WTO farm talks: from COVID-19 into 2021. 3 Trust and understanding

Lessons from the pandemic for WTO work on agricultural trade and support. Part 3

By Peter Ungphakorn
POSTED DECEMBER 31, 2020 | UPDATED DECEMBER 21, 2021

In this 3-part series (plus one):

1. The pertinent questions | 2. What’s been happening inside and outside the WTO | 3. Policy responses: from confidence-building to a work programme | (Plus: References)

Based on, with updates,
Chapter 20 (“Lessons from the pandemic for WTO work on agricultural trade and support”) in the CEPR e-book “Revitalising Multilateralism: Pragmatic Ideas for the New WTO Director-General” edited by Richard Baldwin and Simon Evenett

It may seem strange to start an examination of WTO policy responses by discussing process. But paying attention to it might be necessary to break out of the current rut and to actually end up with agreement.

JUMP TO
Process
Towards a work programme
Export restrictions
Domestic support | Green Box | Amber Box
Market access
Labour
Conclusion

This is the third and final part of the series on lessons from the pandemic for agriculture in the WTO. This part looks at what might be achieved in the short term, and how.

The main emphasis is “in the WTO” because a lot of the ideas floating around are outside the WTO’s role. We might think they are “good ideas” (or we might not), but there’s not much point in pushing them in the WTO if the WTO is irrelevant.

ProcessBack to top

So, first, process. Genuine reform requires a change of attitude among members who have now grown accustomed to defending decades-old positions, maximising rights and minimising obligations, while playing down the concerns of others and the gains of cooperation.

The chances look slim. The commitment to multilateralism in trade has been weak since 2008 for both endogenous and exogenous reasons, and has worsened with the Trump administration’s unilateralism.

The bad old habits might be broken by exploiting the well-known duality in trade negotiations. This is about technical and political processes, which are separate but can feed into each other. Technical work can help delegations to listen to each other and learn, and this can feed back to their capitals.

Parallel: political and technical levels are important in negotiations as Winham observed in the Tokyo Round | WTO photo
Parallel: political and technical levels are important in negotiations | WTO photo

A starting point is the questions and answers in the regular committees where specific trade concerns are discussed (See also this and chapter 12 here by Canadian professor Robert Wolfe). The committees also organise special information (or “thematic”) sessions, which provide “informal learning”. The regular Agriculture Committee already organises these, one of the latest being the July 28, 2020 session on COVID-19.

Wolfe counted seven thematic sessions in 2017–2019, all of them on experience in implementing the Agriculture Agreement and associated commitments, two also adding “next steps”.

In the separate agriculture negotiations, learning through “technical sessions” has also been useful. Nine held in early 2013, on the controversial proposal on public stockholding in developing countries, helped pave the way for an interim agreement at the end of the year although some issues are unresolved.

Joint thematic sessions under both the regular committee and the negotiations could improve coherence between implementation policies and rule-making.

The WTO Secretariat’s factual reports ought to feature, despite some members’ reluctance to accept new reports or updated versions. Whether tactical or out of fear that the information may slant an agenda, the reluctance is perverse. Seeking reliable, digestible, factual information from the Secretariat should be part of building trust, understanding and confidence.

But this technical work would have to be organised with care, otherwise countries keen to press on with the talks would see it as an excuse to procrastinate (see paragraphs 12–13 here).

Towards a work programmeBack to top

Since WTO rules define policy space, a WTO work programme would not be a prescription for how to reform agriculture. It would be about leaving space for suitable reform and avoiding countries damaging each other’s interests.

Which COVID-19 policy responses might run up against WTO domestic support rules?
See Part 4 for references. Policy list compiled from Swinnen and McDermott 2020; OECD 2020a, 2020b; Clapp 2020, WFP 2020, Hepburn (2020). Domestic support rules are in WTO Agriculture Agreement Article 6, the Green Box in Annex 2, the formula for calculating AMS in Annex 3 (WTO 1995). “Amber Box” support distorts trade by directly affecting prices and output and is limited; “Green Box” support is allowed without limits (WTO undated-a). (Click the image to see it full size)

Long wish-lists of policies have been proposed for agriculture in response to COVID-19. Many are in the table. But clearly much of that is outside the scope of the WTO. Internationally, other agencies — the FAO, WFP, WHO, ILO, UNDP, World Bank, IMF, etc — are more competent on agriculture in general and the many related policies. Many policy proposals are specific to the conditions in particular countries or regions. What works well in one country might not work in another, as examples from India, China, South Africa, Ethiopia and elsewhere show.

In other words, using the WTO’s frame of reference, many policies in the table are completely free from WTO trade rules. Much of the rest can simply be chucked into the “Green Box” of support that is allowed without limit because its market distortion is at worst minimal. Some work might be needed to ensure the box can accommodate them, but not much. That would leave a small number of issues warranting particular scrutiny in the WTO.

In his June report, departing negotiations chair Ambassador John “Deep” Ford summarised the discussion on COVID-19 in his last agriculture negotiations meeting.

He said members felt they needed more time to study the situation, particularly since the pandemic was in different stages in different countries, and they said any responses should respect WTO rules. COVID-19 had “brought to the fore some particular needs and imbalances,” especially for food security. Some said negotiations could not resume until meetings are in person again, instead of online.

But, “the fundamental issues at stake in the agriculture negotiations remain the same. Food security, social and economic welfare depend on an open, fair, rules based, market oriented and predictable trading system,” he wrote.

Interestingly, Ford thought some agreement on domestic support and export restrictions might be possible. He also noted concerns about increasing support for farming in response to COVID-19. But on market access he envisaged nothing more than a work programme to be agreed at the next ministerial conference (paragraphs 9, 43, 47, 54).

Ultimately it will be up to WTO members to discover what is needed and to decide what to do. Assuming that the pandemic persuades members to engage more, what can we realistically hope to be achieved? What should a desirable programme include?

Some issues are immediate (see pages 77–78 here), others are longer term, including distortions caused by tariffs, tariff quotas and domestic support according to the OECD and Ford, and dealing with unexpected shocks and volatility.

Export restrictionsBack to top

Export restrictions are the most obvious topic, with scope for work in both the regular committee and the negotiations. Getting consensus on how to deal with this is more difficult than it should be.

By the end of 2020, what appeared to be a small issue that had been raised repeatedly over the months, blew up into a typical WTO deadlock. It’s not a good omen for members’ collaboration.

Almost two-thirds of the WTO’s membership (103 out of 164) signed up for Singapore’s proposal that any export restrictions on food should be waived for procurement by the World Food Programme. To many this is a no-brainer for feeding the world’s poor facing food shortages.

However when the December 16–18 General Council meeting considered the proposed decision, some countries objected on the grounds that this would cause problems for the food security of their own populations. One, reportedly, was India, which has also been linking this to its controversial proposal on stockholding. (The minutes will be public here in a few months.) Without consensus there could be no decision.

Then on January 21, 2021, 79 members (counting the EU as 28) went ahead and pledged not to block World Food Programme purchases themselves anyway.

More generally, the harmful impact on supply chains and food security has been discussed at length elsewhere (see also chapter 6 here). Clearly, the restrictions can be counterproductive, with the risk of retaliation. They might only be justified if they are temporary and designed to deal with a genuine emergency.

“Calls have […] been made in recent weeks to underline the need for any export restriction emergency measures in response to the COVID-19 crisis to be ‘targeted, proportionate, transparent, and temporary’,” Ford wrote (paragraph 53).

Improving transparency and possible assistance for developing countries to notify are already on the regular committee’s agenda. Continuing blame-free analysis of the repercussions would shed more light, including on the impacts domestically and on other countries.

More countries could join the 56 WTO members’ non-binding commitment to keep agricultural markets and supply chains open, including significant agricultural traders such as China, India, Russia, Argentina, Thailand and Vietnam.

For the longer term, members might be encouraged to negotiate updated rules, perhaps drawing on the 2008 draft (paragraphs 171–180). The draft would have created time limits for the restrictions. It would have expanded countries’ obligations to notify, with more information to justify the restrictions and to assess the impact on others. And it would have enhanced the regular committee’s surveillance role.

Priority: but are governments willing to confront lobbies on cutting domestic support? | Sasint Tipchai via Pixabay CC0
Domestic supportBack to top
Green BoxBack to top

The table above shows how few policy responses are likely to be affected by WTO domestic support disciplines. And even then, it seems likely that Green Box rules would allow many of the rest to escape disciplines — including general development policies for agriculture — so long as they do not directly affect prices and production.

Countries may also be lenient with each other on responses to COVID-19. Discussion in information sessions would address any doubts and clarify the situation. It would also provide a wider perspective of the needs of agriculture around the world even when WTO rules do not intervene, putting the rules in context.

Amber BoxBack to top

Trade-distorting domestic support is where the response to COVID-19 might link up with the agriculture negotiations. Here we are likely to see continued debate over two subjects: (1) public stockholding for food security in developing countries, and (2) disciplines for trade-distorting support as a whole. Progress is unlikely in either of them unless countries climb down by recognising each other’s genuine concerns.

1. “Public stockholding for food security has been a thorny issue for years. Its description is misleading:

Fact. There are no WTO rules preventing public stockholding for food security.

Recognising this is important when COVID-19 threatens to worsen food insecurity.

The problem only arises when public stockholding is also used to support farmers by buying into the stocks at government-set prices instead of market prices. The formula used to calculate the level of trade-distorting support (the aggregate measurement of support, AMS) is also a factor because its reference is not current prices but those from 1986–88.

Negotiators struggled to agree on the present (2013–14) “inerim” decision, a “peace clause” shielding breaches of subsidy limits from legal challenge in WTO dispute settlement. They are now deadlocked over a “permanent” solution, reflecting broadly a failure to address each other’s genuine concerns seriously, particularly over spillover effects.

Until they do, time will continue to be wasted endlessly covering repetitive ground.

Much of the controversy is about the effects on other countries. India is a leading proponent whose use of the programme has breached its WTO domestic support limits.

It notified exceeding its “de minimis” support entitlement for rice in marketing year 2018/19. The AMS calculation is just over $5bn. The value of rice production is $43.7bn, making the de minimis limit $4.4bn (10% of the value of production). India invoked the peace clause as protection against litigation.

But India is the world’s largest rice exporter, with substantial wheat exports. Critics say the release of subsidised stocks is bound to have an effect on domestic and international markets, even if — as India claims in its notification — the released stocks themselves are not exported.

The compromise in the 2013–2014 peace clause was to add transparency obligations, which India and its allies argue are too burdensome for developing countries. It’s a debatable defence.

2. Domestic support rules. Ford’s report cited new papers and “overlapping” views as evidence that agreement is possible on capping and reducing trade-distorting support (see paragraphs 34, 35, 43).

He wrote: “My judgment is that a shared overall objective towards capping and reducing [trade-distorting domestic support] with numerical goals could possibly be agreed” (paragraph 43), Achieving this might require choosing which of the WTO’s many categories of domestic support to work on first, he said.

The words “objective towards” could be key. It might not mean agreeing the actual limits in one go, but how the limits are constructed.  If so, that would be a re-working of the structure in the 2008 draft (pages 4–13).

What Ford did not say is that while some major players will have little difficulty agreeing to cut their limits, some others stand in the way of consensus. While the rhetoric is about the need to cut support, in practice some major players are increasing it.

For example the EU uses less than 10% of its entitlement. But the US could be close to its limit, meaning that reductions in US limits would bite into the support actually provided.

‘AMS’ VERSUS ‘DE MINIMIS’

De minimis is supposed to be a small (minimal) amount of trade-distorting domestic support. For developed countries it’s 5% of the value of production, for developing countries 10% and for China 8.5%. But those can be fairly big numbers

Farm support distorts trade if it has an effect on prices or production quantities, changing them from levels determined by markets. Examples include price support programmes, or support per tonne, litre, hectare or head of livestock. In the WTO it’s measured according to a very specific formula called the aggregate measurement of support (AMS). This is based on reference prices in a fixed base period, usually 1986–88. Although de minimis is also an AMS calculation, the term is often used for when AMS is too large for de minimis.

Countries entitled to provide trade-distorting farm support above de minimis are those that were historically big spenders. Most but not all are developed countries, particularly the US, EU, Japan, Canada, Switzerland, Norway and a few others. Australia and New Zealand have waived their AMS entitlements although Australia retains some de minimis support. Not New Zealand.

Previous negotiations spared them the adjustment of eliminating price or production support immediately. But they were required to cut the support, and expected to agree to further cuts in new negotiations, which were never concluded.

Towards the end of the year some starker differences in positions seemed to emerge. Reports from the talks suggested some countries were pushing for all trade-distorting support to be scrapped above de minimis limits (see box). This sharpens the fight between some developing countries and the US, EU and other developing countries with large support programmes.

One of the US’s complaints about China, India, and some other developing countries is the way their entitlements expand as their farm sector grows. They rely on de minimis limits, which are a percentage of production. For some countries — mainly developed — higher absolute (AMS) entitlements apply when de minimis is exceeded, fixed in monetary value and therefore shrinking in real terms with inflation. The US mixes the two, keeping a lot of support in its expanding de minimis entitlements.

It is not difficult to see why this issue irritates the US. A crude calculation suggests China’s entitlement is now more than double the US’s and growing. But while the US complains about the scale of support available to China and India, they counter that it is small per capita (or per farmer), and much less than in the US. They are now talking about disciplines based on per capita support — another difficult pill for the big subsidisers to swallow.

This is not only about food. Cotton is also at the heart of the WTO deadlock on domestic support, with Sub-Saharan producers pitted mainly against the US.

Ford said agreement was possible. His successor is non-committal on the prospects, simply reporting that domestic support is a priority for members.

But if there is to be an agreement, then the US, China, India and others will have to climb down at least part of the way from their present positions and risk facing an outcry from domestic farming lobbies and allied politicians. For now, there is no sign that they will.

And yet COVID-19 underscores the need to ensure that support for agriculture, including in stimulus packages, does not destabilise or depress international prices and disrupt markets. This ought to be an opportunity.

Market accessBack to top

Ford said agreement on market access as a whole is unlikely in the near future.

Irreconcilable differences over “offensive” and “defensive” pressures within and between countries are part of the picture. So are new preferential agreements outside the WTO. The complexity is compounded by the long list of countries, singly or in groups and both rich and poor, demanding special treatment because of their specific situations.

Perhaps the most labyrinthine of all is how to negotiate increased market access through tariff quotas (where imports within the quotas are duty-free or have lower rates than normal). It can be seen in all its gory detail in the 2008 draft agreement (Annex C — pages 45–46 — and “Attachment Ai” — pages 104–120).

A lot of repetitive and futile discussions can be expected on a proposed “special safeguard mechanism (SSM)” for developing countries. Now a standalone provision, agreement on it is even less likely than when it was part of a package of sweeping tariff cuts.

One positive response to COVID-19 has been countries lowering trade barriers to ensure food supplies for their consumers, with governments monitoring the balance so their own producers can compete with imports.

All of this relates to the broader objective of ensuring markets function well, a repeated call from now ex-WTO Director-General Roberto Azevêdo often together with heads of other international organisations. It requires policies that reduce distortions and good market information, such as from the multi-agency Agricultural Market Information System (AMIS).

LabourBack to top

Finally, COVID-19 restrictions on travel and migration have brought into focus the importance of migrant labour, both for agriculture and for remittances sent home. Farm workers are not usually considered under “mode 4” (temporary movement of workers) in WTO services rules.

So while governments will discuss this in various agricultural, development and labour organisations, it is only peripheral to the WTO itself. The Secretariat has produced a report on the impact of mobility restrictions on trade, but it only mentions agricultural workers once in passing.

ConclusionBack to top

To summarise: for any work programme within the WTO itself, three groups of activities will be important

  • Information sessions and thematic discussions, to clarify issues and help build confidence and understanding at a technical level, a first step towards members collaborating more
  • Choosing least damaging trade actions and rule-making where related directly to COVID-19, including on export restraints, mitigating the impact of the pandemic, and domestic support in stimulus packages
  • Grasping the opportunity to update the trade rules more broadly on agriculture, particularly on domestic support, to reduce spillover effects

Back to Part 1 or continue to references in Part 4


Acknowledgement: Thanks to Robert Wolfe, Jonathan Hepburn and Simon Evenett for comments on drafts of the original e-book version

Updates:
January 21, 2021 — adding the pledge by 79 WTO members not to block purchases by the World Food Programme

Photo/image credits:
• Cows in misty field | Pexels, CC0
• Tokyo Round panel | WTO
• Ambassador Gloria Abraham Peralta chairing her first meeting of the agriculture negotiations | WTO
• Rice farmer | Sasint Tipchai via Pixabay CC0

Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU