasing out quotas.

One way mercantilist thinking can creep into the picture is to view the bindings and the requirement to adhere to stronger rules and disciplines as burdens on the countries that agree to them. The African countries that are members of the WTO have to agree to all the rules and disciplines. It is a single undertaking. There is no longer a menu from which you agree to some rules and not to others. You have to sign on to the whole package. Some observers describe that as being a burden for the African countries. My view is that not only is it not a burden but, in fact, it is one of the most important sources of gain for African countries in the Uruguay Round. Governments gain because the reduced discretion over trade policy reduces the political cost of saying no to constant demands for protection. Domestic consumers gain. Domestic firms that use tradable inputs gain, as well as domestic firms more generally, because with the additional rules and restrictions on the trade regime they can plan their future investments better. And by locking in reforms of the trade regime, the bindings and the acceptance of the rules and disciplines enhance the credibility of reforms among domestic and foreign investors. One of the things that people talk a lot about is the need to find ways to increase inflows of foreign direct investment into developing countries and into Africa in particular. One of the benefits to the African countries, as well as other developing countries having to sign on to the whole package of rules, is that it should give more confidence to foreign investors and stimulate inflows of foreign direct investment. This is particularly true, I would say, for commitments in the services schedules, which is one of the reasons a lot of developing countries have agreed to put the tourist industry in their schedule of commitments under the GATS. They wanted to increase the policy security of the environment of the tourism industry to attract foreign direct investment.

The various considerations outlined above explain why it is difficult not to be impatient with claims that many African countries will lose from the Uruguay Round. When those claims take into account only the projected reductions in margins of preference and higher prices for imported food, they neglect all of the other results of the Uruguay Round—for example, more opportunities to diversify exports—but in particular, the gains to African WTO members from the increased transparency and stability in their own trade regimes.

1

The reason there are not more African countries on this list is because these are the developing countries that are in our integrated database, and very few developing countries in Africa are in the integrated database because they have not submitted their tariff schedules in a form that was easy to incorporate into the database.

2

GATT Secretariat, ‘The Results of the Uruguay Round of Multilateral Trade Negotiations” (November 1994).

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Cover Trade Policy Issues
Trade Policy Issues
ISBN:
9781557756213
Publication Date:
15 Apr 1997
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781557756213.071
Pages:
211