World Bank: Cutting import tariffs a two-way street
A World Bank report released this week calls for both industrialized and developing countries to eliminate trade barriers for the benefit of the world’s poor.
The report, “Global Economic Prospects 2004: Realizing the Development Promise of the Doha Agenda,” found that if aggressive tariff reductions could be made, developing countries would gain as much as $350 billion in additional income by 2015. Industrialized countries would realize income gains of about $170 billion over the same period.
To accomplish this, industrialized countries must cut tariffs to 10 percent in agriculture, and to 5 percent in manufacturing. Developing countries must reduce agriculture tariffs to 15 percent and 10 percent for manufacturing. All countries must also terminate their agricultural export subsidies, separate domestic subsidies to minimize trade distortions, and end specific tariffs, quotas and antidumping duties.
“Rich countries have to lead,” said Nicolas Stern, the World Bank’s chief economist. “It makes no sense for rich countries to encourage developing countries to adopt policies that will promote growth, and then adopt trade policies that reduce the growth prospects of those same developing countries.”
For example, Japan’s support for its domestic rice producers amounts to 700 percent of production cost, essentially shutting out exports from Thailand and other rice producers. Direct budget subsidies to producers in the European Union cost around $100 billion a year, and “depress world market prices in sugar, dairy and wheat.”
The United States spends about $50 billion a year in supports for its agricultural sector. U.S. cotton producers receive more than $3 billion a year from the government, depressing world cotton prices.
“Exporters from developing countries generally have to pay more to get into foreign markets than exporters in rich countries,” said Richard Newfarmer, economic advisor to the World Bank’s Trade Department and Development Prospects Group. “Industrialized countries on average charge each other tariffs of about 1 percent on their imported manufacturers, but collect 5 percent from East Asia, 6 percent from the Middle East, and 8 percent from South Asia.”
Newfarmer also warned that tariff reductions were not enough to make a country prosperous. “It takes investments in ports, roads, and education, and improvements in local institutions like the customs and tax authorities,” he said.