10th WTO Ministerial Conference Aims to End Agricultural Export Subsidies

On December 19, the 159 members of the WTO concluded the 10th WTO Ministerial Conference with the signing of a new international trade agreement, the Nairobi Package . The agreement contains several important outcomes on the issue of agriculture and represents the first major achievement by the WTO on this issue since the end of the Uruguay Round talks and the birth of the organization in 1995.

One of the most important decisions to come out of last week’s meetings is the Ministerial Decision on Export Competition (WT/MIN(15)/W/47). Hailed by WTO Director General Roberto Azevêdo as “the most significant outcome on agriculture” in the history of the WTO, this decision includes a commitment to eliminate subsidies for farm exports.1 Developed countries have made a direct commitment to eliminate export subsidies immediately, with the exception of a few agricultural products; subsidies on some of the most sensitive products, such as processed foods, dairy products, and meat, must be phased out by 2020. Developing countries have been granted until 2023 to remove their subsidies, with Least Developed Countries (LDCs) and net food-importing countries having until 2030 to meet their commitments.

The decision to end agricultural export subsidies is widely supported by research from institutions such as IFPRI’s Markets, Trade and Institutions Division, which contributed several reports to this year’s discussions with the WTO Secretariat and a number of WTO member countries. In a recent FSP blog post based on a forthcoming IFPRI Working Paper, IFPRI researchers David Laborde and Eugenio Diaz-Bonilla explained the potential impacts of the full use of existing export subsidy allowances. During recent years of high global agricultural prices, export subsidies were not needed by countries to sell on the global market; thus, the subsidy levels allowed by the WTO were higher than the level of subsidies actually being used. As prices have started to fall, however, this unused portion of allowable subsidies (sometimes called “the water”) could come into play. Using a CGE model, the authors find that if global agricultural prices continue to fall, the unused portion of export subsidies allowed by the WTO could reach US$11 billion. The full use of this amount, the authors estimated, could displace agricultural production in middle- and low-income countries by about US$12 billion, negatively impacting poverty reduction and food security throughout developing regions. The decision in Nairobi to eliminate agricultural export subsidies represents an important step in the right direction to protect poor populations from these harmful effects.

The Nairobi meetings also resulted in a Ministerial Decision on Public Stockholding for Food Security Purposes (WT/MIN(15)/W/46) which reaffirms the agreement reached at the 9th Ministerial Conference at Bali to find a permanent solution to this contentious issue. Several developing countries, notably India, have argued that the WTO’s existing farm subsidy rules unfairly constrain their ability to purchase food at administered prices for food security purposes. This issue proved to be a major stumbling block during the WTO Bali Ministerial in 2013; the final Bali Agreement included a “peace clause” that allowed developing countries to continue their food stockpiling programs until a permanent solution is found at the 11th Ministerial Conference in 2017. The most recent decision reaffirms this clause and commits the WTO’s Agriculture Committee to dedicated negotiations to ensure that the issue of permanent stockholding is resolved at the next Ministerial. IFPRI researchers have been evaluating different options that such a permanent solution may take.2

The Ministerial Decision on Cotton (WT/MIN(15)/W/48) recognizes this sector’s importance to many LDCs and calls for these countries to be given duty-free, quota-free access to developed country markets starting in January 2016; the decision also calls for free market access to be provided by developing countries in a position to do so, a commitment that specifically includes China for both general market access commitments and preferential trade agreements.3 Maximo Torero, Director of IFPRI’s Markets, Trade and Institutions Division, points out, however, that the Nairobi talks did not include specific negotiations on domestic support for cotton and that no real movement on this issue will be seen until global farm subsidies are addressed.

Lastly, the Nairobi meetings addressed the controversial issue of a special safeguard mechanism for developing countries (WT/MIN(15)/W/45). This decision recognizes that developing countries will have the right to temporarily increase duties when import prices fall or they experience a surge in imports, once this mechanism is approved by WTO members. The rationale behind this decision is that a temporary increase in import duties will help protect domestic producers. The special safeguard mechanism, or SSM, as it is currently being discussed, would rely on either price triggers or import quantity triggers. This latter trigger has proven controversial, however, with some experts questioning whether a volume-based safeguard would, in fact, protect poor populations. In a 2014 World Bank Working Paper , authors Maros Ivanic and Will Martin find that triggering of a quantity-based safeguard would actually increase the global poverty headcount by an average of 24 million people. This is because i) poor households spend a large share of their income on food; ii) many poor farming households in developing countries are subsistence-based and frequently net food buyers; iii) and these measures would likely be triggered when domestic output is low, reducing the benefit of higher prices to farmers. If agricultural imports increase substantially (say, in the case of reduced domestic production due to unfavorable weather conditions) and trigger a safeguard that raises duties on food, poor households will bear the brunt of these higher prices.

IFPRI researcher Will Martin also calls attention to several concerns with a price-based safeguard mechanism, suggesting that as global agricultural prices (and thus the price of imported food) begin to fall, more and more developing countries will likely utilize the safeguard mechanism. This could force global prices even lower and increase price volatility worldwide—creating the sort of collective action problem that the WTO is designed to solve. A related ongoing debate during the Nairobi talks centered on whether the traditional categories used to define rights and obligations for developed and developing countries make sense in the context of a changing global economy.4

Overall, the 10th WTO Ministerial Conference took several important steps to recognize the needs of LDCs and to improve market conditions for these countries. However, many issues remain to be addressed in order to create a truly multilateral agreement that is fair for both developed and developing regions.

By: Sara Gustafson, IFPRI

1. This decision also covers other issues related to export competition, such as export credits and guarantees, food aid, and state trading enterprises engaging in exports. Analysis of some of these other issues can be found in Díaz-Bonilla, Eugenio and Jonathan Harris. 2014. “Export Subsidies and Export Credits.” In Tackling Agriculture in the Post-Bali Context: A Collection of Short Essays,” edited by Ricardo Meléndez-Ortiz, Christophe Bellmann, and Jonathan Hepburn. Pp. 115-122. Geneva, Switzerland: International Centre for Trade and Sustainable Development (ICTSD). Available here
2. For further analysis of the issue of public stockholding for food security purposes, see: Díaz-Bonilla, E. (2015.) Lost in Translation The Fractured Conversation about Trade and Food Security. IFPRI Discussion Paper. http://ebrary.ifpri.org/cdm/ref/collection/p15738coll2/id/129861; Glauber, J. W. (2015). Agricultural Insurance and the World Trade Organization. IFPRI Discussion Paper. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2688091; Díaz-Bonilla, E. (2014.) On Food Security Stocks, Peace Clauses, and Permanent Solutions After Bali. IFPRI Discussion Paper. http://www.ifpri.org/sites/default/files/publications/ifpridp01388.pdf; and Díaz-Bonilla, E. and David Laborde. (2015.) The Bali Agreement. An Assessment from the Perspective of Developing Countries. IFPRI Discussion Paper. http://ebrary.ifpri.org/cdm/ref/collection/p15738coll2/id/129221 .
3. The overall issue of cotton and LDCs, as well as the potential risk stemming from China’s current level of cotton stockholding, is discussed in a chapter of the forthcoming IFPRI book Agriculture, Development, and the Global Trading System: 2000-2015.
4. Food security is an important issue underlying discussions about public food stocks and special safeguard mechanisms. For a more detailed typology of countries focused on the issue of food security, see Diaz-Bonilla, Eugenio, Marcelle Thomas, Sherman Robinson, and Andrea Cattaneo. (2000). “Food Security and Trade Negotiations in The World Trade Organization: A Cluster Analysis of Country Groups.” IFPRI Discussion Paper. http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/125376/f... and Diaz-Bonilla, E. and M. Thomas. (2015.) Why some are more equal than others: country typologies of food security.” Background paper prepared for The State of Agricultural Commodity Markets 2015–16. Rome, FAO. http://www.fao.org/3/a-i5218e.pdf