The challenge of Reducing Subsidies and Trade Barriers

Phasing out distortionary government subsidies and barriers to international trade will yield extraordinarily high benefits relative to any adjustment costs, notwithstanding the considerable reforms that have already taken place over the past two decades. This paper surveys recent estimates, using global economy-wide simulation models, of the benefits of reducing remaining distortions via unilateral reform, multilateral trade negotiations, and preferential trading arrangements. Distortionary trade policies harm most the economies imposing them, but the worst of them (in agriculture and clothing) are particularly harmful to the world’s poorest people. Opportunities to reduce remaining distortions, including via the WTO’s Doha Development Agenda as compared with sub-global preferential reform, are examined, before drawing out the implications of liberalization for poverty and the environment.