Now that the tear gas has cleared in Hong Kong
and negotiations have moved to London and
Geneva, the broad outlines of a new WTO agreement
are emerging from the haze. Advocates of meaningful
economic development cannot be happy with what
they see. As the Doha negotiations limp toward an illdefined
finish line, it is not surprising that many
developing country negotiators are asking themselves
if the emerging deal is better than no deal at all.

The round began with vows to enable poorer
nations to develop their economies. The deal taking
shape now offers limited economic gains for the
developing world as a whole, and many countries end
up worse off, according to recent economic projections.
Hidden behind those modest benefits are costs that
should give negotiators pause. Tariff losses and other
“adjustment costs” may be prohibitively high, some
countries will experience a loss in national production
after opening their manufacturing and services sectors
to rich-country competition, and all face the loss of
autonomy to pursue the kinds of national development
policies that have proven effective in the past.

 Small Gains, and Only for a Few

The World Bank and other economic modelers have
generated a raft of new projections of the economic
gains from further global trade liberalization. Though
they differ in important ways, the recent estimates
share two features: The economic benefits are much
smaller than previously estimated, and developing
countries see losses or small gains of well under one
percent of GDP.

The shrinking gains since the earlier estimates are
by now well known. For the Cancun ministerial, the
World Bank and others produced estimates of more
than $500 billion in developing country benefits from
liberalization. More than 100 million people were to
be lifted out of poverty. These estimates, which used
a 1997 base year, were rightly updated for the Hong
Kong meetings. The new figures include China’s
liberalization as an accomplished fact rather than a
prospective gain from the negotiations, incorporate
existing trade preferences, and use applied rather than
bound tariff rates, along with several other
improvements.

Projections of global gains from full trade
liberalization dropped from $832 billion to $287
billion; the developing country share fell from $539
billion to just $90 billion. Fortunately, the modelers
did not stop there. An added feature of these new
economic analyses is the attempt to project not just
the abstract gains from a level of worldwide
liberalization no one expects to happen but also the
likely gains from the current round of negotiations.

The results of two recent projections are presented
in Table 1. The World Bank’s projections, which were
out before the Hong Kong meetings and received
widespread publicity, showed a “likely Doha scenario”
of just $16 billion, out of a global total of $96 billion.

In Hong Kong nations agreed to allow exemptions
from negotiated liberalization levels for so-called Special
and Sensitive Products (SSPs) in agriculture. As the
table shows, after adjusting the Bank’s likely scenario
for the special products exemptions, based on its own
modeling scenario, developing country gains fall to
just $6.7 billion, out of a total of $38.4 billion. [1] This
amounts to less than a penny a day for those in the
developing world.

Using the same underlying economic model and
data, the Carnegie Endowment for International Peace
(CEIP) produced a different set of projections based
on a policy scenario more representative of what was
negotiated in Hong Kong and an interesting
adjustment to the assumptions used by the World
Bank and most other modelers. [2] Most models assume
full employment; a country that expands its exports
will only do so by shifting workers from a contracting
sector to an expanding one. CEIP adjusted its
modeling to recognize the prevalence of urban
unemployment and rural underemployment in
developing countries. Thus export gains can lead to
net expansion of employment with a greater effect on
national income. However losses of export market
share can mean greater unemployment, as well, with
no guarantee that workers will be absorbed in other
sectors. The presence of unemployed labor also means
that competitive exporters can expand production and
exports without facing increased wages and thus will
maintain their price competitiveness until the
unemployed and underemployed labor is absorbed.

The gains to currently competitive countries will be
larger, but the prospect for less competitive countries
to gain market share in the future will be more remote.

The CEIP projections remain of the same order
of magnitude as the Bank’s, with global gains from a
more limited “Hong Kong scenario” of just $43 billion.
Because of CEIPs more realistic policy scenario and
assumptions, a larger share - $21.5 billion - goes to
developing countries. Also of interest are their findings
that the gains come not from agriculture but entirely
from manufacturing and go overwhelmingly to China,
which gets $10.6 billion - nearly half of that income.

The CEIP study concludes that the emerging Doha
deal will leave some of the world’s poorest countries
worse off unless issues of surplus labor in developing
countries are dealt with in a sustained manner.

While these results highlight important
differences between the two studies, and the authors
draw very different conclusions, they coincide on the
order of magnitude of the developing country gains
from the Doha negotiations. The developing country
share is projected to be small, between $6.7 billion
and $22 billion, well under one-half percent of GDP.
These findings coincide with other recent studies.

A paper by the International Food Policy Research
Institute (IFPRI) found developing country gains
ranging from $8-21 billion, depending on the “levels
of ambition” in agricultural reform. [3] Others have
found even smaller gains, with some projecting negative
welfare effects for developing countries as a whole from
agricultural trade reforms alone. [4] Even projections
that include services liberalization yield only an
additional $6.9 billion for the developing world in a
likely scenario of fifty percent reduction in services
trade barriers. [5]

 The Case for Special Products

The World Bank suggested in issuing its study that
the results highlighted the importance of pursuing
deep cuts in order to realize the gains for developing
countries, and the importance of developing countries
making deep cuts themselves. The Bank also argued
that virtually all the gains from agricultural
liberalization would be lost if negotiators allowed any
significant level of exemption for “Special and Sensitive
Products” (SSPs), which the WTO’s July 2004
Framework Agreement explicitly sanctioned to
promote “food security, livelihood security, and rural
development.”

The World Bank ran a simulation allowing a
modest SSP exemption for 2 percent of product lines
for rich countries, 4 percent for developing countries.
Indeed, they found that the $9 billion in gains for
developing countries from agricultural liberalization
vanished with even that modest SSP allowance.

As with much of the Bank’s presentation of its
research, the underlying numbers do not always justify
its policy conclusions. The economic rationale for
recognizing special products for developing countries
is well-founded, even if the case for developed country
“sensitive products” is not. Many developing countries
still have sizable populations of small-scale farmers
growing basic staples for home consumption and sale
on local markets. Trade liberalization can swamp those
producers with a flood of imports from richer
countries. Often, those crops are subsidized in both
explicit (farm payments) and implicit (oil or irrigation
subsidies) ways. In addition, large transnational
exporters wield undue market power, limiting full
competition in the marketplace. In such a context,
continued protection is warranted as a form of market
correction rather than market distortion; tariffs are often
the best available policy instrument to achieve this.

The World Bank’s data on the costs of exempting
SSPs suggest that those costs are very low - about $9
billion for the developing world as a whole, well under
a penny a day per capita. Little of that cost comes
from granting special product exemptions to
developing countries, so there is little justification for
denying developing countries ample policy space
under SSP guidelines.

 Hidden Costs

Much of the discussion of the Doha Round’s
development impact has centered on the potential
benefits of the round, but less attention has been paid
to the costs. When the costs of adjustment, deindustrialization,
and the loss of policy space for
development are juxtaposed with the relatively small
projected gains from the deal on the table, it becomes
clear why many developing country governments are
questioning the utility of the Doha round.

In terms of adjustment costs, tariff losses for
developing countries could outweigh the benefits by
a factor of four. These losses are not reported in
discussions of the gains from trade because they are
assumed away in the modeling exercises. A key
assumption in most models is that governments’ fiscal
balances are fixed-in other words any losses in tariff
revenue are offset by lump sum taxes. While there is
evidence that shifting from trade to consumption taxes
can be better for welfare, in the real world such taxation
schemes cost political capital and in some cases may
not even be possible. Indeed, it has been shown that
tariffs may be preferable in developing countries with
large informal sectors that cannot be taxed efficiently.

Using the same model as the World Bank,
UNCTAD has projected tariff revenue losses under
the proposed reduction levels in the ongoing NAMA
negotiations. [6] These tariff revenue losses for the world
and selected regions and countries are shown in Table
2 compared to the World Bank benefit projections
with and without SSPs.

Many developing countries rely on tariffs for more
than one quarter of their tax revenue. For smaller
nations with little diversification in their economies,
tariff revenues provide the core of government
budgets. According to the South Centre, in the
Dominican Republic, Guinea, Madagascar, Sierra
Leone, Swaziland, and Uganda tariff revenues represent
more than 40 percent of all government revenue.
Table 2 shows that the tariff revenue losses will
be significant and even outweigh the benefits. Total
tariff losses for developing countries under the NAMA
could be $63.4 billion, or almost ten times the
projected gains. Africa, the Middle East, and
Bangladesh-areas with large informal economies and
where tariffs are key for government revenues-are
predicted to be net losers in terms of benefits; they will
suffer even larger losses in tariff revenues.

In a recent issue of Foreign Affairs, Jagdish
Bhagwati commented that more attention needed to
be paid to this issue: “If poor countries that are dependent on tariff
revenues for social spending risk losing those revenues
by cutting tariffs, international agencies such as the
World Bank should stand ready to make up the
difference until their tax systems can be fixed to raise
revenues in other, more appropriate, ways.”

At present even the most ambitious “aid for trade"
packages come nowhere near filling the gap in lost
tariff revenue predicted by UNCTAD.

 De-industrialization

Recent UNCTAD research highlights how far the
Doha Round has strayed from its development mission.
Development is a process of transforming an economy
from concentrated assets based on primary products
to a diverse set of assets based on knowledge. This
process involves investing in human, physical and
natural capital in manufacturing and services while
moving away from extractive industries and lowproductivity
agriculture. The move from lessdeveloped
to developed country has been associated
with industrial diversification.

According to UNCTAD, India is predicted to
experience significant output and employment losses
in high value-added sectors such as chemicals, leather,
and food processing industries while gaining in textiles
and apparel, further down the technological ladder. [7]

Brazil is predicted to lose in the metals, machinery,
motor vehicles, and chemicals industries in exchange
for modest gains in its soy and meat sectors.
In both cases, these large and dynamic developing
countries are projected to see their levels of industrial
development decline with a Doha agreement.

Countries that have yet to develop their industrial
sectors will find themselves even more locked in to
primary production. According to the CEIP
projections, only China sees significant gains in its
manufacturing sector from a Doha agreement.
Not surprisingly, developing countries see their
terms of trade - the price ratio between a country’s
exports and its imports - decline, by .74 percent
according to CEIP. Declining terms of trade indicate
a failure to move up the value chain to higher valueadded
forms of production. According to CEIP, India’s
terms of trade will decrease by 1.62 percent. Even
Brazil is predicted to see its terms of trade decrease by
.18 percent. With long-term trends showing declining
prices for non-oil commodities, terms of trade are likely
to worsen over time.

With these structural shifts, of course, comes
unemployment. While some nations may see net gains
in employment, many will see job losses in industrial
areas as part of the deindustrialization process. These
workers are unlikely to move to rural or coastal areas to
work in expanding industrial agriculture or apparel
industries, adding to urban unemployment in
countries such as Brazil.

 Conclusion

Of course, the biggest cost to developing countries is
hard to calculate - the loss of policy space. In exchange
for limited gains in agriculture and low-technology
manufacturing, developing countries will have to
surrender the right to use many of the policy
instruments that have proven successful in moving
countries toward higher levels of development and
improved incomes for their people. Where the Asian
Tigers, for example, used a shifting mix of selective
tariffs, export and credit subsidies, and the strategic
use of foreign investment, many of those policy
instruments will no longer be available following a
Doha deal.

Under the proposed NAMA agreement, for
example, nations will have to bind virtually all of their
tariffs using the so-called Swiss Formula, which
prevents countries from keeping low average tariffs
while using high tariffs in strategic industries. Like
the developed world before them, nations such as
Taiwan and South Korea have relied on such tariff
strategies to industrialize their economies, and China
and India now make liberal use of such measures.
These countries also developed formidable financial,
telecommunications, and construction sectors, taking
advantage of the policy space in the previous
agreement to hold off on liberalizing key service sectors.
Current proposals would adopt a “one size fits all”
approach that would make developing countries
liberalize a certain percentage of all services at once
with no room for strategic exemptions.
WTO members agreed that the current round of
trade talks should focus on development. The deal
that seems to be emerging, however, is unlikely to
deliver. The benefits are small for developing countries
and the costs are high. It will be up to developing
country governments to decide whether the Doha
deal does more harm than good to their prospects for
economic advancement.

---

TABLES

Table 1. Assessing the Gains from Doha
Welfare Gains from Partial Trade Liberalization, Two Models
(billions of 2001 US dollars)

.	World Bank CEIP Hong Kong	.	.	Doha Scenario* Scenario**	.	.
.	Manuf.	Agric.	Total	Manuf.	Agric.	Total
High-income countries	13.6	18.1	31.7	16.4	5.5	21.9
Developing countries total	7.1	-0.4	6.7	21.7	-0.06	21.5
Brazil	0.3	1.1	1.4	0.8	0.3	1.1
India	2.0	0.2	2.2	2.3	-0.04	2.3
China	2.2	-1.5	0.7	10.6	-0.3	10.3
Argentina	0.3	1.0	1.3	0.2	0.4	0.6
Bangladesh	0.1	0.0	0.1	-0.03	-0.02	-0.05
Vietnam	0.4	0.0	0.4	1.8	-0.2	1.6
South Africa	0.3	0.3	0.6	0.3	0.06	0.3
Rest of Sub-Sah. Africa	0.6	-0.3	0.3	-0.08	-0.11	-0.19
World total	20.7	17.7	38.4	38.1	5.4	43.4

* Anderson and Martin, Agricultural Trade Reform and the Doha Development Agenda,
World Bank, 2005; Table 12.14, Scenario 7 with SSPs.

** Polaski, Sandra, “Winners and Losers: Impact of the Doha Round on Developing
Countries,” CEIP 2006; Figures 3.1, 3.3, 3.5, 3.8.

---

Table 2. Doha’s Hidden Price Tag
Doha Benefits vs. NAMA Tariffs Losses
(billions of 2001 US dollars)

.	WB “Likely” Scenario*	WB Doha Scenario*	NAMA Tariffs Losses**
Developed	79.9	31.7	38.8
Developing	16.1	6.7	63.4
Selected developing regions	.	.	.
Middle East and North Africa	-0.6	-0.1	7.0
Sub-Saharan Africa	0.4	0.6	1.7
Latin America and the Carribean	7.9	2.4	10.7
Selected Countries	.	.	.
Brazil	3.6	1.4	3.1
India	2.2	2.2	7.9
Mexico	-0.9	-0.7	0.4
Bangladesh	-0.1	0.1	0.04

* Anderson and Martin (2005), Agricultural Trade Reform and the Doha Development
Agenda. World Bank Table 12.14; scenario 7, and adjusted for SSPs.

** De Cordoba and Vanzetti (2005). Coping with Trade Reforms. UNCTAD. Table 11.

---

Endnotes

* For further background on this issue, see: Wise and
Gallagher, “Doha Round’s Development Impacts:
Shrinking Gains and Real Costs,” RIS Policy Brief #19;
Kevin Gallagher’s Putting Development First: The
Importance of Policy Space in the WTO; Frank Ackerman,
“The Shrinking Gains from Trade: A Critical Assessment
of the Doha Round Projections,” GDAE Working Paper
No. 05-01, October 2005: Available at http://
www.ase.tufts.edu/gdae/policy_research/WTO05.htm

1 Anderson, Martin, and van der Mensbrugghe, “Market
and Welfare Implications of Doha Reform Scenarios,” in
Agricultural Trade Reform and the Doha Development
Agenda, Anderson and Martin, World Bank 2005. Doha
scenario includes in agriculture, elimination of export
subsidies; reductions in domestic subsidies of 28 percent
for the U.S., 18 percent for the EU, and 16 percent for
Norway; cuts in bound tariffs for developed countries in
three bands (45 percent, 70 percent, and 75 percent),
with four bands for developing countries (35 percent, 40
percent, 50 percent and 60 percent cuts), and none for
LDCs; SSP exemptions of 4 percent for developing and 2
percent for developed countries (from Scenario 2); in
manufacturing, developed countries reduce bound tariffs
50 percent, developing countries 33 percent, LDCs none.
Gains include estimated income growth through 2015
from the 2001 base year, which increases the estimates by
about 45 percent. Numbers in Table 1 are from Scenario
7 with the gains from agriculture adjusted downward for
SSPs, as modeled in Scenario 2.

2 Polaski, “Winners and Losers: Impact of the Doha Round
on Developing Countries,” CEIP 2006. Hong Kong
Scenario is more modest than the World Bank’s Doha
scenario. It includes, in agriculture, elimination of export
subsidies; 33 percent reductions in domestic support for
developed and developing countries; cuts in applied tariffs
of 36 percent for developed countries, 24 percent for
developing countries; no Special and Sensitive Products
exemption; in manufacturing, 36 percent tariff cuts for
developed, 24 percent for developing countries. LDCs
are exempt from all reduction commitments. Gains are
for 2001, so without incorporating income growth
through 2015.

3 Bouet, Mervel, and Orden, “More or Less Ambition?
Modeling the Development Impact of U.S.-EU
Agricultural Proposals in the Doha Round,” IFPRI, 2005.

4 See, for example, Bouet, Bureau, Decreax, and Jean,
“Multilateral Agricultural Trade Liberalization: The
Contrasting Fortunes of Developing Countries in the
Doha Round,” CEPII Working Paper No. 2004-18,
November 2004. Three recent papers offer good overviews
of the different models and their results: FAO, “Trade
Policy Simulation Models: Estimating global impacts of
agricultural trade policy reform in the Doha Round,”
FAO Trade Policy Technical Notes No. 13 , 2005; Bouet,
“What Can the Poor Expect from Trade Liberalization?
Opening the Black Box of Trade Modeling,” IFPRI, MTID
Discussion Paper No. 93, March 2006; Congressional
Budget Office, “The Effects of Liberalizing World
Agricultural Trade: A Survey,” December 2005.

5 Francois, J., H. van Meijl and F. van Tongeren (2003).
Trade Liberalization and Developing Countries Under
the Doha Round. Tinbergen Institute Discussion Paper
2003-060/2. Rotterdam and Amsterdam, Tinbergen
Institute. These figures are based on the older 1997 base
year data and would themselves have to be revised
downward to reflect the changes in the world economy
since then.

6 UNCTAD uses the so-called Swiss Formula with
approximate coefficient of 10.

7 UNCTAD (2006). Trade Adjustment Study: India.
Geneva.

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