Concerning Behavior In The Global Agri-Business Goes Against The Principles Of Free Trade

At a meeting of the World Trade Organization Committee on Agriculture, held on 25th and 26th June, members raised concerns over the US’ announcement made on 23rd May that it would facilitate a second round of its Market Facilitation Package (MFP). The payments will provide US$16 billion to American farmers, and are aimed at countering the losses felt by the agricultural sector as a result of “unfair” treatment from trading partners in the current China dispute. The meeting was centered on reforms of the international agricultural trading system, and focused in particular on domestic support provided by countries, market access for developed countries versus developing countries, public stockholding of food, and advances in the Special Safeguard Mechanism (SSM) designed for developing countries. The meeting signifies the latest of efforts in a three-decade long push to persuade the WTO to put pressure on advanced, industrialized countries to remove systems of agricultural support that prevent many developing countries from exercising their comparative advantage in the global agri-business.

Under the Agreement on Agriculture (AoA), a treaty formulated by the WTO in 1995, to prevent trade-distorting agricultural subsidies developed countries are permitted only to provide product-specific domestic support that ‘does not exceed 5 per cent of that Member’s total value of production of a basic agricultural product during the relevant year’. The United States faced questions from Australia, Canada, the EU, India, New Zealand and the Ukraine regarding this ceiling and Trump’s MFP, while China accused the US of breaching the “product specific” ceiling of 5% through the implementation of the package.

Dr Kalim Saddiqui, economist and senior lecturer in economics, focuses much of his research on trade policy and how developed countries’ trade behavior, such as Trump’s MFP, affects developing countries who rely heavily on agriculture as a large percentage of their GDP. In his report, ‘David Ricardo’s Comparative Advantage and Developing Countries: Myth and Reality’, he details the negative effects unfair trade behavior and market liberalization continues to have on developing countries.
“Sectors in which developing countries possess comparative advantage such as agriculture and clothing tend to be more protected worldwide than other sectors. A number of studies show that globalisation and neoliberal economic reforms have promoted inequality and poverty, increased economic vulnerability and consolidated economic stagnation in several developing countries.”

He also points to WTO intentions agreed upon in 2015 to remove export subsidies in the agricultural industry by 2020 for industrialized countries, and by 2023 for developing countries, however recognizes previous failed attempts agreements have had on removing rich countries’ subsidies that create barriers to agricultural imports from developing countries.

“Despite a number of promises with the signing of the Agreement on Agriculture (AoA), in reality, the rules did little to contain government subsidies to farmers in the developed countries and a number of programmes provided subsidies to farmers and agribusinesses, both directly and indirectly”.

A timeline of past efforts to reform the regulatory framework for the global agri-business presents many failed attempts. The liberalization of trade began after WWII when the General Agreement on Tariffs and Trade (GATT) was signed in 1947. Upon signing the GATT, the United States and the European Union managed to get their agricultural sectors exempted from regulatory trade policies. However, in 1995 in conjunction with the establishment of the WTO, agriculture was included under international trade policy with the signing of the AoA during the Uruguay Round of the GATT. The AoA was the first treaty to introduce restrictions on developed countries in the context of domestic support, market access and export subsidies in the agricultural sector, however many believe it has failed to uphold such regulations.

The WTO Doha Development Agenda was introduced in 2001 and specifically targeted the phasing out of export subsidies that favored developed countries, as well as developed countries’ domestic support that disabled developing countries’ ability to exercise their comparative advantage in the agricultural sector, attain food security and promote rural development. Differences in the positions of developed and developing countries on agricultural reforms grew, and in 2008, the Doha negotiations collapsed with no outcomes achieved.

After years of nil progress, the 2013 Bali and 2015 Nairobi WTO Ministerial Conferences bore a declaration that included the reduction of red tape in negotiations. In particular at the 2015 Nairobi Ministerial Conference, WTO members agreed upon the proposal of a Special Safeguard Mechanism (SSM) for Developing Country Members that allow developing countries the right to temporarily increase tariffs on agriculture products in cases of import surges or price declines. However, disagreement on various aspects of the SSM among members meant the mechanism was not implemented, and instead allocated for further discussion in the future.

The public stockholding of food programs for food security purposes, the elimination of trade distorting domestic support through use of “amber box” support, and the SSM were main agricultural topics discussed at the latest WTO Ministerial Conference held in Buenos Aires in 2017.

A proposal by the G-33 group, a coalition of developing countries that have worked together during agricultural discussions, suggested support provided under the public stockholding programs be exempt from any calculations that could contribute to trade-distorting domestic support, to allow developing countries to keep sufficient amounts of their produce to ensure food security. Developing country members, including China, India, and the African, Caribbean and Pacific (ACP) group called for the elimination of ‘amber box’ support, which is categorized as any domestic support measures considered to distort production and trade. As of 2017, thirty-two WTO members maintained commitments to reduce trade-distorting domestic supports included in the amber box; these included countries such as Australia, Canada, the European Union, Japan, New Zealand, the Russian Federation, South Africa and the United States. As published in the Eleventh WTO Ministerial Conference: Outcomes for agriculture and fisheries Trade Policy Technical Notes NO. 31 WTO negotiation’ policy brief, there was “No update for agriculture as no specific agreements were reached on agricultural issues, including domestic support, public stockholding for food security purposes, export restrictions, market access and the special safeguard mechanism (SSM) for developing countries”.

Ongoing meetings among the WTO Committee on Agriculture continue to negotiate agricultural reform, but to date consensus among members has not been reached in efforts to bridge the gap of trade advantage between developed and developing countries. At the meeting of the Committee on Agriculture in Special Session (CoA SS), convened on 14th March, the chair of the meeting remarked he held high hopes for members to achieve an outcome in agricultural negotiations at the 12th Ministerial Conference to be held in Kazakhstan in June 2020.

The effect the ongoing lack of consensus among WTO members on agricultural reforms has had on developing countries who rely on agriculture for GDP is significant. Developed nations’ high domestic subsidies in the agricultural sector, and the resulting overproduction, consequential dumping of the surplus supply in the world market through export subsidies and their unwillingness to open up the market for agricultural imports hinders developing countries’ attempts to grow their agricultural sector and inevitably their economy, exacerbating levels of poverty and inequality. Data provided by the World Factbook of the CIA reveals the top 15 countries who are most reliant on agriculture as a percentage of their GDP are also all included on the UN’s 2018 list of Least Developed Countries (LDCs). These countries include Liberia, Somalia, Guinea-Bissau, Central African Republic, Chad, Comoros, Sierra Leone, Togo, Ethiopia, Niger, Mali, Burma, Democratic Republic of Congo, Benin, and Nepal.

Figures from the United Nations Conference on Trade and Development display the highly uneven distribution of trade when comparing G20 economies to Heavily Indebted Poor Countries (HIPCs). As of 2011, G20 economies accounted for over 70 percent of global exports and imports, in contrast to the 39 HIPCs that accounted for one per cent of global trade. Twelve out of the top fifteen countries who are most reliant on agriculture as a percentage of their GDP are featured in the list of 39 HIPCs, a list of the poorest countries that the World Bank, and the International Monetary Fund (IMF) designated to be at extreme risk of being overwhelmed by unmanageable or unsustainable debt burdens. Additionally, Sub-Saharan Africa, North Africa and South Asia- areas heavily featured on the UN’s LDC list, and the World Bank’s HIPC list- were each reported to have experienced significant declines in their global exports. According to United Nations Conference on Trade and Development, exports from Sub-Saharan Africa declined by 20 percent, while exports from South Asia declined by 8.5% between 2015 and 2016.

In attempts to alleviate extreme poverty in the HIPCs, the World Bank and the IMF established a series of debt-reduction initiatives that permitted a debt reduction rate of 80 percent for the world’s poorest countries with high ratios of external debt to export earnings. In 1999, the level of debt reduction was extended to 90 percent, and in 2005 it was decided at the G8 Gleneagles Summit that 100 percent of the HIPC sovereign debts owed to the IMF would be cancelled. While these short-term initiatives are effective in reducing the immediate debt of developing countries, they will not work to sustainably build economies and prevent future poverty and inequality. Long-term measures such as access to exports in areas where comparative advantage is held, namely agriculture, and international trade reform to allow developing countries greater control over their imports and exports are necessary to ensure the future development of nations that rely heavily on agriculture for GDP growth. This is a role for the WTO, not the World Bank, nor the IMF.

Ha-Joon Chang, an institutional economist specializing in development economics, has confirmed that in their early phases of development and industrialization, developed countries adopted a number of protective trade policies before they opened their economy up to liberalization. Once their industries were fully developed, only then did they welcome free trade policy. While the WTO insists that participation in global value chains has the potential to offer developing countries an opportunity to increase their growth rates, this is not the case if gaining access to global value chains is being attempted in an environment that does not equally support the principles of free trade for all, and allows protectionist policies for some countries, but not for others. If the WTO is serious in their efforts to bridge the gap of trade advantage between developed countries and developing countries, they need to permit greater protectionist policies for developing countries to prevent the flooding of domestic markets with cheaper imports. This will provide developing countries  the appropriate tools to build their domestic agricultural sectors to a level where they can not only exercise their comparative advantage in the global agri-business, but also afford to feed their own population. As well as providing developing countries with the appropriate tools to build their domestic agricultural sector, the WTO also need to create a level playing field in the global agri-business- an action that should have been taken at the implementation of the GATT- as opposed to the implementation of a system that advantages certain players, and disadvantages others. This means taking seriously the requests voiced by developing countries in previous WTO meetings and Ministerial Conferences, coming to a consensus where their requests can be implemented  at the 2020 Ministerial Conference in Kazakhstan, and eliminating long-held domestic support and export subsidies that have been awarded to developed countries. Perhaps once developing countries build their domestic capabilities, protectionist policies afforded to them can also be removed, and the global agri-business can once again resume operating upon a free trade system that actually reflects the values of free trade for all.

Katherine Everest