In the category of “praise more fit for a eulogy,” U.S. Trade Representative Michael Froman is reported to have said of the last minute negotiations to prepare a package for upcoming WTO Ministerial in Bali: "It's unclear whether they will succeed or not. We certainly hope they will succeed. But [the WTO] has served a very important function and will continue to serve a very important function as a dispute settlement mechanism either way." (Inside US Trade, November 15, 2013).
Froman seems to be saying it is okay if Bali is a failure—which, given the latest news from Geneva, is a good thing because the meeting has failure written all over it.
There are lots of reasons why the system is failing. The Doha Agenda, adopted in 2001 and still ostensibly the framework for negotiations, should not have been agreed in the first place. Multilateral trade rules are worth getting right, but the Uruguay Round agreements on which the rules now in place are based got far too much wrong.
The trade agenda launched in Doha in 2001 is dead but the corpse is not yet buried. Most developing countries say they want it all still—Doha resuscitated—while the majority of industrialized countries want to salvage the corpse for parts; they’ll take deeper deregulation of services, more restrictive intellectual property rights and the harmonization of regulations for transnational firms, but are happy to leave rotting their promise to finally eliminate export subsidies in agriculture, make real cuts to trade-distorting support, or support disciplines on agricultural exporters that are as stringent as the disciplines imposed on food importers.
In an era of more responsible global leadership, the gathering of trade ministers December 3–6 at the WTO conference in Bali could have marked a watershed. It is clear now it will not. The question, then, is both whether and when governments can rise above their squabbling over the (many) hypocrisies and inconsistencies in the now almost 20-year old Uruguay agreements (most of which serve industrialized countries and transnational investors) and instead focus on how to rethink trade rules given the demands of the 21st century, including higher and more volatile agricultural commodity prices in the face of financial instability as well as less predictable and more extreme weather.
The challenges confronting governments in relation to international trade in agriculture include the need for:
Recognition of the many forms that price instability takes in different developing country contexts, and the importance of countering that instability, so as to allow farmers to invest in their production and to protect people from food insecurity. International markets are valuable, but in no way can they satisfy the complexity of food security needs. The assumption that governments are even willing to deregulate their markets to the extent of the WTO rhetoric only highlights the hypocrisy of the many OECD countries. These countries protect their agriculture (and their consumers) in a variety of ways that are by definition trade distorting, while constantly limiting developing countries’ ability to do the same.
Disciplines that bring exporter and importer responsibilities into line. Neither side should be able to change their commitments without notice or due warning. The G-20 has recognized the problem but failed to take action.
Full and final elimination of all forms of export subsidies.
Like some of the other innovations in multilateral governance in recent years, any real breakthrough on trade is likely to require a new configuration of countries taking the lead. It is important but not enough to add the so-called emerging countries of Brazil, China and India to the United States and Europe and expect that bloc of countries to advance rules that respond to the needs of the 120 or so LDCs and poorer net–food importing countries. It is from agriculture that the most interesting challenge to the evolving status quo has come, specifically from the India-led G-33 proposal to exempt the purchase of food stocks for food security programmes from limits to spending (see IATP’s discussion of the proposal here). Fundamentally, the proposal is an assertion of the importance of domestic food security programs that extend beyond social safety nets to questions of rural livelihoods and capital formation. It is also an assertion of importing countries’ need for greater stability and reliability in the trade system.
In September 2013, a French economist, Franck Galtier, from a French agricultural research institute called CIRAD, published a short paper with additional proposals for the reform of the AoA rules (see here). Among other things, Galtier writes about the importance of stability for developing countries, especially those that experience significant price volatility linked to uncertain domestic supply and weak and unstable currencies. Franck proposes three reforms in the calculation of the Aggregate Measure of Support (known as the AMS or amber box, it is the part of the agreement that limits public spending on agriculture) as to correct existing biases against developing countries:
The baseline against which spending is measured is set to the average price that prevailed from 1986 to 1988 (28 years ago). The number was part of the political negotiation between the European Union and the United States that effectively eliminated their need to actually cut domestic support, though it did set a ceiling that was intended to stop future increases. Commodity prices have soared since 1988, especially in developing countries. Inflation in developing countries as a group has averaged 5–10 percent in recent years, while it has been below 4 percent on average in industrialized countries. Inflation has rendered the baseline meaningless. Although updating the baseline might allow the OECD countries to negotiate yet more spending room for themselves, that seems preferable to keeping rules that discriminate against poorer countries.
The WTO rules have been interpreted to assume that if a government buys any amount of national production at a price higher than market prices then the price for all production that year will be assumed to have received support. This means that even if purchases are only a tiny share of the total produced or, as is common, if the price intervention only lasts a few weeks or months rather than all year, the subsidy is nonetheless calculated as if the whole crop were bought at the procurement price. The effect is to use up the allowed budgetary support on imagined rather than actual spending. While any purchase at non-market prices will have some kind of effect on the whole market, clearly there are volumes low enough that the effect will be negligible—certainly far different than would be the effect of a price support at the higher rate for the entire crop.
The WTO rules do not allow countries to add back as credit to the AMS the sale of public stocks at below market prices, although such sales are effectively a tax on farmers in exactly the way purchases above market prices provide a subsidy. A country might seek to use both purchases and sales of stocks to support a level of equilibrium in market prices that supports long-term development objectives. Such interventions might avoid the necessity of more disruptive interventions if the market is prone to failure. By only counting the subsidy effects, the rules exaggerate the level of support that public purchases provide to farmers.
The G-33 proposal does not go into such detail. It is instead the latest iteration in the group’s longstanding fight to regain governments’ right to policy space for domestic agriculture and food security priorities. India, the leading spokesperson for the proposal within the G-33, is fighting for the right to be able to buy food from its domestic producers at a reasonably good price and then to use that food for consumer safety nets. The U.S. essentially did this for decades, but then moved away from a direct role in price floors and stopped accumulating stocks. Now U.S. firms and some producer organizations complain that countries such as India will use these tools to limit food imports, depriving them of export markets. U.S. civil society groups have countered that the G-33 proposal is an important first step to reforming unfair rules.
Up until the last minute before Bali, governments have been negotiating the terms of a “due restraint” or Peace Clause. Instead of changing the rules to accommodate the food security spending as the G33 requested, the Peace Clause would instead allow countries to spend more than their AMS limits, under certain conditions, without the threat of trade disputes from other members. It sidesteps everything interesting about the G33 proposal, especially from the perspective of the majority of developing countries who do not have the resources to overspend on their AMS but need to intervene in their agricultural markets. The contention between the G33 and the opponents of the proposal (such as the US) has been whether the Peace Clause should be applicable for a limited time (no more than 4 years) or more open-ended until countries devise an optimal solution. Under this meager concession, many countries that urgently want access to measures to stabilize their food security situations will continue unsupported by the WTO rules. The G-33 proposal got to the heart of the dilemma for trade rules in unstable times; no trade can work without confidence in the trading system. The existing rules do not give countries the confidence they need to take advantage of all trade has to offer. It’s time for rules that do. Apparently that will have to wait until after Bali. But it cannot wait for long.
IATP’s Shefali Sharma will attend the Bali Ministerial and will be reporting on the evolution of this debate.