While the world reels under food shortages and inflation, a strange trade liberalisation is taking place. All countries are cutting import restrictions on foodgrain while imposing restrictions on their own exports of food articles.
While WTO has largely been concerned with removing import restrictions it has generally been silent on export restraints. So, import dependent countries like Japan will now require that major agricultural exporters should be prevented from imposing export restraints!
A strange reversal of the protectionist tendencies during the great depression of the 1930s. But, as any trade theorist would tell you, any export restraint is actually an import restriction: a country?s exports are simultaneously a demand for someone else?s imports. In other words, exports and imports are two sides of the same coin.
Consider the paradox. Till one year ago, all trade negotiations were stalled on the issue of agricultural subsidies by the US and EU to items like milk and milk products, beef and cereals. The issue was whether the US would cut its total subsidy (as part of its deficit programme) to $14 billion while the US trade representative was unwilling to come below about $17 billion.
Yet today the US subsidy is down to around $8 billion and there is still no sign of closure of the Doha round! The reason is obvious. Subsidies are down today as they go up only when the world agricultural prices are down. With soaring agricultural prices, subsidies are not required at least as of this moment. However, I am sure someone is going to raise the issue of export restraints very soon: if you have a right to my market via imports I have a right to your supply via exports!
A brief look at the history of how the Agreement on Agriculture (AOA) got on the WTO agenda is instructive. Till 1995 the only agreement that existed was the General Agreement on Trade and Tariffs (GATT) which was specifically concerned with trade in manufactured products. Till the Kennedy round of 1966, developing countries were exempt from reciprocity in tariff reductions effected by the developed countries as then the primary purpose of the dominant negotiator, the US, was to break the system of preferential tariffs available to the UK in its trade with its former colonies.
In addition, the US was keen to bring the then outlawed Japan into the trading mainstream. GATT actually worked exceedingly well and between 1950 and 1970 or so, world trade expanded at around 8% in real terms. Trade also played a major role in getting the East Asian economies to where they are today.
The conflict began with the Tokyo round of the 1970s when developed countries wanted to end the non-reciprocity available to developing countries. In addition, as the services sectors now dominated the developed countries it was felt appropriate that trade should also include services and hence the GATS was conceived. To make agreements mandatory (rather than voluntary as under GATT) a new administrative body called the WTO was conceived. As conflict between the northern and southern countries increased there were new items on the agenda: TRIPS and TRIMS. It was here that the agricultural exporting countries (called the CAIRNS group) came into action.
Since the EUs food support program was coming under strain, the CAIRNS group used US-EU disagreement on agricultural trade to bring this trade into the WTO under a new agreement called the AOA and made it enforceable via the ?single undertaking? clause: any country party to any agreement under WTO is automatically party to any other agreement even if it is not a signatory to that specific agreement.
The end result of this hugely increased trade agenda is that the Doha round will never end, countries will keep stalling on one agreement (example, the ill-fated GATS) as trade elsewhere falters. So now Japan can tell Vietnam give us more rice if you want to sell more shirts!
That then is the problem. It is easy to trade off goods trade with service trade: I can do without your banks if you won?t buy more of my shirts. But how does trade in agricultural goods work? Minimum consumption of agricultural goods is essential for livelihood especially in poor countries. How can any government agree on submitting this minimum to a global economic trade off?
With all its problems GATT worked well. So could GATS. But the AOA is destined to fail especially in a poverty-ridden world. Why not jettison it? In any case, without the Blair House agreement giving exceptions to the US and the EU it is unlikely that the AOA would ever have seen the light of day.
(The author is professor, Centre for International Trade and Development, School of International Studies, JNU)