Trade tensions and agriculture: A proposal for WTO action

14 November 2018
  • There is a need to introduce some flexibility into global trade policies and institutions given the current trade tensions, anti-globalisation sentiments, and the large number of countries that participate in WTO negotiations.
  • Large food net importers and large food net exporters have common and complementary food trade interests. Specifically, they need stable and well-organised global food chains and markets.
  • The WTO has the opportunity to use plurilateral agreements that specifically and exclusively address agricultural issues as a stepping stone to stabilise global food markets and promote global food security.

 

Escalating trade tensions may bring with them a reduction in global economic growth and stability. According to the latest forecast from the IMF’s World Economic Outlook, the global economy will experience 3.7 percent growth in 2018 and 2019; this represents a reduction from the July forecast of 3.9 percent growth for both years. To accommodate the emerging global order, characterised by trade tensions and anti-globalisation sentiments, while simultaneously preserving the basic elements of a rule-based trade structure, policymakers will need to introduce some flexibility into global trade policies and institutions.

This is especially true in relation to agricultural trade in general and food trade in particular. Unstable, unreliable, and inefficient global market mechanisms may result in higher price volatility, inefficient geographic distribution of production, and self-protective behaviours by countries that are large net food importers and for which reliable access to food constitutes a national security issue.

The current trade tensions have resulted in part from growing evidence that globalisation has not contributed as expected to the well-being of middle class populations in developed countries.

In retrospect, it is evident that some newly emerging economies have effectively combined their traditional low wages with the capital and technology transferred from the developed world. This transference of knowledge and investment capital has allowed these countries to develop very competitive economies and to experience substantial success in the overall export game.

As a direct consequence of these developments, developed countries have experienced reduced economic growth. Middle- and low-income groups in these countries have seen an even lower increase in wages and well-being. In addition, in some cases, the development strategies utilised by some developing countries have included unfair elements, mainly in relation to foreign investment policies that resulted in forceful technology transfers from foreign companies to their local partners. As a result of this situation, several developed and developing countries have begun applying protectionist trade policies.

The stalemate seen at the 2017 World Trade Organization meeting in Buenos Aires exemplifies these growing anti-globalisation sentiments, particularly regarding trade. At this meeting, negotiators made no significant progress in the overall trade discussions, and the stalemate particularly impacted negotiations on agricultural issues.

The large number of countries that participate in WTO negotiations poses additional challenges to any agreement on agriculture. Between 1995 and 2015, the number of countries that are significant importers of agricultural products increased from just over 20 to more than 120. The number of countries that are significant agricultural exporters saw a similar trend. In addition, all of these countries utilise very different levels of protection for their agricultural producers, and the protectionist policies used include a considerable range of policy instruments. These differences can be explained, at least partially, by countries’ differences in natural resource endowments, factors of production availability, and levels of development.

As a consequence of these differences, many pending issues remain unresolved, making global food trade less effective and efficient than it has the potential to be. These negative impacts on food trade will, in turn, make it more difficult to attain the UN Sustainable Development Goals, particularly the establishment of a world free from hunger.

Food imports are concentrated in a small number of countries. Just seven countries (Japan, China, South Korea, Saudi Arabia, Emirates, Algeria and Egypt) represent 60 percent of global net food imports. Similarly, food production and exports are highly concentrated. In this case, just seven countries (Brazil, Argentina, Australia, New Zealand, Thailand, Indonesia, and Canada) represent 65 percent of global net exports. In addition, the four founding countries of MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay) represent over 30 percent of global net food exports.

For these 14 countries, food is not just another traded good. For importers, reliable access to food at reasonable and stable prices constitutes a matter of national security. Real or imagined expectations that long-term access to food might become unreliable has motivated aggressive investment decisions by some of these countries in an attempt to position themselves well in the global food supply chains.

Well-organised supply chains, as well as stable and reliable markets, are also essential for the macroeconomic stability and economic growth of food net-exporting countries.

Given this situation, it would seem that both groups of countries have common and complementary food trade interests. Specifically, both large food net importers and large food net exporters have the need for stable and well-organised global food chains and markets.

If this is the case, these countries could explore special and long-term agreements circumscribed to the general area of food trade. To make such agreements possible, the WTO would need to introduce important flexibility into its recognised general trade rules in order to allow for the organisation of a special plurilateral group to negotiate special agricultural agreements. In addition, the WTO should ensure that these plurilateral agreements are not discriminatory and that other WTO member countries have access to the agreements if they wished to join.

The main elements of this proposal have been the subject of numerous conversations in which countries have participated and have shown interest. However, one important element that needs to be considered is the view, expressed on many occasions, that this type of plurilateral agreement is not consistent with the interests of smaller economies. Regarding this view we want to stress that It is our belief that any action that leads to higher market stability and less price volatility is in the advantage of all countries, including smaller economies. In our opinion, plurilateral agreements and the multilateral trading system can effectively work in mutually supportive ways.

Indeed, obtaining multilateral outcomes is the ultimate objective of any plurilateral negotiation. The WTO has the opportunity to use plurilateral agreements that specifically and only address agricultural issues as a stepping stone to stabilise global food markets and promote global food security.

 

Martin Piñeiro is Director of the Agricultural Affairs Committee at the Argentine Council of International Relations (CARI).

Valeria Piñeiro is Senior Research Coordinator at the International Food Policy Research Institute (IFPRI).

The authors thank Sara Gustafson for her valuable editorial contribution.