Some Thoughts on Global Trade Reform

Will MartinWorld Bank

Two Issues

Effects of unilateral trade reform

Expanding market access

Radical changes in trade patterns

Export Structure of Low Income Countries

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Agricultural exports(%)

Manufacturing exports(%)

Resources exports(%)

Why this change?

Price changes? High protection in OECD agriculture?

But agricultural protection there has been falling– even if it remains too high

Factor accumulation has been important Global production sharing driven by falls in

communication and transport costs But also a dramatic change in protection

policies in developing countries

Declines in developing country protection

Tariffs down by around two thirds From 30 to 11 percent

NTB coverage has fallen dramatically

And exchange rate overvaluation has also declined

Many countries have developed export processing arrangements

ERP’s Exporting from India

-70

-60

-50

-40

-30

-20

-10

0

India

ERP 97 -5 -39 -3 -23 -35 -6

ERP 86 -14 -64 -9 -45 -60 -16

Agric Ag Proc Resources Lab Int Manuf K Intensive Manuf Services

Additional effects of protection

Protection policy doesn’t just reduce exports Also forces countries into the “wrong” cone of

diversification even without considering real exchange rate effects

Products in which you have a comparative advantage disappear from your exports Sensible “value-adding” no longer pays

Protected countries end up dependent on agriculture and raw materials

And it’s hard to stop with just a little protection!!

Doha Agenda Agricultural Proposals on market access

Harbinson Draft

Derbez Draft

G-20 Amendments

Market Access Not accidentally, the Doha agric mandate does

not require redns in high tariffs, or in escalation These apparent oversights prepared the ground

for the reappearance of the average-cut routine Countries argued they needed flexibility

Line-by-line reductions too demanding If so, an agreement to reduce average tariffs by

x percent might be an option Provides flexibility, but rewards reductions in high

tariffs

Linguistic and Statistical Confusion

Average-cut sounds like a cut in the average But an average-cut is no cut at all Or a rigid, minimum cut

To the extent any meaningful cuts are made, they are in lower tariffs Increase tariff escalation, making potentially

welfare-reducing reductions in low tariffs Also lowers tariff revenues disproportionately

How could anything so absurd be on the agenda after three years of work?

Example: 50 percent cut

Initial tariff 1 100

Cut 100 0

Final tariff 0 100

Harbinson draft Accepted the average-cut routine Tried to reduce the damage by

dividing tariffs into three groups, with higher average-cuts for higher tariffs

Tariff escalation-creation within groups, reduction between groups

Derbez draft Continues with three groups of

tariffs But these are now self-selected 1. Average-cuts with minimum 2. Swiss formula 3. Zero tariffs Plenty of scope for abuse here

Stir a few near-zero tariffs in with the high tariffs; use the Swiss formula on the rest of the low tariffs, etc

G-20 Amendments

Retains the three self-selected groups But requires proportional reductions

in the first group Aims for an overall discipline on tariff

cuts via an overall “average-cut” Retains average-cuts for developing

countries

Conclusions Unilateral reform can change your

world

Market access reform is the most important part of the WTO agriculture agenda But there’s a risk it will be negated by

statistical, linguistic conjuring tricks