that trade betweenone OECD member and another is 55% higher (between one OECDmember and a non-member is 49% higher). Belonging to a regionalfree trade arrangement (NAFTA, EFTA, EU etc.) leads to tradecreation by a considerable amount. According to Rose’s estimatesbilateral trade between FTA members may rise by around 200%.36In contrast to GATT/WTO membership, the extension of the GSPfrom one country to another (which primarily concerns North-Southtrade) seems to have a large positive effect on trade. Trade may beraised to around hundred percent.37 Belonging to a currency unionraises trade by around 200%.38 This is also good news for the EMUof the European Union.In concluding, Rose finds his results puzzling in many respects. If WTO membership is irrelevant, why is it so attractive formany (also developing) countries to become members of WTO?Why should one care whether China is in the WTO? Anyhow,membership seems to be a big deal. Perhaps the GATT and WTO35363738
Rose (2004), 104-105.222% in Rose (2003), and 232% in Rose (2004).93% in Rose (2003), and 136% in Rose (2004).194% in Rose (2003) and 206% in Rose (2004).
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Fritz Breuss
have large effects on income or welfare but only through mechanisms other than trade. Perhaps, he conjectures, the GATT andWTO have acted as an international public good, freeing trade forall countries independent of whether they are members or not.39However, one cannot test this hypothesis, since there is no data forthe counter-factual GATT-free world. It is an open questionwhether the liberalization of world trade after World-War II wouldhave happened without GATT. Anyway, estimates by Baier andBergstrand indicate that post-war growth of world trade, althoughprimarily stimulated by income growth, was nevertheless propelledby tariff reductions.40 Similar results were found by Badinger andBreuss in a dynamic panel data approach to estimate the relativecontributions of income growth, income convergence, and the reductions in tariffs and trade costs to the growth of intra-EU tradeover the period 1960 to 2000.41 The results suggest that incomegrowth was the major force, accounting for approximately two thirdof total growth. Trade liberalization still had a sizeable effect, accounting de facto for the rest of growth, while income convergenceplayed only a minor role. Reductions in trade costs had no significant effect on the growth of intra-EU trade. Of course this leavesopen the question whether this was due to the institution of GATT.Rose concludes by speculating that perhaps the GATT has not hadmuch of an effect on trade, but the WTO will. Members of WTOuse a more wide-reaching permanent framework to resolve disputesabout trade in goods, services, and intellectual property.42III. After Eight GATT Rounds – Markets Remain Still SubtlyProtected: Market Access Issues
A. Patterns of ProtectionEven after eight GATT rounds of trade liberalization improvingmarket access is still an ‘unfinished business’.43 Despite low average level of protection, agriculture and labour intensive industriescarry a much higher level of protection than the average.3940414243
Rose (2004), 112.Baier / Bergstrand (2001).Badinger / Breuss (2004).Rose (2004), 112.See WTO (2002).
Does the ‘Development Round’ Foster Development?
247
The IMF and the World Bank notice in this context that averages of most-favoured-nation (MFN) applied tariffs by importingcountry or region provide an incomplete picture of protection.44First, a number of barriers are not covered by the standard MFNdatabases, including specific tariffs (that is an absolute monetaryvalue per unit of imports), tariff rate quotas (TRQs), prohibitions,contingent protection (refers to import barriers which, rather thanbeing permanent, are introduced on a temporary and often selectivebasis in response to certain events – import surges, alleged unfairtrading practices), the costs of rules of origin, and environmentaland technical standards. Second, the averages do not capture theimpact of tariff dispersion, in particular tariff peaks and escalation(international tariff peaks are defined as tariffs of 15 percent orhigher; escalation refers to tariffs rising with the degree of processing of imports, and the resultant high levels of effective protection). Third, because of preference schemes (GSP) and differingexport structures, the barriers faced by exporters to the same marketcan vary widely. Finally, uncertainty about market access, related tocontingent protection, interpretation of norms and procedures, andthe discretionary nature of many preference schemes, may representa further disincentive to exporters.In the context of the DDA, WTO members are committed tonegotiations aimed at substantially improving market access foragricultural and industrial products,45 in particular for developingcountries in general and for the LDCs.46 There are a lot of subtlebarriers to market access for developing countries. There remain‘pockets of protection’ in products of particular interest to developing countries.47The patterns of protection the development countries are confronted with are characterized by the following features:484445
46
4748
IMF / The World Bank (2002), 11.IMF / The World Bank (2002) studies in detail the problems of market access for developing countries in the sectors agriculture and textiles and clothing.See Doha Ministerial Declaration, paras. 13 and 16; WTO (2001).‘Least-Developed Countries’ means 40 countries designated as suchby the United Nations; 30 of which are WTO members (see http://www.wto.org/english/thewto_e/whatis_e/tif_e/org7_e.htm).IMF / The World Bank (2002), 5.Ibidem, 10 et seqq.
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Fritz Breuss
B. Divergence of Applied Tariffs and their BindingsIndustrial countries have generally set applied tariff rates close totheir tariff bindings (legally committed maximum tariff rates), enhancing the predictability and transparency of market access regimes (see Table 1). In contrast, most developing countries bindtheir tariffs at levels well above their applied rates so that theycould in principle substantially increase their applied tariffs withoutinfringing their WTO commitments. Applied tariff rates in 2001varied considerably across country groupings.49 Sub-Saharan African countries continue to have the highest simple average tariffprotection (17.2 percent), followed by the Middle East and NorthAfrica (16.8 percent). Among broad country groupings, it is notablethat the average tariff of the LDCs (17.9 percent) is higher than thatof other developing countries (14.0 percent) and well above that ofindustrial countries (5.2 percent).Table 1: Bound and Applied Tariffs on Industrial Products(Simple Averages)Import markets
End of Share of Simple Simpleimple- boundMFN averagementation tariffs average appliedperiodbound
NORTH AMERICACanada2000United States2000LATIN AMERICAArgentina2005Chile2005Colombia2005Costa Rica2005Mexico2005Peru2005WESTERN EUROPEEC2000Norway2000Turkey2000EASTERN EUROPECzech Republic2000Hungary2000Romania2000
49
Year ǻ boundandappliedtariffs
99.6100.0
5.23.9
4.8 19984.3 1999
0.4-0.3
100.0100.0100.0100.0100.0100.0
31.025.035.544.634.830.0
13.710.911.26.412.613.0
199819971998199819981998
17.314.124.338.222.217.0
100.0100.036.3
4.13.442.6
5.0 19983.3 19987.5 1996
-0.90.135.1
100.095.4100.0
4.37.430.1
4.8 19989.0
-0.5-1.6
See Table 1 and IMF / The World Bank (2002), 11.
Does the ‘Development Round’ Foster Development?Import markets
End of Share of Simple Simpleimple- boundMFN averagementation tariffs average appliedperiodbound
249
Year ǻ boundandappliedtariffs
Slovakia2000100.04.34.9 1998ASIAAustralia200095.914.25.8 1998Hong Kong (China) 200523.50.00.0 1998India200561.658.7Japan200099.23.54.2 1998Republic of Korea200590.411.77.9 1998Macao (China)20059.90.00.0Philippines200558.626.19.5 1998Singapore200565.54.60.0AFRICACameroon20050.117.617.6 1999Chad20050.417.617.6 1999Gabon2005100.015.517.6 1999Senegal200532.313.8South Africa200598.117.7Tunisia200546.334.0Zimbabwe20058.811.3Source: UNCTAD (2003), 11 based on Bacchetta / Bora (2001).
-0.68.40.0-0.73.80.016.64.600-2.1
C. Developing Countries Face Higher Barriersto their Exports than Industrial CountriesThere are large variations in market access conditions depending onthe type of product and the particular exporter-importer combination.50 Table 2 presents combined ad valorem tariff equivalents(AVEs) of a range of protective measures, while taking into accountpreferences and export structures.51 The results suggest that the EU5051
Ibidem, 13.The Market Access Maps database has been developed by theInternational Trade Centre UNCTAD/WTO (ITC), Geneva(http://www.intracen.org/home.htm), and offers broader coverage ofrestrictions and preferences schemes than other sources. It incorporates the market access regimes of 137 countries, including preferential regimes, antidumping measures, and ad valorem equivalents ofspecific duties and tariff rate quotas (the current release does not yetincorporate recent preferential agreements, such as the EU’s ‘Evertything-but-Arms’ (EBA) initiative and the United States’ AfricanGrowth and Opportunity Act (AGOA), which would further reduce
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Fritz Breuss
protection is heavily skewed against imports from middle-incomedeveloping countries, as the US protection is against imports fromLDCs. The geographical patterns of Canadian and Japanese protection are less marked, although the former’s protection pattern appears tilted against LDCs and the latter against other low-incomecountries. Levels of protection in other OECD markets, and in middle-income developing countries as a group tend to be well abovethose in the Quad (Canada, the EU, Japan and the United States).Given the potential for trade among the developing countries, nowat 40 percent of their total exports, barriers to this trade are increasingly significant. The AVEs in the North-North (intra-OECD)trade are around 1.5 to 2.5 percent for manufactures and 14.5 to41.5 percent for agriculture (see Table 2). The AVEs in the SouthSouth (intra developing countries) trade are 6.5 percent for manufactures and 17 percent for agriculture. Generally therefore, theimpediments to trade in agricultural products remain far greaterthan in manufacturing trade. In the context of the Uruguay Round,quantitative restrictions and other nontariff measures (NTMs) wereconverted into tariffs. While improving transparency, the modalitiesof conversion have in many cases allowed an increase in effectiveprotection. Specific tariffs and tariff-rate quotas, which are mostfrequent in agricultural trade, account for a significant share of theAVEs.52 The average rate of duty on agricultural imports into Quadmarkets from LDCs, excluding specific tariffs and effect of tariffrate quotas, is 1.7 percent.53 Ad valorem tariff equivalents (not covering domestic measures of support or the effect of export subsidies) of middle-income developing countries are broadly comparable with those of the Quad (see Table 2).
5253
applied tariffs on imports from LDCs (see footnote i to Table 2).These data are combined with bilateral product-specific trade flowsform the United Nations’ COMTRADE database. Information ontariff and other barriers refers to 2000, on trade flows of the most recent available year. For more information about this database and themethodology for calculating AVEs, see Bouët et al. (2001).IMF / The World Bank (2002), 13.See Bacchetta / Bora (2002).
Does the ‘Development Round’ Foster Development?
251
Table 2: Effective Ad-Valorem Tariff Equivalents on BilateralTrade Flowsi)ii)LDCsImportersCanadaEUJapanUSAOther OECDCountriesDevelopingCountriesMiddle IncomeCountries
6.72.84.913.68.7
CanadaEUJapanUSAOther OECDCountriesDevelopingCountriesMiddle IncomeCountries
-
ExportersOther Low- Middle- All Deve- OECDIncomeIncomelopingCountries Countries CountriesTotal Trade5.44.44.47.010.37.26.44.54.76.23.64.513.110.410.2-
-
7.5
-
8.1
11.9
12.7
-
-
3.47.629.128.119.6
18.713.416.39.528.0
Trade in Agriculture16.317.524.820.021.221.913.012.735.432.5
18.2
18.4
23.1
17.0-
Trade in ManufacturesCanada7.74.22.02.9EU0.05.75.54.5Japan0.15.01.42.5USA8.05.92.13.6Other OECD5.010.85.77.4CountriesDeveloping6.4CountriesMiddle Income6.011.110.9CountriesSource: IMF / The World Bank (2002), 12, based on ITC.iii)i)
33.741.628.314.542.114.5-
2.02.51.21.67.46.9-
The information in the table does not yet reflect the EU’s EBA initiative and the United States’ AGOA. Taking account of the former
252
ii)
iii)
Fritz Breusswould reduce AVEs on EU agricultural imports from LDCs significantly, though not to zero (restrictions remain on sugar, rice and bananas for a transition period). AGOA would lower AVEs on both agricultural and manufactured imports into the United States for someAfrican LDCs and low-income countries, but the extent of the reduction is hard to predict.The protection levels of importing countries in this table areweighted by the imports of the reference group this country belongsto, with the grouping criteria being GDP per capita. This is done tominimize the potential endogeneity bias of using national importweights (a high tariff can limit imports, and in the extreme couldcarry zero weight if its level is prohibitive).For the methodology in calculating AVEs, see Bouët et al. (2001).
D. Tariff Peaks and Tariff EscalationAs far as the current pattern of protection is concerned, tariff barriers to exports from developing countries appear to be heavily concentrated in agriculture, textiles and clothing, and other sectors ofexport interest to developing countries. The post-Uruguay Roundprotection pattern is characterized by a high dispersion in tariffrates, with a large number of tariff peaks concerning products ofinterest to developing countries in agriculture, food, textiles, apparel and some mid-technology products. Tariff escalation alsoaffects trade flows in a number of products of interest to developingcountries. It is a pervasive feature in both developed and developingcountries and concerns both agricultural and industrial goods.54Even tariffs are sometimes applied as specific or mixed rates ortariff rate quotas, whose ad valorem or percentage equivalents canbe difficult to estimate. Tariff duties are sometimes waived under avariety of national schemes. Non-tariff barriers (NTBs) are inherently complex, they have multiple effects and their incidence variesacross time and trade partners. The UNCTAD reports that reductions of tariff rates have gone together with the reduced use ofNTBs.55Participation in the WTO has been a mixed experience for thedeveloping countries, providing benefits and also challenges. Onthe one hand it means an improved and more secure access to thirdcountry markets. On the other hand it entails taking on an increas-
5455
UNCTAD (2003), VIII.Ibidem, 13.
Does the ‘Development Round’ Foster Development?
253
ing level of obligations, including market opening and the application of WTO rules.The future challenge – in particular vis-à-vis the developingcountries – is the mitigation of the problem of tariff peaks and tariffescalation. All important world-trade related international institutions identify the reduction (phasing out) of tariff peaks and tariffescalation as the most important issue to increase market access forthe developing world.561. Tariff PeaksWhile negotiations on reducing trade barriers and support measuresin agriculture are part of the ‘built-in-agenda’ established during theUruguay Round, market access in industrial products was added tothe negotiating agenda in Doha. WTO members, acknowledging theimportance of enhanced market access for developing countries,started to negotiate on the reduction or elimination of tariff peaks,high tariffs and tariff escalation. It was pointed out that ‘tariffpeaks’ and ‘high tariffs’ are not defined in the WTO.57 Followingthe practice of the OECD, tariff peaks may be defined as rates thatare more than three times the national average.58 IMF and WorldBank define international tariff peaks as tariffs of 15 percent orhigher.59 It is widely agreed among trade economists that a relatively uniform or flat tariff structure is preferable to one exhibitingconsiderable dispersion. At least two reasons are advanced in favour of a flat tariff structure. First, the costs in terms of welfare andeconomic efficiency of a tariff regime increase as the degree ofdispersion increases. Tariff peaks increase the economic inefficiency stemming from protection, as it hampers the exploitation ofincreasing returns to scale across different markets, while reducingcompetition and specialization according to comparative advantage.Second, political economy arguments support a flat tariff structure. Uniform tariff rates are more transparent and easier to administer than non-uniform tariffs, and are less likely to be determined
56
575859
See European Commission (2002), 83; IMF / The World Bank,(2002), 5, 20; UNCTAD (2003), 16 et seqq.; WTO (2003), XIX, 45,61.UNCTAD (2003), 18.OECD (1997).IMF / The World Bank (2002), 11.
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Fritz Breuss
by the relative political power of domestic industries. Finding aformula to reduce tariff peaks is therefore highly desirable.60The UNCTAD gives a comprehensive picture on the problemsof tariff peaks in agriculture and manufactures. The incidence ofinternational tariff peaks is calculated by comparing each tariff linewith a 15 percent benchmark. This gives an indicator for international peaks. They are more frequent in developing (22.5%) than indeveloped countries (OECD, 7.3%). The international tariff peaksfor manufactured exports from developing countries are highest inSouth Asia (55.12%) and Sub-Saharan Africa (31%) and LatinAmerica (28.4%), followed by Asian NICs (19.7%) and North Africa and Middle East (10.8%).6118
Canada
16
EU
14
JapanUnited States
12108642
Other
High technology,electronic/electgrical products
Medium technology,process industries
Low technology,textile/fashion cluster
Other resource-basedmanufactures
Primary products
0
Figure 4: Weighted MFN Tariffs Applied by Quad Countries onExports from Developing Countries, 2000.Source: UNCTAD (2003), 26.6061
See UNCTAD (2003), 19.Ibidem, 19-25.
Does the ‘Development Round’ Foster Development?
255
To understand the extent by which the structure of world protection may hamper the possibility for developing countries to follow an export-driven shift from traditional commodities to highvalue added products one may look at market access opportunitiesoffered by developed countries to developing countries in differenttechnology-differentiated products. Figure 4 shows that, overall,protection in Quad markets is quite clearly concentrated in typicalexport categories of interest to low- and middle-income developingcountries, such as textiles and agriculture. Developing countrieswhich are mainly specialised in raw materials and primary agricultural products are facing higher trade barriers when trying to moveinto the subsequent production stages (low technology sectors suchas processed agricultural products and textiles, or medium technologies such as automotives).According the World Trade report of the WTO the average applied tariff across 23 categories used during the Uruguay Roundshows that the average tariff in the agricultural categories is higherthan that in most of the industrial categories (see Figure 5). Thehighest rates are applied to animals, beverages and spirits, dairyproducts and tobacco. In general the pattern of protection is loweron lower value-added products such as cut flowers, fruits andvegetables, coffee and tea.62According to the report the incidence of high tariffs in agricultural products poses a particular challenge to negotiations. Furthermore, some developed countries have insulated sensitive sectorsfrom international trade reform: the United States (peanuts), Canada(dairy and poultry), Japan (rice) and the Republic of Korea (rice).63
6263
WTO (2003).Ibidem, 128.
256
Fritz Breuss
Wo o d , p ulp , p ap erText iles and clo thingLeather and fo o twear
Non-agriculturalproducts
M et alsChemicalsTrans p o rtNo n-elect rical machineryElect rical machineryM inerals (includ ing o il)Other no n-ag ricultural p ro d .Fis h and fis h p ro d uct sFruit and veg etab lesCo ffee and t eaSug ar
Agriculturalproducts
Sp ices , cereal and o ther fo o d p rep aratio nsGrainsAnimals and p ro d uct s thereo fOil s eed s , fat s and o ilsCut flo wers , p lants , et c.Beverag es and s p irit sDairy p ro d uct sTo b accoOther ag ricultrual p ro d .
0
5
10
15
20
25
30
Figure 5: Average MFN Applied Rates by Product CategorySource: WTO (2003), 128.
According to the IMF and the World Bank between 6 and 14percent of Quad tariff lines are subject to tariff peaks, in some casesat rates well over 100 percent.64 Tariff peaks are also a prominentfeature of tariff regimes in developing countries. Most preferenceschemes, moreover, offer little relief from tariff peaks.65 In Canadaand the United States, tariff peaks are concentrated in textiles andclothing, and in the cases of the EU and Japan in agriculture, foodproducts and footwear. Notably, estimates suggest that the capping6465
IMF / The World Bank (2002), 13 et seq.See Hoekman et al. (2001).
Does the ‘Development Round’ Foster Development?
257
of all peaks at the threshold of 15 percent would reduce AVEs intextiles and clothing by around 20 percent for imports from mostsource countries into the United States, and by 59 percent for imports from China. In agriculture and food products, they woulddecline by 40-60 percent on imports into the EU.66 According tosimulations by Hoekman et al. full duty and quota free access forLDCs in the Quad for tariff peak products would result in a 11 percent increase in their total exports – on the order of $ 2.5 billion.Exports to Quad countries of tariff peak products would expand by30 to 60 percent.67 Given that LDC exports on tariff peak itemsaccount for only a small share of total developing country exports,granting LDCs duty free access would have a negligible impact onother developing countries. For the same reason, Quad importsincrease only marginally, suggesting that this should not be a factorconstraining implementation of duty free access for the poorestcountries.Most developing countries enjoy preferential access to Quadmarkets, either through unilateral schemes such as the GSP,68 orthrough free trade agreements such as NAFTA or EU AssociationAgreements. In the case of Canada, Japan and the EU, around 170developing countries benefit from GSP (or better) preferences. Inthe case of the US, 29 developing countries are excluded from GSP,so that only 140 developing countries benefit from some sort ofpreferential access. Preferences granted by the Quad are of a cascading nature.69 Countries with FTAs generally get the best treatment, followed by LDCs and other developing countries (see Table3). The US grants preferences to the members of the Andean Pact(ATP) and the Caribbean countries, and to Mexico under NAFTA.For the EU, in Table 3 both Lomé preferences (ACP), and the FTApreferences granted to Eastern Europe (Europe Agreements) andMediterranean countries are reported. In the case of the EU threedifferent groups of countries are constructed: Non-ACP LDCs;ACP countries (broken down into LDCs and non-LDCs); and nonACP, non-LDC developing countries that benefit from GSP treat666768
69
See Bouët et al. (2001).Hoekman et al. (2001).The EU was the first customs territory to grant GSP preferences todeveloping countries in 1971. See Kennan / Stevens (1997) for a detailed description of the European GSP.See Hoekman et al. (2001), 13.
258
Fritz Breuss
ment. Finally, in the case of Canada, developing countries aregrouped into those benefiting from LDC, GSP, or Caribbean preferences, and Mexico and Chile that benefit from FTAs.On average these preferential schemes are quite generous. Inthe EU, the average tariff (for all goods) faced by LDCs or ACPmembers is below 1 percent, compared to the 7.4 percent averageMNF tariff. GSP preferences in the EU are close to 50 percent (seeTable 3; last column). In the United States LDC and GSP preferences offer more than a 50 percent average margin – LDC preferences being more generous around 65 percent. Japan offers a 48percent preference margin under their GSP regime, and an average60 percent preference for LDCs. Canada gives a 25 percent preference to GSP countries and 45 percent to LDCs (see Table 3). Preferences are much less generous for tariff peak products (see Table3, third column). Except for the EU, the preference margins aresignificantly below the average across all products.70Table 3: Tariff Peaks and Preferential Duty Rates in the Quad, 1999Preferential TradeAgreements/GSP
USCanadaMexicoIsraelANDEAN /aCaribbean Community /bGSP-only beneficiaries /cLDCs /dOthers (MFN Rate)EUEastern Europe andMiddle East /eGSP-only beneficiaries /fLDCs (ACP) /gOther ACP Countries /hOther LDCs /iOthers (MFN Rate) /j
70
Number ofCountries
1114228038153042373211
Average Preference Rate(unweighted in %)Tariff PeakAll Goods atProductsHS-60.61.60.614.013.516.014.4(20.8)
0.10.30.11.71.62.41.8(5.0)
20.1
1.8
19.811.912.412.6(40.3)
3.60.80.90.9(7.4)
For a very detailed analysis by products, see Hoekman et al. (2001).
Does the ‘Development Round’ Foster Development?Preferential TradeAgreements/GSP
Number ofCountries
259
Average Preference Rate(unweighted in %)Tariff PeakAll Goods atProductsHS-6
JapanGSP-only beneficiaries /k12722.72.3LDCs /l4219.01.7Others (MFN Rate)(27.8)(4.3)CanadaUnited States17.11.6Australia128.27.8New Zealand128.27.8Mexico115.93.1Chile112.22.4Israel111.82.5Caribbean countries /m1823.34.3GSP-only beneficiaries /n10828.26.2LDCs /o4722.84.4Others (MFN Rate)(30.5)(8.3)Notes:/a Bolivia, Colombia, Ecuador, Peru under Andean Trade Preference Act./b Based on 20 Caribbean countries under Caribbean Basin EconomicRecovery Act and Bahamas, Nicaragua./c Included 80 developing countries or territories under GSP schemebut excluding 29 other developing economies./d Based on UN 48 LDCs but excluding 10 countries./e Including countries with reciprocal and non reciprocal trade agreements with the EU./