Agricultural Export Restriction Negotiations: Much Ado About Nothing?

By Luca Salvatici

Thus far in the Road to Bali series, Bouet and Laborde have recalled several possible rationales for the use of export restrictions (terms-of-trade, food security, value chains, public receipts, and income redistribution), while I have touched upon the WTO regulations of different trade policy instruments . To recap: Quantitative restrictions are banned for both imports and exports (although it appears as if these restrictions can be used in the case of food; see Mitra and Josling, 2009); additionally, the use of import duties is restricted, while the use of export taxes is not. In this post, I will discuss an important related issue: namely, the fact that international trade law does not currently provide an effective, timely way to enforce disciplines on export restrictions.

The talks leading up to the Bali Ministerial are filled with controversy in connection with the design of food security schemes that, in one way or another, could trigger the use of export restrictions. These debates make very clear the need for options to discipline such policies. Anania (2013) provides a clear analysis of the various options available for disciplining agricultural export restrictions. Below are some of those options ordered according to their capacity to limit the policy space currently available to exporting countries:

1. Exempting food purchases by international organizations to be distributed as food aid from the imposition of export restrictions;
2. Prohibiting the use of restrictions on exports directed toward poor net food-importing countries;
3. Limiting the use of taxes or quantitative restrictions, making them conditional on specific constraints (e.g., in terms of the volume exported);
4. Introducing stricter disciplines, eventually leading to a symmetrical regulation of both import and export restrictions.

The former two options, rather than tightening the discipline on export taxes and quantitative restrictions, would limit these policies’ impact on world markets through the exemption of specific actors and/or countries; the latter two options would specifically cap or ban the use of export taxes and restrictions, mimicking the regulations already in place for agricultural domestic support policies or import restrictions. One might think that, if countries were to agree to the latter options, we might see more effective constraints on the use of export restrictions. However, Cardwell and Kerr (2013) convincingly argue that such a conclusion should not be taken for granted. When it comes to the different WTO regulations, enforcement is just as important as the regulations themselves, and the WTO’s current dispute mechanism cannot guarantee that even proper disciplines act in a timely fashion.

For countries negatively impacted by others’ export restrictions, relief would only come if those restrictions were removed quickly enough to prevent them from increasing food insecurity in the face of unexpected, rapid increases in food prices. But the rules governing the WTO’s Dispute Settlement System makes this unlikely. While the WTO’s Dispute Settlement Understanding utilizes a set of specific timetables, when we consider all aspects of the dispute mechanism - the bringing of a complaint, the striking of a WTO Panel, the hearing of the case, the ruling on the case, the evaluation of the ruling, the appeals process, and implementation - the process could take up to 600 days (Kerr and Perdikis, 2003). If prohibited export restraints were removed during the adjudication process, the case would be dropped before any rulings (adverse or otherwise) are made. This means that countries could manage to impose short-term export restrictions, despite any stricter disciplines that may be in place.

More generally, a positive Dispute Settlement Panel ruling allows a complainant country to retaliate against the respondent by suspending tariff concessions in an amount “equivalent to the level of nullification or impairment” arising from the original violation. Accordingly, arbitrators in WTO disputes aim to assess compensatory rather than punitive damages. However, differences in countries’ economic sizes mean that the welfare effects of the restrictive policies could be quite different from the actual value of lost trade. As a consequence, it cannot be taken for granted that the allowable countermeasures would be sufficient to coerce a change in behavior on the part of the respondent Member.

The issue of how to handle disputes becomes particularly relevant when talking about food export restrictions. If retaliation takes place in the same sector in which the original violation occurred, this would exacerbate the high import bills that likely triggered the initial complaint to begin with. If the retaliation takes place in a different sector, non-agricultural trade flows would have to be at least as large as agricultural ones. Even in such a case, though, there could be a “retaliatory deficit” if the retaliation cost is negligible from the respondent’s point of view. Unfortunately, Cardwell and Kerry (2013) show that such retaliatory deficits are quite common for many net food-importing developing countries.

If retaliations are unlikely to have the desired effects, trade barriers will only serve to impose costs on consumers in the importing country, with no positive results. Until the WTO’s dispute mechanism can effectively support the credibility of commitments pertaining to export restrictions, there seems to be little point in negotiating new commitments.

References
Anania, G. 2013. Agricultural Export Restrictions and the WTO: What Options do Policy-Makers Have for Promoting Food Security? ICTSD Programme on Agricultural Trade and Sustainable Development Issue Paper No. 50. Geneva: International Centre for Trade and Sustainable Development.
Cardwell, R., and W.A. Kerr. 2013. Reforming WTO Rules on Export Restrictions – is there any point? CATRN Commissioned Paper 2013-07.
Kerr W. A., and N. Perdikis. 2003. The Economics of International Business: A Guide to the Global Commercial Environment. Estey Centre Program in International Trade Education. Saskatoon: Estey Centre for Law and Economics in International Trade.
Mitra, S., and T. Josling. 2009. Agricultural Export Restrictions: Welfare Implications and Trade Disciplines. IPC Position Paper. Washington DC: Washington International Food and Agricultural Trade Policy Council. Available at http://www.agritrade.org/documents/ExportRestrictions_final.pdf .