Doha a "development round"? What a joke

One of the worst jokes made at the expense of developing countries in recent years has been to market the current round of trade negotiations as a "development round." As the memoirs of Mike Moore, then WTO director general, candidly reveal, this particular appellation was contrived to endow global trade negotiations with some legitimacy in the aftermath of the disastrous Seattle meetings of the WTO. It had very little to do with putting the interests of poor nations in the driving seat.

How little is revealed in a new essay by Katherine Vyborny, from the Carnegie Endowment, which reviews recent numerical simulations on the likely effects of Doha. Not only are the global welfare effects quite small, low-income African countries emerge as losers in most of the models. The reasons are essentially twofold.  First, low-income countries will lose some of their preferential market access to rich countries as the latter reduce their tariffs to other, less poor countries. Second, removal of agricultural subsidies will raise the world price of agricultural commodities, imposing a net burden on the poorest nations of the world, who tend to be food importers. Here is the distribution of gains (and losses) according to the leading models:

Keep this picture in mind next time you hear someone decry what a catastrophe it would be for Doha to fail.

Comments

[Daniel Gomez]

All simulations show that low income countries are those that gain the most from Doha, followed by middle income countries, high income countries and indeed with poor African countries as net losers. If low income countries and middle income countries gain, why is it so outrageous to call it a development round? Isn't most, if not all of Latin America, a lot of Asia and some of Africa in the low and middle income categories? Maybe there are other issues that the poorest countries have to address before sharing in the gains from world trade liberalization. These should be addressed without jeopardizing the gains Doha offers all other developing countries.

[Jtapp]

Aren't many of those African nations food importers BECAUSE of the agriculture subsidies of the EU and others?

[notsneaky]

Unfortunetly, the ag subsidies have also been the focus of the anti-globalization folks. My understanding here is that the kinds of crops African nations have a comparative advantage in are sufficiently different from the kind that the rich countries have so that the subsidies in the rich countries are essentially a net benefit for the African ones. Those subsidies may be harmful to some middle income countries, particularly in Latin America. This understanding is mostly anecdotal and based on non-scholarly sources though. I don't know of any serious estimates of the impact of rich country ag subsidies on African countries.

[terence]

But notsneaky, presumably food types are somewhat substitutable no?

Concentrating on food subsidies misses part the story for some countries as well - cotton subsidies being significant.

[KY Choong]

So a Doha failure won't be be such a calamity after all? I did wonder whether we would all be better off calling Doha off, and encourage each country to unilaterally reduce trade barriers because (according to the economists) it is in their own interest to do so. I thought that Doha might have the perverse effect of delaying unilateral action because the reductions are viewed as "concessions" to be traded off with "concessions" from other countries. Is there any merit in this view, or is the notion that unilateral reduction in trade barrers is in a country's own long term interest another furphy. ("Furphy" is an Aussie slang for rumour.)

[notsneaky]

presumably food types are somewhat substitutable no

Well, it depends. Some (crazy) people think coffee and sugar, two food types, are complements.

But I think you're right to note that agriculture is more than just food.

[Justin Rietz]

I agree with Vyborny's conclusion that the best deal would be to completely open up markets for developing nations - no duties, no quotas. In fact, in an ideal world, this would be the goal that all countries would be working towards. It can even be reasonably argued that the U.S. should unilaterally open its borders to complete and total free trade. What better statement could the U.S. make about its commitment to fight world poverty, while at the same time reaping the benefits of increased international trade?

I do take issues with other portions of Vyborny's report, however. The most flagrant is exemplified by this quote:

"The models are not intended to predict how the world or country level economies will evolve in the future, but rather to estimate the specific role of trade policy changes apart from other changes in the economy"

It is incomprehensible to me how anyone could even ATTEMPT to calculate the impacts of trade policy without considering other economic changes that might occur, let alone justifiy the results of such calculations. Perhaps I am just being obtuse...

[David]

This was really a good blogg by an economist. I´ve been reading Mankiw´s blogg for a while and it sometimes make me angry. He sounds, in a politicas sens, a bit like G.W.Bush him self.

[terence]

notsneaky: you grind coffee in with your sugar?!? wow, you americans *are* strange.:)

[Katherine Vyborny]

Dani: thank you so much for highlighting the paper and these important issues. I'm looking forward to seeing you at the Center for Global Development again this fall!

As commenter Justin noted, the models found that if the U.S. and other rich countries offered a "development package" of complete duty-free quota-free access for the poorest turned the Doha losses into wins for all the African countries - making a true Doha Development Round still very much worth pursuing.

Notsneaky, there have been a number of serious attempts at the World Bank and by academic economists to estimate the impact of ag subsidies on poor countries. But watch out for estimates that look at the total impact of "producer support," because those typically assess the effect not only of subsidies but also the support of tariffs protecting domestic agriculture.

Kate

[Gallagher]

The largest estimates (that are positive) for sub-saharan Africa under a "likely" Doha deal are a mere 400 million (ANderson World Bank studies). If under a "development package" those nations have to liberalize their on imports they lose 1.7 billion (according to UNCTAD) in tariff revenue.