The WTO’s ‘single undertaking’ has enforced a very complex framework of ‘modalities’ (methods, outputs) on the negotiations. The proposed draft of the agreement is riddled with cascading options, concessions, and exceptions (see this summary in an earlier post). But it also provides for conditional limits to the options, compensations for the concessions and exceptions to the exceptions; twists and turns that are intended to keep every country in the single-undertaking ‘on board’, including those countries that intend to retain protection for agriculture.
Simulating this complexity tests the limits of the ATPSM model. As you’ll see, I have had to employ some brutal simplifications keep the model manageable. But the scale of the results looks, broadly, right and the distribution of gains and losses looks plausible to me. In case you’re interested, I provide a full justification for these simplifications—referring to the text of the 2008 ‘Modalities’—below.
Please, judge for yourself whether the results are plausible, and let me know if you disagree. Or, if you can see a better way to represent either the Doha modalities, or critical mass agreements, please download the ATPSM model and try it for yourself. One of the authors of the model, David Vanzetti from the Australian National University and UNCTAD, has kindly supplied me with some updates to the trade data used in the model. If you’d like to try replicating my results, please drop me an email. I would be happy to provide you with access to the updated data-set.
Finally, the download location for the ATPSM program, as mentioned in the video is http://www.unctad.org/tab.
Simplifications in the model
In my projection of the Doha outcome, I elected to be ‘optimistic’ about compliance with the December 2008 modalities by employing some simplifications that not only make the model specification easier to manage but also, probably, overestimate the likely outcome.
Tariffs (bound, over-quota rates): I assume that every developed economy will achieve the minimum 54% average cut in bound rates (but no more) taking account of all deviations and exceptions ( Para 62 of TN/AG/W/4/Rev.4). I assume that developing countries that are not otherwise designated in an ‘exceptional’ category will achieve the maximum average cut in bound rates of 36% (but no more) taking account of all deviations and exceptions (Para 64 of TN/AG/W/4/Rev.4). I assume that developing countries able to access the ‘Small and Vulnerable’ exceptions and recently acceded members (RAMS) will make average cuts of 24% in bound rates (Paras 65 and 66 of TN/AG/W/4/Rev.4). Least-developed countries will make no cuts in bound rates (Para 151 of TN/AG/W/4/Rev.4). A group of ‘very recently acceded members’ (VRAMS) and a group of ‘small, low-income, RAMS with economies in transition‘ are also exempted by the modalities from making any cuts in bound rates (Para 67 of TN/AG/W/4/Rev.4 and footnote to that para.).
I have differentiated the RAMS and VRAMS groups. The VRAMS comprise Macedonia, Saudi Arabia, Ukraine and Viet Nam. Their exemption from cuts in the Doha modalities recognizes that they have recently agreed to make substantial bound-rate cuts, on accession; if I set their obligations in the simulation to ‘no tariff cuts’, the model will fail to take into account that these countries have recently made large cuts in their import barriers: the estimated cuts on agricultural products range from about 25% (Ukraine) to 44% (Vietnam) to 60% (Saudi). I have therefore included an average ‘Doha’ tariff cut of 40% for these economies in the simulation.
In-quota tariffs: I assume that all products currently subject to a tariff quota will be designated as ‘sensitive’. I assume that all developed economies will cut in-quota rates by 50%; one of the approximately equal options available in the modalities. I have assumed that non-exempt developing countries (only) will cut in-quota rates by 15% (Para 109 of TN/AG/W/4/Rev.4).
The appropriate expansion factor for tariff quotas is more difficult to estimate. In the Uruguay Round agreement, WTO members Ire obliged to maintain current market access through quotas at the current level and, where new MFN tariff quotas I’ve created as part of the ‘tariffication’ process, to establish a ‘minimum access’ quota of 3-5% of 1986-1988 domestic consumption. In fact the expanding ‘minimum access’ quotas represent the smaller proportion of agricultural quota-trade by value (about 45%: see de Gorter, H., and E. Kliauga (2005) “Reducing Tariffs versus Expanding Tariff Rate Quotas” in Anderson, K and Martin, W. (eds)., Agricultural Trade Reform and the Doha Development Agenda, Palgrave Macmillan and the World Bank) so that the overall proportion of domestic consumption covered by both the minimum and current access quotas was about 9% (assuming that ‘minimum access’ quotas reached 4% of consumption) in the base years. Under the ‘sensitive product’ provisions of the Doha modalities the tariff deviation by developed countries is compensated by a quota (or quota expansion) equal to 3-4% of domestic consumption in the 2001 base year, but less under some circumstances. The rate of growth of global agricultural demand/consumption growth has fallen sharply over the past 30 years . I assume (optimistically) that domestic consumption in the developed countries grew by about 20% in the 16 years after 1988 (at 1.1% annual growth rate). So an expansion of developed country quotas by 3% of 2001 consumption would be equivalent to an expansion of 3.6% of 1988 consumption. This implies a growth in the overall tariff quota from about 9% (‘current access’ plus ‘minimum access’) of consumption to about 12.6% of consumption in developed countries using a constant 1988 consumption base, or about 40%. Developing countries that avail themselves of sensitive product tariff quotas are not required to make any expansion of the quota volume in the December 2008 modalities.
Export subsidies: I have assumed that all export subsidies are eliminated.
Domestic supports: I have allocated all domestic support in the ATPSM model database to the Overall Trade Distorting Support category (‘amber’ + ‘blue’ + de minimis support) and applied the cuts imposed on developed countries by the December modalities. Specifically: EC, 80% cut; USA and Japan, 70% cut; other developed economies 55%. I have not imposed any support cuts on developing countries in the model.