The WTO, Agriculture, and Development: A Lost Cause?
Disciplining agricultural protectionism has long been a challenge for trade negotiators. The Doha Round stumbled over it and the impasse over public stockholding continues. Should the WTO just give up on agriculture?
In the early 2000s, subsidies and trade barriers in rich countries were helping drive down agricultural prices, leaving poor farmers in developing countries struggling to support their families. Campaigns such as Oxfam’s “Make Trade Fair” brought celebrity-level attention to the global harm done by the hundreds of billions of public dollars going to relatively well-off farmers in high-income countries. Just a few years later, commodity prices spiked, the value of subsidies fell, and food-security concerns moved front and centre as consumers rather than producers felt the pain of global price volatility. A decade later, food prices are down somewhat and subsidies are rising, including in large emerging markets. Slashing these subsidies was a central goal of developing-country negotiators when the WTO launched its Doha Round of trade talks in 2001. Unfortunately, deep disagreements over agriculture and food security repeatedly blocked progress, and the Doha Round is generally recognised as dead, if not buried.
While WTO members agreed at the Nairobi ministerial conference in 2015 to eliminate export subsidies, a permanent solution setting rules for public stockholding programs in developing countries remains elusive. Indeed, the Eleventh Ministerial Conference in Buenos Aires ended with no decisions and no agreement on a work program for agriculture. That is partly the result of the new Trump administration’s stated scepticism regarding multilateralism in trade generally, and the WTO in particular. But India’s intransigence on the public stockholding issue, and on agriculture more broadly, also contributed.
Deadlocks over agricultural trade are not new, however. The Uruguay Round of trade negotiations, launched in Punta del Este in 1986, was the first to even try to address the array of trade-distorting agricultural policies in a serious way. Those negotiations succeeded in creating an elaborate framework of rules, but they largely failed to rein in subsidies or trade protection in industrialised countries. The Doha Round was supposed to change that, but it collapsed around the time that food prices peaked in mid-2008 and there has been only limited progress on narrow issues since then.
Some argue that agriculture is now of such small importance in international trade that the WTO should move on and focus on new, 21st-century issues. But agriculture is still important for developing countries, especially in Africa, for both food security and livelihoods. The challenge is that food security is particularly politically sensitive and policymakers want flexibility (policy space) to address it. In practice, the policies adopted in developing countries, just like those adopted many years ago in today’s industrialised countries, are often expensive, ineffective, and impose spillover costs on neighbours. The WTO could help by guiding policies in less distorting directions and reducing the negative spillovers for others – if member countries find the political will to let it.
The long road to an impasse on agriculture
Agricultural reform has long been a tough nut to crack. The US adopted “temporary” programs in the 1930s to help farmers simultaneously battle the Dust Bowl and the Great Depression. Despite dramatic changes in the structure of American agriculture since then, the US Congress still approves farm bills every five years or so that provide an array of support programs for farmers. Though the figure has dropped to just under 10 percent in recent years, more than one-quarter of total US farm receipts were courtesy of Uncle Sam as recently as 1999, according to the Organization for Economic Co-operation and Development (OECD). Japanese farmers are dwindling in number and most are 65 years old or older, yet the government still maintains a tariff of more than 700 percent to protect rice farmers. And while the EU has reformed the Common Agricultural Policy (CAP) to make it far less trade-distorting, it still transfers tens of billions of dollars to farmers every year.
While it might seem that having a relatively small number of farmers should reduce their political clout, the opposite is often true. Smaller numbers of larger, wealthier farm operations find it easier to organise and lobby to protect their interests. For most people in high-income countries, however, food is a small share of the total consumption basket. They generally will not feel strongly enough to vote, or to pony up campaign contributions, because they oppose farm subsidies.
Weak foundation: The GATT fails to discipline agriculture
The strength of the agricultural lobbies in key countries plagued efforts to negotiate international rules to discipline these policies from the beginning. While the General Agreement on Tariffs and Trade (GATT) prohibited export subsidies and import quotas for manufactured products, it allowed them for agricultural commodities. Tariff cutting negotiations over the years after the GATT launched in 1947 also fell far more lightly on agricultural commodities than on manufactured goods. As a result, tariffs on agricultural products are typically higher than those on industrial products: six to seven times higher in the EU, Japan, and Korea, three times higher in Canada and India, 50 percent higher in China and the US.
The Uruguay Round Agreement on Agriculture was a step forward in at least making agricultural policies subject to international trade rules aimed at bringing them under control. It proved to be yet another disappointment, however. European negotiators ensured that the rules reflected reforms they had already adopted; Japanese negotiators insisted on keeping extraordinarily high barriers to rice imports; and the US took advantage of that to retain protection for sugar and dairy products. Overall, the constraints were loose enough that they had little impact in practice.
The Doha Round stalls over agriculture
When the WTO decided to launch a new round of negotiations in Doha, Qatar, in 2001, real agricultural prices were near historic lows. Tightening the rules on price-depressing agricultural subsidies and trade barriers was at the centre of international trade negotiations. This time, Brazil and other developing-country exporters were in the forefront demanding reform. US negotiators, who had been in the lead demanding reforms from Europe and Japan during the Uruguay Round, found themselves on the defensive in the new round because of the late-1990s’ spike in US subsidies after prices plunged.
Then food prices began to rise and things changed dramatically. Although food prices have been up and down in recent years, they remain well above the levels of the early and mid-2000s. And, at least temporarily, that shifted attention from the effects of low commodity prices on poor producers to the effect of high food prices on poor consumers. Many developing-country governments tried to insulate consumers from price spikes. According to the Food and Agricultural Organization, 25 countries imposed restrictions on food exports in 2007-08; import-dependent countries also lowered tariffs and taxes on food. Russian restrictions on wheat exports contributed to a second round of price spikes in 2010. These policies made sense to each country individually, but in the aggregate they drove global food prices even higher and left everyone worse off. Export restrictions also tend to undermine food security in the long run because they reduce incentives to expand production.
Although it lingers on life support, the Doha Round effectively died at a ministerial meeting in July 2008. Paradoxically, the 2008 ministerial broke down largely because American and Indian negotiators could not resolve a disagreement over how much latitude developing countries should have to raise tariffs when prices are falling and imports are surging. In essence, India’s negotiating stance since then has been that the WTO should permit developing countries to do pretty much anything in the name of food security, whatever the costs to their own or other countries. To make things more complicated, China, along with India and other emerging markets, have begun to provide substantial support to their agricultural sectors.
Options for Moving Forward
Where the WTO could still play a useful role is in helping to steer countries in the direction of policies that are less trade-distorting, using negotiations to lock in any reforms that are achieved. The question is how to do this now that the Doha Round has failed and there is no agreement on what should replace it. At least for the moment, big rounds conducted as single undertakings in which nothing is agreed until everything is agreed seem no longer viable. In a few areas, subgroups of “like-minded” countries are pursuing plurilateral negotiations with the aim of reaching agreement on issues that might or might not be extended to other WTO members or brought under the WTO umbrella. But could that work for agriculture? Another option is to continue to pursue incremental progress on an issue-by-issue basis, as was done successfully in Bali on improved implementation of tariff rate quotas and in Nairobi on the elimination of agricultural export subsidies.
On the first alternative, there are reasons to be sceptical of a plurilateral approach for agriculture. Existing regional trade agreements (RTAs), which are to varying degrees “plurilateral,” typically do not address domestic support for agriculture at all. This is because exporters inside them do not want to end up competing with subsidised exports from parties outside the agreements. To get around that problem, and to be meaningful, a broader plurilateral agreement on agricultural issues would have to include key players that have contributed to the current WTO impasse, including the US and India. It is unclear how that would lead to a better outcome.
Continuing to pursue an incremental approach on an issue-by-issue basis may be a more fruitful approach. Among the items that should be at the top of this list are efforts to improve institutional functioning in the agricultural area. This includes effective implementation of the Uruguay Round disciplines relating to timely notification, as well as the recent ministerial decisions on tariff rate quotas and export subsidies. Elimination of export subsidies in Nairobi was an important achievement, even though use of such subsidies is currently minimal, because it ensures that countries will have to bear more of the costs of their own subsidies if they increase them in the future. Aggressive monitoring of the new commitments on export competition will also keep pressure on the US to reform its notorious food aid practices and reduce the subsidy element of its agricultural export credit programs.
Members need to find a solution on public stockholding programs that does not permanently open a major new loophole for providing producer support. There are many proposals for how to do this with relatively modest changes to the Uruguay Round Agreement on Agriculture if only members would negotiate in good faith. Modest steps providing for transparency and consultations with affected members before using export restrictions in the midst of food price spikes could be another part of an incremental agenda. The former chair of the WTO committee on agricultural negotiations, Vangelis Vitalis of New Zealand, listed a number of other specific issues that would improve the functioning of global agricultural markets, “including tropical products, tariff escalation (whereby tariffs increase along processing chains), tariff peaks (i.e. relatively high tariffs amidst generally low tariff levels), converting tariffs into ad valorem rates (i.e. tariff rates in proportion to the estimated value of the goods),” etc.
In sum, the single undertaking approach to trade negotiations, and the Doha Round along with, have reached a dead end. Rather than holding out for a grand bargain that may never come together, WTO members should pursue progress where and when they can. In agriculture, with domestic support programs spreading into large emerging markets, there would seem to be more than enough costly and trade-distorting policies in place to provide bargaining chips for a deal just within agriculture. And it could evolve into a substantial, sectoral package if enough countries become frustrated with rising costs – to their budgets or their exports. In the meantime, an incremental approach will be slower and less ambitious than many would hope, but it is better than no progress at all.
Author: Kimberly Ann Elliott, Visiting Fellow, Center for Global Development, and Visiting Scholar, George Washington University Institute for International Economic Policy.
 This essay draws on my recent book, Global Agriculture and the American Farmer: Opportunities for U.S Leadership (Washington: Center for Global Development, 2017), and the earliersynthesis of political economy research on agricultural policy in Delivering on Doha: Farm Trade and the Poor (Washington: Center for Global Development and Institute for International Economics, 2006).
 “Agricultural Safeguard Controversy Triggers Breakdown in Doha Round Talks.” Bridges Weekly, 7 August 2008. http://bit.ly/2t0WxsN
 For a more optimistic view of this option, see the arguments of Aluisio de Lima Campos here, http://bit.ly/2Bj2jbV.
 Franck Galtier provides one such proposal, and also compares it to others that may be of interest, in Looking for a Permanent Solution on Public Stockholding Programmes at the WTO: Getting the Right Metrics on the Support Provided, E15Initiative, Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, 2017. http://bit.ly/2BhXMpW