Doha and development: Market access, trade costs and aid for trade

Bernard Hoekman 19 June 2010

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The General Agreement on Tariffs and Trade, the precursor to the WTO, was a club that allowed for membership à la carte. Developing countries1 did not need to sign on to new disciplines and were not expected to participate fully in the reciprocal exchange of concessions in negotiations, although they benefitted from generally applicable national treatment and most-favoured-nation disciplines. With the creation of the WTO this changed. Developing countries became subject to a large number of obligations – some newly negotiated in the Uruguay Round, others the result of agreements between industrialised nations in earlier rounds. The new rules – ranging from disciplines on how to value goods for tariff revenue collection to requirements to protect intellectual property – constrained the set of policies that governments are permitted to use. They also created implementation costs. The resulting “development concerns” became a prominent agenda item for the WTO and helped lead to the decision to call the first WTO round the Doha Development Agenda. A key objective was to address the concerns of developing countries.

Many of the concerns boil down to three types of problems.

  • First, many developing countries have little to offer in the reciprocal exchange of market access “concessions” in trade negotiations.
  • Second, negotiated rules and policy disciplines may have asymmetrically distributed costs and benefits. Even where it is agreed that specific disciplines are appropriate, the burden of implementation costs may fall disproportionately on poorer countries.
  • Third, benefits may be conditional on a minimum level of institutional capacity. Poor countries may not be able to exploit market access opportunities because their firms confront high operating and trade costs, weak infrastructure, etc.

Until the Doha Round, the response to such concerns by high-income countries was to provide developing countries preferential access to their markets on a nonreciprocal basis, promise technical/financial assistance, and allow longer transition periods to implement commitments. In the years following the establishment of the WTO, many developing countries felt that this response was inadequate.

Although the core market access and rule-setting parts of the Doha round have made very slow progress, since the launch of negotiations in 2001 advances have been made on a number of the issues of interest to developing countries. Indeed, Doha has already helped to deliver a number of new initiatives that have the potential to make a difference. Progress has been made in:

  • addressing implementation concerns relating to Uruguay Round agreements;
  • enhancing market access for the 49 least-developed countries (LDCs);
  • increasing attention on lowering trade transactions costs in developing economies;
  • the launching in 2005 of the multilateral aid for trade initiative; and
  • establishing the Enhanced Integrated Framework secretariat and trust fund to provide trade-related assistance to LDCs.

Uruguay Round implementation issues and technical assistance

A key dimension of implementation concerns revolved around the nexus between various Uruguay Round transition periods and the financial and human resource burden of implementation. As a result of developing country concerns, WTO Members created a special trust fund (with an annual budget of some 25 million Swiss francs), managed by a new WTO Institute for Training and Technical Assistance, and bilateral donors allocated additional resources to assist developing countries. Many specific concerns were addressed by the various Committees that oversee WTO agreements, through extension of transition periods and waivers – e.g., for customs valuation. In 2007, Members extended the temporary exemption for export subsidy disciplines for a number of developing countries through the end of 2013, with a two-year phase-out period. As a result a total of 88 WTO developing country members will not be affected by export subsidy disciplines until 2015 at the earliest (Hoekman and Kostecki 2009). While implementation concerns certainly have not all been addressed, the membership has demonstrated responsiveness and some flexibility.

Better market access for least developed countries

At the 2005 WTO Ministerial in Hong Kong it was agreed that all industrialised countries would offer at least 97% duty-free, quota free (DFQF) access for LDCs. Since 2001, Australia, the EU, New Zealand, Norway, and Switzerland have implemented DFQF access for LDCs for 100% of products, i.e., no exceptions. Canada’s programme spans 99% of products, excluding only some sensitive agricultural products (dairy, poultry, and eggs); Japan offers about 98% product coverage, with exclusions for fish, footwear, rice, and sugar (Elliott 2010). The US does not currently have a programme specifically targeting LDCs but provides duty free access to African countries under AGOA. Thus, most of the OECD membership has already delivered in improving market access for LDCs. A number of emerging market countries have put in place programmes as well.

But DFQF access is not a panacea. It can only have an impact if the rules of origin and other administrative requirements are easy to satisfy. More can be done through expansion of the number of countries offering DFQF access and minimising product exceptions. If all OECD countries were to offer 100% DFQF, LDC exports could increase by up to $2 billion (Bouët et al. 2010). Gains would be greater still if major middle-income nations were to offer DFQF access to LDCs – by up to $5 billion – reflecting higher tariffs in these countries. In the absence of progress on the Doha round, this could be pursued by the G20.

Trade costs and facilitation

Without action to improve supply capacity, reduce transport costs from remote areas, facilitate movement of goods across borders, or connect farmers to markets, trade opportunities cannot be fully exploited. Doha negotiations on trade facilitation have focused national policy attention on the trade costs agenda. This can have large payoffs for lower-income countries, especially LDCs. Indeed, analysis suggests that this is an area that can generate gains for developing countries that exceed anything else that might emerge from the Doha round (Hoekman and Nicita 2010). This is of particular importance to landlocked developing countries, as their trade costs depend critically on the efficiency and cost of transit through neighbouring states as well as their own policies.

Aid for trade

At the Hong Kong Ministerial WTO members committed to mobilise more “aid for trade” – to allocate more development assistance funds to trade-related projects and programmes. Underpinning this decision was a view in parts of the development community (aid agencies, counterparts in developing country governments, development-focused NGOs) that more needed to be done to harness the potential power of trade as an instrument to reduce poverty and increase growth rates by bolstering trade capacity and reducing trade costs.

A number of donor countries and development agencies have put greater emphasis on strengthening capacity in developing countries to define and defend national trade policy priorities. Conversely, the trade community (trade ministries, negotiators) became more cognisant of the need to mobilise resources to support implementation of trade agreements and address the adjustment costs associated with trade reforms.

For many low-income countries, the binding constraint to export growth is a lack of competitiveness. This makes it particularly important that DFQF access be associated with liberal rules of origin, to allow firms to use imported inputs from the lowest cost source of supply anywhere in the world. But more generally, what is increasingly recognised is that competitiveness is a function of the domestic business environment in the exporting countries. This is the major driver behind the “aid for trade” initiative, which is playing a valuable catalytic role in mobilising trade-related assistance. Aid for trade flows increased after 2002, reflecting the renewed focus on trade competitiveness and the launch of the Doha Development round (Figure 1).

Figure 1. Aid for trade (constant $ million)

Source: OECD.

The Enhanced Integrated Framework for trade related technical assistance is designed to help the LDCs identify and define priorities for support. A 2006 WTO taskforce recommended the creation of a dedicated secretariat and a funding mechanism. As of 2010, the Enhanced Integrated Framework was fully operational, providing assistance through a $200+ million fund.

While the substance of the “aid for trade” agenda is not new, what is novel is the acknowledgement that these are matters that concern both the international trade and development communities. The WTO membership has now recognised that trade liberalisation alone is not enough to benefit poor countries, and that promises to provide technical assistance are an inadequate response to concerns about the adjustment and implementation costs of trade agreements. The focus on aid for trade is a signal that the development community is according greater importance to the role trade can play in fostering higher growth rates in low-income countries.

The greater focus on – and support for – the trade agenda in developing countries is a development that can be substantially credited to the Doha round deliberations, even though aid for trade is not formally part of the negotiations.

This note draws on research supported by the UK-funded Global Trade and Financial Architecture project. The views expressed are personal and should not be attributed to the World Bank.

References

Bouët, Antoine, et al. (2010), “The Costs and Benefits of Duty-Free, Quota-Free Market Access for Poor Countries: Who and What Matters?”, Washington DC, Center for Global Development.

Elliott, K (2010), “Open Markets for the Poorest Countries: Trade Preferences That Work”, Report by CGD Working Group on Global Trade Preference Reform, Center for Global Development.

Hoekman, B and M Kostecki (2009), The Political Economy of the World Trading System, Oxford University Press.

Hoekman B and A Nicita (2010), “Assessing the Doha Round: Market Access, Transactions Costs and Aid for Trade Facilitation”, Journal of International Trade and Economic Development, 19(1):65-80


1 To save space throughout this column the term “developing countries” is used. In practice individual countries will often have different interests and priorities with respect to a specific issue.
 

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Topics:  Global governance International trade

Tags:  WTO, Doha Round, international trade

Professor and Director of Global Economics, Robert Schuman Centre for Advanced Studies, European University Institute; Research Fellow, CEPR

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