November 22, 2005
Bank's Research Shows Little at Stake in Hong Kong Ministerial
Eliminating Rich Countries Agricultural Subsidies Would Be a Net Loss for Developing Countries
Contact: Dan Beeton, 202-239-1460
Washington DC: A recent press release (November 9) Issued by the World Bank, "Tariff Reform Could Deliver Annual Global Gains of $300 Billion By 2015, Says World Bank Study,"1 was found to be highly misleading, according to the Center for Economic and Policy Research. The release begins by stating that Abolition of tariffs, subsidies and domestic support programs would boost global welfare by nearly $300 billion per year by 2015, says a new World Bank research study, Agricultural Trade Reform and the Doha Development Agenda.2
However, the study cited above also notes that:
Removal of all rich country agricultural export subsidies and domestic support programs would actually cause a net loss for developing countries.3 This is mainly because the removal of these subsidies would raise the world price of food and agricultural products.
The nearly $300 billion (actually $287 billion) is only 0.7 percent of world GDP in 2015.4 To take an example, compare two scenarios: one in which the Doha round collapses and no further trade liberalization takes place, as compared with another in which all barriers to merchandise trade are eliminated. The difference between these two scenarios is 0.7 percent of GDP. For example, a country that would have income per person of $1000 annually in 2015 if there is no trade liberalization, would have $1007 in 2015 if there were complete liberalization of merchandise trade.
The developing countries as a group would gain $86 billion, or 0.8 percent of GDP from complete trade liberalization. However, about half of these gains would come from liberalization of developing countries own trade barriers.5 This means that even if the Doha round were to collapse, much of the gains from liberalization would still be available to these countries since any country can liberalize its own imports at any time, without any rule requiring them to do so.
The $287 billion gains are for complete liberalization, which is not expected from the Doha round; the Banks estimates of gains from various more realistic scenarios is much smaller gains for the world: between $17.9 billion and $119.3 billion,6 or just 0.04 to 0.28 percent of World GDP. Again, much of these very small gains would still be available to developing countries even if the Doha round collapsed.
Even a very successful Doha round would barely make a dent in poverty rates: according to the study, the number of people living in poverty in 2016 would be reduced by somewhere between 0.4 and 1 percent (2.5 to 6.3 million people).7
"Its strange to see the potential gains from the Doha round exaggerated so vastly beyond what standard economic research indicates," said Mark Weisbrot, Co-Director of the Center for Economic and Policy Research. "And it is even more puzzling that people are looking to blame France for depriving the developing world of something that this research shows to be a net loss for developing countries (the removal of subsidies)."
Weisbrot added that since many developing countries are being asked to make potentially costly and risky concessions in return for liberalization by the rich countries, it would better if the World Bank made more effort to accurately explain the results of its own research on the potential gains from this liberalization.
1 The release can be found here.
2 The study, by Kym Anderson and Will Martin, is available here.
3 Anderson and Martin, Table 2.8, page 52.
4 Anderson and Martin, Table 12.20, page 384
5 Anderson and Martin, Table 1.3, page 12
6 Anderson and Martin, Table 1.5, page 14
7 Anderson and Martin, pp. 18-19