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Hong Kong WTO Ministerial Meeting: What's at Stake for Developing Countries?

with
Danny Leipziger, Vice-President, Poverty Reduction and Economic Management, World Bank
Uri Dadush, Director, Trade, Development Prospects Group, World Bank
Kym Anderson, Lead Economist, Development Research Group, World Bank
Will Martin, Lead Economist, Development Research Group, World Bank
November 9, 2005

PROCEEDINGS

MR. LEIPZIGER:  Let’s get started.  I'm Danny Leipziger.  I'm the Vice President for Poverty Reduction and Economic Management here at the Bank, and on my right is Uri Dadush, the Director for Trade.
                      
We're here to discuss the issue of agriculture and how it relates to the Doha Round.  I'm sure that for those of you who listened to Ambassador Portman this morning or who have been following it, agriculture is at the key of the Doha negotiations.
                      
The role of the Bank is basically to provide analytic work that underpins a more informed discussion, we hope, of some of these issues.  We tried to look at it from a very clear perspective, what's good for developing countries.  We don't want to be drawn into the negotiations themselves nor the proposals that are on the table.  We are much more interested in showing what the potential benefits are to developing countries from a good Doha outcome.

So, with that being said, we are going to ask the two authors to very briefly--and we've given them three minutes each--tell you what the key messages of this book are, and then I'll ask Mr. Dadush to comment further, if he wishes, on how we see this work feeding into the current debate.

Gentlemen?

MR. ANDERSON:  Thanks very much, Danny.  This exercise involved two particular simulation studies.  One was to try and get a sense of what's on the table, what are the potential gains if we were to free up all of merchandise trade and remove agricultural subsidies globally, and then use that as a benchmark to then look at some Doha scenarios and ask what the potential gains could be for different players from partial reform under the Doha Development Agenda.
                      
So let me make just two or three points on the first of those exercise, and then Will can make some points on the second.
                      
The first point is that there are clearly huge gains to be had from removing current distortions.  That is, the cost of current policies is very high.  We estimate it very conservatively to be of the order of $300 billion a year.  And of that, if you express it as a percent of national incomes, then developing countries would be the major beneficiaries.  They would gain about a third more on average than would the rich countries.  And in particular, sub-Saharan Africa would gain nearly twice as much as a percent of GDP, as would the OECD countries, the richer countries.

The second point is that half of those benefits to developing countries would come from reforms by developing countries themselves.  That's because they have high protection rates, higher than in rich countries, and so they could gain hugely by reforming amongst themselves, as well as gaining from rich country reforms.
                      
The third point is that nearly two-thirds of those global gains, or the gains to developing countries, (Slide 4) would come from agricultural reform.  That's despite the fact that agriculture is a tiny fraction of the world economy, less than 4 percent of global GDP. It is large because protection and subsidies are so high in that sector. .  Hence the importance of agricultural reform being on the Doha agenda.
                      
The fourth point, if you look at Slide 5, is that of these gains from agricultural reform, we estimate that 93 percent would come from market access, that is, lowering tariffs, and only 7 percent of those gains would come from eliminating domestic and export subsidies. Hence the importance of the market access part of these negotiations, particularly in agriculture.

Will, you want to carry on with what we can do with partial reform?

MR. MARTIN:  Thanks very much.

As Kym has outlined, there are enormous potential gains from trade liberalization, especially in agriculture, but the question is how can they be harvested in the Doha negotiations.
                      
As we're all very, very aware now, it's going to be very hard to do that within the WTO, but I think we need to put this in context.  The WTO, particularly for agricultural liberalization, is more or less the only game in town.
                      
It is very, very difficult to deal with these barriers at a national level, especially in the industrial countries and the middle-income developing countries, importers in particular.  And it just hasn't proven possible to deal with this in the regional context either.  So while it's very, very difficult, this is the key way to proceed.
                      
Now, one of the reasons that it's so difficult is that the Doha reforms will not work from the actual tariffs that are applied. Everything is based on the bound rates of tariffs and subsidies, and very, very frequently these bound rates are substantially above the rates of protection that are actually applied.
                      
We give some statistics on page 8 of the hand-out where we show that the average applied rate in the industrial countries is about half the bound rate; that in the developing countries the gap is even larger; that the bound rates are around two-and-a-half times the applied rate.  And in the least developed countries the gap is about six times.  What does this mean?  It means that to secure real liberalization requires very, very large cuts in the bound rates to reduce protection.

Another thing that our research results show is that a tariff cap is extremely important.  This is because we have so many tariffs in agriculture that are just so high.  While this discussion in non-agriculture refers to having ceiling cap rates is something like 30, the most thorough proposal for a tariff cap in agriculture is a 75-percent tariff cap.  What we've found is that even a tariff cap of 200 percent can bring down protection substantially because there are so many very high rates.

Now, research scenarios show that the current proposals could yield some very large gains.  In the analysis in the book, we've dealt with tariff cuts on the order of 75 percent on the highest tariffs.  Some of the proposals that are currently under discussion include cuts like 90 percent, which would really bring down the very, very costly protection associated with high tariff rates.
                      
But one of serious problems in all of this is the so-called sensitive and special products that are to be subject to very small rates of reduction.  What we find is that inclusion of a significant number of sensitive products can absolutely decimate those gains.  Even a couple of percent of sensitive products can do that.
                      
And that's especially the case if the tariff cap doesn't apply to sensitive products, and none of the current proposals make clear that the tariff cap would apply to sensitive products.  Some of the proposals, in fact, make clear that tariff caps would not apply to sensitive products.

Another key research finding is that including non-agricultural tariff cuts--the so-called non-agricultural market access--greatly raises the potential gains from liberalization, and particularly the gains to developing countries.
                      
And the final point I'd like to make is that developing country gains are much greater if they participate more comprehensively in the negotiations, if they're willing to commit to larger reductions particularly in their market access values.
                      
Why is that?  Partly, it's because South-South trade is so important and expanded South-South trade is very helpful for developing countries, and also partly because it improves efficiency in developing countries.  Improving efficiency raises real incomes in countries rich and small.

MR. DADUSH:  I just wanted to raise two points.  One is that despite the difficulties in recent days in London and Geneva, what Kym and Will's presentation underscores is the importance of maintaining ambition in the round.  This is a very important exercise for the poorest countries of the world and for the poor across the world.  So the level of ambition must remain high in the negotiations, despite the current difficulties going into Hong Kong.
                      
The second point I wanted to make is that what you see here is one part of what the World Bank works on.  Actually not even--although what Will and Kym are doing is important, not necessarily the most important part.  The other big activity that the Bank is engaged in is the trade reforms and assistance programs to countries.
                      
One way to capture it is what's called the aid for trade agenda.  That whole angle is a very important accompaniment to these international negotiations.  Indeed, it has a logic of its own and will be around well beyond any conceivable timetable for the Doha negotiations.

That aid for trade is also important in making sure that as markets are open around the world, the poorest countries have the infrastructure, the capacity and the institutional frameworks in place so that they can take advantage of their markets.

I just wanted to make that general comment as we open it up.
                      
MR. LEIPZIGER:  Okay.  If you can just tell us who you are, we'll be happy to respond.  Ma'am?

QUESTION:  Hi. I am Christiane Oehrlich with the German Press Agency.  I have two or three questions.  Number one is what is global welfare?  Is this earnings   through trade, and 45 percent of that would accrue to the developing countries?  Is that the correct understanding--$300 billion global welfare?
                      
And the other question would be if 2 percent are designated as sensitive, you say the welfare gains would   ?    disappear.  Is that because those 2 percent are the bulk of what developing countries export?

And I don't know; a last very short question.  Merchandise trade--what is that exactly?

MR. MARTIN: Great, okay.  Real income, it's just what it says.  It's the gain in incomes relative to consumer prices.  It comes about by producing more efficiently, producing, say, producing sugar in places where it's lower cost to produce it and by consumers being able to benefit from lower prices for the goods they consume when protection is taken away.
                      
Why do the sensitive products have such an impact?  Because policymakers are likely to leave out from liberalization the products where the tariffs are very high, where the economic costs associated with them are very high and where they would need to reduce a lot and where the trade is very, very important.  And so once you allow policymakers that flexibility to exclude items, then the benefits from efficiency gains decline rapidly.
                      
QUESTION:  But was that correct, $300 billion in earnings from trade?
                      
MR. MARTIN:  It's earnings.  It's net income increase to the world.
                      
QUESTION:  Compared to the--

MR. ANDERSON:  Compared to the baseline, yes. And the merchandise trade point--it has to do with not only agriculture, but also non-agricultural goods trade.  We don't model what the impact might be from services trade liberalization or investment liberalization, which could be substantially higher, perhaps several times the gains we're talking about here.

But so far the negotiations haven't focused very much on potential services issues.  They're trying to sort out agriculture first and then move on to services.  So at this point we've only analyzed the goods trade liberalization.

QUESTION:  Paul Blustein, Washington Post.  I want to ask a question that probably will cause a couple of eyes to roll in here with people attending this press conference.
                      
If you take what the Europeans are saying now that their offer on agricultural market access is their final offer and you combine it with what you're saying that agricultural market access is the most important, the big prize in this--the biggest, not the only, but the biggest--then shouldn't one draw the conclusion that, at best, at best, the Doha will produce very modest gains; that this would be quite a--I mean, assuming it doesn't blow up, even assuming it reaches a conclusion, the  gains will be really quite modest particularly by comparison with what was envisioned when they started out.

MR. LEIPZIGER:  Well, on the first point, I think the research does show that the largest gains come from getting rid of the market access impediments.  I think we should also keep in mind, however, that even though domestic support may only generate 7 percent to those gains, for a number of difficult those domestic supports mean a great deal.
                      
So one thing is to look at the aggregate welfare improvement.  The other is to look at particular countries.  So if you look at, you know, the four cotton producers in Africa, you know, the thing that's blocking their exports is domestic support.

QUESTION:  But they're going to get what they want because of the dispute settlement…?

MR. LEIPZIGER:  I don't know about that, but I'm giving you an example where even though it's only 7 percent, you know, that can make a big difference for Mali or Burkina Faso.
                      
I think Mr. Dadush commented originally on the question of expectations.  You know, we're here to tell you what the potential gains are and what impedes developing countries from capturing those gains.  And, clearly, as Will said, you know, if you exclude the products that are most protected, then you lose a lot of the gains that we're looking for.

QUESTION: I don't know if that answered my question.
                      
MR. MARTIN: I think another point that's very important in all of this is the huge exception of agricultural export subsidies.  I mean one thing that's involved in the negotiations would be the abolition of those export subsidies.  That's a very, very big step forward in terms of the rules.  There are reductions, so we have a table there [inaudible] all of the different proposals.  What we've looked at is a 75 percent cut in the top   (?)   and then you see the U.S. proposal, 90; EU, 60; 20, 75 and so on.
                      
But--and then the sensitive product, we've looked at two, and we have a graph in there that shows how rapidly the gains come down as you include sensitive products.  That's something to look to.  But there are improvements in the way it's dealt with that could be made.  We mention in the press release, for instance, that if you looked at restricting sensitive products and took into account the interest of exporters by saying, "How much exports are you actually allowed to exclude," those sorts of changes, you could perhaps reduce the cost of sensitive product.

So the costs are incurred by allowing sensitive products.  If you defined them, if you restricted them in a different way, you could reduce the impact of the sensitive products.  Instead of saying, tariff lines, some tariff lines are more equal than others.  Some are very important.  If you focused on the percentage of imports, the change like that could greatly reduce that cost impact.
                      
So what we have, there's quite a menu of things to choose from from the various proposals, and one hopes that negotiators will choose from that menu something that turns out to be politically acceptable and leads to substantial benefits to developing countries.
                      
MR. ANDERSON:  One final point to keep in mind, it is not all despair if there's only relatively modest cuts in the sense that cutting those bindings reduces the prospects in the future of countries raising their tariffs further, so that will always be a gain.  So getting them down somewhat is better than not getting them down at all.
                      
QUESTION:  Klaus Marre, DPA.  I have a question for Mr. Martin.  You're quoted in the release as saying that a few of these exemptions might be unavoidable.  Can you give some examples for certain regions, you know, on the continents, what those could be that would be unavoidable?
                      
And just for me to understand this better, so basically by saying we should avoid this, isn't it asking countries to take a big step forward in not protecting their domestic industries, where some people might say that could result in job loss?
                      
I mean, this is all like proven that this is how it's going to work.  You know, why should they believe you that there are these great gains of $300 billion and that they should--that there might be some risks that they think--I mean, obviously, if this were so easy, then why hasn't it been done already, I guess?
                      
MR. MARTIN:  The reason it hasn't been done--to take your last point, the reason it hasn't been done is that politically it's very, very difficult within an individual country to confront the vested interests that lie behind these very, very high rates of protection.
                      
The only real opportunity to do it seems to be to take into account the interests of the exporters, those who are excluded who are losing out from this protection.  That's the logic of the WTO process.
                  
Now, if you start to leave products out, we have a lot of experience of this.  This is what happened in the Tokyo round.  That's why we still have very, very high tariffs on textiles and clothing that exclude products from developing countries going into the industrial countries.
                      
So it has a very, very large cost which can last a long time.  If it has to be done, there needs to be some sort of restraint on it so that it doesn't just continue to do the sort of lasting damage to the trading system.
                      
QUESTION:  Well, when you're talking about this [inaudible] that might be unavoidable, do you have any specific examples in mind, where it says, well, for this country it could be this, or for North America it could be something else?
                      
MR. MARTIN:  No.  I mean, clearly, it's a political determination.  The outcome, though, can depend a great deal on how it's handled.  If it's handled, you know, in an unfortunate way, the way extra-sensitive products were included in the Tokyo round, then it can do a great deal of damage because people tend to think about their own pain, their sensitivity to them.

And what's hard to internalize, hard to realize is the damage that you do to other people.  When you assuage your own pain, you create pain for other people.

QUESTION:  But if everybody's is employed, then everybody will benefit.
                      
MR. MARTIN:  Yeah.

QUESTION:  Now, Ambassador Portman and Secretary Johanns this morning, [inaudible].  Obviously, they were very careful to say there's going to be some gain that will come out of this, and this isn't the end, Hong Kong isn't the end of it.  So I guess, could you just detail some of those other gains?  If this just doesn't work the way the U.S. wanted it, then what are the gains for not just the U.S., but, for example, sub-Saharan Africa, where people need help the most?

MR. ANDERSON:  This is an interim state really.  Hong Kong is on the road towards a conclusion, and the fact that there might be some difficulties this month doesn't mean we're not still on that same road, and there's still the same timetable in mind.  It's simply that there will have to be more work done next year rather than at the end of this year to reach that goal.  So the objective, everybody is saying, should still be a substantial liberalization of trade, particularly in agriculture, which is still going to be on the table for this remaining 12 months or so of these negotiations.  It's simply that the big decisions will have to come next year.

QUESTION:  But that's realistic to say we can't even--we can't even reach out, we're going to fall short of our interim goal for Hong Kong.  So how realistic is it then to say but the overall goal of this round [inaudible] reach that next year?
                      
MR. ANDERSON:  Well, maybe other Europeans will be working on that, at least the more intransigent leaders there.  But if you look at recent history, there is a great deal to be hopeful for because we've seen in recent years quite significant changes in the instruments of protection, particularly in Europe, away from directly tradedistorting instruments towards ones that are more decoupled from production.  And that trend is ongoing.  We're seeing the sugar reforms coming forward now in the EU that will put pressure on the U.S. to reform its sugar programs, and so on.

So in the context of the long history of protection growth that we've seen over the last 60 years, these recent changes are quite significant for moving things in the direction of decoupling support from production, ensuring farmers’ incomes do not fall, but doing it by more direct measures than we've seen in the past, and, therefore, measures that are less trade distorting.
                      
MR. DADUSH:  Let me just add there that Japan, as you know, is historically quite defensive in the--or very defensive on agriculture in general.  But it should also be stressed that if the round moves forward, the idea is to get very significant reductions in manufactured tariffs and also some improvement in access of services.  And Japan has very important export interests in those areas that, in fact, quantitatively are much, much more important than, you know, agricultural production in terms of domestic value-added.

So this also needs to be borne in mind, that there are some very large gains out there for Japan.
                      
MR. ANDERSON:  Perhaps it's also worth stressing that the extent of adjustment that would be implied by these types of scenarios, including the ones in our book, are still very modest.  People assume sometimes that these will be very dramatic changes that would decimate the agricultural sector of countries like Japan. But if you look in the book you'll see tables there showing what impact they would have on agricultural outputs and agricultural employment in each country and region. While Japan is the country that is affected most adversely in this respect, it's by less than 2 percent a year in the growth of farm employment and output. Thatis a trivial amount compared with the normal adjustments that are taking place in the course of economic growth in these countries.  So this is not a very dramatic change.  It's simply that it will reduce the value of, in particular, agricultural land. Not surprisingly, people are trying to protect their wealth, and that's where the political pressure comes from.
                      
MR. ANDERSON:  Well, in Japan, more than 90 percent of farm household income is earned off the farm, and most of the growth for Japan is going to be in non-agriculture.  So 90 percent of even farm households incomes is likely to be rising as a consequence of what would happen with the opening up of world markets, and only the remaining 10 percentage points that comes from the farm might decline slightly, so really it is not going to hurt any households in Japan.

MR. MARTIN:  And Japan and Europe are very large gainers from agricultural reform.  I mean the benefits to their consumers of lowering those agricultural prices from levels like 6 or 7 times the world price in the case of rice or wheat in Japan, the benefits to their consumers are very, very large, and the benefits to poor consumers are disproportionately large within that.
                                                          
QUESTION:  Does that mean that this will benefit Southeast Asian countries [inaudible] crops?

MR. ANDERSON:  In the case of Japan, the highest protection certainly is in rice.  So if they were to come under pressure to reduce their extremely tariffs (of the order of 700 percent) in rice, clearly that would open up opportunities for exporters of rice. Our modeling suggests that would benefit, as you suggest, rice producers elsewhere in Asia. They would not necessarily export more directly to Japan, but the exporters of Japonica rice to the world would send more to Japan and exporters of Indica rice would send more of that to other markets, so that the gains would be spread around by the various exporters of rice globally.
                      
MR. MARTIN: And in the book, we set out who the gainers are and the size of the gains, and it--you know, the big gains go to two groups of countries; one is the countries that liberalize their own policies a lot, the big economic gains for the reason I mentioned, the benefits to consumers exceeding the loss of producers and into countries that are net exporters of agricultural products, so the Thailands, Brazils--and Indias gain overall for both reasons.

QUESTION:  I mean Japan is a big gainer; right?
                      
MR. DADUSH:  A very big gainer.  Yes.

QUESTION:  Well, and what about the job losses?  For example, in a country like Japan and the rice farmers who then don't have their government protecting themselves anymore.  So obviously, there's a gain to consumers, but what about to rice farmers adding to unemployment and, I mean [inaudible] no way they can compete.

MR. ANDERSON:  Well, they wouldn't add to unemployment.  As I've said, most of them earn most of their income off the farm anyway--90 percent on average.
           
MR. LEIPZIGER:  But the term "off the farm" may be misunderstood in America. Ninety percent of the earnings are not from farm income.
                      
MR. ANDERSON:  Not from agricultural activity.
                  
MR. ANDERSON:  So if those other activities are to expand, as they would, if you reduce agricultural protection, then that portion of their earnings, that vast proportion of their earnings of those farm households from off-farm work would expand and only the little fraction that comes from growing rice might contract a bit, but not very much.
                      
QUESTION:  [Off mike.] Ninety percent of the income of the average rice farmer?
                      
MR. ANDERSON:  Of the average farmer in Japan.  More than 90 percent of their earnings are earned off the farm.  They all have full-time jobs off the farm, and they do their rice farming on the weekends.  That's what most farm households do in Japan.  It's true also of Korea and Taiwan, to a slightly lesser extent.
                      
MR. MARTIN:  And increasingly so in Vietnam and China.

MR. ANDERSON:  Even in Europe nearly half the earnings for farm households come from off the farm.

MR. MARTIN:  But we do assume, though, that labor is able to move its - out of agriculture in some countries, and, of course, into agriculture in those countries who are currently excluded from markets.
                      
As Kym mentioned, the rate of adjustment, though, is relatively low.  Remember also that these protection cuts will be phased in the WTO, phased in over a substantial period.

So, yes, you do need labor markets to be able to adjust out of agriculture in some countries into others, but these rates of adjustment are relatively slow by comparison with the sorts of adjustments you get from other pressures on the economy.

QUESTION:  So I guess then providing other opportunities wouldn't that mean what Europe wants, for example, and what Ambassador Portman [sp.] said he understands very well to make sure that there's a comprehensive package.  So, clearly, in your study you say that most of the benefits come from the agricultural sector.  But how important is it, then, to have to really open it up to other services and have this comprehensive package that I guess would you--is that key or ...?

MR. DADUSH:  Or I think, first of all, you're not going to get the agricultural gains, multilateral [inaudible] unless you are willing to open up in other areas so the many-sided gains that you'd get the size of at least $300 billion, two-thirds of which comes from agriculture, requires that the countries that still have IA restrictions against manufacturing services also, you know, bring their barriers down.  So it's--in that sense, they're interdependent.

QUESTION:  Would it be easier to address that first in your opinion and then save the agricultural stuff last to ease the concerns of, for example, Europe, which I guess the problem in the supply of agriculturals?  Would it be easier to say, well, here's all the other reforms that we're going to put in place.  Now, that we have assured you that this is what's going to happen and please get on board with the agriculture sector or the end to tariffs?

MR. LEIPZIGER:  Well, I mean, first, it's not our role to steer the negotiations.

QUESTION:  No.  I know.

MR. LEIPZIGER:  But I mean the logic is that agriculture is protected in the OECD countries, and the OECD countries want to get access into the newly emerging markets in terms of manufacturers and services, so the trade-off is between various groups of countries.  So what's of interest to the Indias and Brazils of this world is different than what's of interest to the U.S. or the EU.  So it's not a question of sequencing.  It's a question of doing what--the negotiations as an entirety.

QUESTION:  Listening to European briefings lately, they had reports last week and yesterday from the French Trade Minister, and there's a line that they like to use, which is that--I think it's a--well, anyway, they say they import a heck of a lot of stuff from developing countries in the agricultural sector.

So I used to get angry at Japanese politicians when I lived in Japan who would tell me that, you know, we import tremendous amounts of food, and would anyone think of giving us such a hard time about rice.  They're really very virtuous.  In fact, they import a much higher percent of their food supply than the United States does, and I used to get mad, and I would say you're insulting my intelligence, my understanding, you know, a very high percentage of your country have mountains where it's impossible to grow anything.

So, of course, you import a lot of food, because you eat a lot now that you've gotten rich.
                      
Now, Europe is not quite in the same league as Japan, but what is the correct response?  I know you have to be concerned about the diplomatic sensitivities that Europe is large shareholder of the World Bank [inaudible], come on, nor had you tell me why we ought to be insulted when European politicians use this argument with us?         

MR. DADUSH:  I think it's broadly correct that Europe has less, let me put it that way, of a comparative advantage in agriculture than the countries they like to compare themselves with in terms of agricultural imports--the United States, Australia, and New Zealand, et cetera--other industrialized countries.
       
So I think the argument, while it may not apply with the same force as--with respect to Japan, applies to a degree to Europe as well.  So it's not altogether surprising at all that Europe is a large agricultural importer as well as, by the way, the largest I believe agricultural exporter at the moment in all sorts of let's call it high-valued added products.

QUESTION:  Europe is the largest agricultural exporter?
                      
MR. DADUSH:  I think they are the largest or maybe number two agricultural exporter today.

QUESTION:  Not just the stuff you subsidize?

MR. DADUSH:  Well, the total exports of Europe are--they place them at I think it's the first or the second; is that correct?
                      
But, anyway, it's a very large agricultural exporter.

So that's one point to make, but the second point, in fairness, is that it is true that Europe does have very generous--let me put it that way, preferential programs for the 77 or 78 countries that go under the ACP level, Africa, Caribbean, and Pacific.  And within that there are 50 countries that are LDCs that benefit from everything but arms, which is a scheme that over time--it's not fully implemented yet--will give a total duty- and quota-free access to these countries into European markets.  But the other ACP as well that are not LDCs do get very generous preference schemes.

So there is certainly some truth to that, and the Bank is on record for supporting the European--well, the European proposal that this duty- and quota-free access that is granted to LDCs be extended by other industrial countries as well.
                      
QUESTION:  But not on a preferential basis?
                      
MR. DADUSH:  Yes, on a preferential basis.  We are on record on a preferential basis, recognizing we don't love preferences, we think preferences have many negative effects.  But, on balance, we believe in this in the case of the LDCs because of their very--you know, because they're LDCs, the least developed countries, because of the low capacity that they have, et cetera, et cetera.  In fact, the effects, the distortionary effects on the exports of other countries are relatively small, but the benefits to them potentially of this preferential access are large, although so far that has not actually materialized.  But that's another story.

MR ANDERSON:  One small footnote to Mr. Dadush’s  response is worth adding. Our results demonstrate that if there were to be a freeing up of agricultural trade, all countries would expand not only imports but also exports. That is part of the globalization of world food markets that's going on.  Specialization is taking place.  It would simply be accelerated by a freeing up of agriculture markets.We would see, as I said, all countries expanding some exports as well as expanding their imports.  Even the least protected countries would be expanding their imports.

What we would end up with is a larger variety of products in every market, and more specialization and lower costs of all food products for people.  We haven't really captured all of those increases in variety effects because our model is fairly aggregated.  If you had a more disaggregated one with all the fruits and vegetables separated out, for example, you would see massive growth in horticultural trade globally.
                      
QUESTIONER:  [Off microphone]Is that just flowers?
                      
MR. ANDERSON:  No.  All fruits, vegetables, products of viticulture and floraculture, all of those items together.  In China, for example, that horticultural group accounts for around 40 percent of agricultural value added  Globally it's about 25 percent.        It's a huge part of world trade, and freeing up world trade would expand that and we would see a lot more specialization and all countries would have a greater variety of fruits and vegetables at their disposal. That is a source of gain that you would have to add to what we've estimated, because we haven't been able to capture it in our fairly aggregated model.

MR. LEIPZIGER :  Okay.  If there are no other questions, thank you all.  Yes?

QUESTIONER:  [Off microphone]  Well, I have a question, and I apologize to those [inaudible].  But basically are you saying that in order to achieve these $300 billion in gains, I mean it calls for countries to make fairly dramatic cuts, and [inaudible], again the results are minimal.  I mean, I mean it's like, you know, if you go halfway toward elimination, you get $150 million in welfare gains, or is it something substantially less than that?

MR. MARTIN:  Just very briefly on that, I mean we're very clear in the book that the $290 billion in gains actually comes if you abolish all tariffs, completely get rid of all tariffs, the export subsidies and the domestic support in agriculture.  That's not something we think is likely to happen in the negotiations, and especially not by Hong Kong, but it does give you an idea of the canvas on which these are written.  What the opportunities are
                      
And what we show in the graph on the screen is the potential gains from getting part of the way, the developed and the developing countries there, and we show different sort of scenarios.
                      
So the first one, just agricultural with a 75 percent cut in high tariffs gives you about 75 billion of that total potential gain, something like a quarter.  When you have the non-agriculture, non-agriculture rolled in together there's about 96 billion in potential gains, so you're getting up for sort of a third there.  You need such large cuts because of the binding overhang point.

But to touch on the point you raised at the end, just in general terms, if you can halve protection, you get something close to three-quarters of the total gain.  So where--we would be getting a lot more if we were starting from today's applied rate, but we're starting from way above there and that's why it's hard to get it.  But this potential, even with the sorts of partial reforms that are being discussed, we get substantial overall gain.

MR. LEIPZIGER:  Okay.  Thank you very much.




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