By Eugenio Diaz-Bonilla, visiting Senior Research Fellow at IFPRI and member of the group on agricultural issues of the E-15 Initiative launched by ICTSD
The negotiations seem to be heading for a breakdown again over agricultural issues linked to food security and, more generally, because many developing countries seem to consider it unfair that the developed countries, which have most of their programs for domestic support and export subsidies protected under the Uruguay Round, have not offered anything meaningful on those agricultural issues in the "Doha lite" package presented at Bali.
Although there is still hope that the deal may be closed as this is being written (early Thursday morning on December 5th), I offer here some ideas with the intention that they may help to solve the current impasse if the negotiations are unable to move forward as they are structured right now.
The following suggestions include some language to a) accommodate on a more permanent basis legitimate food security concerns, while addressing the fears of many WTO member countries that the current G-33 proposal may erode the core principles of Annex 2 of the AoA (the so-called Green Box measures) and may affect markets in other countries through exports and b) move somewhat more decisively on export subsidies.
It is clear that any developing country can give subsidized food under paragraph 4 (Domestic Food Aid) of Annex 2 of the AoA. The claim of some NGOs that it is unfair that the US can have a food stamp program while, at the same time, denying India the right to have a similar program is mistaken. The question is not if you can give subsidized food to poor people, which you can under the AoA; the issue is how governments may procure that food.
The US (as well as Brazil and other countries) buy food at "market prices," which makes their approach compliant with Annex A. India uses "administered prices" announced in advance by the Government, which may trigger footnote 5 of paragraph 3 of Annex 2. However, "administered prices" in that country have been shown to be largely below a) domestic market prices, b) international market prices, and, most crucial, c) the domestic currency equivalent of the 1986-1988 reference prices, if they are properly calculated to take into account inflation, as allowed under the AoA (see Hoda and Gulati, 2013).
Considering these factual points, I believe that the Indian program to significantly expand food subsidies given to the poor can be made compliant with Annex 2 without having to change the language of that Annex. On the other hand, the language suggested by the G-33 group breaches the basic criteria of Annex 2 that Green Box measures cannot be utilized to provide price support to farmers.
At the same time, India, which saw the domestic programs of the US and the EU protected under carefully crafted language incorporated during the Uruguay Round in the AoA, may consider it unfair that they have to redesign a domestic program that is not breaching the ECONOMIC conditions for not being trade-distorting (after all, the India program, as Hoda and Gulati have shown, is operating at or below current domestic or world market prices), just because of a LEGAL interpretation about the possibility of using domestic inflation to adjust the 1986-88 reference prices. India's impatience with the idea of a temporary "Peace Clause" and its insistence on a more permanent solution should be placed in this context.
Industrialized countries also need to understand that in the absence of futures markets, the only coordinating device for developing country farmers' expectations about market conditions and for their production decisions may be those pre-announced government prices. In the case of India, again, Hoda and Gulati show that the announced "administered prices" have been in line with the effective market prices for more than a decade now.
Taking all of this into account, the correct approach to the impasse, in my view, is to try to clarify the relationship between the language of Annex 2 on "market prices" and "administered prices" rather than to seek exemptions or "peace clauses." In this regard, footnote 5 of paragraph 3 on food stocks may include language such as follows:
"Administered prices in the context of this paragraph will be considered rebuttable presumed in compliance with the conditions that they do not offer price support, and therefore, they will not have to be counted against the aggregate measure of support, if they do not exceed the appropriate domestic market price or the import parity equivalent based on the world market price of the product considered."
If a Member country decides to challenge such a food security program in another Member country, they will have to show meaningful upward deviations from market prices so defined, which would result in offering "price support" to producers. In any case, if a developing country is buying significantly above market prices and selling below market prices in order to help poor and vulnerable populations, it will get into fiscal problems long before a trade case is brought up.
Another fear of countries opposing the G-33 approach to food security stocks is that these can be accumulated in excess of food security requirements and end up being exported to other countries, thus disrupting their domestic markets. Therefore, additional language will also be needed to address that concern. A possible option for language in this regard is as follows:
"Products bought under the food security stock provision by developing countries can be utilized only for domestic consumption purposes linked to food security concerns. Any export from those food security stocks is prohibited and may be subject to appropriate countervailing measures under the Agreement on Subsidies and Countervailing Measures, as applicable. Also, such exports will automatically render purchases of those products not part of a food security program, and will have to be compared with the reference prices, and counted against the AMS, as applicable. The only exception to exports will be if the country with food security stocks is asked by the appropriate United Nations agency to release into world markets part of the accumulated stocks due to a global, regional or national food security emergency"
AGRICULTURAL EXPORT SUBSIDIES
The current language can be adjusted in order to include a full moratorium on export subsidies for four years. Meanwhile, negotiations will continue to implement the Hong Kong resolution to align the treatment of agricultural export subsidies with industrial export subsidies.
SOME FINAL COMMENTS
The structure of world agricultural markets has changed dramatically in the last decade or so, and not only because of what seems to be the more permanent presence of higher prices. Another significant change is the important advances of developing countries in production and exports.
For instance, the value of agricultural production in China is calculated by FAO as being larger than the US and the EU combined. LAC's total agricultural production is larger than the US or the EU. During the 1990s, there was only one developing country (Argentina) in the top five net agricultural exporters by value, and it was in the fifth position; only two more (Brazil and Thailand) were in the top 10. By 2010-2011, there were three developing countries in the top five, with Brazil and Argentina in the first and second positions, displacing the US and Netherlands. Altogether in 2010-2011, five out of the top 10 exporters were developing countries, including India, which has also climbed the ranks as a significant net agricultural exporter. In fact, in recent years, India has become the main global rice exporter; in 2013, USDA projections suggest that it will pass Brazil as the main exporter of beef and veal (in volume, not value), which in turn had displaced the US from that position some years back.
Another point to be noticed is developing countries’ advance in the measure of agricultural support, as calculated by the nominal rate of assistance (NRA) estimated in a recent World Bank exercise and by the OECD.
More generally, the share of global GDP for developing countries, particularly when measured in purchasing power parity, has also increased significantly. According to the IMF/WEO database, the categories of advanced countries and emerging and developing countries moved from 69% and 31% of global shares of global GDP (at PPP values) in 1980 to 49% and 51%, respectively, in 2013. In other words, for the first time in modern history, emerging and developing countries now represent a larger share of total global GDP than advanced economies (using the categories of the IMF). Those increases in GDP and incomes, among other things, have allowed for the expansion of agricultural support noted before.
All of these facts may lead to two very different narratives which, if they do not converge somehow, will make it very difficult to resolve the world’s trade issues, particularly regarding agriculture.
On the one hand, developing countries see industrialized countries enjoying productive advantages in farm size, land, water, climate, infrastructure, R&D, credit conditions, and the like and ask, legitimately, why those countries should be allowed to have the levels of protection and distorting subsidies that they have under the AoA. Many developing countries see their own producers (who, as a general rule, are clearly poorer, farm significantly smaller areas, struggle with water and climate constraints, and suffer from weak infrastructure and lack of R&D and credit support) and conclude that there are clear imbalances in the AoA that benefit industrialized countries and negatively affect developing ones.
On the other hand, industrialized countries see developing countries’ advances in production and trade (while their own shares decrease), the expansion of agricultural support in key emerging countries, the sheer number of farmers in those countries, and all the potential policy space already existent in the AoA for developing countries and worry not only about their current and future access to the markets of those countries, but also, eventually, about exporters from the largest emerging economies potentially displacing production in their own domestic markets. Therefore, they cling to the advantages granted to them under the AoA. For instance, they do not seem to be ready to do the right thing and accept the prohibition of agricultural export subsidies (which is already the WTO norm for non-agricultural products), as agreed in Hong Kong and requested by a group of developing countries as part of the Bali deliverables.
Although, in my view, the narrative from the point of view of the developing countries is more accurate, these countries also need to acknowledge their larger share in the world economy and in agricultural production, and the systemic effects they have as a consequence of that fact. Their larger presence in the global market also brings responsibilities. While many developing countries continue to argue that they are “small and poor,” as a whole, they are not small anymore and, although they are not at the level of industrialized countries, some have advanced significantly in their per capita incomes as well. WTO negotiations, and a more general review of global governance rights and responsibilities, need a more realistic dialogue than what seems to be taking place now.
Still, I believe that the main responsibility for a balanced outcome in Bali lies with the industrialized countries. These countries, having attained a lopsided WTO deal during the Uruguay Round, are holding on to their “special and differential treatment,” while unhelpfully complaining about the trade-distorting proposals made by developing countries.
Hopefully this time things will not be “lost in translation.” The suggestions presented here try to contribute to that dialogue. They address only the legal issues raised in the negotiations and do not discuss the more fundamental economic and social questions regarding the appropriate design of food security programs that really address the income and nutritional problems of the world’s poor and vulnerable populations.
Hoda, A. and A. Gulati. 2013. India's Agricultural Trade Policy and Sustainable Development. ICTSD Issue Paper No 49.