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MEMO/06/247

Brussels, 23 June 2006

Doha Round: some recent economic analysis

A number of recent studies have tried to assess the economic impact of the Doha Round for the world in general and for developing countries in particular. The most relevant studies are:

Anderson and Martin (World Bank); Polaski (Carnegie institute); Hertel and Keeney (Purdue University)[1]; CEPII (Paris leading institute in international economics)[2]; Copenhagen Economics; IFPRI (Washington based institute)[3], Swedish National Board of Trade[4]; Australian Productivity Commission[5].

The World Bank and Carnegie studies concentrate only on trade in goods, as these are the easiest to model. The Swedish National Board of Trade, Copenhagen economics, CEPII[6], have taken a broader view.

These studies suggest that gains from liberalisation in agriculture would be unevenly distributed, benefiting few very competitive exporters (Australia, New Zealand, Brazil, Argentina, Thailand) and consumers in developed countries that liberalise their agriculture trade (EFTA, Korea, Taiwan, and to a lesser extent the EU).

All studies show that the benefits of further market opportunities in services and trade facilitation are potentially the most important in the Round.

Services and trade facilitation: the major potential gains in the round

All studies show that the economic benefits linked to services or trade facilitation are potentially the most important in the Round. For instance, CEPII finds that agriculture would contribute 25% of the world income gains, industrial products would contribute 32% and services 43%. The Australian Productivity Commission found global gains of about $50bn from agricultural liberalisation, $80bn from manufactures liberalisation and around $130bn from services liberalisation.

When taking into account trade facilitation (the reduction of trading costs), the overall economic gains are more than doubled.

For Sub-Saharan Africa, for instance, benefits linked to trade facilitation could be equivalent to a doubling of official development aid for this region (some USD 20bn annually).

Merchandise: the bulk of gains in NAMA, not agriculture

When looking at merchandise only, tariff cuts in industrial products could generate the majority of the gains (Carnegie, Swedish National Board of Trade, CEPII, etc.). CEPII finds that 40% of the gains come from agriculture, against 60% for industry. A substantial tariff reduction for industrial products would offer, in relative terms, larger gains to developing countries than to the developed countries.

For Carnegie, the distribution of the gains is very much in favour of Industrial products (90%) against 10% in agriculture. However these results are based on a scenario which favours industrial liberalisation and on a set of technical options.

At the other extreme, for the World Bank study agricultural liberalisation (including domestic support and cuts in export subsidies) could provide about 2/3 of the total income gains. These results come from a set of assumptions and underlying parameters which are highly debatable. For instance, the tariffs in agriculture are assumed to be reduced 10 times more than for industrial products for developing countries. In addition, it is assumed that all crops can be grown on all kinds of soil, which is highly unrealistic for most agricultural production, and that new arable lands are available at no cost.

Developing country gains from agriculture liberalisation would be very unevenly distributed

For CEPII, a round restricted to liberalisation in agriculture would not favour developing economies taken as a whole, notwithstanding the large gains to be expected by some of them.

In line with similar works, the study shows that liberalisation limited to agriculture would lead to very unbalanced impacts between countries: the gains are limited to those developed importers that liberalise their agricultural trade (EFTA, Korea and Taiwan, and to a lesser extent the EU), and to few very competitive exporters (Australia, New Zealand, Brazil, Argentina, Thailand).

Gains are limited for the poorest

Benefits to some of the poorest and most vulnerable countries would be limited by a number of factors.

Firstly, preference erosion as the preferential access to some developed countries’ markets granted today to these countries will be eroded by trade liberalisation.

Secondly, the relative evolution of their import and export prices. These countries are net importers of basic food commodities, for which trade liberalisation is predicted to lead to price increases. At the same time, they are net exporters of mainly tropical commodities which would not be much affected by the Round, as they are already highly liberalised.

Lastly, these countries are not required to undertake any tariff reduction commitments under the DDA. The CEPII and other studies assume that these countries will not undertake tariff cuts, as custom duties represent a large part of their fiscal revenues. However, the studies conclude that countries gain in efficiency and productivity from their own liberalisation, it is thus for their own sake that the poorest countries should undertake some tariff reduction.

The main way for these countries to gain from the Round would be through trade facilitation or if they undertake some liberalisation. However, if full (instead of 97% as agreed in December 2005) tariff and quota free access were provided to LDCs, this would make a large difference to their stake in the round.

According to the IFPRI study, total income gains of free market access for LDCs would go from $1bn to $8bn with a full 100% coverage of their exports, compared to the 97% market access agreed in Hong Kong.


[1] Study available at http://siteresources.worldbank.org/INTTRADERESEARCH/Resources/Ch2AgTradeBook_HertelKeeney.pdf

[2] Paper available at : http://www.cepii.fr/anglaisgraph/workpap/summaries/2006/wp06-10.htm.

[3] Study available at: https://www.gtap.agecon.purdue.edu/resources/res_display.asp?RecordID=2004.

[4] Paper available at : https://www.gtap.agecon.purdue.edu/resources/res_display.asp?RecordID=2006.

[5] Dee and Hanslow (2000): Multilateral liberalisation of services trade, Productivity Commission Staff Research Paper, Ausinfo, Canberra.

[6] Centre d’Etudes Prospectives et d’Informations Internationales. Study available at : http://www.cepii.fr/anglaisgraph/workpap/summaries/2006/wp06-10.htm.


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