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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