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Market Access — What is at stake? 

Public Symposium: The Doha Development Agenda and Beyond (WTO)

SUMMARY REPORT

Panel
Moderator:José Maria Figueres-Olsen, Managing Director, World Economic Forum

Discussants:
Professor Jagdish Bhagwati, Columbia University
Bijit Bora, Development and Economic Research Division, WTO Secretariat
Christopher Padilla, Eastman Kodak Company
Noreena Hertz, University of Cambridge (author of The Silent Takeover)

The WTO: The role of Parliamentarians?  
Development Opportunities from Doha
Business and the Digital Promise for Development
Market Access — What is at stake?

José Maria Figueres-Olsen of the World Economic Forum chaired the session and the discussants were Professor Jagdish Bhagwati of Columbia University, Bijit Bora of the Development and Economic Research Division of the WTO, Noreena Hertz of Cambridge University and Christopher Padilla of Eastman Kodak Company and the National Foreign Trade Council.

The Chairman opened the session by underlining the importance of market access to Members of the WTO, particularly developing countries.  He said that developing countries and their developed counterparts had divergent views on this issue and that it was his wish that the discussants would be able to address the major elements of this debate.

Bijit Bora of the WTO Secretariat presented statistics to show the changing nature of international trade. He identified five main product categories, namely primary products, resource-based products, low technology products, medium technology products and high technology products.  He stated that while there had been a slow growth in the trade of primary products, there had been a significant increase in the trade of high technology products.  The share of primary products in the exports of developed countries had declined over the years, while the share of high technology products had seen a marked increase.   The same was true for almost all developing countries, with the notable exception of Africa whose exports were still dominated by primary products and low technology products.

He indicated that his analysis would focus only on tariff barriers for industrial products.  In that context, he noted that it was important for a distinction to be drawn between bound and applied MFN rates.  He said that after the Uruguay Round, the total share of world imports covered under bound rates was 87%; over 95% of the tariff lines of developed countries and countries-in-transition were bound, while the share of developing countries was comparatively lower.  On tariff peaks and escalation, he said that in order to determine their impact on imports, it was necessary to establish the degree of tariff dispersion, with the standard deviation being absolute dispersion of tariff levels.  He noted that developed countries generally had low absolute dispersion, but high relative dispersion affecting products of export interest to developing countries including textiles, clothing and leather products.  By contrast, Latin America had a low dispersion because of tariff ceilings, while Africa and Asia had high absolute dispersion but lower relative dispersion.  These translated to mean that the incidence of national peaks (three times the national average tariff rate) was higher for countries with lower average rates and lower for countries with high average rates.  Regarding international peaks (tariff rate in excess of 15%), he said that countries with high national averages were likely to have quite a few international peaks.  With regard to tariff escalation, he said that the tariff structures of certain developed countries exhibited escalation at the aggregate level, while those of other countries exhibited escalation at higher levels of disaggregation.  

He noted that it was important to take into account the role of preferences in determining the degree of market access.  The statistics revealed significant variations in the market access of developed and developing countries in the markets of the QUAD countries.  He said that it would be important for Members of the WTO to look beyond the proportion of world trade that was duty free (55%) and concentrates on the remaining proportion of world trade that faced barriers.  Attention should also be given to the different kinds of barriers faced by imports that were duty free.

Professor Jagdish Bhagwati, who was asked by the Chairman to concentrate on how developing countries could achieve greater market access in developed countries, drew attention to three major elements which, in his view, affected market access, namely (i) barriers in developing countries which militated against exports; (ii) supply-side constraints which prevented most developing countries from participating actively in the multilateral trading system, and (iii) the degree of market penetrability in developed countries.  On the first element, he stressed that it was important for developing countries to liberalize their markets and create an enabling environment for trade to thrive.  There was overwhelming evidence that countries that had adopted open and liberal policies had performed better than those which had adopted restrictive policies.  On the second element, he said that a significant number of developing countries were not able to increase or diversify their exports because of supply-side constraints and capacity-related problems.  He said that there was the need for a concerted effort among all the important stakeholders to redress this problem.  On the third element, he distinguished between market openness and market penetrability.  A number of developed countries had hidden barriers that made it difficult for developing countries to penetrate into their markets.  In other words, market openness was not synonymous with greater market access.

Professor Bhagwati expressed the view that it was necessary for stakeholders to build coalitions to push for improved market access for products of export interest to developing countries, particularly agricultural and textiles and clothing products.  He cautioned, however, that improved market access for textiles and clothing products may be ethically and politically difficult in the United States, as liberalization would mean loss of jobs for people at the lower end of the income scale.  He suggested that re-training and other policies could be introduced to help ameliorate the situation.  On agriculture, he said that government assistance in the form of subsidies mostly benefited large farmers instead of small farmers.  He invited NGOs to join forces with free trade enthusiasts and other important stakeholders to push for improved market access for developing countries.  He said that environmentalists couldn’t probably be relied on in this fight, given the substantial sum of money that had been allocated for environmental causes.

In a response to a question from the floor, Professor Bhagwati stressed the importance of strengthening the multilateral trading system and said that the system offered better protection to smaller countries.  He criticised the growth in the number of regional trade agreements and said that agreements between developed and developing countries always tended to favour the former, which could insert non-trade related provisions into the agreement.  He cited the US – Jordan Free Trade Agreement as an example and the wish by many legislators in the United States to use it as a template for concluding future bilateral and multilateral trade agreements.  He was more supportive of agreements concluded between developing countries.

Christopher Padilla made reference to the 10-point plan of the National Foreign Trade Council to liberalise world trade but focused primarily on its call for the progressive elimination of all industrial tariffs by the year 2020.  He said that tariffs remained an issue and should not be discounted.  In 1995, tariffs on industrial products amounted to US$ 190 billion.  He stated that notwithstanding the 22% share of developing countries in world trade, they paid around 40% of the world's tariff bill.  This was primarily because of the high tariffs imposed by developing countries on each other's exports.  By contrast, exports from developed countries to other developed countries only attracted US$ 16 billion in customs duties.  This was not due to high tariffs but significant volumes.  Against this background, he said that it was in the interest of both developing and developed countries to agree to the progressive elimination of all industrial tariffs by 2020.  For developing countries, he stated that since south-south trade accounted for almost 40% of total trade of developing countries and was projected to rise to 50% by 2005, it was important for developing countries to agree to the elimination of tariffs by 2020.  He said that under their proposal, there could be an asymmetrical reduction of tariffs with flexibility given to developing countries, particularly least-developed countries provided the end goal would be reached by 2020, i.e. the elimination of all industrial tariffs by all Members by the year 2020.  Mr. Padilla also noted that the growth in regional trade agreements was another reason why their proposal should be acceptable to developing countries.  He pointed out that if progress was not made at the multilateral level, it is the poorer countries of Africa, the Middle East and South Asia that would suffer the most in terms of market access to their major markets.

For developed countries, Mr. Padilla argued that it would make sense for them to support their proposal to eliminate all tariffs on industrial products by the year 2020.  He said that developed countries already paid to each other US$16 billion in customs duties and that their products faced broadly high tariffs in developing countries.  Elimination of these tariffs would provide fresh opportunities in terms of increasing trade and investment.  He stated that the structure of customs duties in the United States was penalising consumers at the lower end of the income scale.  He said that whereas clothes and shoes accounted for only 7% of total US imports, they accounted for 47% of total customs duties collected.  He also stated that tariffs on low quality undergarments and shoes were generally higher than medium and high quality ones.  The elimination of this "basic necessities tax" would improve the welfare of poor consumers.

In response to a question from the floor, Mr. Padilla said that whereas the elimination of all tariffs might cause some short-term problems for countries which relied overwhelmingly on custom duties as a principal source of revenue, they were other alternatives which could ameliorate the situation such as improved tax collection and the introduction of a consumption tax or a value-added tax.  He also stated that countries with very low tariffs were better placed to attract investment than those with higher tariffs.

Noreena Hertz criticised what she saw as the hypocrisy of developed countries in international trade.  She said that the rules of the game were distorted, as developed countries protected their markets with tariffs and subsidies, while demanding developing countries to open their markets to their goods and services.  According to her, the level of subsidies was six times higher than the level of Official Development Assistance to developing countries.  She criticised the recent US Farm Bill, which she said would further distort agricultural trade by providing several billions of dollars in subsidies to US farmers.  She said that the EU initiative for least-developed countries did not go far enough and that the preferences should be extended to all developing countries.  She further said that other QUAD countries, namely the United States, Canada and Japan should also adopt similar measures.

Ms. Hertz said that a significant number of developed countries and successful developing economies were able to achieve higher levels of economic growth as a result of protecting their markets and managing trade.  It was unfair for developed countries to call on developing countries not to adopt similar policies, which ensured their dominance in international trade.  She cast doubts on the link between trade and growth and also between trade and the reduction of poverty.  She said the evidence was lacking and was at best tenuous.  She further stated that it was not clear who benefited from international trade.  It would appear that it was only a few underscoring the growing inequality in several countries and between countries.  Professor Bhagwati disagreed with the contention of Ms. Hertz that the evidence between trade and growth and trade and poverty was tenuous at best.  He said that the evidence was patently clear and incontrovertible and that China and India had been able to lift more people out of poverty because of the liberalization measures implemented by them in the last two decades.  Ms. Hertz countered by saying that Robert Wade of the London School of Economics had done a lot of work on this issue and that it was still unclear as to who benefitted from international trade.  She said that a distinction should be drawn between rural and urban China and India and that consideration should also be given to other elements including environmental costs and human rights.

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May 6, 2002

 

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