Brussels, 31 October 2011
WTO trade negotiations: Doha Development Agenda
The economic benefits
The EU is the largest trading bloc worldwide and therefore stands to gain from improving the global trading environment. It exported goods and services worth €1.87 trillion in 2010 (equivalent to 15.4% of EU's GDP) and imported €1.95 trillion.
Share of World Trade Imports 2010
Share of World Trade Exports 2010
The Doha Development Agenda (DDA) would have positive effects on the world economy: 1
World exports would increase by $359 billion on an annual basis from a deal including trade facilitation. This would mean an increase of 2% in world trade. In value terms the EU would reap the 2nd largest increase in industrial exports, just behind China, and would gain the most with respect to increase in its exports in services.
Trade facilitation, e.g. the simplification of trade procedures, transport and trade logistics as well as transparency is of major importance to a successful DDA deal, as almost half of the gains are to be reaped from this part of the agreement.
An agreement on "sectorals" (chemical, machinery, electronics and environmental products) would further enhance the benefits of an agreement. With a sectoral agreement world exports would increase by an additional $146 billion, to as much as $505 billion annually with yet another $8 billion if environmental goods are included.
An agreement would also bring positive effects on tariff revenue for certain regions, one of which is Sub-Saharan Africa (SSA). In the case of SSA reduced red tape would result in increased imported and exported trade volumes and hence in an increased tariff revenue.
Concluding the DDA brings systemic value in reinforcing a global and transparent set of rules, preventing excessive tariff hikes. Lower tariff bounds have additional value in curbing protectionism.
What are the benefits for developing countries?
Many large emerging economies are significant global exporters and will stand to gain from greater market opening.
Smaller developing countries also stand to gain from a more level playing field in agriculture through major cuts in developed countries' farm tariffs (by at least 54%) and trade distorting subsidies (80% for the EU and 70% for the US) as well as through the elimination of all export subsidies.
Least Developed Countries stand to gain very significant duty-free, quota-free access to developed countries' markets (the EU already provides full duty-free, quota-free access to all LDCs through its "Everything But Arms" initiative).
Developing countries benefit from flexibilities in tariff cutting, and are thus asked to make less ambitious cuts than developed countries. They will also benefit from significant special and differential treatment across the board (such as Special products, special safeguard Mechanism). The Least Developed Countries are not required to take any market opening commitments. Preference erosion concerns will also be addressed. In Services, the goal is to construct an effective waiver for LDCs.
What's the cost of not completing this round?
A study by IFPRI2 estimated that if all WTO members were to raise their applied tariffs on goods to the maximum level allowed under WTO rules, world income would fall by €258 billion ($353bn).
In a more conservative scenario, in which all countries raise their tariffs to the highest level they applied since 1995, then the loss to global output would be €98 billion ($134bn).
There would also be a serious risk of countries backtracking from their commitment to the multilateral, rules-based trading system and a rise in protectionist measures.
Furthermore, failing to close the Round would put in jeopardy all the development gains that it stands to deliver.
How far have we got in the negotiations?
At the Geneva Ministerial in July 2008 the Doha Round came very close to a modalities agreement on tariff cuts for industrial goods and agricultural products and a comprehensive package of farm reform in developed countries. This package would have gone further than any previous multilateral trade agreement. It would remove almost all remaining tariffs between developed countries for industrial goods and reform farm trade in a way that was considered unimaginable until recently.
What is already on the table?
On industrial goods in developed countries:
Reductions on import duties of around 40% on average for developed countries. No import duties above 8% allowed.
This would effectively end tariff protection as an effective policy instrument in developed countries. The highest import duty in the EU would be 6.1% and the average duty would be 2.1%.
On industrial goods in developing countries:
The reductions in import duties for developing countries would vary according to the type of formula used and the difference between the maximum level of import duties allowed and the actual level applied.
The reductions of import duties take place from the maximum level agreed between individual countries and the WTO (known as "bound tariffs"), which are often much higher than the actual level of import duties (known as the "applied tariffs"). Reducing bound tariffs can offer an important guarantee against future tariff hikes, but without reductions in applied rates, this does not in itself lead to increased trade flows.
The reductions of the bound tariffs in developing countries would typically be in the order of 50-60%. Reductions of applied tariffs vary between 2% and 36%. The formula would also slash peak tariffs (of over 15%) but developing countries may shield around half of their peak tariffs through the use of flexibilities.
Developing countries would also have more time (10 instead of 5 years) to implement reductions.
On agricultural goods:
The EU would open its market further to imports of agricultural goods with “formula cut” of import duties. The EU has offered to cut these duties by an average of 39% in 2005 and has increased that offer to an average 60% cut in 2008.
The EU would reduce its trade-distorting agricultural subsidies by 80%, and the US by 70%.
The EU has agreed to eliminate all its export subsidies by 2013 as part of a comprehensive DDA package.
Services negotiations are done on a request-offer basis; therefore there are no current figures relating to the global value of the offers made.
However, the offers made in July 2008 fell short of actual applied levels of access to global services markets, and therefore represented a very modest level of ambition.
Why does it take so long to negotiate?
Multilateral negotiations are never easy, as can be witnessed also in other areas than trade.
The Doha Round entails very complex negotiations that require progress across a number of topics, where the interests of the membership do not always converge. WTO Members often make tactical trade-offs in the negotiations between the various negotiating topics, meaning that sometimes progress can be blocked even rather non-controversial topics.
In addition, decisions in the WTO are taken by consensus, meaning that all members must agree with all elements of the final package. Finally, in recent years, the challenging global economic situation has made it politically difficult for some WTO members to engage in an ambitious liberalisation agenda.
November 2001, Doha, Qatar. The Doha Development Round is launched.
September 2003, Cancun, Mexico. Ministerial meeting collapses due to lack of agreement on agricultural issues, including cotton, and the inclusion of the "Singapore issues". New country groupings emerge, such as the G20 and the G90.
July 2004, Geneva, Switzerland. The Round is revitalised and there is agreement on a framework for continued negotiations.
December 2005, Hong Kong. Developed countries agreed provide full unrestricted access to their markets for products from the least developed countries. Negotiators also agreed to eliminate agricultural export subsidies by 2013.
July 2006, Geneva, Switzerland. Negotiators fail to reach agreement on agricultural subsidies and import tariffs.
July 2008, Geneva, Switzerland. Negotiators came very close to a modalities agreement on tariff cuts for industrial goods and agricultural products and a comprehensive package of farm reform in developed countries. But ultimately no agreement was reached.
2009-2010. A number of high-level calls to complete the round, notably at G20 meetings, but with limited progress in the negotiations.
2011: Intensified efforts to conclude the negotiations on the back of strong guidance from the highest political level to complete the Doha Round in 2011. However, in May 2011 it became clear that this objective could not be reached given fundamentally divergent expectations among some WTO Members as regards the reciprocity of tariff cuts in certain industrial sectors. A compromise proposal by the EU did not succeed in unblocking the impasse.
Why did the 2008 Ministerial meeting collapse?
The 2008 Ministerial meeting broke down over a disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports.
Where are we now?
WTO members are now preparing for the eighth Ministerial Conference of the WTO to be held in Geneva on 15-17 December 2011. Given persistent impasse in the Doha negotiations, there is a critical need for strong political leadership and reasonably ambitious and specific guidance to negotiators to support the process of multilateral trade liberalisation and rule-making, as well as the WTO system more broadly.
The EU in global trade
Emerging economies are increasing their share of world growth. By 2015, 90% of world growth will be generated outside Europe, with a third from China alone. Developing and emerging countries are likely to account for nearly 60% of world GDP by 2030, compared to less than 50% today3.
The EU has maintained its 17.5% share in world trade on average over the last decade despite the rise of emerging economies.
Share of World Imports
Share of World Exports
"Economic Impact of potential outcome of the DDA II", Economic Analysis in Support of Bilateral and Multilateral Trade Negotiations, CEPII-CIREM, October 2011
"The Potential Cost of a Failed Doha Round" IFPRI Issue Brief 56 • December 2008, INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE, Washington