In the early years of this decade, as the World Trade Organization's "Doha Round" of multilateral trade negotiations began to take shape, simulations carried out by the World Bank suggested that the world economy would be as much as $800 billion richer with an ambitious and successful trade round, and that approximately two-thirds of these gains would be appropriated by developing countries.

The picture presented by the models today is very different. The global increases in real income predicted from the Doha Round have shrunk, and the gains for developing countries appear now to be vanishingly small-raising doubts about the Round's very reason for being.

The rationale for liberalizing trade-reducing or eliminating tariffs and certain subsidies-is built on fundamental assumptions about the world economy, and mathematical representations of how producers and consumers react to changes in relative prices, changes to policy, etc. Trade economists have incorporated these assumptions and relationships into large economic models that are solved with the aid of computers. At the heart of most large, multi-country modeling efforts are so-called computerized general equilibrium (CGE) models. With data on trade and other variables, these CGE models can be used to make predictions about changes in economic variables were trade to become more liberal.

These models are unwieldy beasts, however, fully understood by only a few hundred specialists around the world. While the modelers themselves understand the reasons for the recent downward revisions in predicted gains from further trade liberalization, many trade negotiators remain confused. Adding to their confusion are some important variations in the simulation results carried out by different modelers. Meanwhile, critics point to the many limitations of CGE models and the estimates they generate, and question the extent to which they should be informing trade policy at all.

Recognizing the need to take stock of the situation, the GSI joined forces with the WTO Secretariat and on 22-23 June 2006 jointly organized a one-and-a-half-day technical workshop on modeling the gains from trade liberalization, with the twofold aim of developing a consensus view on why the model results have changed yet still differ, and identifying research priorities. The workshop was followed by a two-hour meeting with WTO delegates in order to report on the general findings of the workshop and to provide an opportunity for constructive dialogue between the invited experts and trade negotiators.

For this month's Subsidy Watch we have asked two of the participants at that seminar-Will Martin, Lead Economist in the World Bank's Trade and Development Research Group, and Frank Ackerman, Director of the Research and Policy Program at the Global Development and the Environment (GDAE) Institute at Tufts University-to provide their own perspectives on the issues that were discussed. Readers interested in further reading up on this topic may wish to consult the papers and reports found at the links listed in this issue.