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Asian Development Outlook 2006 : I. Developing Asia and the World
Endnotes1 For example, tariff cuts on capital goods imports have been very successful in past rounds, whereas textiles and clothing remain highly protected in countries that do not have a comparative advantage in this area. Since textiles and clothing use capital goods in the production process, this reduction in input costs will have the tendency to increase the protection of value added in the textile and clothing industry, thereby creating an incentive for additional resources to be allocated to this inefficient sector. This is known as the problem of the "effective rate of protection" in economics. 2 Per capita income will be the most likely criterion used to determine whether a country should benefit from "special and differential treatment." 3 More specifically, the G10 is opposed to substantial opening in agriculture; the G33 supports easy exceptions from liberalization, e.g., via the notions of special products or safeguards; the G20 focuses on the opening of the farm markets of developed countries; and the Cairns Group is dedicated to global opening of agricultural markets. 4 As the welfare costs of tariffs increase disproportionately as the tariff level rises, larger reductions in the highest tariffs have a more than proportional positive effect on efficiency and welfare. 5 In general, moderate tariffs provide larger revenues than high tariffs. This is in large part due to the decrease in import volume associated with high import prices generated by steep protection. The fiscal aspect of the tariff is particularly important for developing countries with a narrow domestic tax base. 6 "Bound" tariff rates for individual products are those that a WTO member has committed not to exceed in past GATT rounds or as part of their protocol of accession. 7 First, exclusions of sectors give an advantage to countries with better negotiators, creating an advantage for developed countries over many developing countries. Second, countries will likely exclude the sectors with the largest potential for trade creation. And third, the symmetry of liberalization imposed by the Swiss formula would be distorted. 8 It should be noted that Australia and New Zealand have liberal farm policies already in place. 9 The EU is by far the main user of this instrument; it accounts for more than 80% of all global export subsidies in agriculture. 10 Subsidies are used in order to maintain a certain standard of living for farmers. If tariffs are cut, either the country needs to increase subsidies to maintain those standards, or allow for a reduction in living standards. The former policy would in part negate any gains from liberalization, whereas the latter would help achieve the necessary structural adjustment. In any event, if the decision is made to maintain standards by increasing subsidies, this is more "transparent" than tariff protection because it comes at a quantifiable fiscal cost. 11 Arguably this happened in certain cases at the Uruguay Round, when import quotas had to undergo "tariffication". 12 Among other things, plurilateral negotiations facilitate negotiations by allowing a critical mass of like-minded countries to pursue liberalization in areas that would be difficult for other countries. This approach has already been used with success in the complex 1996 WTO Information Technology Agreement. 13 Trade policy reviews involve periodic assessments of the trade policies of WTO member states. 14 There are at least three major criticisms. First, it represents no additional commitment for the EU, as part of its Everything But Arms initiative has a 100% coverage, and a very marginal one for the US, which grants duty-free and quota-free access to its market for 83% of imports from LDCs. Second, the remaining 3% of tariff lines (roughly 300—400 lines) could easily cover all the crucial exports of most LDCs, which tend to have a limited range of exportable products. Third, the agreement covers only the LDCs, so excluding many poor countries that are not classified as LDCs. 15 Developing countries here refer to Asian developing economies, Latin America, and the rest of the world. ReferencesAnderson, Kym and Will Martin. 2006. "Scenarios for Global Trade Reform," in Poverty and the WTO: Impacts of the Doha Development Agenda. Thomas W. Hertel and L. Alan Winters (eds.). London: Palgrave Macmillan, and Washington, DC: World Bank. Anderson, Kym and Will Martin (eds.). 2006. Agricultural Trade Reform and the Doha Development Agenda. London: Palgrave Macmillan, and Washington, DC: World Bank. Anderson, Kym, Will Martin, and Ernesto Valenzuela. 2006a. "The Relative Importance of Global Agricultural Subsidies and Market Access." World Bank Policy Research Working Paper, World Bank. February. Anderson, Kym, Will Martin, and Dominique van der Mensbrugghe. 2006b. Doha Merchandise Trade Reform: What's at Stake for Developing Countries? World Bank Policy Research Working Paper 3848. February. Washington, DC: The World Bank. Baldwin, Robert. 1982. "The Political Economy of Protectionism," in Jagdish Bhagwati (ed.) Import Competition and Response. Chicago, University of Chicago Press. Bchir, Hedi, Yvan Decreux, Jean-Louis Guerin, and Sebastien Jean. 2002. "MIRAGE : A Computable General Equilibrium Model for Trade Policy Analysis." CEPII Working Paper, No. 17. December. Estevão, M. 2005. "Product Market Regulation and the Benefit of Wage Moderation." IMF WP/05/191. International Monetary Fund, Washington, DC. September. Francois, Joseph, Hans van Meijl, and Frank van Tongeren. 2003. "Economic Implications of Trade Liberalization under the Doha Round." CEPII Working Paper, No. 2003-20. December. Hoekman, Bernard and Patrick Messerlin. 2006. "Removing the Exceptions of Agricultural Export Subsidies," in Kym Anderson and Will Martin (eds.) Agricultural Trade Reform and the Doha Development Agenda. London: Palgrave Macmillan, and Washington, DC: World Bank. Hertel, Thomas, David Hummels, Maros Ivanic, and Roman Keeney. 2003. "How Confident Can We Be in CGE-Based Assessments of Free Trade Agreements?" GTAP Working Paper No. 26, Purdue University. Jales, Mario and Andre Nassar. 2005. "How to Read the US and EU Proposals on Domestic Support to Agriculture. Bridges. Year 9, No. 10. International Centre for Trade and Sustainable Development, Geneva. December. Kutas, Geraldine. 2006. "Assessing the EU-25 Negotiating Room in Domestic Support at the Doha Round." Mimeo. Institute for International Trade Negotiations (Icone), Sao Paulo, Brazil and Groupe d'Economie Mondiale de Sciences Po, Paris, France. van der Mensbrugghe, Dominique. 2006. "Estimating the Benefits of Trade Reform: Why Numbers Change," in Richard Newfarmer (ed.) Trade, Doha, and Development: A Window into the Issues. Washington, DC: World Bank. OECD. 2004. Analysis of CAP Reform. Paris: OECD. ——. 2005. "The Benefits of Liberalizing Product Markets and Reducing Barriers to International Trade and Investment: The Case of the United States and the European Union." ECO/WKP(2005)19. OECD, Paris. May. Penn, J. B. 2005. "US Proposals for the Agricultural Negotiations," Presentation at the 6th WTO Ministerial Conference, Hong Kong, China, December 13-18, 2005, http://usinfo.state.gov/ei/img/assets/4756/Dept_State_WTO_Proposal_110405.pdf. Polaski, Sandra. 2006. "Winners and Losers: Impact of the Doha Round on Developing Countries." Carnegie Endowment for International Peace. Available: www.Carnegie.Endowment.org/trade. WTO. International Trade Statistics. 2004. Table 1.
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