Multilateral provisions to alleviate food insecurity

Dorotea attended the 2012 WTO Public Forum in Geneva where she represented Swinburne University of Technology. She is currently studying a Bachelor of Commerce.

Abstract 

Since the time when the General Agreement on Tariffs and Trade (GATT) applied to agriculture and member countries were allowed to use non tariff measures such as subsidies and import quotas1, agricultural trade has come to be ‘the most distorted sector of trade in goods, characterised by very high tariffs and high levels of government support to primary producers’2. The World Trade Organization (WTO) states that the objective for the framework of Agreement on Agriculture (AoA) is to move towards market orientation in agricultural trade. Providing developing countries with greater trade access to global food supplies through the use of multilateral trade agreements will encourage sustainable development as they remain reliant on agriculture as a major source of GDP, exports, employment and foreign exchange earnings3. At the same time, overall trade liberalisation in agriculture should also be pursued for the benefit of all member nations in the WTO, including Australia, whose agricultural production is mostly exported with prices closely linked to world prices often affected by distortions caused by agricultural protectionism and subsidisation in key countries4  

Introduction  

As world population is expected to grow to 9.1 billion people with the majority of this growth occurring in developing countries, the issue of feeding a growing population with a smaller rural labour force and also contributing to overall development in the many agriculture-dependent developing countries5 is at the forefront of current global debate. Food security is largely defined as ‘existing when all people, at all times, have physical and economic access to sufficient, safe and nutritious food that meets dietary needs and food preferences for an active and healthy life’6.  The World Health Organisation (WHO) defines food security using three key components: The continuous quantity of enough food available; having adequate resources to access appropriate foods for a healthy diet; the appropriate use of knowledge on basic nutrition and care, as well as adequate water and sanitation.7 When food prices rose in 2007-2008, many countries imposed export barriers in order for domestic markets to have adequate supply based on the market demand. This caused food price volatility on the global market which reduced the amount of food available for countries that rely heavily on food imports8. Developed countries are also affected by this, especially Australia, which has done much to reduce its agricultural barriers to trade to promote trade liberalisation and improve market access options and increase its exports9. (http://www.dfat.gov.au/trade/export_review/submissions_received/DairyAustraliaPartB.pdf

In an environment where trade decisions are made at the national, regional and international level, it is individual country decisions that have the greatest impact global food insecurity outcomes10, however international trade agreements are more likely to come up with a positive outcome for food security issues11 as it can affect 157 countries simultaneously. This is exactly what the World Trade Organisation (WTO) is currently trying to achieve by negotiating trade reform and market-orientated policies through the Agreement on Agriculture as ‘this would improve predictability and security for importing and exporting countries alike’12. 

This paper argues that by allowing developing countries to have specific protection measures that promote development and offer protection for certain products whilst still promoting and achieving agricultural trade liberalisation, it can support these countries by preventing food insecurity and also simultaneously benefit developed countries, especially Australia, by preventing the triggers to global trade distortions (described in the first section of this paper) in the agricultural sector. The second section explains Special and Differential Treatment (SDT), Special Agricultural Safeguards (SSGs) and the Special Safeguards Mechanism (SSM) for developing countries and Net Food-importing Developing Countries (NFIDCs) under the Agreement on Agriculture (AoA) and analyses the issues them and ways they could be improved in order to promote development and food security. And the third section provides recommendations on how the World Trade Organisation can use multilateral agreements to promote global food security especially for developing countries through increasing agricultural trade liberalisation and the allowance of the use of special safeguards in agricultural trade to allow developing countries to open markets to imports and also achieve economic development and growth out of poverty. 

World Trade Distortions in Agriculture  

The use of non tariff measures such as subsidies and import quotas, were freely used by member countries under the General Agreement on Tariffs and Trade (GATT) when it applied to agriculture.13 The use of export subsidies on agricultural products is one type of non tariff measure that greatly distorted agricultural trade and continues to do so today. The World Trade Organization (WTO) is under pressure to conclude the Doha round of international trade negotiations, however due to debates between members in the interest of domestic protectionism by certain developed countries versus developing countries wanting to access and export to these markets, a stalemate has resulted14. The many negative implications for developing countries when export subsidies are used by rich countries include: forcing efficient farmers who do not have access to subsidies to become uncompetitive; encouraging overproduction and subsequently creating surpluses that get dumped onto the world market and drive down global prices, limiting the opportunity for a developing country farmer to compete in local and export markets.  

Export subsidies, which constitute agricultural distortions, are often used on the few products that developing countries have the capability to produce and export more efficiently such as dairy, sugar, beef, fruit and vegetables, rice and wheat. During 2001-05, the European Union provided US$16 billion in export subsidies for dairy, sugar and beef exports15 and in 2002 U.S subsidies on cotton exports are claimed to have reduced West Africa's annual revenue from cotton exports by US$250 million a year16.  It is not however, simply developing countries that are suffering because of trade distortions; Australia's agriculture sector is also affected. For example, the world dairy market remains highly impenetrable by barriers and limits on entry in the international market resulting in only 7 per cent of world dairy production being traded, however this is mostly under bilateral and multilateral quota arrangements17 This is significant for Australia's dairy industry as approximately half of Australian annual milk production is exported and with no barriers to imports, Australian agricultural returns are directly impacted by the price fluctuations in world markets18. In July 2000, the Australian dairy industry was fully liberalised overnight by removing all price supports, forcing farmers to increase productive performance. There is evidence that with declining industry protection and the move towards trade liberalisation, Australian milk yields increased19. 

According to the WTO there are a number of complaints from developing countries claiming that their exports still face high tariffs and other export barriers to developed countries’ markets. Attempts to move away from agriculture to develop processing industries are hindered by tariff increases due to higher import duties on processed products compared to raw materials. The implications of not moving into agricultural products processing industries is that agricultural development cannot be spurred on, the level of self-reliance of the developing countries does not increase and economic growth and progress towards elimination of trade distortions is reduced20. 

Agreement on Agriculture 

The Agreement on Agriculture (AoA) consists of three main commitment areas: market access, cuts in domestic producer subsidies, and reduction in export subsidies21 with allowance of six years for developed countries to implement this agreement and ten years for developing countries22 under the special and differential (SDT) treatment23. SDT provisions give developing countries special rights and are included in all WTO agreements with the objective of The WTO states that least-developed economies are not required to cut their subsidies or lower their tariffs at all since there are special provisions for countries that are dependant imported food supplies24. SDT also gives developing countries preferential market access and does not require them to reciprocate25. These special rights do nothing to help developing countries improve their situations or assist them to develop enough to become more self-reliant and gain ability to significantly reduce their barriers to trade without fear of being taken advantage of. McCalla and Nash reasonably argue that SDT treatment should be accorded to developing countries based on their development needs and also focus on development objectives, linking actions to specific capacity-building issues rather than giving common exemptions to reduce their trade barriers26.  

Special Agricultural Safeguards (SSGs) and Special Safeguards Mechanism (SSM) 

Special Agricultural Safeguards (SSGs) are a general safeguard allowing temporary contingency restrictions on imports to deal with special circumstances such as a sudden surge in imports, and currently 39 WTO members including Australia, EU and USA currently reserve the right to use special safeguards on agricultural products with a combined total of 6,156 agricultural safeguards in place27.  Safeguards are important for trade liberalisation as their role is to convince countries that are reluctant, to open their markets with the option to use mechanisms to avoid severe disruption. Special safeguards differ from general safeguards in two ways: higher safeguards duties can be triggered automatically when import volumes rise above a certain level or if prices fall below a certain level; demonstration of serious injury being caused to the domestic industry is not required28.  

In July 2008, the largest WTO Ministerial Meeting since 2005 was held in Geneva called the July 2008 Package. It had convergence from 153 Members in almost every section of previously failed negotiations in both agriculture and non-agricultural market access29. However, the talks failed to reach agreement over a small number of elements in the package with the Special Safeguards Mechanism (SSM) for developing countries as a main point of contention30. The SSM is a tool that enables developing countries to react in the event of a fall in price of imported agricultural products or when there is significant increase in volume of the imported agricultural product, by raising their tariffs above the bound rates in the event of a fall in price of the imported product or an increase in volume of the imported product, beyond certain levels. The purpose of this is to ensure import prices of agricultural goods are maintained, thereby protecting their local agricultural products from being adversely affected by the lower-priced import products31. 

Although all WTO members have in principle accepted that a SSM will be established, some developed countries (particularly the United States) and some developing countries with an export interest in agriculture (such as Thailand, Argentina, Paraguay, and Uruguay) have sought to restrict the use of the SSM, for example, by limiting the number of times it can be used, and by limiting the remedy (i. e. the degree to which the SSM import tariffs can be raised). Despite the setback of the meeting of WTO Ministers, the worthy gains that were negotiated are still on the table and ongoing negotiations have further scrutinised and enhanced the overall package32. 

Recommendations 

Any effort to improve food security and reduce hunger must be quickly to address the unpredictability and increases in food prices. According to the World Bank, 44 million were pushed into poverty between June 2010 and April 2011 by rising food prices33. The World Bank also estimates that a 10 per cent increase in the food price index could lead to 10 million more people falling into poverty, while a 30 per cent increase could lead to an increase of 34 million people34. 

Food insecurity needs to be facilitated by a coordinated response by food producers to deal with spikes in prices, and an improvement in the transparency of global markets. In the long-term, policies should focus on increasing global population and climate change, leading to droughts and floods in many countries and affecting food production35. Developing countries have expressed to the WTO that their exports in agriculture and textiles have not met expectations in terms of market access. They want to negotiate lower barriers on their exported agricultural goods, especially focussing on ‘high tariffs, tariff escalation36, the difficulties in gaining access to markets through tariff quotas and the trade-distorting effects of subsidies’37.  

The Cairns Group is an alliance that cuts across the developed-developing country boundaries and it is in favour of liberalising agricultural trade. The Cairns Group was formed in 1986 by a group of agricultural exporting countries and has constructively been important catalyst for global agricultural trade reform, influencing multilateral trade reforms in the WTO Uruguay Round and current Doha Round of negotiations38. Fourteen of its seventeen members are developing countries and like most WTO members, the Cairns Group is in favour of “special and differential” treatment for developing countries in order to take account of their needs39. 

Since the agriculture industry makes up a large portion of developing countries’ GDP and is the livelihood of a great portion of their population40, their feedback suggests that the WTO is not doing enough to meet their needs and the objective of trade liberalisation by reducing developed countries’ barriers to trade (tariffs and subsidies) further, or to give special treatment to developed countries. Currently the WTO does not define who “developed” and “developing” countries are, as members announce for themselves whether they are “developed” or “developing” countries. So the only controls for whether a country defines itself as such, is when and if their members challenge them for the use of provisions available to developing countries41.By revising the definition of what constitutes a developed country and allowing economic development training and knowledge transfer between member nations, there could be provisions whereby the special treatment in agriculture could be used until certain economic and developmental targets set by the WTO are achieved. 

Promoting economic growth, reducing poverty and enhancing food security cannot be achieved in most developing countries without fully developing the potential capacity of the agricultural sector and its contribution to overall economic development. For both domestic market and exports, agriculture remains largely underdeveloped for production, which means that these countries are not able to move beyond the vicious cycle of poverty. The WTO Agreement on Agriculture should push for greater provisions for developing economies through the use of the Special Safeguards Mechanism (SSM) which should also cover competition policy in agriculture in order for domestic agriculture producers to survive alongside a multinational corporation competing. This would give developing countries the means to protect themselves against the abuse of monopoly power and multinational corporations, and the ability to appeal to the WTO in order to seek compensation.  

Conclusion 

With the rapidly rising global population the argument that food security can be achieved through the liberalisation of trade is echoed by the Australian government departments, The Cairns Group, The World Trade Organisation and many academics. Furthermore, developing countries should have specific protection measures that promote development and offer protection for certain products whilst still promoting and achieving agricultural trade liberalisation. Under the Agreements on Agriculture, special provisions need to be altered specifically to promote developing countries’ economies and development, however it first needs to clearly define what a developing country is and give these special provisions to those that fit the criteria. 

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