Transcript WTO Accession: Myths and Reality

WTO Accession: Myths and
Reality
By Pedro L. Rodriguez
Sr. Economist, The World Bank
(Presented by Mark Davis)
Content
Myths on the following areas:
1. Winners and losers
2. Services
3. Agriculture
4. Trade Related Investment Measures
(TRIMS)
5. Take your time
WTO Accession Process
• After 10 plus years, accession negotiations of
Kazakhstan and Ukraine are nearing final
stages.
• Impact assessment of WTO accession through
JERP (similar process in Russia and Ukraine,
with similar results correlated with initial
protection levels and structure of economy.
• Political economy of accession: Especially the
role of Russia, US and EU.
Myth 1: Foreigners Win - Kazakistanis Loss
•
Tarr & Jensen estimate that:
•
•
•
•
•
It will gain about 6.7% of the value of Kazakh consumption (3.7% of GDP) in the
medium run from WTO accession, and up to about 17.6% in the long run (9.7%
of GDP), when the potential positive impact on the investment climate is taken
into account.
Export intensive sectors, such as ferrous metals, non-ferrous metals, chemicals,
(agriculture?) are the sectors that expand the most as a result of WTO
accession.
Tradeable sectors that do little exporting and are relatively highly protected will
lose in the short to medium run: wood products, medical equipment, vehicles and
trailers, other non-metal products and publishing industry.
While we don’t have these numbers for Kazakhstan (yet?),Russia results showed
that the vast majority of Russian households will gain from WTO accession and
the poor will gain as least as much as the average Russian household from WTO
accession. Rural households are expected to gain slightly less than the average
urban household. Workers are likely to gain more than capital owners, but capital
owners in general will also gain. However, owners of immobile capital in sectors
that compete with foreign direct investment and who do not form joint ventures
with multinationals will likely lose from accession in the medium term.
Government safety nets are crucial to help with the transition and especially for
the poorest members of society who can ill afford a harsh transition.
Breakdown of gains
• Improved market access: (7% of total gains)
– Open access, leverage in negotiations, anti-dumping
defense.
• Tariff Reductions: (6% of gains)
– “gains from trade”/transition/productivity
– Tariffs are not very high now.
• Liberalization of services (70% of total gains)
– Especially telecom, transport and financial services
– Productivity impact (technology, knowhow and
competition) on domestic economy.
Breakdown of gains
• Crude oil and natural gas (7% of total
gains)
– Assumption is to, (a) exempt multinationals
from VAT on local content while, (b)
eliminating local content requirements.
• Generally, exports sectors gain, wages up
by 5% in real terms, labor gains especially
in business services.
Gaining from WTO
• WTO only provides a basis for gains, but does
not assure it.
• Market supporting institutions and business
climate are crucial (e.g., TRIPs, SPS).
• Improvement in the investment climate (e.g.,
protecting against domestic lobbies and building
market supporting institutions, along with
transition to comparative advantage sectors)
represents a nearly 20% gain in terms of
consumption over the long run.
• Which model to follow: China, Ukraine (EU in
relation to Russia) or Norway?
Myth 2:Tariff Offer is More Important than Service
Commitments
• Given that Kazakhstan is landlocked, away from key
markets, and it has reformed less services, the service
offers are the key:
– Telecommunications
– Transport (railways, roads)
– In both of these cases, accession offer should be used to carry
out structural reforms that are needed in any case
– Offer on Financial sector (banking, insurance + others) and
Tourism should be re-assessed in light of proposed Financial
Center and Tourism Cluster in Almaty
• But tariff offer is of course important in any case—should
be used to simplify collection by customs and facilitate
trade
Myth 3:Agriculture Sector Will Be Killed with WTO
Accession
• Biggest threat to agricultural sector is Dutch
Disease, not WTO Accession (SPS, Transport,
trade facilitation and access to markets should
help).
• But is important to design an aggregate level of
support that is compatible with the development
of the sector (how much to subsidize and which
subsidies are most effective)
• Which model: Chile/Australia/New
Zealand/Canada or EU/US? (Explicit subsidies
versus green box programs)
Myth 4:TRIMS: Current Local Content Rules Are
Working
CURRENT
SITUATION
FUTURE
International
Market
Gover
nment
Administra
tive Support
(mainly
case by case
and based
on
Stron
g
Cont
rol
International
Market
Foreign
Companies
Weak
Ties
Local
Companie
s
i.
Gover
nment
Institutionalized
support
(transparent): (1)
Suppliers
develoment
programs, and
education
Foreign
Companies
e
Joint
g
Ventures,
u
Partnershi
l
ps, and
a
Interaction
for
t
Upgrading
i
o Local
n
Companie
s
R
Myth 5: Kazakhstan Should take its time
Would 12 years be enough?
New EU
members
01-May-04
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Slovak Republic
Slovenia
Kazakhstan
GATT
signatories
WTO
application
15-Jul-63
15-Apr-93
Mar-94
09-Sep-73
Nov-93
Jan-94
17-Nov-64
18-Oct-67
15-Apr-93
30-Oct-94
29-Jan-96
WTO
accession
30-Jul-95
01-Jan-95
13-Nov-99
01-Jan-95
10-Feb-99
31-May-01
01-Jan-95
01-Jul-95
01-Jan-95
30-Jul-95
01-Jan-08
Years to
accession
5.5 years
5.25 years
6.25 years
12 years