The 2008 Market Access Proposals and Developing Countries

David Laborde, Will Martin & Dominique van der Mensbrugghe

Geneva, 2 November 2010

This work represents the views of the authors alone

Analyzing the 2008 market access reforms

How we represent the formulas & flexibilities

Implications for tariffs levied & facedImplications for real incomes

Roadmap

The Tiered Formula for Agric MADeveloped Developing

Tier Range, % % Cut Range, % % Cut

I 0-20 50 0-30 33.3

II 20-50 57 30-80 38

III 50-75 64 80-130 42.7

IV >75 70 >130 46.7

Average cut Min 54 Max 36

The Tiered Formula in Agriculture

Add in deeper cutsTariff Escalation Products

Processed products subject to tariff escalation are moved up a tier. Top tier– add 6% pts

Tropical & diversification products

Short product list Tariffs ≤ 10 0 10-75, cut by 70% 75, cut by 78%

Country flexibilitiesLeast Developed Countries

No cuts required. Increase NAMA bindingsSmall & Vulnerable Economies (SVEs)

• Agric cuts 10% pts less in each tier or average-cut of 24%

• NAMA: bind at an average tariff of 30% or lower

Recently-Acceded Members (RAMs) agric• Cuts reduced by 8% pts in each band• Zero cuts below 10%• 1/10th more Special Products

Para 6 Countries (NAMA only)• <35% of tariffs bound• No cuts but must bind most tariffs

Product flexibilities: Sensitive ProductsAvailable to all members5% of lines for industrial countries;

1/3 more for developing; 2% more if 6-digit, or >30% in top tier

TRQs and sensitive products Cut down by 2/3 TRQ up 4% of consumptionCut reduced 1/3 TRQ up only 3%We expect most will use 2/3 reduction, • Assume quota expansion offsets 1/3 cut 2/3 cut

Agricultural Special Products

Developing countries self-designate

Indicators very flexible

Assume 14% of agricultural tariffs5% of lines with no cuts

Average cut of 11%

NAMA: Swiss Formulat1 = a*t0 /(a+t0)

0

5

10

15

20

25

0 1 2 3 4 5 6 7 8 9 10111213141516171819202122232425262728293031323334353637383940

Fin

al T

ari

ff

Initial Tariff

Proportional

Swiss Formula Coefficients

Developed a = 8

Developing: a = 20 with (i) ≤ 6.5% unbound on ≤ 7.5% of imports, or(ii) ½ cuts on 14% of lines ≤ 16% imports, or

a =22 with(i) 5/5% of tariff lines/imports uncut, or

(ii) ½ cuts on 10/10% of lines/imports

a = 25 with no flexibilities

Selection for product flexibilitiesHighest-tariff rule frequently used

Frequently includes products where no cut neededIncludes many trivial products– corn stalks?Suggests flexibilities have minor impacts

We assume policy makers chose tariffs to maximize political support Allows us to assess which tariff cuts are most “painful”Approach selects products that are important, and where large tariff cuts are required

Impacts of flexibilities on tariffs large

Approach to implementation

Apply formulas to bound tariffsAssess impacts on applied rates

Include flexibilitiesIdentify the sensitive/special products that minimize the political “pain”Identify the “best” option for NAMA flexibilities

Check that agric tariff cuts meet min/max average-cut requirements

Adjust cuts if needed

Tariff Scenarios

BaseFormula without flexibilitiesFormula plus flexibilities

Agricultural tariffs levied, %Base Formula Flex

Australia NZ 2.5 1.5 1.9Bangladesh 16.4 16.4 16.4Brazil 4.8 4.7 4.8Canada 10.7 5.1 8.6China 7.8 5.3 7.5EU-27 15.9 6.6 10.2India 59.2 54.6 59.2Indonesia 7.6 7.0 7.6Japan 29.8 14.0 20.4Korea and Taiwan Pr. 27.8 18.5 27.1USA 4.8 2.1 3.0All countries 14.6 9.0 11.9Developing (non-LDC) 13.3 11.3 13.2High income countries 15.5 7.5 11.1LDCs 12.5 12.2 12.5

Agricultural tariffs faced, %Base Formula Flex

Australia NZ 17.3 10.2 13.9Bangladesh 14.7 12.6 14.4Brazil 18.8 9.8 13.7Canada 9.0 5.2 6.8China 16.8 9.7 13.8EU-27 16.6 10.6 13.6India 10.1 7.2 8.9Indonesia 21.5 19.4 20.4Japan 14.0 9.9 12.7Korea &Taiwan 16.0 10.8 12.8USA 14.0 8.5 11.3All countries 14.6 9.0 11.9Developing 14.4 8.8 11.7High income 15.1 9.3 12.3LDCs 7.4 6.5 7.1

NAMA tariffs levied, %Base Formula Flex

Australia NZ 3.6 2.4 2.4Bangladesh 18.3 12.5 18.3Brazil 8.5 7.4 7.8Canada 0.9 0.5 0.5China 5.6 3.9 4.4EU-27 1.8 1.0 1.0India 12.9 11.7 12.0Indonesia 3.9 3.5 3.9Japan 1.3 0.7 0.7Korea &Taiwan Pr. 4.0 2.8 3.1USA 1.5 0.8 0.8All countries 2.9 2.0 2.3Developing (non-LDC) 6.1 4.6 5.3High income 1.6 1.0 1.0LDCs 10.9 8.0 10.9

NAMA Tariffs Faced, %Base Formula Flex

Australia NZ 2.9 2.0 2.6Bangladesh 3.7 1.7 1.8Brazil 2.6 1.9 2.2Canada 0.4 0.3 0.3China 3.8 2.3 2.5EU-27 3.6 2.7 3.0India 4.6 3.1 3.6Indonesia 3.4 2.2 2.5Japan 4.5 3.0 3.5Korea & Taiwan Pr. 3.8 2.6 2.9Sub-Saharan Africa 2.1 1.4 2.0USA 1.8 1.4 1.5All countries 2.9 2.0 2.3Developing (non LDC) 2.9 1.9 2.1High income 3.0 2.1 2.4LDCs 2.8 1.5 1.8

Optimal Aggregation & Income GainsTraditional to use weighted average tariffs

This wastes valuable informationAs a tariff rises, the weight on that good declines

For this analysis, we use optimal weightsAllow for rising weights as imports riseTake account of the rise in tariff revenues as import volumes rise

Substantially increases real income gains even with very conservative estimates of flexibility

Welfare gains, optimal weights, $bn  Full Formula Flex

Australia/N Zealand 16.8 4.8 2.4

EU 27 180.4 58.7 39.3

USA 53.8 14.5 9.9

Japan 64.9 29.2 21.8

Korea & Taiwan 98.7 21.2 9.8

Bangladesh 0.2 -0.2 -0.2

Brazil 30.8 9.8 4.7

China -8.6 9.7 8.9

India 24.3 6.1 2.4

Indonesia 3.9 1.5 1.0

Thailand 8.7 4.5 2.6

Sub Saharan Africa 30.4 6.6 0.6

High income countries 484 140 91

Developing Countries 241 62 31

World total 725 202 121

Too much emphasis on flexibilities?Political gains are obvious, the costs less so

Exceptions often snowballAnd their costs often take surprising forms• Less impact on tariff cuts in developing ctry agriculture• Larger cuts in developing country income gains

Important to consider gain as well as “pain”Should future negotiations use less ambitious formulas & fewer exceptions?

If use flexibilities, the # of lines is not effective limit

Doha matters for many other reasons

Increased security of market accessIn agriculture, NAMA, Services

Ruling out agric export subsidies, disciplining domestic supportDuty-free-quota-free access for LDCs

Although the 3% exceptions diminish

Trade Facilitation may give large gainsInitial steps on fishing subsidies

Conclusions on Market AccessFormulas involve deep cuts in tariffs

Especially in the industrial countries

Flexibilities reduce cuts substantiallyNeed to rigorously account for these• The highest tariff rule v. misleading

Even with flexibilities, substantial improvements in market access

Agric tariffs against developing countries cut 20%NAMA tariffs against developing ctries cut 27%

Welfare gains bigger with better measures