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GTAP Resource #1244

"A Forward Looking Analysis of the Doha Round"
by Francois, Joseph, Hans van Meijl and Frank van Tongeren

This study provides insights into the nature and magnitude of the impacts of the WTO Doha Round for international trade and the resulting welfare improvements. We use a global computable general equilibrium model. The most important aspects of the model can be summarized as follows: (i) it covers all world trade and production; (ii) it allows for scale economies and imperfect competition; (iii) it includes intermediate linkages between sectors; (iv) and it allows for trade to affect capital stocks through investment effects. The last point means that we model medium to long-run investment effects. The inclusion of scale economies and imperfect competition implies agglomeration effects like those emphasized in the recent economic geography literature. The model uses GTAP (version 5) data.

Considerable attention was given in the study to the development of a realistic "baseline". This baseline already takes into account events such as the entry of China into the WTO, the Agenda 2000 reform of the EU’s Common Agricultural Policy (CAP) and the addition of new members to the EU. In this way it is possible to estimate those effects that are specifically attributable only to further trade liberalisation in the Doha Round.

Non-quantitative trade restrictions, such as those facing the services sector, are usually not included in quantitative analyses. This carries the risk of underestimating the importance of these less visible trade restrictions. For this reason, this study attempts to quantify the effects of both liberalising trade in services and reducing administrative barriers facing exporters and importers at border-crossings.

A review of the international tariff situation reveals that the specific modalities of tariff reductions are at least as important as the actual amount reduced. Reduction modalities that target peak tariffs result in a different tariff landscape compared to more simple reductions in average tariffs. Furthermore, developing countries have a particular interest in reducing tariffs that currently hamper South-South trade. This results from the fact that many developing countries have secured a high level of protection under the Uruguay Round.

The increase in global income from trade liberalisation is estimated at between $200 billion in the middle term to $650 billion in the long run, taking into account the effects of trade-stimulated investment. The analysis underlines the importance of trade policy reform by developing countries for achieving these benefits. About one quarter of the global gains can only be realized if developing countries actively participate. At the same time, developing countries can achieve high gains relative to their current income levels.

A third of the estimated benefit of $220 to $600 billion is attributable to trade facilitation, a third to agricultural liberalisation and the remaining third approximately equally to both reductions in industrial tariffs and liberalisation in services. Leaving aside trade facilitation and services liberalisation, industrialised countries have the most interest in seeing agricultural liberalisation in other OECD economies as well as a reduction in industrial tariffs by developing countries. For developing countries, the benefits arise primarily from trade liberalisation with other developing countries.

The results for the agricultural sector are mixed: net benefits at a global level, with particularly the EU, Africa and the majority of Asia profitting, but potentially negative effects in the long-term for the Asia-Pacific region and North America . This is a striking results that seems at odds with the current positions taken in the agricultural negotiations. However, the results highlight the importance of taking a long-term structural view. CAIRNS group countries should perhaps be cautious about expecting long-term economy-wide gains if, as a result of liberalization, the agricultural sector draws more resources away from other productive uses. Developing countries also need to think carefully about the risks of reinforcing an emphasis on primary exports.

The potential increase in world income from reducing agricultural import tariffs alone could reach $60 billion, but 60 percent of this is dependent on effective dismantling of market protection in developing countries. Additional reduction of internal agricultural support results in an economy-wide increase in income that is greater for the EU than for North America. Within Europe this is more relevant for France, Germany and Eastern Europe than for the Netherlands. Dutch agriculture, with its own particular specialisations, is less dependent on European production support than the typical agricultural sectors of other countries.

The worldwide results are consistently positive for the industrial sector, with regards to both short- and long-run effects. The benefits of reducing industrial tariffs, estimated at about $35 billion with partial liberalisation, and $55 billion with full liberalisation, are (especially in the long term) greater than those for the agricultural sector due to the relatively larger investment spending released in the industrial sector. The readyness of developing countries to reduce effectively their own tariffs is crucial to realising the worldwide benefits in this area. Many of these countries have hardly reduced their tariffs at all from their relatively high levels. This limits the bargaining power of developing countries and means that the debate as to which tariffs (bound or applied) to use as the reference point is particularly important. A noteworthy exception could be China as it meets stiffer competition from other developing countries and finds its export prices under pressure. These results highlight the critical role that determination of market access modalities (including benchmark or base negotiating rates) will play in securing benefits for developing countries.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Created: van Meijl, H. (4/29/2003)
Updated: Bacou, M. (9/22/2003)
Visits: 5,207
- Baseline development

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