Commentary on "Potential Gains from Reducing Trade Barriers in Manufacturing Services and Agriculture"

T paper makes an important contribution to the debate on the potential gains from further global trade liberalization under the proposed World Trade Organization’s (WTO) round of negotiations, WTO2000. We know from the Uruguay Round (UR) that the results of applied general equilibrium (AGE) simulations can influence the stance of negotiators. Likewise, the potential for results (such as these) to have a similar impact on WTO2000 outcomes is enhanced by three major features. First, they are based on microconsistent projections of production, consumption trade, and trade-barriers data to 2005 (the date for completion of UR commitments). Second, these projections are based on the assumption that China will be a member of the WTO by that date. Third, the liberalization of trade in services is modeled explicitly (although, as acknowledged, imperfectly). The construction of the 2005 benchmark data from the starting point of the 1995 Global Trade Analysis Project (GTAP) database required the collection of data from a wide range of sources. These fall into two broad categories—growth parameters affecting production possibilities and policy variables that impact the regional and sectoral structures of production, consumption, and trade.1 The former (endowment growth, total factor productivity growth, and natural resource depletion) result in projected gross domestic product growth rates that are broadly consistent with World Bank projections. The modeling of policy changes necessarily is more important and problematic. Of the UR outcomes directed at sectors, two—the completion of manufactures’ tariff cuts and the reform of the Multifiber Arrangement (MFA)—are reasonably easy to incorporate. The others, concerning agriculture and services, are more problematic. In both cases it has been assumed that there will be no effective changes in protection between 1995 and 2005.2 Several of the structural changes indicated by the 2005 projections are striking. In particular, the developing countries grow quickly, as a consequence of reductions in manufactures’ tariffs and MFA reform, and they also become more outward-oriented in manufactures, with “South-South” trade substantially larger. The liberalization scenarios chosen are complete liberalization in isolation of each of the three main categories (manufactures, agriculture, and services) and the combination of these three. It is not surprising—and broadly consistent with liberalization simulations carried out using the 1995 GTAP database—that while there is greater pro-rata expansion in manufacturing trade than agriculture, the majority of the global welfare gains result from the removal of the highly distortionary agricultural policies. In both cases, the effects of liberalization in services is dominated by the other main categories, for reasons that are made clear in the paper. When considered from a regional perspective, the most striking outcome is the high share of the global welfare gains that accrue to the developing countries; their losses due to adverse terms-oftrade changes are substantially outweighed by their efficiency gains. It is evident that these complete liberalization scenarios are highly unlikely to be realized in the outcome of any WTO2000 negotiations. The developing countries may well seek and retain some measure of special treatment because agricultural reform will undoubtedly pose problems, the efficacy of the General Agreement on Trade in Services (GATS) as a vehicle for liberalization is open to debate, and other issues are likely to intrude. These scenarios, however, indicate the scale of possibilities for trade liberalization, both as an overall package and on a sector-by-sector basis, and, as such, they are a substantial contribution. Having acknowledged the contributions made by the paper, it seems appropriate to discuss modifications that could be made to the model structure in order to make it more realistic. The standard