TCS Daily

The Risk of an Anti-Development Trade Round

By Alan Oxley - September 27, 2004 12:00 AM

Countries join the World Trade Organisation to commit to reducing barriers to trade. Yet in the rhetoric of making trade fair, two key messages are lost: that a country benefits most from cutting its own barriers, and that if developing countries do not cut tariffs, it will be other developing countries that will be penalized most.

Decisions still need to be taken in the Doha Round on how negotiations to reduce tariffs will be organized. Influential non-governmental organizations (NGOs), such as Oxfam, urge developing countries to press for arrangements exempting them from tariff cuts. They put the case that some developed countries have long maintained high barriers in some sectors, so developing countries should be allowed to maintain their barriers longer in order to protect themselves from competition.

It is commonly thought that levels of protection in agriculture and industrial products are higher in industrialized countries than in developing countries. This is not true. General levels of protection in poorer countries are far higher. A review by ITS Global, a trade consultancy in Melbourne, Australia, finds that on average, tariffs in agriculture and manufacturing are three times higher in developing countries than industrialized countries.

Does this matter to the countries who maintain the barriers? Yes. Higher tariffs impede prospects for export-led growth in developing countries and limit development prospects.

Tariffs are higher in developing countries because they rely more on trade-related taxes to raise revenue. Exporters in low and middle income countries pay twice as much in foreign tariffs than their rich country counterparts. For example, East Asian exporters of manufactured goods pay 60 percent of total tariff payments to other developing countries. In Latin America, exporters face average tariffs that are seven times higher than those faced in industrial countries. Tariffs are highest in South Asia, North Africa, the Middle East and Sub-Sahara Africa.

With steady growth in developing economies over the last two decades, rich countries are no longer the most dominant trading partners of poor countries. High trade barriers in poor countries no longer just retard growth in those economies; increasingly they retard growth in other developing economies.

This means that the people most penalized by the high barriers in developing countries are those in developing countries.

Estimates indicate that high trade barriers in developing countries account for over 70 percent of the total tariffs levied on exports of manufactured goods from the developing world. Signs are that this protection will become even more costly for developing country exporters as fast-growing populations and rising incomes expand markets in middle-income developing countries.

Exports of both agricultural and industrial products will suffer.

Trade weighted tariffs (average 1998-99) faced by developing country exporters in both developing and high income markets

Direction of trade (exporter/importer)



Exporter developing/Importer developing



Exporter developing/Importer high income



Source: Based on IMF-WB 2001. ITS chart. Source: World Bank, based on WTO data.

From The World Bank, Global Economic Prospects 2002

The potential benefits to developing countries if other developing countries reduce tariffs are shown in the OECD study, "The Doha Development Agenda - Welfare gains from further multilateral trade liberalization with respect to tariffs" (2003) and the WTO's "Global Economic Prospects 2004". The OECD concludes that the stakes involved in whether or not developing countries make tariff cuts in the Doha Round are "quite large and will influence development prospects for years into the future."

The WTO estimates that the complete elimination of tariffs could see economic benefits ranging from $80 to $500 billion; with an estimated 40-60 percent of the welfare gains going to developing countries.

Lowering protection increases access to cheaper products, produces gains in consumption and fosters more efficient use of resources in the importing economy.

There is a risk that if, on the basis of anti-free trade rhetoric, countries decide to maintain their barriers then the Doha Round will not be the "Development Round" but an Anti-Development Round. Instead of "protecting" the poor, trade barriers will limit the prospects in each developing country where they are maintained, and among all trading partners.

Alan Oxley hosts the Asia Pacific page of TCS and is head of Australia's national APEC Centre.


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