The Doha round as a global insurance policy against increasing protectionism
A recent study by Antoine Bouët and David Laborde from the International Food Policy Research Institute (IFPRI) stresses a potential loss of $1,064bn in world trade if world leaders fail to conclude the Doha Development Round of trade negotiations in the next few weeks and implement subsequently protectionist policies. The failure of the Doha Development Agenda would prevent a $336bn increase of world trade while a worldwide resort to protectionism would entail its contraction by $728bn.
Speaking at "Completing the Doha round: A global insurance policy against protectionism in turbulent economic times," a luncheon event hosted by the German Marshall Fund of the United States (GMF) on Thursday, November 13, 2008, Bouet and Laborde unveiled an economic study that does not just measure the potential economic benefits of a Doha agreement but also examines the potential economic losses of a scenario in which there is a general resort to protectionism. Ed Gresser, director of Trade and Global Markets at the Progressive Policy Institute and Jennifer Hillman, senior transatlantic fellow at GMF, put the results of the study into a policy context.
Bouët and Laborde sketched out a scenario where countries in times of economic turmoil might decide to increase current tariff rates to protect domestic industries or raise revenues in order to finance domestic programs. Taking the highest applied or bound rate imposed by countries during the period from 1995-2008 as an indicator, the two IFPRI economists outlined a realistic level of protectionism drawing conclusions on the economic cost of a failed Doha Round.
Most countries can raise their tariffs at any time because their applied tariffs are lower - in many instances much lower - than the tariffs they have bound or committed to maintain under previously negotiated agreements. As a result, these countries are free to raise their tariffs up to their bound rates without breaking any multilateral commitments.
In a scenario where applied tariffs of major economies would go up all the way to currently bound tariff rates, world trade would decrease by 7.70%. In a more modest scenario where countries would raise tariffs to maximum rates applied over the last decade, world trade would decrease by 3.16%. These increases in duties would bring down world welfare by $448 bn or $167 bn, respectively. While such an increase in duties would particularly impact agricultural exports (-7.0%), exports of industrial goods could also face a substantial reduction, by 2% in developed countries and 4.8% in developing countries.
Putting the results of the IFPRI study into a policy context, Hillman stressed that against the background of the November 15th G-20 meeting in Washington, a Doha agreement does more than deliver tariff cuts. It would also provide continuity in these times of turmoil by committing governments to bind their tariffs under a new trade agreement.
Gresser noted that this summer's food crisis serves as a good example of how governments can react in times of trouble, citing the export bans on food countries like Argentina that in the end led to further increases in food prices.
The main results of the non-Doha studies can be downloaded here.
The publication "The Potential Cost of a Failed Doha Round," from IFPRI Issue Brief #56 can be downloaded here.