1. WTO’s Doha round in an era of high food prices Kym Anderson University of Adelaide, Australia Review session for Ch. 3 of the Monterrey Consensus, on International Trade as an Engine for Development United Nations, New York, 19 May 2008

2. Four key points Cost of trade distortions, esp. in agriculture, is very high, and esp. for developing countries including from DCs ’ own policies Agric under GATT has been difficult politically to reform, because of fluctuating and falling real world prices for food during past 60 years To keep domestic food price stable, many govts. sought to insulate and increasingly protect farmers from international market forces which makes the int ’ l market even less attractive to other countries, who follow suit

3. Four key points (continued) We have suddenly entered a new era of higher int ’ l food prices that may be prolonged offering a fresh opportunity to reform agricultural policies under WTO ’ s DDA But for there to be sustained benefits, DDA ’ s agric negotiations have to be both ambitious and with minimal exceptions

4. 1. Cost of trade protection policies is very high Global cost of 2004 tariffs on all goods plus agricultural subsidies: $287 billion per year plus cost of services regulations (so >$600 billion?) As % of GDP, cost to developing countries is 1/3 rd higher than to high-income countries and nearly twice as high for Sub-Saharan Africa These costs (which are lower-bound estimates) are potential gains from trade liberalization

5. Sources of cost to global economy $ billion due to policies in: Agric & food Textiles clothing Other merch. TOTAL High-income countries 135159159 (55%) Developing countries 472358128 (45%) All countries ’ policies 182 (63%) 38 (14%) 67 (23%) 287 (100%)

6. Sources of cost to developing countries $billion due to policies in: Agric & food Textiles & clothing Other merch. TOTAL High-income countries (50%) Developing countries (50%) All countries ’ policies (63%)(25%)(12%)(100%)

7. 2. Real international food price trend and fluctuations, 1900-2005 1900-2005: -0.8% p.a.

10. Int’l prices in Jan-Feb 2008 (current US$) compared with Jan-Dec 2006 Source: World Bank(2006 = 1.0) Grains1.7 Vegetable oils2.2 Petroleum1.4 Coal2.3 Urea fertilizer1.6 Phosphate rock4.3

11. IFPRI’s 2008 projection of international prices to 2050, real relative to 2000 Reference case: slight slowdown in ag R&D growth Alternative cases: faster/slower ag R&D growth Rice1.30.7/2.6 Wheat1.80.8/4.8 Maize1.60.5/6.5 Soybean1.20.8/1.8

12. IFPRI’s real price projection to 2050 (continued) Reference case: slight slowdown in ag R&D growth Alternative cases: faster/slower ag R&D growth Beef1.41.1/1.9 Sheepmeat1.10.9/1.6 Pork1.30.9/2.0 Poultry1.20.8/1.9

13. 3. Why is a new era of higher int’l food prices relevant to the DDA? Because commitments to lower bound agric tariffs and subsidies at WTO will be politically painless for at least several years Providing ample time for farmers and consumers to adjust

14. 4. But care is needed if DDA benefits are to be sustained DDA ’ s agric negotiations have to be both ambitious and with minimal exceptions especially in increasing market access but also in domestic support in the case of cotton

15. Relative importance of 3 agric pillars Welfare effects from: % for: Agric market access Agric domestic support Agric export subsidies All agric policies Developing countries 1091-10100 World 9352100

16. Relative importance of 3 agric pillars just for cotton Welfare effects from: % loss for: Agric market access Agric domestic support Agric export subsidies All agric policies Sub- Saharan Africa 2771100 World 10891100

17. Key agricultural elements of DDA negotiations to watch Reductions in tariff and subsidy binding overhang Treatment of ‘sensitive’ & ‘special’ products (SSPs) Tariff cap, and whether it applies to SSPs Extent of Special and Differential Treatment (SDT) invoked by developing and least-developed countries in terms of their willingness to reform

18. Our modelled Doha scenarios 75% tiered cut to bound agric tariffs without & with sensitive products without & with a tariff cap of 200% with & without Special and Differential Treatment (SDT) 75% tiered cut to domestic ag subsidy ceilings Abolition of agric export subsidies 50%/33%/0% cut in bound non-agric tariffs Services policies unchanged

19. Big cuts needed to reduce applied agric tariffs, because of “binding overhang” Bound % Applied % High-income countries 2714 Developing countries (excluding LDCs) 4820 Least developed countries (LDCs) 7813

20. Also big cuts in domestic support limits needed to reduce DS binding overhang US proposal G-20 proposal EU proposal Overhang Applied

21. Doha scenarios: Percent gain in real income from Doha scenario as share of global trade reform High-income Developing Ag+NAMA—Same as above but includes SDT. Ag Only—Only agriculture, no exemptions, no caps, includes SDT. Ag-SSP—Same as above but no caps. Ag-SSP+Cap—Same as above plus exemptions (HIC-2%, LMY-4%) and caps (200%). Ag+NAMA-SDT—No exemptions, no caps, no SDT.

22. Final point: why does tariff binding, and hence reducing binding overhang, matter? Because in its absence governments can reverse reform and raise agric protection again Where would Japan and Korea ’ s agric tariffs be today if GATT had disciplined them when they joined (in 1955 and 1967)?

23. Will China and India follow NEAsia in raising their assistance to farmers?

24. Thanks! www.worldbank.org/trade/wto www.worldbank.org/agdistortions www.worldbank.org/WDR2008 kym.anderson@adelaide.edu.au