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TWN Info Service on WTO and Trade Issues (Nov06/01)

1 Nov 2006


Doha proposals would lead to heavy losses, few benefits


A seminar co-organised by the South Centre and held at the UN building in Geneva heard a presentation by an American economics professor that concluded that the proposed deals of the Doha Round negotiations to date would cause developing countries generally to incur much more costs than the negligible benefits that would go to a few.

He added that the present pause in the negotiations should be welcomed so that a rethinking of the negotiations can be undertaken.

This view of the stalled Doha talks was presented by Kevin Gallagher. "The WTO's Doha draft deals were anti-development," said Gallagher, who is at Boston University's Department of International Relations and also at Tuft University's Global Development and Environment Institute.

Gallagher said that official estimates of gains to developing countries were very small.

"Developing countries were asked to exchange these small benefits for real losses, including significant adjustment costs and the loss of policy space," he remarked. "I thus welcome that the Round was stalled, so that the proposals on the table can be reviewed."

Below is a report of Gallagher's presentation.

With best wishes
Martin Khor
TWN

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Doha proposals would lead to heavy losses, few benefits

By Martin Khor (TWN), Geneva 20 October 2006

The proposed deals of the Doha Round negotiations to date would cause developing countries generally to incur much more costs than the negligible benefits that would go to a few, and the present pause in the negotiations should be welcomed so that a rethinking of the negotiations can be undertaken.

This view of the stalled Doha talks was presented today by an American economist, Kevin Gallagher, at a North-South Policy Dialogue held at the United Nations building in Geneva. The two-day dialogue was organized by the South Centre, the German Marshall Fund of the United States and the Washington-based Centre of Concern.

"The WTO's Doha draft deals were anti-development," said Gallagher, who is at Boston University's Department of International Relations and also at Tuft University's Global Development and Environment Institute.

Gallagher said that official estimates of gains to developing countries were very small.

"Developing countries were asked to exchange these small benefits for real losses, including significant adjustment costs and the loss of policy space," he remarked. "I thus welcome that the Round was stalled, so that the proposals on the table can be reviewed."

Gallagher said that the World Bank had originally given high estimates of the gains from the Doha Round. A week before the WTO's Cancun Ministerial in 2003, the Bank estimated that developing countries would benefit by $539 billion (and the whole world by $852 billion).

However, the Bank had revised its projections of benefits downwards to only $90 billion for developing countries (and $539 billion worldwide). And only 8 developing countries would get over half the developing countries' share of benefits.

For agriculture, on the assumption that there would be full trade liberalization, the developing countries would have a one-time gain of $56 billion (or only $11 per capita) which is only 0.5% of their GDP. Most of the gains would go to a few big developing countries.

However, as the Doha Round will not result in full liberalization, the benefits of the World Bank's "likely" Doha Round scenario (for manufacturing plus agriculture) would be only $16 billion for developing countries, or $3.13 per person and equivalent to only 0.16% of GDP. The $16 billion benefit would be from $7.1 billion in manufacturing and $9 billion in agriculture.

The worldwide benefit (including to developed countries) would be $96 billion. Thus, developing countries (with $16 billion) would get only a small share of the benefits.

In terms of developing countries and regions, the World Bank's likely Doha scenario showed that of the total $16 billion gain to developing countries, there would be one-time gains to Brazil ($3.6 billion), China ($1.7 billion), India ($2.2 billion), Argentina ($1.3 billion) and South Africa ($0.4 billion). But there would be absolute losses for most other countries, including in the Middle East, in the rest of Sub Saharan Africa (-$0.1 billion), Vietnam (-$0.5 billion) and Bangladesh (-$0.1 billion).

Gallagher stressed that these projections were only for one-time gains. Thus, those countries that benefit would only obtain the gains once, and the figures did not indicate an increase every year.

Gallagher said that there would be only very limited impact from the Doha agreement on agricultural prices. World food prices would rise overall by only 2.8%. And only three crops were projected to have price increases of more than 3%, i. e. rice, oilseeds and fibres.

Moreover, because agricultural commodity prices have been on a long-term downward trend, it is likely that the one-time increase in prices due to the Doha Round would be offset by the trend decline in agriculture commodity prices.

He quoted a study by IFPRI which concluded that "It is important to note that although trade liberalization increases world commodity prices, those prices resume their declining trend and full back towards the original 1997 levels. Thus, trade liberalization in itself is not sufficient to guarantee sustained prices of agricultural commodities."

The same study proposed complementary policies to stabilize agricultural commodity prices, such as "holding of buffer stocks, farmer-owned reserves and the like."

Gallagher said that although the projected benefits to developing countries were so small, and even then only a few developing countries would get the gains while a majority are estimated to incur losses, yet the Doha draft agreements would lead to real costs to developing countries generally.

The first cost would be tariff revenue losses resulting from the NAMA (non agricultural market access) proposals. He estimated that developing countries would lose $63.4 billion in NAMA tariff revenue decline, which contrasts with the benefits of $16.1 billion that they would get from agricultural and industrial trade liberalization.

Of the overall $63.4 billion tariff revenue loss, the losses per region or country were estimated to be $7 billion for the Middle East, $1.7 billion for Sub Saharan Africa, $10.7 billion for Latin America and the Caribbean, and $7.9 billion for India.

Another key cost from the WTO agreements is the South-to-North transfer of patent rents due to the implementation of the TRIPS Agreement, said Gallagher.

He cited a World Bank study (Global Economic Prospects 2002) that showed that overall, the South-to-North transfers arising from changes to patent policies induced by TRIPS were $41.2 billion annually. The main beneficiary countries were the US ($19.1 billion), Germany ($6.7 billion), Japan ($5.7 billion), France ($3.3 billion), UK ($2.9 billion), Switzerland ($2.0 billion) and Australia ($1.1 billion).

Another major cost to developing countries is the increase in the loss of their policy space if the Doha proposals are to be implemented.

Gallagher said that there are many types of market failures, and different developing countries legitimately try to tackle these market failures through various policy instruments. However, due to existing WTO agreements, developing countries have lost or reduced their ability to make use of these development instruments.

Market failures include coordination failures, information externalities, imperfect competition, and environmental externalities. Policy instruments to deal with these included export subsidies, tariff sequencing, infrastructure provisions, subsidized credit, selective permission for patents, technology transfer requirements, etc. These were being affected by the WTO rules on subsidies and countervailing measures, TRIMs, TRIPS and GATS.

The growth success stories, mainly in East Asia, showed that they had faster growth as a result of the use of the policy tools. Regions and countries such as in Latin America that dismantled these tools did not grow much.

Gallagher said that while certain industrial policies worked for some countries, they may not necessarily work for others. Nevertheless, it is crucial that developing countries have the option to make use of a range of policies.

He added, regarding the Doha negotiations, that the NAMA proposals would lead to a significant loss of policy space as it would not allow developing countries to sequence their liberalization process to suit their industrialization needs.

Also, in the GATS negotiations, developing countries are being pressed to open up their services sectors to foreign competition, but there was no agreement on a provision for safeguards against dumping or against adverse liberalization effects.

He said the demands in services in the plurilateral "benchmarks" fall short of recognizing the level of development of the developing countries, and these demands, if agreed to, could lead to losses by domestic services firms, who would also lose their equity share (to foreign firms).

Meanwhile, while there have been projections that developing countries could gain if the developed countries liberalise the flow of labour services, in fact, there will be no liberalization in Mode 4 of the GATS, thus developing countries would be deprived of benefits that in some estimates could have amounted to $150-300 billion.

Gallagher proposed that if the Doha negotiations are to lead to benefits for developing countries, they should lead to the following:

-- The US and EU should honour the WTO panel decisions on agricultural domestic support in the cases on cotton and sugar respectively. He said the indication is that the US would not eliminate its cotton domestic support but would re-establish the subsidies in the new Farm Bill. But the removal of the US and EU subsidies would be of benefit to developing countries.

-- The WTO should consider the African proposals to deal with the commodities problem. Gallagher said that a major problem in agricultural trade was that a few multinational companies control an overwhelming share of the trade in each commodity. Even if full liberalization was achieved, this problem would remain, and it was necessary to make agricultural markets more competitive in order to stabilize commodity prices.

-- The Doha negotiations should seriously consider the developing countries' proposals on special and differential treatment and implementation issues so that there can be more policy space and opportunities especially for industrial development.

-- Additional funds should be made available for adjustment costs due to various proposals.

Gallagher said that the rush to negotiate regional and bilateral agreements was not a positive alternative to the stalled Doha talks as they contained even worse provisions that would erode or remove policy space in ways worse than the WTO.

Instead, the pause in the WTO talks should lead to a review of the Doha proposals on the table, and improve the existing WTO rules.

 


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