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Moving Forward on Global Trade:Reviving Doha in the New Administration

Contributors

Kimberly Ann ElliottPeterson Institute for International Economics

Christine McDanielU.S. Department of the Treasury

Kenneth A. ReinertSchool of Public Policy, George Mason University

Devesh RoyInternational Food Policy Research Institute

Steve SuppanInstitute for Agriculture and Trade Policy

CENTER FORGlobal Studies

May 2009

The Vradenburg Foundation

© All rights reserved 2009This publication may be reproduced in its entirety or in part as long as authorship is duly cited and referenced.

Published by:Center for Global StudiesGeorge Mason University3401 Fairfax Drive MS 1B9Arlington, VA 22201cgs.gmu.edu

Conference and publication sponsored by:The Vradenburg Foundation

Center for Global Studies at George Mason Universitycgs.gmu.edu

Photo credits (clockwise, starting at top left corner):Pieter Pieterse, Larsz, cliff1066, World Economic Forum, Overseas Development Institute, jez_s, terry6082, Yo Gurt.

Layout and design: Arnaud Kurze

Preface and Acknowledgement

Since 2004 the Globalization Dialogues Project, a partnership between the Center for Global Studies (CGS) at George Mason University and the George and Trish Vradenburg Foundation, has

sought to identify potential pathways for advancing the global trade process on an inclusive, multi-stakeholder basis. To this end we have held numerous consultation sessions with issue experts and conducted interviews with a wide range of NGO and advocacy voices around the world.

This report is based on a colloquium on the future of global trade held in Washington, D.C., in the spring of 2008. With the Doha process stalled, but a new U.S. administration around the corner, we invited several specialists representing a range of relevant voices to offer their perspectives on how global trade talks might be productively reanimated in the near to medium term. Skillfully overseen by CGS associate and Mason School of Public Policy professor Ken Reinert, this event—and now the resulting report—sought to identity the major obstacles to progress on global trade, a variety of ways to think past these policy blockages, and to provide an analysis of whether and how it might be pos-sible to advance towards a more equitable global trade regime. Without Ken’s perspicacity and insight this final product would have been considerably more anemic. Instead we are able to offer a set of starting points and policy resources to enrich continuing debate.

Peter Mandaville & Agnieszka Paczynska Globalization Dialogues Project Co-Directors

4 Moving Forward on Trade

May 2009

Globalization is usually thought of as a steady, unyielding

growth of the threads tying to-gether the countries of the world economy. Yet we know from the period between the two world wars that this global integration process can be put into reverse. We now stand at a similar historical junc-ture when the threads of the world economy are beginning to unravel. The threads that tie the world economy together include international trade (both goods and services), capital flows (both foreign direct invest-ment and portfolio investment) and migration, particularly the remit-tances that migrants send back to their countries of origin. All early indications suggest that each of these globalization processes is now beginning to ebb.

Statistics recently released by the World Trade Organization indicate that trade growth was slowing even in 2007. We will soon know the sit-uation for 2008, but it is difficult to expect anything but modest growth for the past year. It is not unlikely for trade growth to disappear altogether in 2009. FDI flows hit a

record in 2007, but UNCTAD ex-pects to report a decline in FDI for 2008 of approximately 10 percent. This FDI recession will continue at least through 2009. With regard to portfolio investment, evidence indicates that both bond and equity issues by developing countries are falling steeply. In addition, investors are engaging in retrenching. For example, the Overseas Develop-

ment Institute reports that investors have recently with-drawn large sums from Korea, South Africa and India. Finally, remittances are faltering. They did hold up in 2008,

the World Bank expects them to fall in 2009 by at least 1 percent.

Despite the significant distraction of the financial crisis, the real econo-my still matters. The financial crisis and the crisis of the real economy are reinforcing each other in a negative manner. Consequently, we need to press ahead with the Doha Round with both a renewed vigor and a revised viewpoint. Given the abyss that could lie ahead, the quibbles holding up the round (the EU’s position on sensitive products, the US pandering to its National As-sociation of Manufacturers with its

Recommendations for Moving Forward on TradeBY KENNETH REINERT, SCHOOL OF PUBLIC POLICY, GEORGE MASON UNIVERSITY

“The financial crisis and the crisis of the real economy are reinforcing each other in a negative manner.”

Kenneth ReinertDelegates at the World Trade Organization, preparing for the Trade Negotiations Committee (Courtesey Justin Hession and Annette Walls-Lynch).

Reviving Doha in the New Administration 5

Center for Global Studies

US pandering to its National As-sociation of Manufacturers with its sectoral initiatives, and the inflex-ibility with regard to agricultural safeguards in developing countries. Countless studies of past economic crises have shown that the bulk of the adjustment burden is placed on the shoulders of the poor. The cur-rent global crisis makes an effective and fair conclusion of the Doha Round all the more important, but it must be concluded with its origi-nal development objectives in mind. This would include the following:

1. Abandoning the US insistence on the National Association of Manufacturing’s sectoral initia-tives. Although much of the discussion (and holdup) of the Doha Round in-volved agriculture, non-agricultural market access (NAMA) does matter. That said, however, tariff liberaliza-tion in manufacturing should take place through a standard, tariff formula approach across the board. This is the tradition of the former GATT and now WTO and should be maintained.

2. Accepting the developing-country proposal for a special safeguard mechanism in agricul-ture for import surges.

Given the hundreds of billions that the developed world has lavished in subsidies on its agricultural sector, their extensive use of anti-dumping measures in manufacturing, and the much higher employment rates in agriculture in the developing countries, equity issues should be considered in the negotiations

sectoral initiatives, and the inflex-ibility with regard to agricultural safeguards in developing countries) now look much less reasonable.

Addressing this evolving crisis will involve a number of elements. These include: putting prudential financial regulation on an equal footing with financial liberalization; quickly putting in place mecha-nisms to protect the poorest of the poor; and revitalizing the stalled Doha Round to multilateral trade negotiations (MTNs). This docu-ment addresses the last of these.

In the technical parlance of trade law, the Doha Round is actually the Doha Development Agenda (DDA). The November 2001 Declaration of the Doha Ministerial Meeting stated the following:

International trade can play a major role in the promotion of economic development and the alleviation of poverty. We recognize the need for all our peoples to benefit from the increased opportunities and welfare gains that the multilateral trading system generates. The majority of WTO members are developing countries. We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration…. In this context, enhanced market access, balanced rules, and well targeted, sustainably financed technical assistance and capacity-building programmes have important roles to play.

This original intent of the Doha Round has largely been lost in recent deliberations over the EU’s position on sensitive products, the

“International trade can play a major role in the promotion of economic development and the alleviation of poverty.”

Kenneth Reinert


May 2009

the effective negotiation of regional agreements, and supply-side con-straints.

4. Adopting a multilateral agree-ment to create legally-binding control on arms trade.

This effort would ensure that all governments control the arms trade according to the same internationals standards, which

restrict exports to countries with significant records of human rights abuses, to criminal organizations, and to conflict zones. This would reduce the approximately 300,000 individuals killed each year by this category of noxious trade.

5. Addressing the problem of forced labor within the World Trade Organization’s framework of agreements.

This can be accomplished by ex-tending the WTO’s general excep-

over agricultural safeguards. The developing country proposal for a trigger level of import surges at 115 percent (as opposed to 140 percent) is not unreasonable. This is a compromise that the developed world should make.

3. Committing to the substantial and sustained increase in trade-related capacity building for low-income countries.

Trade-related capacity building helps developing countries address needs in the areas of infrastruc-ture, market information, product development, and skill acquisition. As suggested by Goldin and Rein-ert (2007), trade-related capac-ity building needs to be explicitly linked to increases in market ac-cess.1 This capacity building needs to address meeting WTO commit-ments, full WTO representation,

1 A number of these proposals were made in I. Goldin and K.A. Reinert (2007) Globalization for Development, World Bank.

Workers toiling in sweatshop, Los Angeles, USA (Courtesey, flickr, daveblume).



developing countries of the current intellectual property negotiations in the Agreement on Trade-Related In-tellectual Property Rights (TRIPS) and build common agreement to ensure that intellectual property rules support access for developing countries to key health and other technologies.

At the end of the day, values of financial assets must be tied to values in the real economy. Main-taining these latter values involves many factors, but trade is one key factor. Constrained market oppor-tunities will constrain value in the real economy and thereby suppress values in financial markets. That said, however, a commitment was made at Doha to development outcomes, and this was in light of significant concessions made by developing countries in the previous Uruguay Round. To conclude the Doha Round without attending to devel-opment priorities would involve nearly a quarter century of multi-lateral trade relations conducted with a view to rich country priori-ties. At one level, globalization has been a promise made by the devel-oped world to the developing world that increased economic integration would eventually widely benefit the developing would. Another trade outcome skewed toward the devel-oped world must be avoided if the globalization promise is to have any meaning at all.

tion of commitments for the case of prison labor (Article XXe) to all forms of forced labor. This would also help to address the worst forms of child labor.

6. The development and applica-tion of norms for corporate social responsibility applying to multi-national enterprises.

Debate about the labor practices of multinational enterprises have been fierce and persistent and have done much to tarnish the reputation of globalization in the form of pri-vate capital flows. The application of standards that encourage best practice by MNEs would do much to alleviate this issue and protect workers from the most egregious abuses.

7. The facilitation of labor-in-tensive service trade in the form of the temporary movement of natural persons.

This can be achieved by the estab-lishment of a multilateral system for identifying individuals seeking temporary movement, providing national security clearance to them, and granting multi-entry visas to them under Mode 4 of the General Agreement on Trade in Services. This would help to harness this form of temporary migration to development ends.

8. Revisiting past commitments made to intellectual property protection.

This can be achieved by establish a time-bound, independent panel to evaluate the costs and benefits to

“Constrained market opportunities will constrain value in the real economy and thereby suppress values in financial markets.”

Kenneth Reinert


May 2009

In fact, the broad parameters of an agreement in key areas had been clear for some time—reductions in trade-distorting agricultural subsidies by the United States and European Union of 60-70 percent, a cut in average agricultural tariffs in rich countries of roughly 50 percent and a third for developing countries, and reductions in tariffs on non-agricultural goods to a ceiling of around 20 percent for de-veloping countries and a bit under 10 percent for rich countries. What negotiators could not agree on was how much flexibility countries would have to depart from these parameters for “sensitive” products, or how broadly sensitive products would be defined. In addition, as noted by some speakers at the roundtable, negotiations on ser-vices trade, which had the potential for the greatest welfare gains, had barely begun because differences over agriculture had so dominated the discussion.

In the remarks provided below, Christine McDaniel from the US Treasury Department underscores the benefits of globalization, espe-cially the underappreciated benefits from trade in services and the sometimes controversial effects of foreign investment. Devesh Roy re-minds us that globalization creates both winners and losers and that it is important to understand the dis-tribution of benefits from a poten-tial Doha Round trade agreement,

Overview and AssessmentKIMBERLY ANN ELLIOTT, SENIOR FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS

The roundtable on globaliza-tion was designed to assess the

prospects for completing the Doha Round of global trade negotiations from various perspectives. These talks were originally scheduled to conclude by 2005 but trade minis-ters had repeatedly failed to reach agreement. In March 2008, when the roundtable was held, there was a flurry of activity at World Trade Organization headquarters in Gene-va and some hope that the political timetable might spur compromise. American negotiators seemed to want to make a final push to add a global trade agreement to President Bush’s legacy, while other negotia-tors had to consider the pros and cons of negotiating with a lame duck, versus reaching a framework agreement that could constrain a new American president during the final phase of negotiations.

Since then, the global economic and policy situation has changed dramatically. The commodity boom turned to bust, global credit mar-kets seized up following an implo-sion in financial markets in the United States, and the world econ-omy is facing the worst recession in decades. Even before the financial collapse and economic downturn in Fall 2008, the Doha Round of global trade negotiations had stalled again after yet another meeting of trade ministers in Geneva failed to reach agreement on a detailed frame-work for concluding the talks.



seem strong enough to prevent a 1930s-like outburst of discrimina-tory measures. Thus, global trade, investment, and capital flows will revive when growth in key countries resumes but the need for strengthening the system of international rules for these flows is greater than ever, particularly for smaller, poorer developing coun-tries that have no other recourse for disciplining the actions of larger, more powerful partners.

The contributions to the dialogue reported below, along with those of Oliver Griffiths, Gawain Kripke, and Will Martin, also highlight a key fault line between globalization en-thusiasts and critics that is likely to be accentuated by the current eco-nomic crisis.2 Enthusiasts typically believe that markets work well and generally produce better results when government intervention is minimal. Globalization critics are relatively more skeptical of markets and more concerned about the distributional effects of trade agree-ments and other economic policies. And globalization skeptics have a point in many of the issue areas where they focus—environmental and labor markets are relatively more prone to market failures than traditional goods markets. Develop-ing countries with weak institutions are also often plagued by political, as well as economic, market failures. The conundrum for globalization skeptics who advocate more “policy

2 K.A. Elliott, D. Kar and J.D. Richardson (2004) “Assessing Globalization’s Critics: Talkers Are No Good Doers???” in R. Baldwin and A. Winters (eds.), Challenges to Globaliza-tion. University of Chicago Press for National Bureau of Economic Research and Centre for Economic Policy Research.

as well as their size. He and Steven Suppan are also skeptical of the development benefits of an agree-ment on agricultural liberalization along the lines that were emerging in Geneva. Suppan also emphasizes the lessons for a better globaliza-tion raised by the sharp rise in food prices from 2007 through the first half of 2008. Several speakers, while differing on details, noted the need for “aid for trade” to ensure that developing countries, especial-ly the poorer ones, would be able to take advantage of any market access opportunities arising from a successful trade agreement.

With the Doha Round again in hiatus, the events of late 2008 underscore the reach of global economic forces, as well as both the need for and the challenges to negotiating rules to guide and gov-ern the process. Given the urgency of addressing the current global economic crisis, the election of a Democratic president and many in Congress that expressed skepticism about trade agreements during the 2008 US election, elections in India in 2009, and the coming appoint-ment of a new Commission in the European Union, the Doha trade negotiations seem likely to remain dormant for at least 12-18 months. Prospects for reviving the talks at that time are murky at best and depend, in part, on whether gov-ernments respond to the current economic situation with extensive new protectionist measures.

Thus far, trade policy responses to the economic crisis have been relatively muted and the con-straints of international trade rules

“Environmental and labor markets are relatively more prone to market failures thantraditional goods markets.”

Kimberly Ann Elliott


May 2009

education and training.

While skepticism about trade is growing with the depth of the current crisis, polls in the United States have traditionally shown that Americans understand the benefits of trade, though they think the costs outweigh the benefits. These attitudes are in part the result of the fact that the benefits are spread broadly, while the costs are con-centrated. The probability of losing one’s job due to trade is small, but the potential costs are quite large and the American safety net is both small and riddled with holes. For example, only about one in three Americans that loses a job today is eligible for unemployment insur-ance and the employer-based health insurance system means that they also risk bankruptcy or untreated health problems for themselves or their families.

Many of these domestic policy is-sues are expected to be priorities in President Barack Obama’s first term. A silver lining of a hiatus in trade negotiations could be the re-building of support for open trade and investment policies if domestic policy reforms are adopted that address the serious challenges that American workers are facing today.

space” for developing countries governments in trade agreements is that many of those governments are too weak or corrupt to effectively use that space. Indeed, the benefits of trade agreements in constraining corruption opportunities and en-couraging improvements in gover-nance are often under-appreciated.

Domestically, especially in the Unit-ed States, concerns about globaliza-tion are also rooted in concerns about the costs associated with economic change and the speakers also noted the need to link trade to domestic policy reforms. While globalization usually gets more than its share of the blame for the costs associated with job loss, it is often more tangible and easier to target than technology. But it is also dif-ficult to disentangle its effects from those of technological change. The offshoring of call service centers, for example, results from the inter-action of the two phenomena.

Thus, domestic policy responses to globalization need to move beyond traditional “trade adjustment as-sistance” to fundamental reforms in a number of areas, including in the United States:

• fixing an outdated unem-ployment insurance system,

• making pensions portable,

• ensuring that health care is available to all Americans—regardless of one’s employ-ment status,

• and improving both the quality and availability of

“[G]lobalization creates both winners and losers [... and we need] “aid for trade” to ensure that developing countries, especially the poorer ones, would be able to take advantage of any market access opportunities.”

Kimberly Ann Elliott



are higher wage firms than domesti-cally oriented firms. Looking ahead, international trade liberalization in services presents significant op-portunities for U.S. workers, firms, and consumers.

International Trade in Services

Service-providing industries have emerged as an engine of growth. Over the past decade, these indus-tries added 14 million jobs while goods-providing industries sub-tracted 1.7 million jobs. On aver-age, jobs in service industries tend to be high-skilled, high-wage jobs. The average educational attainment is higher for service sector employ-ees than for manufacturing employ-

ees, and some of the highest-paid jobs in the economy are in the services sector, such as professional, technical and business services.

The Importance of Maintaining Open Trade and Investment

Maintaining open trade and investment is one of the most

important economic challenges we face. Although trade liberalization and increasing openness to capital flows and investment have been fun-damental to our economic growth and prosperity, they are now under increasing challenge. The Doha Round of trade negotiations presents a significant opportunity to create new trade in agriculture, industrial goods, and services.

Engagement in the global economy through increased trade has con-tributed to rising average living

standards in the United States. Firms engaged in international trade are more productive, have higher employment growth, and

Maintaining Open Trade and InvestmentCHRISTINE MCDANIEL, DEPUTY ASSISTANT SECRETARY FOR ECONOMIC POLICY, U.S. DEPARTMENT OF THE TREASURY

U.S. fastfood chain in Bejing, China (Courtesy flickr, windley).

“Firms engaged in international trade are more productive, have higher employment growth, and are higher wage firms than domestically oriented firms.”

Christine McDaniel


May 2009

ments on licensing and forming joint ventures with local firms.

Reducing the barriers to world trade in services could have a large payoff for the United States—larger even than the potential payoff from goods liberalization. For example, services trade liberalization in 12 of our major export markets is expected to increase U.S. mar-ket share in those markets by 2 percentage points. This increased market share could generate about $40 billion in export income per year for the United States. More comprehensive analyses of goods trade liberalization yield estimates of approximately $16.2 billion in economic gains.

Developing countries also stand to benefit greatly from global liberal-ization of services trade. The ser-vice sector share of GDP exceeds the manufacturing share in most developing countries. The increased availability and quality of services enhances the competitiveness of manufactured goods, agricultural products, and existing services. For instance, India stands to gain an estimated $12 billion in national income each year (1.7 percent of GDP) from removing barriers to trade in services, and China stands to gain an estimated $105 billion (4.0 percent of GDP) each year.

Foreign Direct Investment

Openness to investment is as im-portant as openness to trade. The United States has benefited greatly from the free flow of capital. Cu-mulative foreign direct investment in the United States now exceeds

Service industries have also been a net contributor to GDP in terms of trade: since 1992, exports have outweighed imports and the United States maintains a growing trade surplus in services.

Services account for 68 percent of the world economy but just 20 per-cent of global trade. This discrep-ancy partly reflects the difficulty in delivering services across borders (haircuts), and partly the restrictive rules and regulations in services across the globe that limit trade in services.

International trade in services is conducted by sending services across borders (customers outside the United States using Expedia online travel services) or foreign direct investment (a U.S. hair salon located in Berlin). Cross border services trade is often restricted by countries that maintain rules and regulations on local content, price controls, and licensing require-ments.

Some services simply must be deliv-ered in person (haircuts) and many firms set up offices abroad in order to deliver services locally. But rules on foreign direct investment can restrict this trade in many service industries. For example, California-based haircutter Vidal Sassoon, Inc., overcomes the deliverability issue by opening up hair salons around the world through foreign direct investment. Sales of services abroad can be limited by restrictions on foreign ownership, local content (“buy national” policies), how pay-ments are serviced, mobility of personnel and staffing, and require-

“Services account for 68 percent of the world economy but just 20 percent of global trade.”

Christine McDaniel



Sovereign wealth funds can bring many benefits, by boosting funds available for investment, and by being patient, long run investors. Sovereign wealth funds, as public sector entities, should have both an interest in and a responsibility for financial market stability.

At the same time, rising investment by state-owned wealth funds could provoke a new wave of investment protectionism, which would be very harmful to the global economy. Protectionist sentiment could be partially based on a lack of infor-mation and understanding of the objectives of sovereign wealth funds. It could be done in part due to lim-ited transparency and spotty com-munication on the part of the funds themselves. Better information and understanding on both sides of the investment relationship are needed.

To maintain open investment regimes and ensure that the world continues to benefit from invest-ment by sovereign wealth funds, a multilateral framework for best practices is important in moving forward. Such best practices should provide guidance to new funds on how to structure themselves, reduce any potential systemic risk, and demonstrate they are respon-sible, constructive market partici-pants.

28 percent of GDP. International in-vestment in the United States fuels U.S. economic prosperity by creat-ing well-paid jobs, importing new technology, and providing healthy competition that fosters innovation, productivity gains, lower prices, and greater variety for consum-ers. Nearly ten percent of the U.S. private sector is employed, directly or indirectly, by the U.S. operations of foreign-owned firms. In 2006, foreign owned firms in the United States (U.S. subsidiaries of compa-nies headquartered abroad) sup-ported an annual payroll of $364.2 billion–with average compensation per worker of $68,317, 25 percent higher than compensation at all other U.S. companies.

One immediate challenge to main-taining open investment regimes comes from the rapid growth and increasing importance of state-owned sovereign wealth funds as international investors. Sovereign wealth funds are not new. The oldest date from the 1950s. By the year 2000, there were about 20 sovereign wealth funds worldwide managing total assets of several hundred billion dollars.

Private analysts project that sover-eign wealth fund assets could grow to $10-15 trillion by 2015. Two trends have contributed to this growth. The first is sustained high commodity prices. The second is the accumulation of official reserves and the transfers from official reserves to investment funds in non-commodity exporters. The continuation of the size of sovereign wealth funds will depend in part on commodity prices going forward.


May 2009

food importers). To the exporters, several factors such as sanitary and phytosanitary barriers will also con-strain the gains from agricultural trade liberalization.

Third, distortions in agricultural markets are not a phenomenon af-flicting only the North. The markets in many South countries are as or more distorted. Even the extent of agricultural tariff protection in developing countries is higher than in developed countries (Least Developed Countries 12.5% versus 2.6% in OECD countries). Fourth, developing countries in general have given a raw deal to their agri-cultural sector. The anti-agriculture bias in many developing countries is not likely to be wiped away even with improved market access in rest of the world. Finally, sizeable ben-efits to agriculture can occur from non-agricultural trade liberalization. Such a process of reform could aid for example in the form of im-proved infrastructure.

Estimates of gains from agricul-tural trade liberalization (based on computable general equilibrium models) tend to be high, at the minimum of more than 50 billion dollars.3 These estimates are not

3 See K. Anderson, W. Martin and D. van der Mensbrugghe (2006) “Market and Welfare Implications of the Doha Reform Scenarios,” in Agricultural Trade Reform and the Doha De-velopment Agenda, K. Anderson and W. Martin (eds.), Palgrave Macmillan and World Bank and W.R. Cline (2004) Trade Policy and Global Poverty, Institute for International Economics.

The Doha Round of trade nego-tiations has been christened the

Development Round. Following this, it has been stated that Doha Round can serve as a major vehicle of poverty reduction worldwide and can be instrumental in meet-ing the Millennium Development Goals (MDGs). That the world trade regime is distorted and there are large gains to be reaped from successful completion of the Doha Round is not in question. The main question is how large are the gains likely to be and for which coun-tries? A related point is whether the estimated gains are true only under certain conditions. My view is that the gains from successful comple-tion of the Doha Round might not come from where it is wrangled over and preoccupation with the hard but small scope targets (agriculture) might wean away the opportunity for big bang.

Limited Gains from Agricultural Trade Liberalization

I explain the reasoning here in terms of five inconvenient truths as they were. First, agriculture is not the sole vehicle for mass poverty reduction, possibly not the most important one either. The non-farm sector is increasingly shown to be more important, and rural industrialization could be the most important channel. Second, there is no ambiguity about some losers from Doha Round (possibly the net

Doha and Development DEVESH ROY, RESEARCH FELLOW, INTERNATIONAL FOOD POLICY INSTITUTE (IFPRI)



grown and consumed by 97% of the farming households. Maize is estimated to contribute 54% of the calorie requirements of the Mala-wians. In spite of such dominance, the degree of commercialization

in maize is ex-tremely small with more than 90% of the output on an average being dedicated to self consump-tion.

Lack of infrastruc-

ture restrains the ability to arbitrage over long distances (even within the coun-try) or over long intervals of time and only limited arbitrage exists in Malawi. Based on the Famine Early Warning System (FEWS) data, the prices vary widely across all dis-tricts in Malawi, at times by more than 300%. Similarly, there is little inter-temporal smoothing of prices. The presence of a large marketing parastatal Agricultural Develop-ment and Marketing Corporation (ADMARC) has further dented the private incentives to enter into maize marketing.

With such localized marketing, the prospect for reaching out to export markets is minimal. Malawi is generally a net food importer but even with surplus crops in some years the exports have been limited and are confined to low income countries. Apart from the extreme inadequacy of marketing infrastruc-ture, stringent standards such as related to mycotoxins are likely to

wrong. In fact they present results that are extremely important in suggesting the possibilities that lie unexploited because of constraints such as infrastructure, domestic marketing institutions and so on. The conjec-ture is that the distortions in the develop-ing countries themselves would be enough to nullify the possibilities of substantial gains, i.e. the estimated benefits from these models. Those estimated gains are based on as-sumptions of smoothly functioning domestic markets and the assump-tion that supply can respond. In reality this is far from being true.

Most developing countries suf-fer from extremely low levels of infrastructure that are critical for agriculture marketing (roads and electricity for example) and have institutions that isolate markets within their borders (example pres-ence of marketing boards). Hence, the premise that with improved market access these probable gains will be realized is hard to defend.

An example that will touch on the points above is case of maize in Ma-lawi. This example is illustrative of the features of agricultural produc-tion and marketing that must not be ignored. The dominance of maize is probably the highest in Malawi among the African countries. Maize in Malawi is largely rain fed and is

“Most developing countries suffer from extremely low levels of infrastructure that are critical for agriculture marketing”

Devesh Roy

Farmers in Malawi (Courtesey flickr, Find Your Feet).


May 2009

The example of maize in Malawi captures the essential points about several developing countries in terms of their prospects in Doha Round. These are: (1) The ability of many developing countries to benefit from market access is likely to be limited (2) Domestic reforms can play even a bigger role in bring-ing about welfare gains to countries in South and (3) Large gains can be brought about through non-agricul-tural reforms.

Why the Gridlock in The Doha Round?

The Doha Round is in a gridlock because of the hardened stance of countries in the North as well as in the South. Equating progress in Doha to concessions in agriculture has become the paradigm. There are several reasons for the slow movement on agriculture by almost all countries in the Doha Round. First, to a large extent agriculture and services trade represent the un-finished agenda of trade liberaliza-tion. As sectors other than agricul-ture have undergone reforms, the concentration of special interests has magnified in this sector. Second, given the historical experience of food shortages during emergencies such as wars and droughts, coun-tries are likely to be extra cautious in opening their agricultural mar-kets. Third, countries are competi-tive in diverse set of products in agricultural markets (for example Thailand and Vietnam in rice, Brazil in sugar, Malaysia in palm oil, West Africa in groundnuts).

In agriculture owing to agro-climat-

limit the prospect for Malawi in exporting maize.

What can bring forth the maximum gains for Malawi are the steps to improve the domestic condition for Malawi’s agriculture (IFPRI report 2008).4 There is a need to improve the ability of farmers and traders to store maize seasonally, particu-larly through Warehouse Receipts Schemes (WRS). The second key opportunity is to strengthen the market information system for traders and farmers, particularly taking advantage of the prolifera-tion of mobile telephones in many African countries. The third oppor-tunity for strategic intervention is to focus on increasing the transpar-ency of maize markets by encourag-ing adoption of standardized grades and sacks. In recent years, several government schemes to provide subsidized seeds and fertilizers to smallholders have resulted in bum-per crops of maize consistently.

Several of the interventions that have or can boost the maize sec-tor are likely if non-agricultural trade is liberalized that can bring in investment and develop relevant infrastructure. There are several developing countries which have the same characteristics as Malawi. What the example of maize in Ma-lawi exemplifies is that most impor-tant gains from the point of view of poverty reduction could occur from domestic reforms (for example in the services sector) and policy measures in several developing countries.

4 International Food Policy Research Institute (2008) Marketing Chain Study of Staples in Various African Countries: Report Submitted to Bill and Melinda Gates Foundation.

“The Doha Round is in a gridlock because of the hardened stance of countries in the North as well as in the South. ”

Devesh Roy



countries in the negotiations. First, importing countries will increas-ingly find it harder to sustain a highly protectionist trade regime in agricultural commodities. Second, on the issue of domestic support a regime of high prices offers a good platform to the governments to scale down their transfers to the domestic agricultural sector as farm incomes are likely to go up. Finally, countries particularly in develop-ing world are likely to realize their implicit anti-agriculture bias in their policies and focus on develop-ment of agriculture. This could also imply that governments could be more proactive in favoring non-agriculture trade liberalization.

Yet, at the same time the high com-modity price regime could work the other way. Several develop-ing countries have reacted to the regime of high prices by reinstating distortionary policy instruments such as export bans and price con-trols. It is likely that some countries might become reticent to integrate with global markets. Along the same lines, political expediency might lead to greater interven-tion in domestic markets. More importantly, as countries associate the high commodity price regime with policies in the developed world such as subsidies for ethanol production, the countries would increasingly demand rationaliza-tion of such policies, the passing of the US farm bill in times of real high prices(that has the potential to stall progress in Doha Round) not withstanding.

ic conditions, different countries have comparative advantage in different commodities. Hence there are several blocks of countries with separate special interests. Moreover, consumption preferences are much more important in food products implying limited substitution pos-sibilities. The preferences could be related to the choice of the product itself (for instance what type of rice) or could be even related to processes (such as what kind of fish-ing nets are used). With consump-tion preferences, governments tend to treat these products as sensitive. All these factors imply that move-ment in opening up agricultural markets has tended to be limited.

Agriculture has been the stumbling block in the Doha Round of trade negotiations. Recently, new modali-ties have been suggested that aim to achieve compromises and make the Doha Round reach its logical conclusion. How the negotiations move on from here is hard to guess. At the same time, the food and commodity price regime world-wide seems to have changed and this has some implications for the way forward.

The Role of the High Commodity Price Regime in the Doha Round

There is a widespread debate as to whether the current regime of high commodity prices is permanent or is an outcome of temporary shocks. Going by the premise that high prices will at least prevail in the term that is relevant for coun-tries to clinch a Doha deal, the new commodity price regime is likely to offer a new set of trade-offs to


May 2009

term dilemma of how to achieve economically and environmentally sustainable global and household food security concerns factors more complex and numerous than what are depicted in the “food vs. [bio-]fuel” debate. Making agricul-tural trade sustainable is just one of these factors.

Factors in the Food Financial Crisis

Current commodities price volatil-ity has made traditional risk man-agement tools, such as contracting with a local grain elevator to sell crops in advance (forward contract-ing), too expensive for farmers and smaller agribusiness firms to use. The difference between cash prices and futures contract prices in commodities exchanges is too great and volatile to allow elevators to assess risks and write contracts.7 (Record high costs of production and weather volatility, very likely induced by climate change, have made price risk management all the more difficult.)

Much of this price spiking and volatility has been caused by an enormous influx of speculative capital into commodity markets, estimated to have increased from $10 billion in 2005 to $47 billion by March 2008 just in row crops alone (grains, oilseeds and cotton), according to an April 22 meet-

7 Jacqui Fatka, “Industry fights to prevent finan-cial grain crisis.” Feedstuffs. April 7, 2008.

Food, Agriculture and DohaSTEVE SUPPAN, SENIOR POLICY ANALYST, INSTITUTE FOR AGRICULTURE AND TRADE POLICY

The sharp price increases in retail food and agricultural commodi-

ties in 2007 and early 2008 have exacerbated decades of chronic food insecurity that now afflicts perhaps as much as a sixth of all people. As many studies and news articles have shown, these price increases have helped trigger food riots and even political instability in many poor import food dependent countries. The effect of retail food price spikes on the food insecure in developed countries, though less severe and widespread, should not be overlooked. For example, in the U.S. Farm Bill, legislators ap-proved $209 billion over five years for nutrition programs, including a record high level of federal food assistance,5 while U.S. government food stocks are at record low levels. 6 Demand has overwhelmed supply in private food assistance pantries even in some suburbs, such as my home town of Minnetonka, Min-nesota, the headquarters of Cargill, the global agribusiness giant.

Mitigating the “food crisis” requires us to understand its components. First, we need to understand the causes and effects of the global food financial (price, cost, volatility, risk management) crisis, for which there are short to medium term regulatory remedies. The longer

5 David M. Herszenhorn. “House Passes Farm Bill By a Veto-Proof Margin.” The New York Times. May 15, 2008.6 Sue Kirchoff. “Surplus U.S. Food Supplies Dry Up.” U.S.A. Today. May 1, 2008.

“Much of this price spiking and volatility has been caused by an enormous influx of speculative capital into commodity markets. ”

Steve Suppan



emergency meeting of the United Nations Economic and Social Coun-cil, government delegates will be asked to consider whether the UN’s World Food Programme should use futures contracts for food aid procurement in the current un-regulated markets.10 Though UN members will be asked to replenish

WFP grain stocks and cash reserves, it is unlikely that the WFP will ask UN members for negotiations to regulate the financial speculation in commodities that has made it too expensive for WFP to buy food stocks.

Mitigating Price Volatility and Food Insecurity through Supply Management

Longer term causes of recent prices increases include use of crops as biofuels feedstocks; climate change related production short-falls; increase in energy prices and resulting agricultural transportation and processing price increases; and

10 “Issues Note for Special Meeting of the Economic and Social Council on Global Food Crisis.” United Nations Economic and Social Council. 4. May 2008.

ing of the Commodities Futures Trading Commission.8 Proposals to regulate commodities markets, such as the Chicago Board of Trade, have been rebuffed by proponents of “free” capital flows, who have the financial and knowledge resources to “bet” successfully on both rising and falling prices. Both the United

States and the European Union advocated capital liberalization in the current round of World Trade Organization negotiations. In the absence of international financial reform, and particularly, regulation of speculation in the commodity markets, more tariff reduction for food import dependent developing countries will expose them further to the current financial volatility and the resultant food insecurity.9 Nevertheless, at a May 20th

8 Keith Good. “Farm Policy; Prices; Biofuels.” FarmPolicy.com. May 5, 2008.9 Alexandra Strickner and Christian Felber. “Is Free Trade an “Insurance” Against Financial Tur-moil?” Institute for Agriculture and Trade Policy. February 21, 2008. < http://www.tradeob-servatory.org/library.cfm?refid=101708>

“Seven Reasons Why The Doha Round Will Not Solve The Food Crisis.” Institute for Agriculture and Trade Policy. May 13, 2008. < http://www.tradeobservatory.org/library.cfm?refID=102666>

Stock of grain bags (Courtesy flickr, Stephan Geyer).


May 2009

ture groups, such as the National Family Farm Coalition, which have called for Farm Bill legislation to create a Strategic Grain Reserve (SRG) for price moderation and food security purposes.13 However, the SRG has been left out of the just concluded Farm Bill. Congress will continue to rely on transna-tional grain traders and financial speculators to “manage” the market in everybody’s interest. Nor does it appear that the UN Conference on Trade and Development (UNC-TAD), politically and financially weakened by developed country

free trade demands, will reassert its role as a forum for supply management research and negotiations.14 Trade-related policy discus-

sions are to be the exclusive purview of the WTO, while UNCTAD is to confine its mission to technical assistance for free trade initiatives.

Policies Towards Sustainable Trade and Food Security

IATP participated in the Interna-tional Assessment on Agricultural Science and Technology for Devel-opment (IAASTD), which resulted

13 “Open Letter to Congress on the Need for Strategic Grain Reserves.” April 28, 2008. < http://www.grassrootsonline.org/news-pub-lications/articles_op-eds/an-open-letter-to-congress-need-strategic-grain-reserves>14 Anne Laure Constantin, “UNCTAD XII: Hit or Miss?” Institute for Agriculture and Trade Policy. March 18, 2008. < http://www.trad-eobservatory.org/library.cfm?refid=102013>

increased consumption of meat and dairy products that require more grain and oilseeds for their produc-tion.11 These problems for sustain-able agricultural production and consumption likely can be solved or mitigated only by medium to longer term measures. These problems predate the current price spikes and volatility. What is dismaying, if not surprising, is that the dismantling of public reserve stock programs and the failure of the private sector to manage stocks in the public interest have left the world, and particularly its poorest residents, exposed both to the food financial cri-sis and exac-erbation of widespread food insecu-rity. There are only small public stocks to release to re-duce prices and price volatility and to alleviate hunger.

IATP has supported the African WTO members’ position in 2006 that discussions should begin on international supply management mechanisms to stabilize commodity prices and to release reserve stocks to reduce food insecurity.12 IATP has supported those U.S. agricul-

11 Anne Laure Constantin. “A Time of High Prices: An Opportunity For The Rural Poor?” Institute for Agriculture and Trade Policy. April 2008. <http://www.tradeobservatory.org/library.cfm?refid=102347>12 Carin Smaller and Sophia Murphy, “On the Right Path to Development: African Countries Lead the Way.” Institute for Agri-culture and Trade Policy. July 21, 2006. < http://www.tradeobservatory.org/library.cfm?refID=88129>

Since the 1960s containerization has revolutionized ship transport (Courtesy flickr, aktp).



patents, proposed a modification to the disclosure amendment so that disclosure would not apply retro-actively, even in cases of bio-piracy, when a resource is expropriated from a WTO member and patented fraudulently.

The Norwegian amendment further calls for compatibility between TRIPs and the FAO Treaty on Plant Genetic Resources for Agricul-ture and Food. Without effective implementation of the Convention on Biological Diversity and the FAO treaty, combined with the protection of traditional knowledge about biological resources afforded by the disclosure amendment, it is difficult to imagine how agriculture can be environmentally or eco-nomically sustainable over the long term. As patented and bio-pirated crop varieties drive traditional plant breeding out of business by concen-trating research dollars on the most commercially viable crops, genetic erosion will continue to accelerate as the stewards of biodiversity are driven off the land.

With regard to agricultural market access for developing countries, it has been said that developing coun-try market access is the key to Doha Round success, and to mitigating, if not reversing, the deteriorating terms of trade (increasing import costs vs. declining export revenues) that have afflicted most non-oil exporting developing countries since before the Uruguay Round. IATP takes a different position. We believe that the market access for-mula, even if honored in letter as well spirit in Doha Round imple-mentation, would provide at best an

in a Global Report and sub-global reports incorporating the work of more than 400 authors, four meet-ings between authors and reviewers and three rounds of peer review (www.agassessment.org). The IAASTD Summaries for Decision-Makers and Synthetic Reports of crossing cutting subjects were approved by 57 governments on April 15th in Johannesburg, South Africa.15 IATP helped to draft the policy options chapter of the Global Report. Parts of that chapter reflect IATP’s work on supply man-agement, intellectual property and traditional knowledge for sustain-able agriculture, and on food safety issues in sustainable market entry. This overview of IATP positions on the discussion topics suggested by the Center for Global Studies will conclude with some of our views on Aid for Trade. IATP supports the developing country proposal to amend the WTO intellectual property agree-ment (TRIPs) to support biodi-versity and protect traditional knowledge and biological resources used in patented products.16 The proposed amendment to Article 29 requires that patent applicants disclose to patent office examiners the source of biological resources and traditional knowledge used in patented products. Norway, to allay U.S. concerns that the amendment could lead to revocation of existing

15 “Will the International Assessment of Agriculture Bring A New Era?” April 28, 2008. <http://iatp.typepad.com/thinkfor-ward/2008/04/iatp-contribute.html>16 Steve Suppan. “Amending WTO patenting rules . . .” Institute for Agriculture and Trade Policy. July 2006. < http://www.tradeobser-vatory.org/library.cfm?refID=88376>

“Without effective implementation of the convention on Biological Diversity and the FAO trea-ty,[...]it is difficult to imagine how agriculture can be environmentally or economically sus-tainable over the long term.”

Steve Suppan


May 2009

The failure to implement much of the WTO Uruguay Round to the benefit of developing country members resulted in the recogni-tion that improving their supply capacity, trade infrastructure and training, and not just market access opportunities, were required to realize concrete benefits from trade and investment agreements. Aid for Trade includes the training of offi-cials in trade policy and regulations; trade development services, such as marketing plans; trade related infrastructure, including roads and ports; building supply capacity; and assistance to meet trade related adjustment costs, e.g. employment loss, widely projected to be signifi-cant as a result of the Doha Round.

Aid for Trade, announced at the WTO Hong Kong Ministerial in 2005, is not, however, part of the Doha Round negotiations and is not binding on WTO members.18 IATP has been concerned that Aid for Trade could be the best endeavor carrot used to make developing countries make commitments that they would not otherwise make without promised aid. Some nego-tiators would have no difficulty in promising future aid in exchange for support now for developed country negotiating proposals.

Different agencies and donors use different definitions of what counts as Aid for Trade, so monitoring

tion.” Institute for Agriculture and Trade Policy. May 2008.18 Carin Smaller. “Can Aid Fix Trade? Assessing the WTO’s Aid for Trade Agenda?” Institute for Agriculture and Trade Policy. September 2006. <http://www.tradeobservatory.org/library.cfm?refID=89070>

opportunity that must be converted into sustained market entry. Sus-tained market entry not only re-quires supply and logistical capacity to satisfy the needs of global supply chains. Market entry also requires capacity to meet sanitary-phytos-anitary (SPS) requirements; techni-cal requirements, such as packing; increasingly complex customs requirements; intellectual property protection certification (under the guise of import product safety); and protection against intentional contamination of products, e.g. un-der “food defense” rules of the U.S. Bioterrorism Act.

Fulfillment of all these require-ments requires not only well resourced and well trained trade bureaucracies, but trade infrastruc-ture, such as testing laboratories and integrated information technol-ogy data bases, that are not only lacking in developing countries, but are insufficient in developed countries, such as the United States. The recent Congressional testimony on the Food and Drug Administration’s “Food Protection Plan” and chronic violations and non-enforcement of Food Safety In-spection Service rules are indicative of a loss of effective government control over the safety and quality of the domestic and imported food supply. Industry’s call for more self-policing of food imports does not portend a reliable infrastructure for inspection and testing of imports, especially from new exporters in developing countries.17 17 Rod Leonard and Steve Suppan. “Losing Control of U.S. Food Safety.” November 2007. <http://www.agobservatory.org/library.cfm?refID=100755 > Steve Suppan. “Import Safety In The Twilight Of The Bush Administra-



what counts as aid is difficult at best. In the Aid for Trade planning documents, IATP has not been able to identify new additional money. Rather money is diverted from other development assistance pro-grams to trade-related assistance, as trade-related policy becomes the master matrix for development. The diversion is not small change. Recall, for example, the World Bank study, which estimated the cost for a Least Developed Country to implement bureaucratically the Uruguay Round SPS, TRIPs and Customs agreements at an aver-age $150 million, about the entire annual budget for all development programs in an LDC.19

Because most Aid for Trade priori-ties have been determined by the WTO and international financial institutions and because aid is often highly conditioned on use of donor country advisors and services, the much touted degree of “country ownership” of Aid for Trade is questionable. While the WTO has organized regional meetings with regional banks to seek sources of private financing for “country ownership” of Aid to Trade, private money is often risk adverse until public money takes the first and biggest risks.

While IATP agrees that there is a great need of Aid for Trade, we question whether the WTO is the right coordinating agency for this project. Doesn’t the relatively small WTO Secretariat have enough

19 Michael Finger and Philip Schuler. “Imple-mentation of Uruguay Round Commitments: the development challenge.” World Bank. Policy Working Paper No. 2215. 1999.

to do without coordinating Aid for Trade? When the Integrated Frame-work on Trade Related Financial Assistance was launched, the UN Food and Agricultural Organization was not involved in its founding. How could FAO, an international agency with deep technical as-sistance expertise in mitigating supply constraints and assessing infrastructural needs for meeting non-tariff trade requirements, be omitted from the IF? Having the right lead agency coordinate Aid for Trade is no guarantee of its success, if there is no new money and money has to be diverted from other programs for trade. But since exports from most LDC are agri-cultural, wouldn’t it make sense for Aid for Trade to have FAO at least a co-leading agency, rather than as a technical advisor?

Conclusion

IATP does not believe that current trade policies pertaining to agricul-ture offer the right tools to reduce the ruinous financial volatility of agricultural markets and to make agricultural trade environmen-tally and economically sustainable, especially for developing countries. The argument that more developing country import liberalization and import dependency will remedy the food security crisis is unviable and disingenuous.20

20 Alexandra Spieldoch and R. Dennis Olson. “Will the Food Crisis Finally Get the Atten-tion of the Presidential Candidates? Institute for Agriculture and Trade Policy. May 6, 2008. <http://www.iatp.org/iatp/commentaries.cfm?refID=102588>.


May 2009

The European Union and DohaKENNETH A. REINERT, SCHOOL OF PUBLIC POLICY, GEORGE MASON UNIVERSITY

Agriculture has been the most contentious issue in the Doha

Round of multilateral trade nego-tiations, and the European Union (EU) intervenes substantially in agricultural markets as part of its Common Agricultural Policy (CAP). The EU’s most visible intervention comes in the form of agricultural subsidies, which have risen over time to over US$ 135 billion annually. This is approxi-mately three times the amount of US agricultural subsidies and nearly three times the amount of Japanese agricultural subsidies. In evaluating the impact of the EU’s US$ 135 bil-lion subsidy level, we must keep in mind that this is nearly three times the total overseas development assistance going to the developing world from all sources and of ap-proximately the same magnitude as total developing world agricultural exports. The EU also intervenes in agricultural markets using tariffs, and these discriminate against developing-country processed agricultural goods through escala-tion with degree of processing. The average applied tariffs are not as egregious as those of Japan, but are substantially higher than those of the United States.

There is growing evidence that, in some cases at least, standards and technical regulations (STRs) consti-tute important non-tariff measures. This is another important area of EU activity. Consider the case of EU food standards. For example,

researchers have examined EU stan-dards for aflatoxin in food exports from Africa, estimating that these standards, which would reduce EU health risks by less than 2 deaths per billion per year, decrease Afri-can exports of cereals, dried fruits, and nuts by 64 percent ($US 670 million), a significant amount.21

EU food standards have been tight-ened to include stringent report-ing requirements for developing country farmers that involve tracing production back to the seed. As was reported just before their introduc-tion, “new food safety regulations (are) due to come into force in the European Union in 2005. These will make it mandatory for all fruit and vegetable products arriving in the EU to be traceable at all stages of production, processing and distribution.”22 EU assistance to help farmers meet these new, strin-gent standards is reported to be

“inadequate.” Consequently, many developing-country farmers risk being closed out of this important market. An additional problem is that the standards are applied in a discriminatory fashion and require specialized skills and equipment beyond the capability of most low-income countries.

21 T. Otsuki, J.S. Wilson and M. Sewadeh (2001) “Saving Two in a Billion: Quantifying the Trade Effect of European Food Safety Standards on African exports,” Food Policy 26:495-514.22 W. Wallace (2004) “African Farmers Dig in to Comply with EU Food Rules, Financial Times, 7 April.

“France has less than two percent of its total employment in agriculture but has stood ready to hold up the Doha Round over agricultural issues.”

Kenneth A. Reinert



The high level of agricultural sup-port in the EU takes place against a backdrop of relatively little employ-ment in the sector in some leading

EU countries. For example, France has less than two percent of its total employment in agriculture but has stood ready to hold up the Doha Round over agricultural issues. The EU often justifies its support of agriculture in terms of various external benefits to agricul-tural production or what it terms

“multi-functionality” or “non-trade concerns.” Such arguments are spurious for at least two reasons. First, nearly all economic activity has external benefits of one kind or another. Second, to the degree that agriculture does have these external benefits, they are present in all regions, not just the EU. As such, external benefits are emphati-cally not EU-specific. Further, EU attempts at reform under Agenda 2000 were, in the words of EU scholar Desmond Dinan (2005),

“extremely modest, involving… nei-ther a radical shift from a price sup-port system nor a major diminution

of farmers’ incomes” (p. 369).23 The CAP reforms of 2003 were also less significant than advertised, with flexibilities built in to ensure

continued subsidy levels, often linked indirectly to production in a distorting manner or couched in terms of “Pillar II” rural develop-ment terms.24

Whereas the Uruguay Round was held up for a number of years by the EU (particularly France) over the architecture of agricultural trade rules, the Doha Round has been held up by the depth of tariff and subsidy cuts in agriculture, as well as the extent of declared

“sensitive products” to be sheltered from tariff cuts. The EU took the position throughout the round that it would not move effectively forward with a central focus being

23 D. Dinan (2005) Ever Closer Union: An Introduction to European Integration, Lynne Rienner.24 See U. Koester (2009) “Common Agri-cultural Policy,” in K.A. Reinert, R.S. Rajan, A.J. Glass and LS. Davis (eds.), Princeton Encyclopedia of the World Economy, Princeton University Press, 184-188.

“ [T]ariff cuts need to be deep [...] more than 50 percent [...]in order to ensure some liberalization takes place.”

Kenneth A. Reinert

Bananas, one of the commodities the EU was criticized for preferential trade agreements (Courtesy flickr, .manda.).


May 2009

With regard to domestic support, the EU accounts for the majority of these payments.26 Given ag-gregate measure of support (AMS) overhang, cuts in the AMS measure also need to be substantial (the very word contained in the Doha Min-isterial declaration). For example, due to AMS overhand “the 20 percent cut in the total bound ag-gregate measure of support (AMS), promised in the July 2004 Frame-work Agreement will require no actual reductions in support by any World Trade Organization (WTO) member. A cut of 75 percent in bound AMS levels would be needed to get some action from those countries that provide the most domestic support.” The October 2005 EU proposal was below 75 percent, precisely to avoid “action” in the form of actual reductions in the AMS.

In conclusion, while the EU showed some willingness to compromise on export subsidies, its posture on the key issues of market access and domestic support were such that little was offered and no positive trade-and-development outcome was possible. This undermined the commitment made at Doha in 2001.

26 See H.G. Jensen and H. Zobbe (2006) “Consequences of Reducing Limits on Aggregate Measures of Support, in K. Anderson and W. Martin (eds.), Agricultural Trade Reform and the Doha Development Agenda, World Bank, 245-269.

agricultural negotiations. However, from a development perspective, that is exactly where the focus should have been. Many model simulations have revealed that, with regard to merchandise trade (as opposed to services), most of the welfare gains will come from agri-culture and that these were particu-larly important for most (but not all) developing countries.

Model simulations have also re-vealed that the bulk of the potential gains from agricultural negotiations would come from market access (e.g., tariff reductions) and that, further, given tariff binding over-hang in agriculture, tariff cuts need to be deep (e.g., more than 50 percent) in order to ensure some liberalization takes place. There is also evidence that, given tariff dispersion (due to tariff peaks), top rates must come down by propor-tionally more than bottom rates and a maximum cap must be introduced (e.g., at 100 percent). Impor-tantly, model simulations have also revealed that, given tariff peaks, including even a small number of

“sensitive” products could make any market access agreement meaning-less. The EU insistence that up to 8 percent of its tariff lines be “sensi-tive” thus prevented any meaningful outcome from the round.25

25 See K. Anderson and W. Martin (2006) “Agriculture: The Key to Success in the Doha Round. In R. Newfarmer R (ed.), Trade, Doha, and Development: A Window into the Issues, World Bank, 77-83.

Author Biographies

Kimberly Ann Elliott, visiting fellow at the Peterson Institute for International Economics, has been associated with the Insti-tute since 1982 and is a senior fellow at the Center for Global Development (CGD). She is the author and coauthor of numerous books and articles on a variety of trade policy and globaliza-tion issues. Much of her work focuses on the uses of economic leverage in international negotia-tions, including both economic sanctions for foreign policy goals and trade threats and sanctions in commercial disputes. Her most recent book is Delivering on Doha: Farm Trade and the Poor, which was copublished by CGD and the Institute in July 2006.

Christine A. McDaniel is the chief economist to Chair-man Shara Aranoff at the U.S. International Trade Commission, providing economic expertise and advice on economic and industry issues and import injury cases. From March 2007 to January 2009 she served as deputy as-sistant secretary for economic policy at the U.S. Department of the Treasury. Prior to joining Treasury, Ms. McDaniel worked at several government institu-tions and taught a course on

the economics of innovation at Georgetown University. She has published articles in academic journals on topics including international trade, NAFTA, intellectual property rights, and economic modeling.

Kenneth A. Reinert is Profes-sor of Public Policy at George Mason University where he received a Distinguished Teach-ing Award in 2003. He is also a Senior Fellow at Trade Part-nership Worldwide. In the past he held the position of Senior International Economist at the U.S. International Trade Com-mission and consulted for various U.S. and international trade and economy-related organizations. He has published over 50 journal articles and book chapters in the areas of international trade, eco-nomic development, and environ-mental policy. His latest publi-cations include a two-volume Princeton Encyclopedia of the World Economy (Princeton University Press, 2009) and a coauthored book, Globalization for Development (Palgrave MacMillan and World Bank, 2006 and 2007).

Devesh Roy, has been a Research Fellow at the International Food Policy Research Institute (IFPRI)

since 2004. His current research is on international economics with focus on product standards in international trade. His other areas of research are international migration, economic growth and development, economic geography and impact of trade liberalization on food security in poor countries. Before coming to IFPRI, he was a PhD student at the University of Maryland at College Park. Roy also holds a bachelor’s degree in econom-ics from Delhi University and a master’s degree from the Delhi School of Economics.

Steve Suppan is senior policy analyst at the Institute for Agri-culture and Trade Policy (IATP). Since 1998, he has been Director of Research and acted as IATP’s liaison to several governmental and intergovernmental organiza-tions. He has written extensively on food safety policy and on agricultural trade policy. Most recently, he has written a paper on structural reform in the Codex Alimentarius Commission for Consumers International’s Decision Making in the Global Market project. Suppan has also represented IATP at meetings of diverse bodies and agencies of the United Nations.

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