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Prepared by Christian Henn and Jean-Baptiste Le Hen, under the guidance of Ranil Salgado (all SPR) and in consultation with the World Trade Organization (WTO).
The 1 percent figure results from multiplying estimates obtained by the standard trade policy simulation literature by an adjustment factor of four, as suggested by Balistreri et al (2011), and acknowledges that third country effects may reduce this multiplier in general equilibrium (Anderson and van Wincoop, 2003). Balistreri et al’s paper is first to account for firm-specific heterogeneity and productivity gains resulting from tariff reductions, which drives their higher estimate. See paragraph 15 and Table 1 (and its footnotes) for more details.
Concluding Doha would also secure limits for domestic trade-distorting support in agriculture, and bring advances in rules, including for anti-dumping and domestic regulation—all vital for the multilateral trading system’s smooth functioning.
In contrast to multilateral agreements to which all WTO member countries need to agree, plurilateral agreements are voluntary agreements reached between a more limited number of WTO members (see Section IV for further discussion).
These areas are agriculture (including cotton), market access for manufactured or non-agricultural products (NAMA), services, rules (including antidumping, non-agricultural subsidies and countervailing measures, and fisheries subsidies), trade facilitation, trade-related aspects of intellectual property rights (TRIPS), environmental goods and services, and development (mainly comprising revision of Special and Differential Treatment provisions across WTO agreements). Furthermore, negotiations to update rules governing WTO dispute settlement, while not formally part of the Doha talks, may be difficult to conclude without being balanced through a broader Doha agreement.
Many other developing country groupings are largely exempt from undertaking cuts in applied tariffs such as small and vulnerable economies (SVEs, defined as economies with a share of less than 0.1percent of world NAMA trade for the reference period of 1999 to 2001), least developed countries (LDCs, defined as countries with a Gross National Income per capita below a certain threshold, a Human Assent Index below 60, and an Economic Vulnerability Index above 42), and recently acceded members (RAMs).
Having a high amount of participation is important so that enough of the gains from cooperation can be internalized to make free riding of any remaining countries irrelevant (Schelling, 1978). This implies also that large trading countries would need to closely coordinate on which sectors to liberalize. Discussions pointed to three sectors–chemicals, industrial machinery, electrical and electronic products–as the most likely candidates.
Developing country members are able to exempt a limited number of products or subject them to lower cuts than otherwise implied by the broad-based tariff cutting formulas, if they agree in return to higher average tariff reductions. From this arises a concern for other members, and particularly AMs, that their key developing trading partners may designate just those products for lower cuts that are of particular interest to their exporters.
Services negotiations may also suffer from a lack of ambition, since they necessarily follow a request-offer format, which has been much less effective historically in achieving commitments than formula-based cuts as possible in agriculture or NAMA (Baldwin, 1987). Francois and Hoekman (2010) and Hoekman et al (2007) provide additional hypotheses why services negotiations may have remained less ambitious.
Some noteworthy proposals explored during the negotiations include internationally harmonized standards for documentation requirements and creation of a “single window” for submission of all trade-related documentation to eliminate the need to deal with various agencies in clearing merchandise for import. Technical assistance is already ongoing in LDCs to help them identify the most urgent reforms for when an agreement is approved. Outside of Doha, the WTO helps developing countries (and particularly LDCs) under the Aid for Trade program to unlock increased development financing from development banks and bilateral donors for higher-cost projects, such as physical infrastructure, aimed at building trade capacity.
Helble et al (2009) estimate that for each dollar invested in such reforms, trade could increase by 700 dollars.
The current draft Doha modalities envisage significant cuts of 40 to 50 percent to bound tariffs on industrial products, albeit from a lower base than previous rounds, and cover agricultural tariffs for the first time. The highest average cuts in bound tariffs for industrial product in the previous round were 38 percent for the Uruguay round (1986-94) and 37 percent for the Kennedy round (1963-67).
These formulas cut tariffs across all sectors and cut more strongly those tariffs that are particularly high. Countries’ flexibilities are generally taken into account in the studies by using political economy models to determine how they may be exercised. The analysis of most papers cited in this section is based on the December 2008 draft modalities. Since then, modalities have hardly changed in the key areas of NAMA and agriculture, for which quantitative estimation is most suited.
Experience with the 1997 information technology agreement (ITA) suggests that large benefits from NAMA sectoral tariff-cutting initiatives are likely. The ITA completely liberalized tariffs on IT products among 39 countries and arguably underpinned formation of global supply chains in these products (Fliess and Sauvé, 1998).
This differential is even bigger for long-standing EM members of the WTO, such as Brazil, India, and Indonesia, which represent key markets of interest to AM exporters.
A similar argument holds for agricultural export subsidies, whose elimination Doha envisages by 2013 for AMs and by 2016 for developing countries. Export subsidies have been used relatively little in recent years, so that also here the major gain of bindings would be to prevent their re-emergence (Martin and Anderson, 2008).
Mulleta (2010) points out that, despite the initial losses, agricultural reform in net food importing developing countries spurred by Doha can be a long run solution to food security in these areas.
In addition, Ravallion (1990) and Dyer et al (2005) show that expansion of agricultural production in LICs will benefit the landless through improved employment opportunities.
Naturally, not all of these issues are completely independent from those discussed in the Doha negotiations, so that some coordination of efforts could be required.
Doha features aimed at these objectives are (i) sharp restrictions on subsidies to AM farmers; (ii) developing country flexibilities for some tariff lines to foster larger domestic production; and (iii) creation of an efficient SSM in agriculture that would permit developing countries to protect fragile farming systems and address food price volatility in emergencies without hindering free trade flows otherwise.
One of the objectives of the Doha round is to harmonize rules of origin more generally and implement best practices among WTO member countries.