WTO agriculture proposals probably fall short of substantial improvements

As a rule of thumb, simple deals open markets. The more complex the arrangements, the more likely they are to be ‘fine-tuned’ to minimize their impact on the beneficiaries of protection.

The sixty pages of complex ‘modalities’, conditions, exceptions, second-thoughts and jargon in this paper are likely to deliver much less reform than the ‘headline’ numbers suggest. The complexity of the proposals and of the protection regimes in many developed and developing economies means it’s impossible to be sure about the results without seeing the application of the proposals in detail to each market. But, working from the averages, it’s likely that these proposals will bring about, at most, modest changes and no commercial impacts in some key trades:

  • The ‘headline’ tariff cuts—up to 73% on bound import duties over 75%—look big, but they are probably too small to achieve the Doha goal of ‘substantial improvements in market access’. Even with average cuts of (possibly) 54% in developed economies, the excess protection (‘water’ , ‘overhang’) in WTO-bound duties on agricultural products will buffer markets against any actual increase in import competition. The graphic below shows ABARE estimates (green bars) of ‘average’ depths of excess protection (‘water’). In some of the largest food trades (pulses, oils, dairy, grains, sugar) the proposed cuts will do little more than drain the moat. They won’t breach the walls.
  • The new categories of ‘Sensitive’ and ‘Special’ products are likely to undercut the benefits for the poorest countries—whose welfare will also be reduced by the elimination of export subsidies. Developing countries who clamored to keep ‘special’ protection for (possibly) as many as 20 percent of tariff lines must take some responsibility this weakening of the ‘development agenda’
  • The cuts in production supports of up to 73 or even 85 percent sound ambitious. But they have been shown to be too small to make any difference to the USA and EC’s planned bonuses for the richest farmers in the world. Like the proposed tariff cuts, the deal on ‘domestic supports’ avoids any real reform
  • The elimination of export subsidies (agreed in December 2005) would have been an historic step if taken a decade back. But it will only lock-in the current reality: the EC—which accounted for more than 90% of export subsidies—gave up on export subsidies at the start of the decade and has no plans to use them in future
    ABARE estimates of average water in commodity tariffs.
    Effective protection is the tax needed to secure current
    internal prices. Click to link to the ABARE report

But wait, those are the strengths of this package. There are backward steps, too. The Doha Round will have the distinction of being the first WTO negotiation to create new, permanent categories of agricultural protection where none existed before. From now on, international trade laws are to be augmented by concepts of ‘sensitive’ and ‘special’ agricultural products that are deemed to deserve higher and more secure protection. Although trade bureaucrats have never been shy about hiding new protection under sly neo-logisms like ‘Special Safeguards’ (disposable trade barriers) or ‘Blue Box measures’ (renamed production subsidies), they have agreed, in past trade rounds, to make new barriers temporary, usually with sunset provisions. But that’s not the case with ‘Sensitive’ or ‘Special’. They are here to stay, it seems.

The trade negotiators have turned the progress made in the Uruguay Round of trade negotiations (1986-1994), on it’s head. In the last trade round, governments created ‘minimum-access’ tariff-quotas as a mechanism to ensure some opening of markets protected by the highest duties. Now the Doha Round turns those same tariff quotas into a new exceptional mechanism for protection: ‘Sensitive products’. This perverse result has been purchased with an expansion of the quotas that the ‘headline’ numbers paint as (possibly) as high as 6-8 percent of domestic consumption. But the convoluted ‘modalities’ for implementing the quota expansion means it could be as little as 1 percent.

There are still quite a few ‘square-bracketed’ choices to be made in the text—including the ‘headline’ numbers. In most cases, the range of choice is narrow and the impacts modest. But there are three cases I can see where a the bracketed choices might still make a difference:

  1. The number on the ‘average’ overall tariff cut. This looks like the only lever we have to pump-up the overall ambition of the package. It has been written-in as ‘[54] percent’ for developed economies. If there were agreement to set it at, say, ‘60%’ or higher then we might start to see some real liberalization. But don’t hold your breath. This number may already be higher than the EC’s-carefully calibrated ‘ceiling’, designed to ensure that nothing in these negotiations upsets its elaborate designs for internal supply management. For developing countries, the bracketed target for average bound duties is currently set at ‘[36] percent’—a number that is much too low considering the huge levels of excess (‘overhang’) in the bound duties of developing countries (see the graphic below).
  2. The level of bound in-quota rates of duty. There’s a choice in the current text between eliminating the in-quota duties, or reducing them by some fraction of the ‘sensitive’ duty cut. In-quota duties are often low, but not in highly protected markets. In Japan, for example, the in-quota duty on wheat comprises a huge price mark-up by a state-controlled agency that is equivalent to a (variable) tax of approximately 60% that pays for subsidies to Japanese farmers. Again, there’s every reason to be pessimistic about the elimination of this consumer rip-off
  3. The proposal to eliminate the ‘Special Agricultural Safeguard’ is still in square brackets. This rotten facility was adopted as a temporary ‘fall-back’ protection device during the six-year period (ending 2001) when non-tariff barriers on access were converted to tariffs. Like ‘training wheels’ on a bicycle, the SSG was supposed to be un-necessary after a few years. Apparently, some agricultural economies like the EC and Japan still need to be propped up.

< div class=”photo”>Overhang.gif

    World Bank estimates of Developing country tariff overhang across
    all tariffs. The adoption of ceiling rates for agriculture tariffs means
    the overhang in the Ag sector is much greater. Note that ‘low-income’
    includes China, India. Click to link to the World Bank database

The zombie vampire award in this catalog of half-way-measures goes to the “Commodities” section of the text. Here we find a proposal that the WTO’s Aid For Trade initiative should encourage funding for ‘commodity agreements’—including producer-only commodity agreements—designed to “stabilize prices”. Good grief! Is there any reason to think that such proposals are now more feasible in globalized markets than they were in the quasi-cartelized commodity trades of the 1970s? Is there no-one in Geneva who remembers that ‘stabilization’ plans for coffee, cocoa, rubber, tin, iron ore etc. were all expensive (and frequently corrupt) attempts to fix markets that ended in complete failure?

Apparently not.