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Agricultural trade negotiations

Agricultural trade negotiations

Opening up markets for agricultural products has proved a stumbling block for trade negotiations at both the regional and the multilateral levels. The primary reason is the political sensitivity of more open markets for farm and food products. Most governments share a concern for the security of their countries’ food supply and the income level and stability of their rural sectors. In importing countries, this concern has led to caution about relying on imports for basic foodstuffs and a conviction that protection fromoverseas competition is necessary for the health of the rural economy. Those countries with export potential have long decried such sentiments, arguing that they can provide a regular supply of foodstuffs at lower prices and that supporting inefficient domestic production is not a sound basis for development. But, as one might expect in a sector where governments still have considerable control over markets, negotiations to open up trade in farm products have tended to proceed at the pace of the most reluctant importers.
Since the 1980s, this cautious attitude toward trade in farm goods has begun to give way to a more confident approach that sees imports as complementary to domestic production and exports as a natural extension of domestic markets. Consumers are becoming used to the greater choice of foodstuffs that comes with trade, and producers are setting their sights increasingly on foreign markets for new sources of revenue. In the process, many countries have become both importers and exporters of farm products and foodstuffs. This has blurred the easy categorization of a country’s trade policy by its trade balance. Developing country importers often join with developing country exporters in voicing concerns about trade issues, particularly about the subsidies given to domestic producers in rich countries. Developed country exporters have ‘‘sensitive’’ sectors that apparently need to be sheltered even while they advocate more open markets for other products. Developed country importers with high protection barriers are often major importers of farm products needed for processing or for animal feed. Perhaps only in themarket for tropical agricultural products is it still possible to identify typical ‘‘importer’’ and ‘‘exporter’’ views, but even in this case there are clear distinctions between those that have preferential access to markets in industrialized countries and those that do not benefit from such preferences, and between those that sell the raw materials and those that successfully add value in the domestic economy.
Along with this shift in political perceptions on agricultural trade has come a change in the nature of trade in farm products. In the 1980s, much of the trade in primary agricultural products passed through sales or purchasing agents for producers and wholesalers, or of companies whose function was to distribute temperate-zone and tropical products through established channels. The role of state trading has shrunk markedly, with the adoption of policies to allow more private activity in marketing. Large companies now have a considerable role in the processing and marketing of farm products, as they have had for some time in the trading function.Most of these private actors operate in several countries, and thus food trade has become much more of a global business. The share of such trade that is categorized as ‘‘high value added’’ has correspondingly increased, leaving the trading of commodities and raw materials a smaller part of agricultural trade. Such trends explain the growing interest by large food and retail firms in removing trade barriers that act to inhibit worldwide marketing. As a result of these changes, in both political perception and structural reality, agricultural trade negotiations have been somewhat more successful in recent years in opening markets and have even made some progress in the past decade in reducing trade-distorting subsidies.
The change in the attitudes toward trade negotiations in agriculture is closely tied to reform of domestic policies. In developed countries, such policies were usually built on (and have been facilitated by) tariff and nontariff protection at the border and have employed a wide range of instruments to manage domestic markets and supplement farm incomes. Thus trade reform and market liberalization could not proceed as fast as in manufactured products in the postwar period. Domestic policies would have been impossible to maintain if trade liberalization had extended to agriculture. Reformof the domestic farm policies in developed countries started in the mid 1980s and continued apace for more than a decade. Policies that lowered support prices and substituted direct payments to farmers were found to be more easily amended tomeet new targets, such as environmental stewardship, and tended to lower the incentive to produce unwanted surpluses. Developing countries, for different reasons, also relaxed their control over domestic markets and lowered trade barriers. In this case the motive was to correct macroeconomic and structural problems that were inhibiting development.
These reforms allowed countries to institute, as part of the Uruguay Round in 1994, a wide-ranging Agreement on Agriculture, which acted as a framework in which domestic policies could operate. This framework was consistent with lower protection at the border and less trade-distorting subsidies at home. It helped to lock in domestic reforms and put pressure on countries that were lagging in the reform process. But it also simplified the task of negotiating reductions in trade barriers and importantly changed the dynamic of such negotiations.
The same reform of developed-country farm policies also made it easier to negotiate bilateral and regional trade pacts. For years, most of these agreements had avoided the problem of negotiating reductions in tariff barriers for agriculture by explicitly excluding sensitive agricultural sectors from the full impact of market opening. This became insupportable when agricultural export interests, even in net importing countries, began to ask for market access (and preferences) within the regional or bilateral agreement. In addition, the rules of theWorld Trade Organization (WTO) (Article XXIV of the General Agreement on Tariffs and Trade 1994) oblige countries to grant tariff-free access on ‘‘substantially all trade’’within bilateral and regional trade agreements. As a result, the inclusion of agriculture in such agreements is now the norm rather than the exception. Safeguards and slowly increasing tariff quotas still give some protection to sensitivedomestic farm sectors, but few agreements exclude agriculture altogether.
It would be misleading, however, to suggest that these processes of globalization in farm and food trade and of reform of domestic policies have removed all the obstacles to open trade in agricultural goods. The process of reform has taken place at different speeds in different countries. So the pace of trade negotiations is still controlled to a large extent by the slowest reformers. Among the developed countries this includes Japan, Norway, and Switzerland. Not only is protection high in these countries but the types of policies used still rely heavily on protection at the border. Hence they have been prominent members of the Group of 10 in the context of the WTO Doha Round, arguing for generous exclusions for ‘‘sensitive products,’’ more modest tariff cuts, and no cap on the height of tariffs. Among the developing countries, the reluctant importers have formed the Group of 33, which emphasizes the need for adequate provision for ‘‘special products’’ and the inclusion of a ‘‘special safeguard mechanism’’ to allow them to reimpose tariffs if domestic markets are disrupted. These two groups, though negotiating actively, have effectively limited the ‘‘level of ambition’’ of the market access talks on agriculture.
Importantly, the process of trade and domestic reformhas been unevenamong sectors.The so-called white goods rice, cotton, sugar, and milk have among the highest tariff barriers and the most pervasive domestic subsidies. The sensitivity of these goods extends to exporting countries. The United States, normally a supporter of low tariffs, has come under pressure to reduce subsidies on each of these products. This has complicated the position of the United States in trade talks, arguing for others to open upmarkets but being more cautious in offering to cut support or lower tariffs where domestic interests are vocal. The EuropeanUnion (EU) also has its sensitive products, including dairy and beef, though it has modified its domestic policies for rice, sugar, and cotton.TheUruguayRound did relatively little to improve the situation in the ‘‘white goods’’ markets, and their inclusion in regional trade agreements has often been politically sensitive. Sugar, for instance,was left out of the U.S.-Australia FreeTrade Agreement, and was given a ‘‘temporary’’ exclusion from theMercosur trade arrangements.
The implications of these changing political and economic forces can be seenwith respect to theDoha Round of trade talks.Agriculture has been the biggest hurdle to an agreement, and the principal reasonwhy talks were suspended for a time in July 2006. But the agricultural negotiations themselves are quite different fromthose in 1986, at the start of the Uruguay Round. At that time, the main protagonists were the United States and the EU, and the issues were whether to bring agricultural trade under the disciplines of multilateral rules and how to include rules for domestic policy thatwould be consistentwith the trade disciplines. The United States, as a prominent exporter of temperate-zone farm products, favored such a move, in large part to circumscribe the CommonAgricultural Policy of theEU.TheEUhad previously argued against this, on the grounds that domestic policy was a national issue and that the trade rules should give adequate scope for such internal choices. By the end of the talks, seven years later, the EU had agreed to rules that covered domestic policy instruments, categorizing them into ‘‘boxes’’ depending on their degree of trade distortion, and that eliminated quantitative trade barriers and limited export subsidies. The United States had achieved its objective of introducing binding rules but had to settle for only modest tariff reductions. The EU had to reformits ownCommonAgricultural Policy in 1992 in order to be able to live within the new constraints of the WTO.
The Doha Round is not aboutwhether to develop rules for agricultural trade, orwhether to extend trade rules to cover domestic policy. It was intended as a more ‘‘traditional’’ trade negotiation, to complement the outcome of the Uruguay Round by reducing tariffs by a substantial amount and by agreeing on a further reduction in subsidies.There is no longer any objection to the inclusion of domestic support in the trade talks and of curbing export subsidies.The focus has been on the depth of the tariff cuts and the extent to which certain ‘‘sensitive’’ products could be sheltered from the full cuts. In this sense it ismuchmore in keeping with the negotiations in manufactured trade in the Kennedy Round (1963 67).
But one aspect of the Doha Round has made for more complex and difficult negotiations on agricultural trade. In contrast to the UruguayRound,where with the exception of those in the Cairns Group few developing countries played amajor role, the number of such countries that have been active has been remarkable. Spurred by the attempt (in August 2003) by the United States and the EU to develop a common position, Brazil, India, and China, together with South Africa and a number of other developing countries, formed the Group of 20. The main demand from these countries was that the EU and the United States commit themselves to significant cuts in domestic support (subsidies) aswell as eliminating export subsidies and cutting tariffs on farm goods. This coalition has stayed together and played amajor role in the search for solutions to the agricultural negotiations.
Multilateral negotiations on agricultural trade have changed in nature as globalization has broken down the easy categorization of countries as reluctant importers and aggressive exporters. The scope for talks to open markets has been enhanced by the conversion of nontariff trade barriers to tariffs and themove to direct subsidies to support farm income. But the emergence of the major developing countries as players hasmoved the emphasis fromtransatlantic tensions to North-South conflicts. And so 21stcentury trade negotiations, both in the WTO and in regional and bilateral trade pacts, have revolved around the extent to which developing countries need special rules to reflect their development status, how to continue the reduction of trade-distorting subsidies, and when to finally end the exception to normal trade rules that has allowed the continuation of export subsidies for primary products. See also Agreement on Agriculture; agriculture; Doha Round; multilateral trade negotiations; tariff rate quotas; Uruguay Round; World Trade Organization
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