April 8, 2009
A Number Not to Repeat From G-20 Communiqué: $150 Billion in Gains From WTO Doha Round
WASHINGTON, D.C. – Last week’s G-20 communiqué claim that the World Trade Organization’s (WTO) Doha Round “could boost the global economy by at least $150 billion per annum” is not only preposterous but also damaging given the fabricated figure was employed to promote Doha Round negotiations that include further financial service deregulation, Public Citizen said Wednesday.
The World Bank in 2005 projected that the Doha Round could account for up to $90 billion in boosted global economic activity, a figure it published after more careful analysis in response to widespread criticism of its 2003 claims that the round would generate $539 billion in new activity. Yet, even this World Bank projection was based on multiple implausible assumptions and was outweighed by the $101.4 billion in projected Doha Round tariff revenue losses that would mainly hit developing countries who use such funds to support basic government services. Even the $150 billion figure represents a rounding error when compared to the planet’s pressing development needs. For people in developing countries making $100 a month, this would mean a 16-cent raise in their monthly salaries in 2015.
“The G-20 communiqué calling for enhanced global financial service regulation and completion of the WTO Doha Round was perverse, given the Doha Round includes further financial service deregulation,” said Lori Wallach, director of Public Citizen’s Global Trade Watch division. “Given the world is already suffering the severe economic damage of radical financial service deregulation, using fabricated projections of gains to support this contradictory demand is especially galling.”
Further, the World Bank’s projected $90 billion Doha Round gains would be highly unequally distributed. Of those projected benefits, only $16 billion would go to the developing world – well under a penny-per-day per capita or about 0.16 of their national incomes. And the vast majority of the meager developing country portion would go to China, Brazil and India.Indeed, a more detailed review of the World Bank data showed that the majority of developing countries, including Arab nations, Mexico, Central America, the Caribbean and all African countries except South Africa would be net losers were the Doha Round agenda completed.
The $150 billion figure in the G-20 document appears to come from recent speeches and articles by WTO Director-General Pascal Lamy, who in a Dec. 31 Newsweek op-ed wrote, “Economists conservatively estimate that a Doha deal along the lines of what is on the table today would boost global GDP [gross domestic product] by $100 billion each year. It would also cut export taxes by $150 billion.”
The fabricated projection of $150 billion in Doha Round gains appears to round up, and then confuse, Lamy’s two numbers and what they represent. By using the higher $150 billion number, the G-20 conflated a cut in duties with an economic stimulus. This is highly misguided and contradicts the precepts of current U.S. economic recovery policy. There are two types of fiscal expansionary policies: tax (or tariff) cuts or direct government spending. The underpinning for the Obama administration’s American Recovery and Reinvestment Act was that the Bush administration’s policy of tax cuts and rebates had not yielded a sufficient multiplier effect and that direct outlays would have a higher economic impact and put more people back to work.
“Policymakers should ignore such fanciful projections, and instead push for trade policies more likely than the Doha Round to benefit development and economic recovery,” Wallach said. “Instead of completing the Doha Round, which includes further financial service deregulation, countries need to create a new WTO negotiation agenda that starts with fixing the WTO’s many existing problems including its Financial Services Agreement, which binds 105 signatory nations to maintain the extreme deregulation that caused the current crisis.”
Moreover, United Nations Conference on Trade and Development projects that the majority of Doha Round duty cuts will come from developing countries. There are three pressing issues here: First, will the tariff cuts substitute for tax cuts that will have domestic multiplier effects in developing countries? Second, the tariff cuts can be seen as losses by developing-country governments (versus consumers in point one) looking to put together stimulus packages. In the developing world, tariff revenue as a percent of GDP can range from 15 to 40 percent of total government revenue. The G-20 communiqué punts on a global stimulus, so money is needed more now than ever to put together domestic stimuli. Finally, in some cases the costs of liberalizing tariffs could outweigh the projected benefit. If a tariff is a “corrective” mechanism to protect local firms or farmers from oligopolized global corporations that can “dump” their products on poor countries and unjustly wipe out local firms, the tariff is more optimal.
“There are many opportunities for positive international coordination in the face of the economic crisis, financial re-regulation, climate change, and other shared challenges,” Wallach said. “The current Doha Round represents a backward-looking agenda that instead could shrink incomes and government revenues, and limit nations’ ability to regulate finance, energy and other service sectors.”
“At the next G-20 Summit, leaders should announce a changed course on trade and development policy that puts the environment and the needs of working families in all countries first. Moreover, G-20 leaders should press the WTO, World Bank and any other entities potentially responsible to disclose the full details and assumptions behind this and any future projections of Doha’s economic impact.”