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Doha and Development: some academic perspectives

European Commission - MEMO/05/452   30/11/2005

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MEMO/05/452

Brussels, 30 November 2005

Doha and Development: some academic perspectives

A series of studies this year have offered assessments of the possible benefits of the Doha Development Agenda for developing countries. With developed countries like the EU often blamed for blocking pro-development outcomes in the Doha Round this research offers an important insight into the complex relationship between trade and development in a multilateral trade negotiation.

Does a Development Round mean an Agriculture Round?

The Uruguay Round made only limited inroads into agriculture protection in both developed and developing countries, which means it is inevitably the focus of the Doha Round. However, the biggest welfare gains for all developing countries in the Doha Round will come from liberalisation in industrial goods, which accounts for 75% of developing country trade and most of their tariffs paid. The Carnegie Foundation (2005) estimates that industrial liberalisation would account for more than half of the potential gains in value for developing countries from Doha. The World Bank has cited similar gains (Anderson and Martin 2005) Opening developing country markets to new services investment is crucial in providing the banking, communications and transport services that make sustained economic growth possible (World Bank 2002, Hodge 2002). So a Development Round must be a balanced Round.

Are Developed Countries like the EU the greatest barrier to global agricultural liberalisation?

No, not if you compare the level of protection in agriculture between developed and developing countries. On average, developing countries have much higher agricultural tariffs than developed countries – much higher than those of the EU. Developing countries pay much higher tariffs to each other than they do to the developed world. According to the World Bank (Anderson and Martin 2005), developing countries would therefore gain as much in agriculture from their own liberalisation as from liberalisation by developed countries. Similarly, the IMF (Yang 2005) notes that Africa may have overlooked the potential market access gains in developing countries, where trade barriers remain relatively high and demand for African imports has expanded substantially.

Research by A Panagariya (2005) suggests that the average bound agricultural tariff of Brazil and Argentina, who are two of the most competitive agricultural exporters on the planet, are much higher than the EU and they have far fewer duty free tariff lines. The highest agricultural tariffs in the world are those of the G10 group of developed countries. Europe has only a tiny number of tariffs higher than 100% - and is willing to eliminate these at this level.

To maximise the potential gains from trade in global agriculture both these groups would need to be ready to reduce protection. Europe’s position in the Doha Round is usually painted as a defensive one, but in contrast to some other developed countries the EU has offered deep tariff cuts, supported the idea of a maximum tariff of 100% and proposed far fewer ‘sensitive products’ than some developed countries.

Would limited liberalisation in global trade in agriculture be good for developing countries?
For some highly competitive agricultural exporters in the developing world like Brazil and Argentina, reductions in the agricultural protection of the developed world will bring big welfare gains. However the biggest winners in most agricultural liberalisation scenarios would be in the developed world, including large agricultural exporters such as Australia and New Zealand (Andersen and Martin 2005). The benefits for developing countries would be very unevenly distributed, going largely to competitive farm exporters like Brazil and Argentina. If tariff cuts reduce the preferential margins offered through preferential access schemes in markets like Europe’s, then many Sub-Saharan countries become net losers from agricultural liberalisation (Bouet et al 2004, Bouet et al 2005). Poor developing countries in the G90 have warned that if steep tariff cuts affect their preferential access they will be unable to support a final Doha Round Agreement. That is why the EU has rejected extreme tariff cutting scenarios like that of the US and is proposing concrete proposals at Hong Kong to address the problem of preference erosion.

Would the reduction of trade-distorting subsidies in the developed world help developing countries?

Yes. Ending the subsidisation of exports and reducing trade distorting support to farmers is obviously an important step towards fairer global trade in agriculture – for the benefit of all. Through its internal CAP the EU has now decoupled about 90% of CAP direct payments from production and prices, meaning they no longer distort trade. It has also offered to eliminate all export subsidies. In contrast, the US has yet to undertake equivalent reform and is not offering to go as far in its current Doha offer.

Are the steepest possible tariff cuts the answer?

Not in a balanced Development Round. Cutting agricultural tariffs creates big welfare gains for competitive agricultural exporters like Brazil and Australia. But it also erodes the preferential access already extended to vulnerable developing countries, often dependent on a single agricultural export. Steep tariff cuts need to be accompanied with measures to cushion preference erosion. Reducing dependency and protection simultaneously means careful liberalisation and accompanying measures to help countries adjust to the new competitive environment.

Moreover, liberalisation can only benefit those with the capacity to exploit the new opportunities it offers. For the poorest, even tariff and quota free market access has to be complemented by domestic and foreign investment in trade capacity. That is why the EU complements its Everything But Arms scheme, which offers duty and quota free access to all imports from the Least Developed Countries (LDCs) with more Trade Related Assistance spending than the rest of the world put together. So tariff cuts are hugely important - but need to be weighed carefully against development outcomes and accompanied by assistance to mitigate the negative impacts and maximise the positive – i.e. more Aid for Trade.

For more information:

Anderson and Martin (eds), Agricultural Trade Reform and the Doha Development Agenda, World Bank 2005

Anderson et al, Doha Merchandise Trade Reform and Developing Countries: What is at Stake?, World Bank 2005

Bureau J C et al, The Consequences of Agricultural Trade Liberalisation for Developing Countries: distinguishing between Genuine Benefits and False Hopes, CEPII 2005

Bouet A et al, Multilateral Agricultural Trade Liberalisation, the Contrasting Fortunes of Developing Countries, Blackwell 2005

Polaski S, Impact of the Doha Round on Developing Countries, Carnegie Endowment for Peace, 2005

Hodge, J. 2002, ‘Liberalization of Trade in Services in Developing Countries’ In B.

Hoekman, A. Mattoo, and P. English, eds., Development, Trade, and the WTO: A

Handbook. Washington, D.C.: World Bank.

World Bank 2002. Global Economic Prospects 2002. Washington, D.C

Yang Y, Africa in the Doha round, IMF, 2005

All these studies are available from the office of the Spokesman for the European Commissioner for Trade. Please contact stephen.adams@ec.europa.eu.


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