Sunday, February 13, 2011

The most influential economist over the past decade

Basically, Keynes’s followers prevailed. Here is more from The Economist.

Setting a deadline for the Doha Round

A “High Level Trade Experts Group”, co-chaired by Jagdish Bhagwati and Peter Sutherland, argues that passage of the Doha Round is doable in 2011, but this would require increased attention of world leaders. The Group has called for December 31, 2011 as the deadline for the passage of the Doha package.

  • Doha is doable this year; rapid progress is being made in closing the negotiating gaps; this started in November 2010.

  • Getting the deal done requires head-of-state attention; they must authorize, or personally negotiate the last trade-offs framed by the draft agreement that their WTO ambassadors hope to have ready for April.

  • The window for this deal is the first half of 2011; after that all bets are off until 2013 at the earliest (due to elections in the US).

Major points from the document:

-A development friendly trade deal must demand less of countries in a way that is proportionate to their state of development. The final Doha package should be measured against this criteria.

-The Doha Round’s development mandate will be delivered in two key ways: (i) complete exclusion of all LDCs from any obligations except binding their tariff schedules at the current level (‘Round for Free’); and (ii) the concept of agreed ‘modalities’ for tariff cuts (subsidy reductions in agriculture) in principle agreed by all member, but in practice tempered by various forms of ‘flexibility’ for developed and developing countries. The last Doha negotiations in 2008 failed over differences in defining one of these flexibilities—a  special safeguard mechanism for agricultural exports to developing countries.

-The use of formula plus flexibility system is both the greatest potential strength and fatal weakness of the Doha Round. Positive in the sense that tariff landscape will be compressed across the board, with the highest farm tariffs in the developed world compressed. Also, industrial tariff in developing countries will also go down. Weakness in the sense that unless it is clear where all countries will exercise their flexibilities to shield tariff lines from cuts through exclusions or where the special safeguard mechanism will apply, it is impossible, or at least very difficult, to value a final package in a way that makes it possible to sell to domestic constituencies.

-Because completion of the Doha Round would demand political concessions, it cannot be completed solely by trade negotiators as it needs a much stronger and direct involvement of political leaders.

Why the Doha Round should be completed?

  • It will act as an insurance policy against future protectionism. It will consolidate unilateral liberalization agreements since the end of the Uruguay Round in 1994.
  • It will help reform global farm trade, particularly it will make the EU’s Common Agricultural Policy irreversible and seriously constrain any future US Farm Bill from increasing support should commodity prices fall. It would also eliminate all export subsidies for agricultural goods.
  • It will provide new market access through tariff reductions and the contraction of market share of those countries whose agriculture subsidies will be withdrawn.
  • It would protect the WTO and the multilateral trading system itself. A permanent collapse would likely provoke a wave of preferential trading agreements.
  • Unless the Doha Round is finished and the WTO moves to 21st century trade issues, it will find itself stuck with out-dated disciplines while deeper disciplines are established by the EU’s, the US’s and Japan’s deep RTAs, with new sets added when China, India and Brazil internationalize their own supply chains
  • Even if tariff reductions and the dismantling of non-tariff barriers can be achieved bilaterally, the multiplier effect of a multilateral agreement is considerably higher. Also, agricultural subsidy reform will be agreed multilaterally or not at all.

Structure of a final package


  • Under current draft texts the EU would reduce its MFN duties on agricultural imports by close to 60%. The highest and most distorting tariffs will be cut proportionally more, with only 4% of tariff lines treated as sensitive and therefore subject to smaller cuts. As a compensation tor these partial exemptions import quotas amounting to 4% of domestic consumption must be opened and subjected to zero or very low duties. IT will translate into real new market access opportunities from day one of implementation. Agricultural exporters in developing countries, in particular Brazil and Argentina, and in developed countries, in particular Australia, New Zealand, and the US will likely benefit the most.
  • The support to products like cotton and sugar in the US would be severely constrained, but negotiators still have to tackle this issue. Also, the form and functioning of the special safeguard measure for developing countries need to be worked out.
  • Under trade distorting domestic support to agriculture, developed countries will reduce substantially the ceilings currently applied (by up to 80% in the case of the EU and up to 70% in the case of the US).
  • The current text foresees the complete elimination of all forms of export subsidies by 2013 by developed countries, and by 2016 by most developing countries, with the remainder by 2021.

Industrial goods

  • Among developed countries, which represent more than two third of the world’s final demand, tariffs would be virtually eliminated, with no tariff remaining above 6%. Duties levied by the EU on its total imports of industrial products would go down by 44%, more than in any previous round, amounting to $12.5 billion saved on exports to the US. On the US market, the amount of duties paid on imports would go down by $12 billion.
  • For China, the current draft modalities would lead to a 22% reduction of duties levied on imports, well below the 36% cut that Chinese exporters would face on foreign markets.
  • Other emerging countries need to make further tariff reductions.

-->Tariff reductions in particular sectors that are highly traded is needed as well. Sectoral tariff reduction would increase the gains for all countries.

--> The Doha Round should also include a new package on environmental goods and services, whose market is worth US 150 billion annually. The WB has already defined a list of 45 environmental goods that can form the basis for negotiation.


  • Given the fundamental role of services in the effective and efficient management of an economy, a strong outcome in services has huge potential spillover benefits for both developed and developing WTO members.

Package for LDCs

  • The LDCs are not expected to implement any tariff reductions and are requested only to bind their tariffs at the level they currently apply. Since many of them depend on preferential market access to economies, multilateral liberalization erodes the preferential margin for their exports, which could pose as a challenge in the short-term as they will face stiff competition from advanced developing countries such as China and Brazil. This concern is partly addressed by eliminating tariff on certain products in a phased manner. Also, granting duty free quota free (DFQF) market access for all exports from all LDCs to all OECD countries and a set of major emerging economies would be helpful to LDCs. It could boost LDCs’ exports by 44% or US$ 7 billion a year.
  • Since cotton is of crucial importance to several LDCs, the Doha Round will also have to address trade distorting subsidies to cotton farmers in developed countries.
  • Aid for Trade (AfT) should be maintained as a necessary complement to boost LDCs’ productive capacity and help them reap the benefits of the Doha Round.

Trade facilitation

  • Trade facilitation negotiation is a clear success story of the Doha Round. The WTO members have tabled more than 70 new proposals for improving the transit of goods between markets, charges levied for transit, penalties for minor breaches of customs regulations, the standardization of customs documentation and prompt publication of conditions for import and export.
  • The proposed improvements in trade facilitation would increase trade by US$130 to US$450 billion annually. The benefits for developing countries could by far exceed the gains in other areas for negotiation. Meanwhile, the developing countries themselves should take initiatives to reform domestic policies and infrastructure to ease border-crossing for goods and services and the development aid that will be provided by developed countries to implement these reforms.

Here (the main paper by Antoine Bouet and David Laborde 2009) is an updated estimation of the potential costs of a failed Doha Round. The total cost of failure of the Doha Round is estimated to be US$ 1.171 trillion in forgone world exports if protectionist measures persist. Meanwhile, welfare loss are estimated to be US$ 193 billion. Here is earlier estimates of the Doha Round. Here is a piece about the industrial and export interests of Nepal in the Doha Round of trade negotiations. Here is a link to the recent WTO workshop on the Doha Round.