Recent World Bank modeling suggests that an agreement which completely eliminates agricultural tariffs and subsidies, and manufacturing tariffs, by 2010, would generate something like $290 billion a year (2001 dollars) in additional income for the world from 2015 on. World income would increase by about 0.7% a year.
The results are outlined in "Market and Welfare Implications of Doha Reform Scenarios" by Kym Anderson, Will Martin, and Dominique van der Mensbrugghe - Chapter 12 in Agricultural Trade Reform and the Doha Development Agenda, edited by Kym Anderson and Will Martin.
About 70% of this ($202 billion) would go to high-income countries and about 30% ($86 billion) to developing countries. This sounds like the high-income countries have far more to gain from trade liberalization than the developing countries, but remember that high-income country economies are much larger.
Developing countries actually benefit relatively more. Incomes for high income countries grow by about 0.6%, but developing country incomes increase by about 0.8% (while incomes for Korea, Taiwan, Hong Kong, and Singapore grow a lot in the model results, in this breakout they are treated as high-income countries).
No one expects the Doha Round to completely eliminate trade barriers. WTO member nations will settle for something less. Anderson et al. look at a set of less ambitious outcomes, which generate benefits running from a low end of $13 billion up to a high end of $119 billion.
One relatively plausible scenario: (1) cuts in agricultural tariffs (greater for high-income than for developing countries), (2) elimination of export subsidies, (3) cuts in agricultural subsidies in four high-income countries (counting the EU as a country) (4) no change in protection for services, (5) no trade facilition measures, (6) cuts in industrial tariffs (again, greater for high-income than developing countries). This "Scenario 7" generates additional world income of $96 billion a year.
About $80 billion of the Scenario 7 benefits go to high-income countries, and $16 billion to developing countries. High-income country income increases by a quarter percent, developing country income increases by 0.16%.
But here's something interesting - under Scenario 7 developing countries commit to smaller tariff cuts than high income countries. If developing countries, other than the least-developed, commit to the same reductions as the high-income countries, annual world benefits rise to $119 billion, and developing country benefits rise to $23 billion or a 22% income increase.
Anderson et al note that, under their complete liberalization scenario, the number of poor people in the world (persons living on less than $1/day) in 2015 would drop by about 32 million, or 5%. Under Scenario 7, the number drops by 2.5 million.
These results apply to agricultural and industrial trade. They do not include benefits from liberalization of services or from major new trade facilitation measures (steps to make engage developing countries in the global trading system through physical and institutional investments).
"What's at stake: the relative importance of import barriers, export subsidies and domestic support by Thomas Hertel and Roman Keeney (Chapter 2 in Anderson et al.), suggests that additional benefits from these sources could be very large. Hertel and Keeney are using a somewhat different model over a somewhat different time frame, so their numbers are not directly comparable to those in Anderson et al. But Hertel and Keeney look at services and trade facilitation, which Anderson et al. do not.
The evidence in Hertel and Keeney suggests that the benefits from services liberalization may be almost as great again as those from agriculture and manufacturing liberalization, and those from trade facilitation may be greater. The "lion's share" of services benefits goes to high income countries, the trade facilitation benefits are "much more heavily skewed towards developing countries than those from trade barrier reductions."
Very nice summary, Ben. Thank you.
Posted by: Peter Gallagher | July 26, 2005 at 03:46 AM