Monday, May 12, 2008

Is the current Doha Round favorable to the developing countries?

No, says a new RIS policy brief. The authors argue that the earlier estimates on the benefits of trade - that a pro-poor Doha Round could increase global income by as much as $520 billion and lift an additional 144 million people out of poverty- from the WB was based on old data and faulty model, which had unrealistic assumption of full global liberalization. But, since this is not possible in reality, a revised estimate with the assumption of "partial liberalization" scenario shows that gains for the developing countries is near-insignificance. Global gains projected for 2015 are just $96 billion, with only $16 billion going to the developing countries.

Worse, half of all the benefits are expected to flow to just eight countries: Argentina, Brazil, China, India, Mexico, Thailand, Turkey, and Vietnam. The benefits do not go to the places where it is required the most, mainly Sub-Saharan Africa and South Asia (excluding India). Even worse, earlier poverty reduction projections was 144 million of the world's 622 million poorest people but not it has been revised to just 2.5 million.

As rich country leaders try to rally negotiators for yet another “make-or-break” deadline, in what has become the most imminent agreement in history, developing country negotiators should remember why the proposals on the table deserve to be sent back to the drawing board.

The economic projections, from the World Bank and other institutions, show how limited the gains are for most developing countries and how high the hidden costs of an agreement could be. With projected gains of less than 0.2% of GDP, poverty reduction of just 2.5 million people (less than 1%), tariff losses of at least $63.4 billion (almost 4 times the level of benefits), and projected declines in the relative value of exports, developing countries have little to gain from rushing to conclude Doha.

How small is $16 billion?

  • The developing country benefits are just 0.16 per cent of GDP.
  • In per capita terms, that amounts to $3.13, or less than a penny per day per capita for those in developing countries.
  • For a poor worker or farmer earning $100/ month, that represents a raise of just 16 cents in 2015.
  • In this supposed “development round,” rich countries were projected to see per capita income gains 25 times those in developing countries.
  • Developing country gains from “likely” agricultural reforms amount to less than 0.1 per cent of GDP—just $9 billion.

That is a reduction of less than one-half of one per cent in the year 2015 in the number of people living on less than one dollar per day.In Sub-Saharan Africa, just half a million people out of the region’s 340 million poor would move out of extreme poverty with a successful negotiation, barely one-tenth of one per cent. Moreover, as many have pointed out, moving from $1.00/day to $1.10/day might get you above the world’s current standard for extreme poverty, but it certainly doesn’t get you out of poverty.