1. The Potential Cost of the Doha Round Failure
Antoine Bouet – David Laborde )
WTO
November 2nd 2010 – Geneva

2. Overview Motivation Scenarios design Methodology Results Conclusions
IFPRI discussion paper + IFPRI Policy Brief
failed-doha-round-0

3. Motivation

4. What is all about? Effects of finalizing the DDA negotiations
Total cost the DDA failure
Potential effects of not reaching an agreement

5. How to assess the gains of the DDA?
Traditional approach:
Assessing the trade liberalization scenario negotiated versus the status-quo
Combination of tariff scenario building and economic modeling (mainly through CGE assessment)
In the last years, assessment of the gains (upper part of the iceberg) have melted away
Better data
Ongoing process of :
regional liberalization (FTA between members, Side effects of the Custom Unions negotiations in Africa)
and/or unilateral liberalization (India in 2004)

6. Missing gains? (or the quest for big numbers?)
Models are incomplete (Dynamic gains of trade liberalization…)
Model improvement: see Will Martin’s comments on Consistent Aggregation
Rethinking the assumption of status-quo
New Scenario design
We will focus on this last issue

7. But, keep in mind that Quantitative Assessments using CGE obey some rules:
Equilibrium models
Most of them assume “constant employment of factors” (capital and labour) : Modelers like to model what they understand.
Technology is exogenous
Therefore, engines of growth are out of the story we look at: We are doomed to show you small GDP figures!
They are driven by Efficiency gains (most of the case second order effects): allocative effects
Interests of the CGE:
comparing scenarios and their design
Look at winners and losers
A “small” figure is not a pro/against trade liberalization argument in itself

8. Value of this research For policy makers: Applied research:
Provide new lights on the gains at stake in the current DDA
Analysis of a “what if” scenario.
Applied research:
Rethinking the relevant baseline
Providing figures and order of magnitude for effects already discussed in the literature
Assessing partially the value of the binding process

9. 1. Dynamics of trade policy
Status-quo is not a feature of trade policies
Trade liberalization like a bicycle or
Failure of the DDA: Signal of the end of cooperative policy
WTO as a litigation arena and not as a place for negotiation

10. 2. Not a “business as usual” period
Risk of rising protectionism
Tariffs – Domestic support
Financial crisis
Analogy with the 1929 crisis and its trade policy aftermaths
H-S tariff act
Society of Nations was calling for a tariff truce as the G-20 now
Fighting deflation, supporting local producers and raising public revenue
Lack of cooperation of governments
Beggar-thy-neighbor policies
Underestimation of the retaliation process
See Food prices crisis policy measures

11. 3. Rethinking the reference point
Follow-up on previous research (Bouet and Laborde, 2004; Laborde, 2008; Bouet and Laborde 2009)
WTO negotiations as a Nash Bargaining game
Combining Cooperative Game Theory and CGE analysis
Concluded on the emptiness of the core in many negotiation configurations (predicting DDA difficulties in 2004)
But solutions exist

12. Scenario Design

13. Two main directions Assessing DDA scenario is already challenging
Increase in protectionism
Regionalism
Defining realistic “what if” scenario is worst
Very subjective

14. Description of the scenarios
Baseline: Enforcement of current FTAs and Multilateral commitments
Doha: Exhaustive 2008 July Package modeling
Up to Bound: All tariffs, except preferences covered by bilateral-regionals treaties, are moved to their Bound level. Unbound lines are set to their MFN level increased by the average binding overhang
Up to Max: All tariffs, except preferences covered by bilateral-regionals treaties, are moved to their maximum level reached over the last 13 years. Bound tariffs are still capped by the UR commitments.
FTA HIC: Free trade area on 95% of tariff lines between OECD members
Up to Max+FTA HIC: the Up to Max scenario is completed by a 95% FTA between OECD countries.
Up to Bound&DDA: All tariffs, except preferences covered by bilateral- regionals treaties, are moved to their new Bound level. Unbound lines are set to their MFN level increased by the average binding overhang
Up to Max&DDA: All tariffs, except preferences covered by bilateral-regionals treaties, are moved to their maximum level reached over the last 13 years. Bound tariffs are still capped by the post DDA commitments.

15. Tariff cut implementation in the DDA scenario
Preferential Margins
Binding overhang
Applied MFN
Bound level
Applied
Preferential I II
III

16. Tariff increase implementation
Bound level
Max MFN tariff since 1995
Up to Bound
Up to Max
2008 applied MFN
2008 Preferential Applied
Preferential rates covered by a bilateral treaty are “protected”

17. The baseline
A baseline is implemented from 2008 to 2025, which depicts the world without a new multilateral agreement.
Concerning trade reform, the following agreements since 2004 have been included in the baseline:
Achievement of the complete FTA for ASEAN, CEMAC, COMESA, SADC ECOWAS;
EU-ACP Economic Partnership Agreements
Implementation of the EU-INDIA, EU-India, EU- ASEAN, US-Colombia, US-Oman, US-Bahrain, US- Morocco, US-Australia, Mercosur-Colombia, China- Chile FTA.
WTO accessions since 2004 are implemented

18. Results

19. World Average Tariffs
Reference group weighted

20. Protection faced Baseline Doha Up to Bound Bound&DDA Up to Max Max&DDA
FTAHIC
FTAHIC+UptoMax
HIC
Agricultural products
16.1
11.9
28.5
21.1
20.3
14.6
18.2
Industrial goods
3.8
3.0
7.7
5.4
5.6
4.2
3.2
4.8
All sectors
4.6
3.6
9.0
6.4
6.5
5.0
3.9
MIC
17.1
13.8
30.6
23.7
21.2
17.7
4.0
7.5
5.9
8.9
6.3
LDC
9.9
8.2
30.2
24.0
12.6
2.7
9.4
6.2
4.5
11.7
8.5
7.3
4.7
World
16.4
29.4
22.2
20.6
16.7
15.5
19.3
7.6
5.3
5.7
3.5
5.2
Reference group weighted

21. Overview

22. Real Income (1) Source: Bouet and Laborde, 2009. MIRAGE simulations
Direct gains from the DDA
“Insurance” value of the DDA, intermediate case
“Insurance” value of the DDA, extreme case
Source: Bouet and Laborde, MIRAGE simulations

23. Real Income (2)

24. Real Income (3) %

25. Sources of the gains/losses: Up to Max scenario

26. Another example of valuable concessions: the time dimension of Domestic support. Agricultural Production

27. Conclusions

28. DDA and Up to Max Exports:+$363 Bn Welfare: +$59 Bn Exports:-$1,171 Bn

29. Additional remarks Real value of the Binding
WTO has two values as a public good:
Promote cooperative behavior
Limit damages due to retaliations process and may deter it
FDI may change the “dynamics” of trade liberalization
Locking device
Vicious and Virtuous circles