Global Economic Prospects 2004: Realizing the Development Promise of the Doha Agenda Sept 3, 2003 Mick Riordan and Richard Newfarmer World Bank

Global recovery, though still fragile, is now underway, and developing countries are likely to grow faster than rich countries. The Doha Agenda has the potential to speed growth, raise incomes, and reduce poverty, and all countries have an interest in its success. But to realize this potential, governments have to tackle inequities in the world trading system – and to forge an agreement than benefits the poor. Main messages…

Early 1990s recession East Asia financial crisis 2001 downturn The rich countries: a moderate recovery... Real GDP, percent change Early 1980s recession High income countries Forecast

The rich countries: investment now rising.... Global prospects Real fixed investment, percent change at annual rates Euro Area United States Japan

... led by the United States Real GDP, percent change

The international environment improves... Percentage change Export market growth / Non-oil commodity prices U.S. LIBOR (%) Source: World Bank. Note: /1 import demand in partner markets Emerging market spread (bp)

The international environment improves... Percentage change Export market growth / Non-oil commodity prices U.S. LIBOR (%) Source: World Bank. Note: /1 import demand in partner markets Emerging market spread (bp)

The international environment improves... Percentage change Export market growth / Non-oil commodity prices U.S. LIBOR (%) Source: World Bank. Note: /1 import demand in partner markets Emerging market spread (bp)

Longer-term structural problems persist in the rich countries Potential for additional geopolitical shocks And macro policy has largely run its course may be insufficient to meet new challenges Global prospects... But risks remain

Longer-term structural problems persist in the rich countries Potential for additional geopolitical shocks And macro policy has largely run its course may be insufficient to meet new challenges - Interest rates at lows Global prospects... But risks remain Market interest rates US 10-yr Note EURIBOR US LIBOR

Longer-term structural problems persist in the rich countries Potential for additional geopolitical shocks And macro policy has largely run its course may be insufficient to meet new challenges - Interest rates at lows - Fiscal deficits widen across the rich countries Global prospects... But risks remain General government financial balances, % GDP Source: OECD data and projections

Global prospects... But risks remain General government financial balances, % GDP Source: OECD data and projections Longer-term structural problems persist in the rich countries Potential for additional geopolitical shocks And macro policy has largely run its course may be insufficient to meet new challenges - Interest rates at lows - Fiscal deficits widen across the rich countries Hence, addressing the structural issues is key

Early 1980s debt crisis 1990s recession Transition countries East Asia financial crisis 2001 Global downturn Real GDP, percent change for developing countries Forecast The developing countries: a robust outlook

Early 1980s debt crisis 1990s recession Transition countries East Asia financial crisis 2001 Global downturn The developing countries: a robust outlook Real GDP, percent change for developing countries Trend growth Forecast

Global prospects Real GDP growth, Near-term step up in growth across regions...

Global prospects Real GDP per capita growth, 1990s and and improved per-capita growth longer term

The Doha Agenda has the potential to accelerate growth Static gains Dynamic gains US $billions change in real income in 2015 relative to baseline A good agreement could boost incomes $ b.

More people would be lifted above the poverty line…140 million…many in Africa Source: World Bank staff simulations. change in the number of poor in 2015 relative to the baseline $1 per day $2 per day

Agriculture is a priority, particularly reducing border protection and subsidies in rich countries Reducing protection on manufactures, particularly in the South Helping low-income countries reduce reliance on trade preferences and increase competitiveness exports But to realize development promise, an agreement has to reduce barriers to the products the poor produce

Developing countries have failed to penetrate agricultural markets of rich countries Exports to poor countries Exports to rich countries Developing countries share of total world exports Manufacturing Agriculture Exports to rich countries Exports to poor countries

Protection of sugar and wheat in rich countries has increased domestic production and driven net imports to zero Net imports Production Production and net imports of sugar in EU, Japan, and US, 1965–2002 (millions of tons) Net imports Production Production and net imports of wheat in EU, 1965–2002 (millions of tons) Source: FAO

Protection in rich countries is high and unchanged since the Uruguay round… Industrial countries: Producer Support Direct subsidies * As a percent of output at world prices Source: OECD percent* Border protection Other industrial EU US Japan

Protection in rich countries is high and unchanged since the Uruguay round…though developing countries have reduced barriers Developing countries: average tariffs for agriculture Industrial countries: Producer Support Estimate Direct subsidies * As a percent of output at world prices Source: OECD percent* percent Border protection Other industrial EU US Japan Source: TRAINS

Source: WTO IDB (MFN Applied Duties) Percentage of Tariff Lines Non Ad-Valorem Agriculture Manufacturing Specific duties mask high protection

Source: WTO IDB (MFN Applied Duties) Average Ad Valorem Duties vs. Ad Valorem Equivalents in Agriculture Average Ad Valorem Duties vs. Ad Valorem Equivalents in Agriculture

Quotas cover many products Share Of Agricultural Output Under Tariff Rate Quotas (percent) Eastern Europe = Czech, Hungary, Poland and Slovakia; Other Industrial = Norway, Switzerland and Iceland; Other developing = Korea, Turkey and Mexico Source: OECD, Agriculture Market Access Database (AMAD)

Development impediments take various forms: specific duties, mixed duties, and escalation Tariff lines containing specific, compound or mixed duties, by stage of processing (percentage of all lines) Source: WTO IDB (MFN Applied Duties) Realzing the Promise of the Doha Agenda

Rich countries levy higher tariffs on imports from developing countries Av tariffs of industrial countries charged to exporters from various regions, 1997 (percent)

…and so do other developing countries Protection rates faced by Latin American exporters of manufactures, 1997 percent

Developing countries pay more of their foreign tariffs to rich countries and to neighbors Share of tariff burden, percent Rest of world Intra-region Industrial Developing countries have an interest in reducing protection in the South as well as the North Developing countries have an interest in reducing protection in the South as well as the North

Pro-poor policies: The way forward Increase transparency by phasing out specific duties, mixed duties, and seasonal tariffs. Increase transparency by phasing out specific duties, mixed duties, and seasonal tariffs. More drastic cuts of tariffs, tariff peaks and border protection More drastic cuts of tariffs, tariff peaks and border protection Reduce and decouple subsidies, and end export subsidies in agriculture. Reduce and decouple subsidies, and end export subsidies in agriculture. Rich country leadership is essential Rich country leadership is essential

Temporary movement of labor could increase incomes of developing countries…but is an underused mode of trade in services Mode 1 (cross-border supply- air transport) Mode 2 (consumption abroad- e.g., tourism) Mode 3 (commercial presence- e.g., foreign investment) Mode 4 (movement of natural persons) Source: IMF Balance of Payments Yearbook Value of trade in services by mode

Putting liberalization of services on the table for greater mode 4 access may be key Services liberalization index Financial services Telecoms Greater competitiveness

S&DT: The issues Old style S&DT Old style S&DT Trade preferences have often been seen as substitutes for MFN market access Trade preferences have often been seen as substitutes for MFN market access Opting out from reductions in border protections Opting out from reductions in border protections Uniform transition periods Uniform transition periods Consequences Consequences Reduced pressure for reciprocity in bargaining Reduced pressure for reciprocity in bargaining Under performance in trade Under performance in trade

The benefits of U.S. trade preferences are distributed unequally The benefits of U.S. trade preferences are distributed unequally Top 10 beneficiaries of U.S. generalized system of preferences, 2001 (percentage of total GSP benefits)

Share of LDCs in EU and US imports, 1966–2002 (percent) US EU Source: WITS. Low income countries have relied too much on trade preferences..with only marginal success

Share of LDCs in EU and US imports, 1966–2002 (percent) US EU Source: WITS. Low income countries have relied too much on trade preferences..with only marginal success CBI AGOA Andean Share of preferential programs in US imports, 1966–2002 (percent)

Low income countries have relied too much on trade preferences Share of potential imports under GSP that entered with preferential access, (percent) S ource: Inama (2003).

Preferences reduce pressures to engage in reciprocal tariff reductions…leaving the poorest countries with highest protection Dropped from GSP In GSP Source: Ozden and Reinhardt (2002). Av. tariffs of countries in US GSP and those dropped from GSP (percent) (percent)

Improving trade logistics can be as important as cutting tariffs…ports, customs, transport Average number of days to clear customs for sea cargo Source: International Exhibition Logistics Associates, based on a sample of countries in each region Development assistance is key to improving ports, customs and trade infrastructure

Towards a more effective S&DT: some principles Improve market access for all products of all developing countries Duty-free/quota free access for all LDCs, and harmonize and reduce restrictions that limit usage of preferences Resource-intensive rules: search for ways to make rules supportive of, not distractions from development. calibrate implementation of rules to capacity to implement Provide development assistance to help ensure supply response Quid pro quo: lower border barriers and assume full responsibilities as incomes rise

For the development promise of the Doha agenda to be realized, all countries have to take responsibility Rich countries have to lead in agriculture, labor- intensive manufactures, and development assistance as well as in services (mode 4) Middle-income countries have to be willing to lower high external tariffs benefiting themselves and their neighbors Low-income countries have to rely less on preferences and reform trade-related institutions.

Global Economic Prospects 2004: Realizing the Development Promise of the Doha Agenda Sept 3, 2003 Mick Riordan and Richard Newfarmer World Bank