This post was originally posted on the IFPRI.org blog. By: Sara Gustafson, IFPRI
Since the launch of the World Trade Organization’s (WTO) Doha Development Round negotiations in 2001, the global trade situation has undergone a dramatic transformation. Developing countries and emerging economies have become major global players, and large regional and plurilateral trade deals (so-called “mega deals”) like the Trans-Pacific Partnership (TPP) are becoming more and more common. In addition, WTO membership reached 162 countries in 2015; these countries’ heterogeneous needs and objectives make reaching any agreement a significant challenge and call into question the practicality of the WTO’s multilateral framework itself.
All of these new dynamics were front-and-center at the WTO Tenth Ministerial Conference in Nairobi in December 2015. The outcome and implication of these talks, also known as the MC10, were the subject of an IFPRI policy seminar on February 23, organized by the CGIAR Program on Policies, Institutions and Markets. Maximo Torero, Director of IFPRI’s Markets, Trade, and Institutions Division (MTID), moderated the event. Other IFPRI speakers included MTID senior research fellows David Laborde, Will Martin, and Eugenio Diaz-Bonilla. Ramiro Costa, Chief Economist at the Buenos Aires Grains Exchange, also presented.
Laborde opened the seminar with a brief overview of the WTO talks to date, emphasizing that negotiations have largely ignored changing global trends. When the WTO was established, trade happened predominantly between rich countries; in 1995-1996, 25 percent of global trade in terms of calories was between rich countries. High income countries also exported 59 percent of total global calories. Today, trade in calories between high income countries represents only 10 percent of total global trade and 34 percent of total global calorie exports. Instead, the situation is characterized by South-South trade: 46 percent of trade in calories is occurring between developing countries.
The WTO talks have not kept pace with developing countries’ growing power, however, and this has caused significant setbacks in the accomplishment of the ambitious Doha Round. For example, implementation of the 2013 Bali Package came to a halt in 2014 when key developing countries, led byIndia refused to finalize the discussions on the Trade Facilitation Agreement (which would enhance cooperation and transparency between members’ customs policies) unless they were allowed to hold public food stocks for domestic food security purposes without violating WTO discipline. This stalemate finally resulted in an agreement to protect certain public stockholding policies from WTO discipline and to continue talks regarding the stockholding issue on a separate track from the rest of the Doha Agenda.
In this environment of conflict and setbacks, expectations going into the Nairobi Ministerial were low, revealed Laborde. The most important outcome from the Nairobi talks was the agreement to eliminate export subsidies for developed and developing countries, the latter having until 2022 to do a complete phase out. According to Laborde, the Nairobi talks illustrated that people still want to negotiate, but that the framework of those negotiations needs to change. “One of the last lessons is maybe it’s better to have small steps than a very ambitious round,” he said.
Will Martin highlighted the need to ensure that developing countries have an appropriate policy space to address their domestic challenges, while also accounting for the need for collective action to avoid beggar-thy-neighbor actions. Developing country policymakers often turn to trade policies to tackle issues like poverty and hunger because of the limited resources available to them, and because trade policies are relatively easy to implement. As developing countries’ role in global trade grows, however, their domestic policies increasingly impact global markets and sharply reduce the effectiveness of these interventions. In 2006-8, for example, export restrictions and other measures used to reduce price increases in domestic markets were responsible for around half of the increase in world prices of rice—putting great pressure on net food importers. A similar problem of volatility will arise in periods of low prices if the proposed Special Safeguard Mechanism is introduced and widely adopted.
Martin pointed out several other policy options, both at the individual country level and at the collective level, can better address poverty and hunger without creating market volatility. These include investing in improved market efficiency in developing countries, establishing social safety nets, improving the availability of market information through initiatives like the Agricultural Market Information System (AMIS), and strengthening WTO disciplines of distortionary policies like price protection and insulation. Martin concluded by asserting that the Nairobi Package’s elimination of export subsidies represents a major step forward, as such subsidies are a source of massive price volatility; however, much work remains to be done, including disciplines on export restrictions.
Ramiro Costa offered a glimpse at the country-level situation in Argentina as an illustration of the growing importance of developing country policies. From 2002-2015, Argentina’s agricultural sector was characterized by a high level of government intervention, particularly aimed to disconnect domestic markets from global ones. These included export taxes on most exported grains, quantitative restrictions on grain exports, and maximum prices set for live cattle and retail sales. All of these policies led to a high tax burden for Argentinian farmers, lower investment in new technologies and improved agricultural practices, and domestic crop prices that were consistently lower than those on the international market.
This all changed in December 2015 when a new government took office. Over the past two months, export taxes for most agricultural products were removed; for example, the export tax on corn went from 20 percent to 0 percent. The exception to this elimination on taxes is soybeans, which are an important source of tax revenue for Argentina. Export taxes on soybeans will be reduced by 5 percent per year until the tax’s complete removal in 2022. The government also eliminated the previous export permit system, so now it does not cost anything to trade cereals.
“Before the new government took these decisions, the farmers and exporters weren’t exporting anything,” said Costa. “The market was completely collapsed.”
Since these changes were made, however, Argentina’s agricultural exports have reached record levels in terms of US dollars. The Buenos Aires Grain Exchange predicts that over the next 10 years, agricultural production could increase by as much as 31 percent, the highest growth rate in the region; this growth would have been 5 percent under the previous administration’s policies. Similarly, Argentina’s share of the global cereal market could jump from 3 percent in 2014 to 8 percent in 2024.
Argentina’s recent fast growth shows what can happen when a country removes distortionary trade policies. It also illustrates the growing importance of developing country policies to international markets and the future of global food security. As Argentina and other developing countries become more and more involved in global trade, they will need to collaborate and coordinate with their trading partners on issues like food safety and climate change. Argentina’s recent policy changes also highlight the need for greater transparency in market information-sharing among countries; knowing when a trade partner, or a potential trade partner, is changing its trade policies can help other countries adjust their own expectations.
In his closing remarks, Maximo Torero admitted that the probability of concluding the Doha Round is very low, but if there is to be any chance at all, the WTO needs to change its thinking. The negotiations need to take into account member countries’ heterogeneity and encourage members, particularly developing countries, to think about food security through trade rather than through domestic food sovereignty.