January 25, 2006

Doha: What's the Big Deal?

According to UPI, ministers from 25 "major trading powers" are now trying to resuscitate the Doha round of WTO trade talks that stalled in Hong Kong last month. The EU, it seems, wants to see more concessions from developing countries to reduce their tariffs before it will agree to open its own agricultural markets. Okay, fair enough. But I still don't see what incentive developing countries have to make large concessions, or how, as The Economist put it by way of chiding those stubborn holdouts, "the Doha round... is geared specifically to help poor countries." How much help are we talking here?

Not very much, it seems. Two months ago, an extensive study from the World Bank found that under "likely Doha scenarios" for cuts to agricultural subsidies and tariffs, and reductions in industrial tariffs, liberalization would provide the world a one-time gain of between $17.9 to $119.3 billion by 2013. Not a whole lot, when it comes down to it, and most of those gains go to the developing world. An analysis of the World Bank study by Frank Ackerman the Global Development and Environment Institute suggested that the "most likely scenario" would boost the world's income by a mere $96 billion. Of that, $80 billion would go to developed countries, and $16 billion to poor countries—less than a penny per day per capita.1

Meanwhile, the World Bank found that the vast majority of those gains would go to eight nations: Argentina, Brazil, China, India, Mexico, Thailand, Turkey, and Vietnam. Other developing countries will likely be hurt by the reduction in agricultural subsidies, especially those that are net food importers. The Middle East, parts of Africa, Bangladesh and Mexico would be all net losers from "likely Doha scenarios," and those are already countries that have the most difficulty attracting investment and growing.

Now in a sense, this is an overly dire picture. A "mere" $16 billion to the developing world is still better than nothing. And surely lifting 2.5 million people out of poverty, as the Bank estimates for "likely scenarios," is worth doing. Even if these gains aren't huge, why not take them? (Although it does reaffirm the fact that trade can only be a small part of any poverty-reduction agenda.) Plus, these numbers may well understate the side benefits that supposedly come with trade liberalization: like "better institutions," or increased foreign investment, or whatever sort of magic free trade is supposed to create. (cf. "New Evidence" that trade liberalization "has robust positive effects on growth," etc.)

On the other hand, these projections may not be dire enough. The World Bank study, for instance, presumes that developing countries will instantly make up the revenue they'll lose from slashing tariffs by raising domestic taxes. Is that realistic? According to UNCTAD, for developing countries, tariff collection accounts for 20 percent of government revenue in some developing countries. Quite the tax. UNCTAD predicts that tariff revenue losses could amount to up to $60 billion for these countries (I assume annually), dwarfing the estimated benefits from trade, and would lead to either cuts in social services or domestic taxes that would create their own distortions, just like tariffs do now.

It's also not clear what the effect of the new agreement on intellectual property will be, although allowing developing countries to import generic drugs more easily seems like an obviously good idea, if drug companies don't scuttle it first (here's a more in-depth look by the Asian Development Bank that I haven't read). Still—and I'm willing to be convinced otherwise—the idea that there's so much at stake for poor countries in the Doha rounds that they can't afford to see this fail seems a bit overstated.


1 The summary of the World Bank study claims a $287 billion one-time gain by 2013, but that's an estimate for complete trade liberalization, which isn't under discussion right now. At any rate, only 40 percent of that gain would go to the developing world; less than 7 cents per day per capita.
-- Brad Plumer 3:55 PM || ||