Doha benefit seen in blocking protectionism

Tue Nov 2, 2010 11:18am EDT

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* Doha deal would be insurance against protectionism

* Full potential gains far from being realised

By Jonathan Lynn

GENEVA, Nov 2 (Reuters) - Preventing countries from backsliding on cuts in tariffs they have undertaken unilaterally could be the biggest gain from the long-running Doha round to free up world trade, economists said on Tuesday.

And the modest gains to the world economy from agreeing what is currently on the table could be improved if negotiators made progress opening up services that account for 80 percent of rich economies and a rapidly rising share in developing countries.

Putting a figure on the gains from Doha -- launched nine years ago this month to open up global commerce and help developing countries prosper through trade -- is extremely difficult and estimates vary widely.

In an effort to provide clarity and remind negotiators what the stakes are, the World Trade Organization invited leading trade economists to a workshop on recent analyses of Doha.

Speakers compared trade policy to riding a bicycle -- you keep advancing or you fall off, and agreed the global trading system umpired by the WTO had helped world trade survive the economic crisis largely unscathed. But risks remain.

"There has been a constrained protectionist reaction to the economic crisis of the past few years, but it has not been tamed," said Jeffrey Schott, senior fellow at the Peterson Institute for International Economics.

SHEDDING LIGHT

Governments did not respond to the economic crisis by pushing up import tariffs or subsidies -- the two main areas of trade policy governed by the WTO.

But during the 2008 food crisis, many states indulged in beggar-thy-neighbour export restrictions -- largely neglected by WTO rules, noted David Laborde, a researcher at Washington's International Food Policy Research Institute (IFPRI).

"The fact that the WTO is putting some rules, or puts light, on some policies plays a role and this we should defend," he said.

Laborde argued that Doha represented an insurance policy against the costs of increased protectionism resulting from a failure of the negotiations.

An agreement on agriculture and industrial goods -- the two core areas where negotiations are most advanced -- would boost annual world real income by $50 billion on current proposals.

If Doha fails, and countries push tariffs to the current ceilings they have committed to, the losses to world income would be $350 billion. A Doha deal would limit the losses from potential tariff hikes, in any new fit of protectionism, to $150 billion, suggesting Doha is worth some $200 billion, he said.

Will Martin, a senior World Bank researcher, said the current industry and agriculture proposals would boost the world economy by $121 billion, with three quarters going to rich countries and one quarter to the developing world.

By contrast, Schott of the Peterson Institute said current proposals for agriculture and industrial goods would raise world exports by over $90 billion a year, and world GDP by over $60 billion, which would not persuade leaders to push for a deal.

"It's not ambitious enough... there's not enough on offer to ensure countries will liberalise existing trade practices in exchange for Doha offers," he said.

A vital element is services, such as banking and telecoms, that have been left behind in the talks so far, Schott said.

Liberalising trade in services could boost world GDP by another $45 billion, excluding the knock-on effect on farming and manufacturing from better efficiency, and trade facilitation -- helping developing countries cut red tape and make their rules more trade-friendly -- could add another $120 billion.

Aaditya Mattoo, a senior researcher at the World Bank, said the best offers on services liberalisation did not capture the openness that already existed. "The bottom line is Doha is playing catch-up with reality and not quite succeeding." (Editing by Stephanie Nebehay)

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