The Potential Cost of a Failed Doha Round

Abstract

This study presents scenarios where countries decide to increase current tariff rates to protect domestic industries or raise revenues in order to finance domestic programs. Using the highest applied or bound rate imposed by countries during the period from 1995–2008 as an indicator, it offers new conclusions on the economic cost of a failed Doha Round. In a scenario where applied tariffs of major economies would go up all the way to currently bound tariff rates, world trade would decrease by 7.7 percent. In a more modest scenario where countries would raise tariffs to maximum rates applied over the past 13 years, world trade would decrease by 3.2 percent. These increases in duties would reduce world welfare by USD353 billion under the first scenario, by USD134 billion under the more modest scenario. This study concludes there would be a potential loss of at least USD1,064 billion in world trade if world leaders were to fail to conclude the Doha Development Round of trade negotiations in the next few weeks and were to implement subsequently protectionist policies such as observed since the end of the Uruguay Round. Another point of view is to consider the WTO agreement as an insurance scheme against potential trade wars. So we compare a resort to protectionism when the DDA is implemented with a resort to protectionism when the DDA is not implemented. The findings show that this trade agreement could prevent the potential loss of US$ 809 bn of trade and, therefore, acts as an efficient multilateral insurance scheme against the adverse consequences of trade “beggar-thy-neighbour” policies.

Keywords: Doha Round, trade negotiations, CGE modeling, bound duties

JEL Classification: F13, F15, F17