Lost in Translation: Why WTO Negotiations Seem to Go Nowhere
I will first provide a brief summary of where the WTO negotiations currently stand along the Road to Bali, based on a summary given by Director-General Roberto Azevêdo at the Informal Trade Negotiations Committee meeting of October 25, 2013.
The Ministerial Meeting in Bali will be the ninth ministerial meeting held since the WTO was created. Prior to December’s meeting, WTO members are currently negotiating on the “Bali deliverables,” which include: 1) Least Development Countries and Development issues; 2) Agriculture; and 3) Trade Facilitation.
The first topic includes the implementation of the Hong Kong Decision of Duty-Free, Quota-Free (DFQF) for LDCs (which, among other things, involves the discussion of preferential rules of origin), the so-called Cancún 28 proposals (a series of special and differential treatment requests originated by the African Group for the Cancún Ministerial, which started at 88 measures but was reduced to 28 over time), the operationalization of a waiver on service obligations for LDCs, and the treatment of the developing countries affected by cotton subsidies in industrialized countries, among other things.
The discussion surrounding agriculture touches on three issues: 1) a proposal to change the language on food security stocks and domestic aid; 2) another to impose further reductions on export subsidies and export competition; and 3) a final one on how to better administer tariff-rate-quotas (TRQ).
Finally, the trade facilitation debate relates to the streamlining of customs operations and other behind-the-border procedures that may affect trade, apart from the more commonly discussed measures of import tariffs and quotas. Many developing countries have seen this topic as a channel through which to enhance their own export potential.
The texts for some of these deliverables still include language in brackets, meaning that there are alternative versions of the agreement that need to be sorted out; for others, members still need to agree on the potential outlines for an agreement, which then can be transformed into full texts. Ideally, all texts will be brought to the same level of completeness so they can be revised and eventually agreed upon by the WTO member countries at Bali. As noted by the WTO DG, “There are still some very hard negotiations ahead” to get to those final texts.
WTO member countries will consider, in addition to the “Bali deliverables,” the format and substance of the documents to be approved on three other topics: 1) the on-going work of the WTO itself; 2) issues related to the more general Doha Development Agenda (DDA); and 3) non-DDA issues that may become part of the regular WTO work.
Moving on to some conceptual issues. The Bali stage seems to be set to mirror previous negotiations. Lower income developing countries are asking for dispensation of WTO rules (“special and differential treatment”) and preferential and non-reciprocal market access; a broader range of developing countries are trying to put additional limitations on the ample range of measures that industrialized countries have to protect and subsidize their agriculture (which some have called sarcastically, but accurately, “special and differential treatment” for rich countries). And industrialized countries are aiming to increase market access, particularly in rapidly expanding developing countries, through the “trade facilitation” approach.
Perhaps now, with negotiations focusing on a smaller set of topics, it may be easier to reach an agreement than it will later on. But I would not hold my breath. There are still a lot of issues in which the different countries seem to talk past each other, their points getting lost in translation.
In this post, I will focus on just two topics: first, the dual nature of the WTO as an institution to manage trade disputes and to act as a “development” institution and second, the advances by developing countries in recent decades in agricultural production and trade, accompanied by increases in agricultural support in those countries and important gains in total GDP and incomes.
Starting with the point about the nature of the WTO, some analysts have argued that the main point of the WTO is to develop a framework that avoids or limits trade disputes: i.e. how to make sure that the trade policies of country A do not hurt country B. In this view, the issue of designing and implementing trade policies for developmental purposes is different from the basic mandate of avoiding trade frictions. Of course, country A’s trade policies may be affecting country B in such a way as to hinder development (in which case, disciplining country A’s policies would contribute to development); also, if the trade system functions smoothly without trade disputes, then, conceivably, that would support world growth and development in general. Thus, in theory, avoiding trade frictions and accomplishing developmental objectives are goals that complement each other. But this may not always be the case in real life, and it is useful to keep both aspects conceptually separate.
However, the Doha Round has been labeled a “development round,” and this has led to expectations and requests by developing countries for more “policy space” (usually predicated on food security concerns in the case of agriculture) to further such development. But other groups see things differently. Industrialized countries (as well as some emerging countries that are important agricultural exporters) have voiced concerns that there is already sufficient policy space and that further expansions may begin to affect their trade interests. In turn, economists fret about potentially negative impacts in terms of efficiency and equity of several of the policies allowed for developing countries under the AoA and further expanded in the Modalities; some view the WTO should act as the enforcer of “good policies.” Trade negotiators see their job as expanding their own country’s “policy space” to make sure that their country will not have to answer to WTO panels for alleged violations, while trying to limit the policy space of others. Finally, civil society adds to the complexity with wide-ranging views about development, the environment, human rights, and the like. All of these perspectives make up a very complex agenda that, so far, has failed to converge.
These conceptual issues are further complicated by a second, factual point: the clear advances of developing countries in the world economy. Figure 1 shows the percentage of global agricultural production of two groups of countries: first, the sum of Canada, United States, the European Union (27), Australia, New Zealand ,and Japan (“developed regions”); second, Asia (minus Japan), all of Africa, and Latin America and the Caribbean (“developing regions”).
Figure 1
While in the early 1960s, both groups represented about the same share of global production, in 2011 the ratio was somewhat more than 70% for the developing regions compared to almost 25% for the developed regions (the balance is represented by other non-EU countries in Europe, by the countries of the former Soviet Union, and by smaller countries in Oceania). The increase in developing countries (almost 29 percentage points) is mostly explained by the expansion of Asia (23 pps, of which China represents about 14.6 pps and India almost 2 pps); LAC also saw an increase (3.5 pps), as did Africa (1.2 pps). As a whole (and although there is a limited number of exceptions in the case of individual countries), in all developing regions, agricultural production and the availability of calories and proteins in per capita terms has increased since the 1960s.
If we consider trade data for the same groups, the numbers also show increases in global shares, although less dramatic. According to FAOSTAT, the group of developing regions mentioned before increased their agricultural exports from about 27% of world exports in the early 1990s (in current US dollars) to 37.5% in 2010.
Looking at individual countries, the structure of net agricultural exporters has also changed significantly since the Uruguay Round was finished and since the Doha Round was launched. Table 1 shows the evolution of countries that were net agricultural exporters in the 1990s, the 2000s, and 2010-2011 (data again from FAOSTAT).
During the 1990s, there was only one developing country (Argentina) in the top five net agricultural exporters by value; only two more (Brazil and Thailand) were in the top 10. By 2010-2011, Brazil and Argentina had displaced the US and Netherlands; together with Thailand, this meant that there were three developing countries in the top five exporters. Altogether in 2010-2011, five out of the top 10 exporters were developing countries. India also climbed the ranks as a significant net agricultural exporter, while China, which was a net exporter in the 1990s, turned into a significant net importer (not shown). In recent years, India has become the main global rice exporter and in 2013, USDA projections suggest that it will pass Brazil as the main exporter of beef and veal (in volume, not value), which in turn had displaced the US from that position some years back.
Another point to be noticed is the advance in the measure of agricultural support in developing countries, at least as calculated by the nominal rate of assistance (NRA) estimated in a recent World Bank exercise.
More generally, the share of global GDP for developing countries, particularly when measured in purchasing power parity, has also increased significantly. According to the IMF/WEO database, the categories of advanced countries and emerging and developing countries moved from 69% and 31% of global shares of global GDP (at PPP values) in 1980 to 49% and 51%, respectively, in 2013. In other words, for the first time in modern history, emerging and developing countries now represent a larger share of global GDP than advanced economies (using the categories of the IMF, which are somewhat different from the figure shown above). Those increases in GDP and incomes, among other things, have allowed for the expansion of agricultural support noted before.
All of these facts add up to several very different narratives that, if they do not converge somehow, will make it very difficult to resolve the world’s trade issues, particularly regarding agriculture.
On the one hand, developing countries see industrialized countries that have productive advantages in farm size, land, water, climate, infrastructure, R&D, credit conditions, and the like, and ask, legitimately, why those countries should be able have the levels of protection and distorting subsidies that they are allowed under the Agreement on Agriculture (AoA). Many developing countries see their own producers (who, as a general rule, are clearly poorer, farm significantly smaller areas, struggle with water and climate constraints, and suffer from weak infrastructure and lack of R&D and credit support) and conclude that there are clear imbalances in the AoA that benefit industrialized countries and negatively affect poorer countries.
On the other hand, industrialized countries see developing countries’ advances in production and trade (while their own shares decrease), the expansion of agricultural support, the sheer number of farmers in those countries, and all the potential policy space already existent in the AoA for developing countries; this leads developed countries to worry not only about their current and future access to the markets of those developing countries but also, eventually, about exporters from the largest emerging economies potentially displacing production in their own domestic markets. Therefore, they are not ready to do the right thing and accept the prohibition of agricultural export subsidies (which is already the WTO norm for non-agricultural products), as requested by a group of developing countries as part of the Bali deliverables.
Although, in my view, the first narrative is more accurate, developing countries also need to acknowledge their larger share in the world economy and in agricultural production, and the systemic effects they have as a consequence of that fact. Their larger presence in the global market brings with it rights, but also responsibilities. While many developing countries continue to argue that they are “small and poor,” as a whole, they are not small anymore, and although they are not at the level of industrialized countries, some have advanced significantly in their per capita incomes as well. WTO negotiations, and a more general global governance review of these rights and responsibilities, need a more realistic dialogue than what seems to be taking place now.
Still, I believe that the main responsibility for a balanced outcome in Bali lies with the industrialized countries. These countries, having attained a lopsided WTO deal in 1994, are holding on to their “special and differential treatment,” while disingenuously complaining about the trade-distorting proposals made by developing countries.
Hopefully this time things will not be “lost in translation.” But, again, do not hold your breath.
References
Anderson, K. and E. Valenzuela. 2008. Estimates of Global Distortions to Agricultural Incentives, 1955 to 2007. World Bank Report No. WPS4612, WPS4864. Washington DC: World Bank. Available at www.worldbank.org/agdistortions .
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