Critical mass agreement vs the Doha Round

We'll cut to the chase, shall we, in this fourth of my posts on modeling the impact of a 'critical mass' agreement in agriculture? Click on the tags at the left-side or at the bottom of this article to find the earlier posts.

A 'critical mass' agreement among 38 countries that account for 80 percent of world trade in the 30 top-traded agricultural products (all of them food) to eliminate import duties on those products would achieve about two thirds of the projected value of the global Doha agreement on agriculture. If the members of the CM eliminated production and export subsidies, too (turns out, they won't have much choice) the global gains would be a third as much again as those projected for the Doha agreement.

Click the thumbnail to see the results in a table. A brief explanation of the table: the CM-35 scenario assumes that 3 of the potential members of the critical mass agreement decide not to join. They are China, India and Indonesia. As you can see the projected 'static' global welfare impact is actually slightly larger if they stand-back because China and India (especially) would benefit from the opportunity to 'free ride' on the open markets of the other 35 countries.

Among the advantages of a CM agreement are simplicity (it's much easier to determine the scope of the agreement and to figure out what the benefits will be), and focus (countries join because they can see the benefit of an agreement where—by definition—all the major players will participate).

The contrast with the laborious negotiations required by the WTO's 'single undertaking' approach could not be sharper. One of the reasons that developed country governments have found their own agricultural lobbies reluctant to pursue the current Doha round 'modalities' is their uncertainty about the impact that the 100-page 'rule book' will have on their trade opportunities. The 'two track' transparency and negotiations process launched by WTO last month is an attempt to throw some light on the potential impacts.

The model simulations suggest that a CM agreement to eliminate duties (and, potentially, domestic and export supports) could be just as valuable in static welfare terms if China, India and Indonesia—who are reluctant to accept market access obligations in the Doha negotiations—decline to join. But the longer-term benefits and durability of a CM of 35 countries would probably be less, especially since under the MFN rule non-members of the CM agreement will enjoy the same access to the newly opened markets as members.

I should note two further points about this table that I covered in some more depth last time.

1. The elimination of trade-distorting domestic supports and export subsidies seems to be a radical extension of the (already radical) tariff elimination objective for the CM agreement. But it turns out that it's not. It is just not feasible to maintain trade-distorting or amber-box domestic supports in a market open to import competition. That is why I have modeled this option, too. Of course elimination of does not mean the end of support for farmers, necessarily. Income supports would not be affected by opening the market.
2. The table suggests that the poorest countries will be losers from the deal (although most not members of the CM agreement in this model) because their import costs go up more than their export gains and because, in Africa at least, government revenues take a hit when import barriers are cut (this is almost all due to cuts in the Nigerian tariff). It's important to observe, however, that the global gains are so big that there is ample room to 'compensate' the poor countries for their losses and still leave everyone better off.

Tags for this entry: wto agriculture doha trade framework critical mass model negotiations