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If Not Now, Then When?

If Not Now, Then When?

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Originally published in July 2008, this opinion brief argues that Doha skeptics are missing the critical importance of a WTO agreement in terms of imposing new disciplines and binding current practice in trade in agriculture, industrial goods, and services, and that there are large benefits to be had from an agreement on trade facilitation and from ensuring the continuing trade relevance of Aid for Trade.
Originally published in July 2008, this opinion brief argues that Doha skeptics are missing the critical importance of a WTO agreement in terms of imposing new disciplines and binding current practice in trade in agriculture, industrial goods, and services, and that there are large benefits to be had from an agreement on trade facilitation and from ensuring the continuing trade relevance of Aid for Trade.

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Published by: German Marshall Fund of the United States on Sep 23, 2010
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If Not Now, Then When?
The urgent need for a Doha deal 
by Joe Guinan and Courtney Phillips-Youman*
 
International Trade
Trade ministers gathering inGeneva the week o July 21 have onelast window o opportunity to makecritical progress in the Doha Round o multilateral trade negotiations at theWorld Trade Organization (WTO).I they ail to reach an agreementon modalities or liberalization inagriculture and industrial products atthe July 2008 WTO Ministerial, thenthere will be no urther serious eortthis year.WTO Director General PascalLamy has made a gamble incalling ministers together, believingthe chances o a breakthrough aregreater than 50-50. However, i ministers ail to hammer out theirdierences, the odds point to acomplete ailure o the round. I thathappens, the prospects or utureWTO agreements, or the worldtrading system, and or the globaleconomy as a whole begin to lookincreasingly uncertain.Even with stakes as high as these, anumber o shadows are being castover the deliberations. As ministersgather around the negotiating table,two questions in particular are beingvoiced in the trade community.The rst is whether the deal that is athand is really worth doing. A survey o the recent literature indicatesthat this question rests uponmistaken perceptions about the valueo what is on the table. Perhaps moreimportantly, it also ignores theconsequences o not getting anagreement.The second question is about timing,and about whether it is even possibleto conclude an agreement at present,given the political constraints—especially those associated with aU.S. presidential election year. Whilethese constraints are real, there areprecedents that suggest they are arrom insurmountable. And waiting isnot a good option. Negotiating atigueis setting in, and nothing qualitatively dierent will be put on the table by urther dragging out the talks alongcurrent lines. Upcoming electionsin key countries around the worldsuggest that the political calendarwill become, i anything, even moreunorgiving.A deal on Doha would provide amuch-needed shot in the arm ortoday’s altering global economy, whichis struggling with nancial marketvolatility, the infationary eects o high energy and commodity prices,and a mounting ood crisis. But i theDoha Round were to ail, the outlookor the global economy would be
Opinion
Economic Policy Program
SUMMARY: As ministers gatheraround the WTO negotiating  table the week of July 21 inGeneva, there are troubling questions about whether thedeal that is at hand is reallyworth doing and whether it iseven possible to conclude anagreement at present, given thepolitical constraints—especially those associated with a U.S.presidential election year.This opinion brief argues thatDoha skeptics are missing  the critical importance of aWTO agreement in terms of imposing new disciplines andbinding current practice in trade in agriculture, industrialgoods, and services, and that
 there are large benets to be
had from an agreement on trade facilitation and fromensuring the continuing traderelevance of Aid for Trade.Waiting is not a good option, asupcoming elections around theworld suggest that the politicalcalendar for Doha will becomemore not less unforgiving.
1744 R Street NWWashington, DC 20009T 1 202 745 3950F 1 202 265 1662E ino@gmus.org
*
Joe Guinan is a senior program ofcer and Courtney Phillips-Youman is a program associate with the Economic Policy Program
of the German Marshall Fund of the United States (GMF). They would like to thank Mark Allegrini and William Colwell for researchsupport, and Antoine Bouët, Lionel Fontagné, Jennifer Hillman, Atul Kaushik, Krista Lucenti, Patrick Messerlin, Sheila Page, KeithRockwell, and John Weekes for their insights. The views expressed here are those of the authors and do not necessarily represent the views of GMF.
 
 
 
Economic Policy Program
2
Opinion Brie 
bleak indeed.
A deal worth doing
 The idea that there is little on the table in the DohaRound has been growing or some time. As a result, key constituencies who could have been expected to push or adeal—especially the U.S. and European business commu-nities—are contemplating withholding their support oran agreement at current levels o ambition. This createsanother major stumbling block, particularly given the coldpolitical wind that has already been blowing on trade overthe past several years.Feeding the problem is the perception o the“incredible shrinking gains” rom trade. The DohaRound negotiations have been accompanied by anunprecedented degree o economic modeling and analysisaimed at quantiying the expected welare gains and theirdistribution across countries and sectors. Compared toprevious rounds, when negotiators complained about“negotiating in the dark,” this wealth o data has beeninvaluable. However, early infated numbers on the gainsrom both global ree trade and a Doha agreement provedunhelpul because they came to be seen as exaggeratedand lacking in credibility.In the past six years, there have been almost 20 assessmentso ull trade liberalization using computable generalequilibrium (CGE) models, and at least nine assessmentso a Doha Round agreement. Estimates o the welareincrease rom global ree trade ranged rom 3.1 percent to0.2 percent o world gross domestic product (GDP)—adierence o a actor o 15—with the numbers trendingsteadily downward. Similarly, the number o people litedout o poverty as a consequence have been projected to beanywhere between 440 million and 72 million.
1
Estimateso gains rom the Doha Round—only ever expected tomove the world part o the way toward global ree trade—have ollowed the same trajectory.Trade critics have used these downward revisions tohint at some sinister plot, but the truth is ar simpler.As noted trade modeler Antoine Bouët has explained,experiments with trade models have become ever-moresophisticated and now take into account preerential tradearrangements and ree trade agreements (FTAs), amongother things, which lower previous assessments o existing trade protection and thereore o the gains romliberalization. In addition, results vary according to thetrade elasticities and other assumptions that are adopted.Simply allowing or a relationship between trade opennessand actor productivity—widely recognized due to eectssuch as the accelerated transmission o technology, butdicult to isolate and model—causes welare gains to jumpby up to 80 percent.The latest credible modeling numbers regarding the gainson the table in the Doha Round, based on the May 2008drat texts in agriculture and non-agricultural marketaccess (NAMA), converge at around $43 billion a year.
2
Oneo these exercises, by Yvan Decreux and Lionel Fontagné,manages to incorporate a liberalization o trade in services(at 10 percent, a conservative estimate) to produce a urther$30 billion in gains, or a total o $73 billion a year. Allregions o the world would enjoy boosts in their GDP.These are not trivial numbers. And they are underesti-
“Gains from the Doha Round would beat least $43 billion a year, or $73 billionif a modest liberalization of services isincluded. These are underestimates.”
Source: The German Marshall Fund of the United States, 2008.
1
Antoine Bouët,
The Expected Benets of Trade Liberalization for World Income andDevelopment: Opening the “Black Box
of Global Trade Modeling 
(Washington, DC:International Food Policy Research Institute, 2008), pp. 55-87.
2
 Yvan Decreux and Lionel Fontagné, “An Assessment of May 2008 Proposals for the DDA,”
draft paper, Centre d’Etudes Prospectives et d’Informations Internationales, Paris, June 30,
2008; Antoine Bouët, David Laborde, and Simon Mevel, “What Can the Least Developed
Countries Really Expect from the Doha Development Agenda?” draft paper, International Food
Policy Research Institute, Washington, DC, July 2008.
 
mates—probably dramatically so. They do not include theull benets o services liberalization, an agreement on tradeacilitation, additional gains rom the Aid or Tradeinitiative, and other dynamic gains that cannot be capturedby CGE trade models.Nor do these numbers adequately refect the inverse o adeal. There is an idea, a mistaken one, that in the absenceo a Doha Round agreement the alternative is the
statusquo ante
. It is not. As Craword Falconer, New Zealand’sambassador to the WTO and chair o the agriculturenegotiations, has warned, i the Doha Round ails it willrepresent “the rst broken window in the neighborhood”o globalization. The WTO would not collapse overnight,but ailure could ultimately compromise the integrity o the multilateral trading system—with all the hugeembedded value it represents to consumers, businesses,and governments around the world—and diminishopportunities or global economic reorm. The weakestWTO members, those least able to deend their interestsoutside o a rules-based trading system, would then suermost o all.
Agriculture
Agriculture has been the principal stumbling-block ormuch o the Doha Round, but negotiators have madeimportant progress in recent months. Current high oodprices have decreased the levels o countercyclical trade-distorting support to armers and may thereore be obscur-ing some o the medium-term benets o what is on thetable in the agriculture negotiations. Binding commitmentsthat do not aect applied protection today will have realbite i the current unusual situation in world agriculturalmarkets reverts to a pattern that has held true since the1950s: declining terms o trade and price volatility.A recent assessment o the drat modalities on agricultureconcludes that a Doha Round agreement would represent“substantial progress in strengthening the reorms startedin the Uruguay Round,” leading to a “substantial andworthwhile outcome…even i some o the headlinereduction numbers in the modalities were closer to thebottom end o the range.”
3
For developed countries—whose protectionist arm policies have been a centralocus o the Doha Round negotiations—all exportsubsidies would be abolished; overall trade-distortingdomestic support would be reduced by 50-85 percent;and agricultural taris would be reduced by 50-73percent, with greater reductions or higher taris. Theintroduction o a minimum average tari cut and o newdisciplines on commodity-specic trade-distortingdomestic support are valuable additions.In the ace o rising protectionist sentiments, a Doha Roundagreement would lock-in recent agricultural policy reormsand give impetus to urther such reorms in the uture.Policy processes underway in the European Union regard-ing the uture o the Common Agricultural Policy (CAP)would certainly benet rom pressure rom the WTO, aswould any uture re-opening o the 2008 Farm Bill via thebudget reconciliation process in the U.S. Congress.
Non-agricultural market access (NAMA)
The early emphasis on agriculture in the negotiationsrecently gave way to wrangling over manuacturedproducts. Modeling o the NAMA modalitiescommissioned by the German Marshall Fund o theUnited States ound that the ranges o non-agriculturalgoods tari reductions or developed and developingcountries, combined with the exceptions to the generaltari ormula or some countries, would result in only modest increases in exports and national income.
4
 Industrialists in Europe and the United States have beenvocal in their complaints about such small gains.Once again, this is not an adequate appreciation o what isat stake. Renowned trade economist Patrick Messerlin haswarned that the world trade regime in manuacturing issleepwalking on a tightrope above an abyss.
5
A huge shareo existing trade is living on borrowed time, with manu-acturers simply taking or granted that industrial taris
Economic Policy Program
3
Opinion Brie 
“A huge share of existing trade is living on borrowed time, with manufacturerssimply taking for granted that industrial tariffs will remain at their current lowapplied levels.”
3
Mike Gifford and Raul Montemayor, “An Overview Assessment of the Revised Draft WTOModalities for Agriculture,” International Centre for Trade and Sustainable Development,International Food and Agricultural Trade Policy Council, International Food Policy ResearchInstitute, Geneva, June 2008, p. 8.
4
Joseph Francois, Laura Baughman, Martina Brockmeier, and Rainer Klepper, “A Quantica
-
 tion of the Economic Effects of the February 2008 Draft NAMA Text: Summary of Results,”
draft paper, German Marshall Fund of the United States, Washington, May 14, 2008.
5
Patrick A. Messerlin, Walking a Tightrope: World Trade in Manufacturing and the Benets of 
Binding, GMF Policy Brief, Washington, June 2008.

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