As of June 2006, a final agreement has eluded the parties to the Doha Development Round trade negotiations. There was little finality to the December 2005 Hong Kong Ministerial conference negotiations, even though members agreed to eliminate agricultural export subsidies by 2013 and grant least developed countries (LDCs) free access to Organization for Economic Co-operation and Development (OECD) markets for at least 97 percent of agricultural and manufacturing tariff lines by 2008. Though observers hoped an agreement on negotiation modalities would be reached by the end of April 2006, a new tentative target date has been set for the end of July.
In this brief, we evaluate the effects of a possible Doha agreement based on proposals currently on the table from the United States, the European Union, and the Group of Twenty (G20). We first begin with a basic scenario that represents a compromise between the more and less ambitious aspects of these proposals.1 As assessed in the MIRAGE general equilibrium model of the world economy, this basic scenario yields a global income gain of $54.7 billion, or about one-fourth of the global income gains that are estimated from full trade liberalization.2 Gains are distributed among countries in a slightly progressive manner but are largely proportional to initial income shares, so the LDCs gain only a paltry $1.0 billion.
We next consider two specific development-oriented modifications to the basic scenario. These modified scenarios demonstrate that more can be done to benefit poor countries. In the first alternative scenario, free access of LDCs to wealthy-country OECD markets is increased from 97 percent to 100 percent, as proposed by the European Union. This raises world income by an additional $14.3 billion. Nearly half of these additional gains go to the LDCs, and the increase of their income rises dramatically, to $7.0 billion.
In the second scenario, the number of sensitive and special products exempted from the agricultural tariff formula in the basic scenario is reduced from 5 percent of tariff lines to 1 percent, as proposed by the United States. This raises world income an additional $7.3 billion compared to the basic scenario. The additional gains are distributed widely among countries, and are beneficial among heterogeneous developing countries especially to those where agriculture is an important source of employment and export earnings. Though this scenario has the advantage of providing a multilateral, nonpreferential improvement to the basic scenario, gains are limited because the tariff cuts applied to nonsensitive agricultural products in the basic scenario are not very ambitious.
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1. In the first brief in this Doha assessment series, we compared the net effects (in aggregate and among diverse developing countries) of an ambitious cooperative reform outcome versus one drawn from the least ambitious elements of proposals on the table. See More or Less Ambition? Modeling the Development Impact of U.S.-EU Agricultural Proposals in the Doha Round, December 2005. The ambitious outcome yielded average tariff reductions, increased world trade and global welfare gains more than double those from the unambitious outcome. [Back]
2. The MIRAGE model was developed at the Centre d’Etudes Prospectives et d’Informations Internationales (CEPII) in Paris. A full description of the model is available at the CEPII web site (www.cepii.fr). A synopsis is provided in IFPRI's December 2005 assessment brief. [Back]