Food for all to free for all: Unconcerned WTO make matters worse

This is the second part to the report ‘Food for all to free for all: The collateral of Russia vs Ukraine’

You can read the first part here.

As the world hurtles towards another food crisis, due to the Russian invasion of Ukraine, the spotlight has again shifted to the World Trade Organization (WTO) and its role in impeding the food security concerns of a host of developing countries.

A central question that has divided economists, policy makers and humanitarian organisations is whether WTO has been the chief villain of the food crises in the new century.

Has its complex and asymmetrical rules on subsidies embedded in its 1995 Agreement on Agriculture (AoA) exacerbated the vulnerabilities of poor developing countries while allowing the developed countries to continue with their lavish grants to farmers and exporters, and perpetuate the distortions it was pledged to reform?

‘Need emergency system to control trade volatility’

When you open up trade, you open up to volatility. But you do not want to throw the baby out with the bath water. There should be an emergency response system to control volatility. You need to diversify within trade.

For example, in edible oil we depend on palm oil import, concentrated in Indonesia and Malaysia. When sunflower oil trade got disturbed, as 70-80 per cent of sunflower was coming from Ukraine-Russia, oil producers’ response was to reap the benefits of high prices. So, there should be diversification across commodities and markets. 

– Devesh Roy, senior research fellow, International Food Policy Research Institute

WTO claims that food security is part of its goal. It cites the preamble to AoA which states that:

commitments under the reform programme should be made in an equitable way among all members, having regard to non-trade concerns, including food security and the need to protect the environment…

That sounds reassuring but WTO, it must be emphasised, is singularly dedicated to the pursuit of increased global trade through its various agreements, and a statement of intent is not the yardstick by which an organisation can be judged.

The history of WTO’s functioning over the past 27 years clearly gives the lie to such a claim. For close to three decades one has witnessed an asymmetrical battle at the apex trade body where developing countries have had to fight tooth and nail to secure the policy space for their food security programmes.

So when in April, director general Okonjo-Iweala called upon participants at a WTO food security seminar in context of the Russia-Ukraine war to help members take concrete steps forward so that trade can contribute to the attainment of food security around the world, it had a hollow ring to it.

How has the situation changed from 2008, when there were food riots in close to 20 countries? Has WTO or the nations that call the shots at the apex trade policing body, done anything to ensure that there is no precipitous slide into chaos on account of food insecurity?

If anything, 2008 flags the year in which substantial reforms of AoA were defeated at the last moment by rich nations. Developing countries took an offensive position on domestic support and on the 2008 Draft Modalities in agriculture, pushing for their rights under AoA.

Included in the package was the introduction of new instruments such as Special Products and Special Safeguard Mechanism to protect them against import surges and, more importantly, concessions on domestic support that allowed to purchases to raise incomes of resource-poor farmers.

Sadly, the mini-ministerial in July collapsed on the question of the Non-Agriculture Market Access package and it was not until the 2013 Bali ministerial that progress was made on the demands of developing countries on domestic support for food security purposes.

In 2011, when food prices once again spiked to alarming levels, critics of the WTO regime were blaming the trading system for the crisis. The most trenchant attack was made by Olivier De Schutter, the UN Special Rapporteur on the Right to Food, who said WTO had failed to adapt and had tied the hands of developing countries with its trade rules.

In a statement he issued along with release of his briefing notes, ‘The WTO and the Post-Global Food Crisis Agenda’, De Schutter said:

Food security is the elephant in the room which the WTO must address. Trade did not feed the hungry when food was cheap and abundant, and is even less able to do so now that prices are sky-high. Global food imports shall be worth $1.3 trillion in 2011, and the food import bills of the least developed countries have soared by over a third over the last year. The G20 has acknowledged that excessive reliance on food imports has left people in developing countries increasingly vulnerable to price shocks and food shortages.”

The then WTO chief Pascal Lamy, with a reputation for pushing through tough decisions, sent a rejoinder to De Schutter a month later, maintaining that UN expert’s view that WTO did not offer a favourable policy framework for the realisation of the right to food was “based on some misunderstandings of the WTO rules, current and future”.

With reform of the global agriculture system still stalled nearly three decades after AoA was signed, the commitment of WTO to help developing countries achieve some level of food security and attain Sustainable Development Goal 2 is seriously in doubt.

Public stockholding of food grains is a critical component of food security for developing countries and also happens to be one of the most contested at WTO.

India has been in the line of fire for its policy of procuring foodgrains at an administered price instead of the market rate and exceeding the de minimus level permitted by WTO. This rule sets subsidy at 10 per cent of the total value of production which means India is regularly breaching its limits.

However, a peace clause agreed upon at the 9th Ministerial Conference in Bali in 2013 means it cannot be legally challenged at WTO. India’s objective is to ensure a minimum support price for its largely poor farmers and availability of food to the vulnerable sections of the population under its National Food Security Act, 2013.

Many developing countries are concerned that their procurement of food at fixed prices would push outlays beyond the permissible and thus deprive them of the necessary policy space to meet domestic food security requirements. Led by India, members of the G33 developing countries have been pressing for a permanent solution that was to have been formulated by 2017.

As a result India’s volume of purchases and release of stocks, including the determination of the release price and targeting are under constant scrutiny not just from developed countries such as the United States, United Kingdom and Japan but also from fellow member of G33.

It has been fighting a long battle to maintain its public stockholding programme singly and with the G33 to ensure effective market intervention, thereby keeping the prices under check and also adding to overall food security of the country while being relatively non-distorting as long as the stocks are not exported.

The effectiveness of the programme was best illustrated during the pandemic when it provided a lifeline to millions of Indians lost their jobs and were dependent on the public distribution system for basic sustenance. The scheme has won praise from several quarters including the UN’s World Food Programme but the shadow of hunger looms over the country which continues to slip further on the Global Hunger Index where it is very nearly at the bottom.

The irony is that while India is grilled constantly on its stockholding programme, rich countries continue to ratchet up support for their farmers under schemes such as mitigation of climate change and the pandemic fallout. The most egregious examples are the US and the EU members.

Official figure released by the US Department of Agriculture’s Economic Research Service project that the government’s agriculture payments would touch $27.2 billion in 2021, fuelled by continued COVID-19 payments, disaster subsidies and such like.

An independent watchdog says that although this figure is much lower than the record level of subsidies amounting to $47 billion in 2020, the support would amount to 23 per cent of total farm income in 2021 — a new high in a 15-year average.

“Near unprecedented levels of subsidies continue to flow despite most of the agriculture sector adjusting better than expected in the face of recent disasters, the COVID-19 pandemic, climate change and more,” the organisation Taxpayers for Commonsense observes wryly.

The EU, for its part, has hammered out a huge €387 billion package which will suck up around a third of its 2021-27 budget, to support farmers and rural development in the member countries. It claimed the jump in outlay is intended to promote environment-friendly farming, but failed to provide any details of what these were.

A recently released report, “Subsidies, Trade, and International Cooperation”, prepared by the International Monetary Fund, Organisation for Economic Co-operation and Development, World Bank and WTO, reveals that very little has changed in the global trade landscape.

Big economies continue to use subsidies and most of the recorded subsidy programmes are in the largest trading economies of the US, EU and China, it says. This systemic issue has to be addressed, the report warns, because it undermines long-term food security.

All this goes unchallenged while developing countries wait for decades to have their concerns resolved. Experts say the lopsided WTO rules are a fundamental reason why WTO cannot address food security issues with any degree of sincerity.

Christian Häberli, who was trade negotiator for Switzerland in the General Agreement on Tariffs and Trade (GATT), the earliest trade agreement that preceded WTO, and also during the Uruguay and Doha Rounds (1986 to 2007) of WTO, is caustic in his assessment of the inequities in the global trading system.

In a paper written for FAO, he says the WTO preamble may refer to the “particular needs and conditions of developing country members”, but it is only in the context of providing greater access to developed countries. As for the classification of domestic support measures in the so-called amber, green and blue boxes, he finds little difference between measures allowed to developing and developed countries.

The green box lists the domestic measures which may be maintained or introduced by WTO members without any limits or reduction commitments as long as they have no, or at most minimal, trade-distorting effects or effects on production.

“This chapeau condition is an elegant diplomatic formula reflecting the idea that domestic support measures without trade impact are none of WTO’s business.”

Many others agree. For instance, Panos Konandreas and George Mermigkas, economists with FAO, note that when agriculture was finally brought into the multilateral trading system with the signing of AoA, the imbalance became all too clear:

Developing countries realised then that they had signed up to an agreement that gave the right to developed countries to continue supporting their agriculture more or less by as much as they did prior to the UR [Uruguay Round] through very generous Aggregate Measurement of Support (AMS) levels (inflated by the relatively low prices prevailing during the 1986-88 base period).

It also gave them unlimited access to the blue box, as well as unbound support under green box measures.

‘Free trade doesn’t take care of crisis situations’

When we talk of globalisation, we say free trade will take care of any crisis situation. But it has not been the case so far. In a crisis, governments want to take care of their own. Normally, exporters wish to export more, while net importing countries tend to impose tariffs to protect their producers. They try to balance the object of providing affordable food to consumers and protecting their producers. In a crisis, the story changes. The exporting countries look to impose export bans (like Indonesia banned edible oil export), while the net food importing countries reduce their tariffs to obtain affordable food items. So, the scenario is totally opposite from exporter and importer points of view.

– Sachin Sharma, associate professor, Centre for WTO Studies, New Delhi

What were the negotiations about? The three pillars of its reform agenda are market access (various trade restrictions confronting imports), domestic support (subsidies and other programmes, including those that guarantee farm prices and farmers’ incomes) and export subsidies used to make global sales artificially competitive.

Was the question of food security ever addressed directly? No. So, when the Doha Round was launched in 2001, one of the key demands of developing countries was the need to protect long-term food security through reductions of the level of trade-distorting domestic support provided by developed countries.

It also recognised the need for special and differential treatment for developing countries in all areas of the negotiations.

UN organisations in general share a similar perspective on food security. A recent article by three economists with the United Nations Conference on Trade and Development notes that between 2016 and 2018 about 85 per cent of Africa’s food was imported and that net food imports are expected to triple by 2025 even as undernourishment grows by one-third.

Similar is the story in the Caribbean, where food imports as a proportion of merchandise exports skyrocketed from 5 per cent in 1995 to 32 per cent in 2019.

The economists say such excessive exposure to global markets and reliance on foreign supply increases risks and price volatility, which in turn compromises food security. They put the blame on WTO’s “incomplete implementation” of AoA and the lack of provisions for differential treatment which had limited the ability of some developing countries to deal with food security concerns.

With WTO’s 12th Ministerial Conference scheduled to start in Geneva on June 12, the prospects of a realignment of WTO priorities on agriculture seem unlikely given the assessment made by the chair of the agriculture negotiations, Gloria Abraham Peralta.

Her initial report, which was a restricted document, was leaked and stated that a permanent solution to the public stockholding issue was unlikely during the current ministerial and should be postponed to the next.

While the G33 had flagged the need for a permanent solution for food stockpiling and a Special Safeguard Mechanism to guarantee food security in this time of crisis, developed countries renewed their warning about the spillover effects and market distortion that might arise from stockpiling.

Neither the devastating pandemic nor the Ukraine war is likely to induce the powerful lobby of developed nations to agree to more equitable WTO rules on global farm trade.

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