Is a plurilateral the ‘way out’ for WTO on agriculture?

Q: under what cir­cum­stances would a critical-mass (CM) pluri­lat­eral agree­ment on agri­cul­ture be a way “out of the mess” in the WTO agri­cul­ture negotiations?

A: any CM pluri­lat­eral works as a “way out” of the WTO stale­mate where it offers a degree of ben­e­fits to the mem­bers of the pluri­lat­eral agree­ment such that they were will­ing to extend MFN ben­e­fits to non-members with­out reci­procity. That’s what the ‘crit­i­cal mass’ char­ac­ter of the pluri­lat­eral deal means. A pluri­lat­eral where the non-members do not get the ben­e­fits is a non-MFN agree­ment, incon­sis­tent with Arti­cle I of GATT and cracks open the mul­ti­lat­eral trad­ing sys­tem in a way that no coun­try, big or small, would really want.

Does this degree of ben­e­fit exist for some large sub-set of WTO mem­bers on agri­cul­tural trade; as it does on cer­tain infor­ma­tion tech­nol­ogy, for exam­ple? Yes. Or, at least, it did in 2005–2006. That was the data baseline-year for the eval­u­a­tion we devel­oped in our paper for the Aus­tralian Rural Indus­tries Research and Devel­op­ment Cor­po­ra­tion (RIRDC) in 2009. We esti­mated that there would be net gains from a rad­i­cal lib­er­al­iza­tion of trade in 30 key agri­cul­tural prod­ucts (account­ing for 4/5 of world agri­cul­tural trade) for a ‘crit­i­cal mass’ of 38 coun­tries includ­ing Brazil, China, Indone­sia and India. You will find a sum­mary table of the results of our mod­el­ing here.

But our part­ners in that study — research insti­tu­tions from China, Indone­sia and India — raised doubts about the par­tic­i­pa­tion of their coun­tries in any CM pluri­lat­eral on agri­cul­ture. They found the polit­i­cal econ­omy of those coun­tries was not ready for such a deal, even if the mod­el­ing sug­gested they would be eco­nom­i­cally ‘bet­ter off’. This was because, among other things, in some cases the ben­e­fits that con­sumers or pro­duc­ers in those coun­tries derived from the agree­ment would be partly at the cost of the other sec­tor. Our research part­ners doubted that their gov­ern­ments would endorse an exter­nal deal that came at the cost of an inter­nal redis­tri­b­u­tion of wel­fare that might or might not accord with national plans.

Our mod­els showed that even when those coun­tries did not join the CM, it would still have a net-positive impact on the aggre­gate wel­fare of the par­tic­i­pat­ing coun­tries that was greater than the esti­mates of the aggre­gate wel­fare of the pro­posed (2008) WTO Agri­cul­ture Agree­ment. This was in part due to the rad­i­cal nature of the CM reforms we mod­eled. They were based on adop­tion of zero duties and zero sub­si­dies on the import and pro­duc­tion of the 30 prod­ucts (per­haps achieved over a tran­si­tion period) by the CM mem­bers. It was an eco­nom­i­cally ratio­nal ‘slash and burn’ approach that deliv­ered net ‘CM-wide’ increases in aggre­gate wel­fare. But, again, it did not promise an ‘equi­table’ dis­tri­b­u­tion of those gains either within or between economies. (Nor, by the way, did the pro­jec­tions of the WTO Agree­ment ben­e­fits promise equity in the dis­tri­b­u­tion of gains.)

The other rea­son that the idea ‘worked’ eco­nom­i­cally with­out the China, Indone­sia and India was that, in 2005–6, these economies were small par­tic­i­pants in world agri­cul­tural trade rel­a­tive to the size of their economies. China, espe­cially, was more or less ‘self-sufficient’.

So, in prin­ci­ple, it made sense for the remain­ing CM mem­bers to go ahead even with­out the par­tic­i­pa­tion of the giant emerg­ing coun­tries. But, would they really choose to do it?

That is not an eco­nomic ques­tion: its one about polit­i­cal econ­omy. In fact it’s two ques­tions about polit­i­cal econ­omy. First, would the USA, EU and Japan (for exam­ple) endorse a rad­i­cal lib­er­al­iza­tion of agri­cul­ture because it would be eco­nom­i­cally ratio­nal to do so? Well, all that a researcher can tell you is that this has not been their choice in the past. The sec­ond ques­tion con­cerns the mul­ti­lat­eral trad­ing sys­tem. A CM that does not break the sys­tem but does not include large economies such as China, Indone­sia and India would see the USA, EU and Japan grant­ing full MFN-compliant ben­e­fits of duty-free access to their mar­kets to the emerg­ing giant economies with­out rec­i­p­ro­cal mar­ket access. Would their Par­lia­ments or Con­gresses agree to such an arrange­ment in such a polit­i­cally ‘sen­si­tive’ domain as agri­cul­tural trade?

The ‘bottom-line’ is that any given CM might be ratio­nal and even fea­si­ble. That doesn’t mean it will be attrac­tive in any par­tic­u­lar econ­omy. Also, if we want a trad­ing sys­tem with all the ben­e­fits of a non-discrimination guar­an­tee, there are lim­its to what a CM can deliver.

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