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Is Development Back in the Doha Round? New Policy Brief Questions New-Found “Gains from Trade”

Is Development Back in the Doha Round?
New Policy Brief Questions New-Found “Gains from Trade”

As trade ministers prepare to assemble November 30 in Geneva for further WTO talks, they are hearing another round of new and refurbished projections of how much wealthier the world might be after liberalizing trade.  The upcoming ministerial is no different, and neither, fundamentally, are the projections, notwithstanding one recent claim – cited by WTO director Pascal Lamy – that an ambitious Doha deal could deliver $300-$700 billion in global welfare gains, with the benefits “well-balanced” between developed and developing countries.

These recent projections, from the Washington-based Peterson Institute for International Economics, contrast with the World Bank’s widely publicized 2005 estimates of global gains from a “likely Doha scenario” of less than $100 billion, with just $16 billion going to developing countries.  Did economists find another $150-$350 billion in benefits for developing countries that the World Bank missed in 2005?  Is development back in the Doha Round?

The answer, of course, is no.  The purpose of this policy brief from the Geneva-based South Centre, by GDAE’s Kevin P. Gallagher and Timothy A. Wise, is to look behind the press releases to examine the recent economic projections, review previous estimates, and put these seemingly large numbers in their proper context.  As before, the claims that developing countries will be the big winners from Doha rest on shaky assumptions, controversial economic modeling, misleading representations of the benefits, and disregard for the high costs of Doha-style liberalization for many developing countries

Gallagher and Wise find that:

  • The gains in the new study from agriculture and NAMA are of the same order of magnitude as previous studies, about $100 billion, with the vast majority going to rich countries.
  • The new estimates for services, sectorals, and trade facilitation are highly speculative, use methodologies that are unproven, and assume far more ambitious outcomes than seem at all likely at this point.
  • Peterson finds high gains in services and sectorals because they assume that developing countries will make big concessions and that those same countries are big winners (from lower prices) even if they lose significant parts of those sectors to imports.
  • The estimates of $365 billion in gains from trade facilitation are particularly exaggerated, because they assume not only agreement on reforms but resources for the vast investments in infrastructure and human capital needed to make them happen.
  • The claims of “balance” are unfounded, as developing countries receive less than one-third of the projected income gains.  Previous modeling has shown that many poorer regions, such as Sub-Saharan Africa, are projected to be worse off after an agreement.
  • As with most such projections, researchers disregard the costs of liberalization for developing countries.  Specifically:
    • Tariff losses just from NAMA reforms are estimated at $64 billion, far more than the estimated gains to developing countries.  As countries struggle to recover from the financial crisis, this is not the time to cut needed government revenues.
    • Terms of trade for developing countries are projected to decline significantly, as they shift back toward primary production rather than forward toward industrial or knowledge-based development.

The authors conclude with a series of recommendations to put development back into the Doha Round.  In particular, they call for a moratorium on North-South preferential trade agreements, which exploit the asymmetric nature of bargaining power between developed and developing nations, divert trade away from nations with true comparative advantages, and curtail the ability of developing countries to deploy effective policies for development.

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