Sensitive and Special Products: Methodologies and Applications

1
Sensitive and Special Products Methodologies and
Applications

• Will Martin
• World Bank
• 3 May 2007

2
Technical Policy Issues

• Why have sensitive and special products?
• Methodologies for evaluating impacts of
  sensitive/special products
• Developing country interests
• Research questions
• Evaluating impacts of policy choices

3
Sensitive products

• Basic motivation is political resistance to
  reforms of some sectors
• Why have them? Why not just use a formula with
  smaller cuts?
• Perhaps an agreement with exceptions will result
  in more reform than one without?
• But there are risks
• Its hard to assess the impacts of exceptions
• What looks like a few exceptions may hollow out
  the agreement

4
Explanations Questions

• Doha formulas involve deep cuts in tariffs
• 75 for tariffs over 75 in industrial countries
• The critical issue is exceptions
• Sensitive products for all countries
• Special products for developing countries
• Implication of the focus on exceptions
• Hard to evaluate the market access implications
  of partners offers a black-box problem?
• Unless analysis on market access gains is
  available, countries tend to focus on the
  defensive

5
Sensitive products research questions

• Which products will be chosen in partner markets?
  
• How can the impact of exceptions on market access
  be managed?
• What are the implications at home?
• including distributional implications?

6
Sensitive products developing country interests

• Key issue is market access
• Sensitive products will affect opportunities in
  developed countries some developing
• Countries receiving preferences need consider
  preference erosion
• Developing countries will have special products
  for their defensive concerns

7
Sensitive products selection

• Highest tariffs?
• But some high tariffs are on minor products?
• Extent of cuts importance of products?
• Depends upon
• Depth of formula cut in bound tariffs
• Extent of binding overhang
• Importance of the product
• Loss of tariff revenue one way to capture?
• Political sensitivity?
• Begin with policy makers objective function

8
Sensitive products a potential escape for
industrial countries-EU
9
Cant look just at of tariff lines

• Need to consider the depth of cuts on sensitive
  products
• And perhaps the importance of these products as a
  share of imports
• Tariff caps on these products important
• TRQ treatment is also important

10
Sensitive products TRQs

• Seems dry and technical, but potentially very
  important
• Only 20 of tariff lines have TRQs in the 43
  countries using TRQs
• But TRQ products account for 51 of the value of
  OECD agricultural production
• Tariffs on these products are very high
• Complexities mean that liberalization may be
  sidestepped

11
Sensitive products TRQs (2)

• Either the TRQ or the tariff is limiting
• If the importer can choose to cut the tariff or
  expand the quota, may avoid disciplines
• To get a cut of x in protection need an x cut
  in the tariff, TRQ expansion
• If the cut in the tariff is smaller, need a TRQ
  expansion above the standard TRQ expansion
• TRQ expansion from 0 does not provide
  compensation for a smaller tariff cut

12
Special products

• Goals Food security, livelihood security,
  regional development vitally important
• Instruments Smaller cuts in bindings, esp
• Staple foods with large expenditure shares
• Produced by subsistence farmers
• Will these policy instruments contribute to the
  goals of special products?
• Could other instruments do a better job?

13
Historical food price policies in poor countries

• Poor countries have historically had urban bias
  and low food prices
• Partly because poor consumers are very strongly
  affected by high food prices
• Food is a large share of expenditure
• Pure subsistence farmers are unaffected by food
  prices
• The majority of rural people are actually net
  buyers of food

14
Food security vs self-sufficiency

• Widely recognized that food security is about
  ensuring access to food
• Higher food prices raise self-sufficiency
• But they could reduce food security by raising
  the cost of staple foods to poor people
• The poorest spend 70 of their incomes on food
• Analysis needed to identify SPs where protection
  helps achieve SP goals

15
Impacts on people, especially the poorest

• Need to consider impacts on households of changes
  in food prices
• If bindings kept at current levels, more
  flexibility to compensate for price falls or to
  raise applied protection
• Not enough to just consider indicators of the
  levels, such as in poverty
• Question is more the effects of changes in policy
• Desirable also to take into account adjustments
  in wages

16
Non-trade policies

• Important to consider the role of non-trade,
  complementary policies
• Most policy goals are related directly to output
  or consumption levels
• Trade policies are dont affect these directly
• Impose a tax on consumption and provide support
  to output
• Policies that target problems directly may do a
  better job
• Perhaps supported through aid-for-trade

17
Conclusions

• Sensitive and special products important in the
  negotiations
• Need careful analysis and policy design to ensure
  that sensitive products do not eliminate market
  access gains
• And that Special Products contribute to their
  domestic policy goals
• Important to consider complementary policies to
  support trade reforms