WTO’s Doha round
in an era of high food prices
Kym Anderson
University of Adelaide, Australia
Review session for Ch. 3 of the Monterrey Consensus, on
International Trade as an Engine for Development
United Nations, New York, 19 May 2008
Four key points
Cost of trade distortions, esp. in agriculture, is
very high, and esp. for developing countries
including from DCs’ own policies
Agric under GATT has been difficult politically
to reform, because of fluctuating and falling
real world prices for food during past 60 years
To keep domestic food price stable, many govts.
sought to insulate and increasingly protect farmers
from international market forces
• which makes the int’l market even less attractive to other
countries, who follow suit
Four key points (continued)
We have suddenly entered a new era of
higher int’l food prices that may be
prolonged
offering a fresh opportunity to reform
agricultural policies under WTO’s DDA
But for there to be sustained benefits,
DDA’s agric negotiations have to be
both ambitious and with minimal
exceptions
1. Cost of trade protection policies
is very high
Global cost of 2004 tariffs on all goods plus
agricultural subsidies: $287 billion per year
plus cost of services regulations (so >$600 billion?)
As % of GDP, cost to developing countries is
1/3rd higher than to high-income countries
and nearly twice as high for Sub-Saharan Africa
These costs (which are lower-bound estimates)
are potential gains from trade liberalization
Sources of cost to global economy
Agric &
food
Textiles
clothing
Other
merch.
TOTAL
High-income
countries
135
15
9
159
(55%)
Developing
countries
47
23
58
128
(45%)
182
(63%)
38
(14%)
$ billion due to
policies in:
All countries’
policies
67
287
(23%) (100%)
Sources of cost to developing countries
$billion due to
policies in:
Agric &
food
Textiles &
clothing
Other
merch.
TOTAL
High-income
countries
(50%)
Developing
countries
(50%)
All countries’
policies
(63%)
(25%)
(12%) (100%)
2. Real international food price trend
and fluctuations, 1900-2005
180
160
1900-2005: -0.8% p.a.
140
120
100
80
60
40
20
1900
1910
1920
1930
1940
1950
Year
1960
1970
1980
1990
2000
Int’l prices in Jan-Feb 2008 (current
US$) compared with Jan-Dec 2006
Source: World Bank
Grains
Vegetable oils
Petroleum
Coal
Urea fertilizer
Phosphate rock
(2006 = 1.0)
1.7
2.2
1.4
2.3
1.6
4.3
IFPRI’s 2008 projection of international
prices to 2050, real relative to 2000
Reference case: Alternative cases:
slight slowdown
faster/slower
in ag R&D growth ag R&D growth
Rice
1.3
0.7/2.6
Wheat
1.8
0.8/4.8
Maize
1.6
0.5/6.5
Soybean
1.2
0.8/1.8
IFPRI’s real price projection to 2050
(continued)
Reference case: Alternative cases:
slight slowdown
faster/slower
in ag R&D growth ag R&D growth
Beef
1.4
1.1/1.9
Sheepmeat
1.1
0.9/1.6
Pork
1.3
0.9/2.0
Poultry
1.2
0.8/1.9
3. Why is a new era of higher int’l
food prices relevant to the DDA?
Because commitments to lower bound
agric tariffs and subsidies at WTO will
be politically painless for at least several
years
Providing ample time for farmers and
consumers to adjust
4. But care is needed if DDA benefits
are to be sustained
DDA’s agric negotiations have to be
both ambitious and with minimal
exceptions
especially in increasing market access
but also in domestic support in the case of
cotton
Relative importance of 3 agric pillars
Agric
Agric
All agric
Welfare Agric
effects market domestic export policies
from: access support subsidies
% for:
Developing
countries
World
109
1
-10
100
93
5
2
100
Relative importance of 3 agric pillars
just for cotton
Agric
Agric
All agric
Welfare Agric
effects market domestic export policies
from: access support subsidies
% loss for:
SubSaharan
Africa
World
2
77
1
100
10
89
1
100
Key agricultural elements of
DDA negotiations to watch
Reductions in tariff and subsidy binding overhang
Treatment of ‘sensitive’ & ‘special’ products (SSPs)
Tariff cap, and whether it applies to SSPs
Extent of Special and Differential Treatment (SDT)
invoked by developing and least-developed
countries in terms of their willingness to reform
Our modelled Doha scenarios
75% tiered cut to bound agric tariffs
• without & with sensitive products
• without & with a tariff cap of 200%
• with & without Special and Differential Treatment (SDT)
75% tiered cut to domestic ag subsidy ceilings
Abolition of agric export subsidies
50%/33%/0% cut in bound non-agric tariffs
Services policies unchanged
Big cuts needed to reduce applied agric
tariffs, because of “binding overhang”
High-income
countries
Developing countries
(excluding LDCs)
Least developed
countries (LDCs)
Bound
%
Applied
%
27
14
48
20
78
13
Also big cuts in domestic support limits
needed to reduce DS binding overhang
70
Overhang
60
50
US
proposal
G-20 proposal
40
EU
proposal
30
Applied
20
10
EU
US
Japan
Korea
Mexico
Canada
Doha scenarios: Percent gain in real income
from Doha scenario as share of global trade reform
High-income
50
Developing
40
30
20
10
0
Ag+NAMA-SDT
Ag+NAMA
Ag Only
Ag-SSP+Cap
Ag+NAMA-SDT—No exemptions, no caps, no SDT.
Ag+NAMA—Same as above but includes SDT.
Ag Only—Only agriculture, no exemptions, no caps, includes SDT.
Ag-SSP+Cap—Same as above plus exemptions (HIC-2%, LMY-4%) and caps (200%).
Ag-SSP—Same as above but no caps.
Ag-SSP
Final point: why does tariff binding, and
hence reducing binding overhang, matter?
Because in its absence governments
can reverse reform and raise agric
protection again
Where would Japan and Korea’s agric
tariffs be today if GATT had disciplined
them when they joined (in 1955 and
1967)?
-50
0
50
100
150
Will China and India follow NEAsia
in raising their assistance to farmers?
7
8
9
Ln real GDP per capita
China
Japan
Korea
Taiwan
10
India
Thanks!
www.worldbank.org/trade/wto
www.worldbank.org/agdistortions
www.worldbank.org/WDR2008
kym.anderson@adelaide.edu.au