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.

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