Column: Breaking the WTO logjam

Written by Biswajit Dhar | Updated: Nov 29 2013, 20:22pm hrs
When trade ministers from 159 member states of the WTO meet next week in Bali for the Ninth Ministerial Conference, they would carry the huge responsibility to preserve the integrity of the multilateral trading system, the critical presence of which was recounted many times over during the recent global economic crisis. The institution played a determining role in keeping the markets open: WTO members were unable to use the classical tools of trade protectionism, which had brought the global economy to grief during the Great Depression of the 1930s. However, despite recognising the importance of the WTO, members of the organisation have been unable to enhance its credibility by concluding the protracted Doha Round negotiations. The Bali Ministerial Conference was seen as an opportunity to break the logjam, but this seems increasingly unlikely.

The inability of WTO members to arrive at a consensus appears more galling given that the Bali Ministerial had a relatively light agenda. Only three substantive areas have been included: trade facilitation, a package for least developed countries and a few issues in agriculture.

In the area of agriculture, the proposal that has attracted most attention is the one tabled by the developing countries belonging to G33 (currently has 46 members including Indonesia, India and China). The G33 argued for the inclusion of two sets of amendments in the Agreement on Agriculture (AoA), which, in their view, were necessary for addressing food security concerns in their countries. The first of these amendments was aimed at allowing developing countries to make payments on specific activities to promote rural development and poverty alleviation without being subjected to any disciplines introduced by the AoA.

A second set of amendments was proposed by G33 to modify the existing provisions relating to public stockholding for food security purposes. The first of these said that developing countries should be allowed to acquire food stocks for supporting low-income or resource-poor producers and the cost of so doing will not be accounted for in their total subsidies bill. Secondly, when developing countries acquire foodstuffs from low-income or resource-poor producers for programmes to fight hunger and rural poverty and for providing food to urban and rural poor at subsidised prices, the difference between the cost of acquiring the foodstuff and the external reference price would not have to be included in the AMS. These textual amendments would, therefore, allow developing countries to both support poorer farmers and implement targeted food security programmes without being subjected to the subsidies disciplines of the AoA. Developing countries like India have taken a commitment to limit their total subsidies bill to 10% of the value of agricultural production. It may be clarified that this limit does not include the subsidies given to low-income and resource-poor farmers and subsidies on each individual crop which are less than 10% of its value of production.

G33 pressed for the above-mentioned amendments since the provisions of the Green Box in the AoA allowing the government stockholding programmes for food security purposes in developing countries included conditions, which, over time, have imposed severe limits on the ability of these countries to implement food security programmes. Foodstuffs are being acquired from farmers at administered prices that are moving upwards since they reflect the increasing cost of production but, ironically, these prices are being benchmarked against the fixed external reference prices, which are more than quarter of a century old, i.e. 1986-88. Ironically, when this methodology of calculating domestic support was evolving in the Uruguay Round, participating countries had opined that the fixed reference price will be applied for a negotiated period and that this price may be subject to periodic reassessment.

The fixed external reference price during the base period 1986-88 was assumed as the internationally competitive price during the Uruguay Round negotiations (1986-93), but after more than 25 years, it should no longer remain as the numeraire. The developed countries have no interest in reviewing the base period for they have been providing direct income support, a form of subsidies on which the WTO imposes no limit.

This suggestion to amend the external reference price formed a part of a G33 proposal for reaching an agreement at Bali Ministerial. The G33 proposed that the external reference price should be either a three-year average (FOB or CIF price) based on the preceding five-year period, or previous-years average producer/farm-gate price in the top three suppliers of a foodstuff in the country concerned. In addition, G33 suggested that the subsidy calculation should take into consideration the excessive rates of inflation faced by developing countries. A final suggestion was the inclusion of a peace clause, which would have allowed these countries to acquire foodstuffs to meet food requirements of urban and rural poor without having to face disputes in the WTO should their subsidies bill exceed the ceiling of 10% of the value of agricultural production. This peace clause, argued the G33, should remain in force until a final mechanism is established to address the food security concern of the developing countries under Doha development agenda.

In the run-up to Bali, the focus of discussions on the G33 food security proposal has been on the peace clause option. Chair of the Committee on Agriculture described this as an interim solution, while indicating that members had identified several components necessary for making this mechanism work. These include: (1) the nature of the solutionwhether it is to be political or legally binding; (2) its characterautomatic, non-automatic or hybrid; (3) its coverage; (4) transparency and reporting; (5) safeguards that might be appropriate to minimise distorting effects; (6) other terms and conditions; (7) duration and review, and (8) post-Bali work. Importantly, the emphasis of the discussions was shifting towards limiting of the coverage to traditional staple food crops and introduction of a set of notification and other transparency obligations. There is an obvious move to restrict the use of the proposed food security mechanism with a number of restrictive conditions.

Some of these conditions can involve considerable additional burden on the developing countries intending to use the mechanism, including those being proposed under the rubric of Notification and Transparency. Countries may be required to: (1) notify they are exceeding or are at risk of exceeding their AMS limits as a result of public stockholding programmes for food security purposes; (2) provide on an annual basis information for each public stockholding programme that they maintain for food security; and (3) hold consultations with other members on the operation of their public stockholding programmes. But, most importantly, the use of the proposed mechanism could be restricted to four years.

The discussion regarding the peace clause is not new in the context of the WTO. Article 13 of the AoA shielded the major subsidies granted by the US and the EU (both domestic support and export subsidies) against any dispute that other WTO members could initiate. This cover was provided for a period of nine years, not only in respect of the relevant provisions of the AoA, but also in respect of the relevant provisions of the Agreement on Subsidies and Countervailing Duties.

Recent developments show that these conditions would be a part of the eventual peace clause that the ministers would agree to put in place during the Bali Ministerial. A recent document endorsed by the WTO Director General, Roberto Azevdo, states that the peace clause will remain in force until the 11th Ministerial Conference, scheduled in 2017. However, prior to that, in two years time, the 10th Ministerial Conference will evaluate the operation of the peace clause.

Over the decade and more, developing countries have invested considerable negotiating capital to rebalance an inherently discriminatory AoA through amendments that reflect their development imperatives, in particular those of food security and rural livelihoods. The coalitions that they had forged, the G33 and G20, were able to shift the focus of agriculture negotiations towards the development imperatives of the sector. However, this has clearly not yielded results in the face of the opposition from the developed countries to maintain the status quo ante. The negotiations on the food security issues in the run-up to the Bali Ministerial Conference makes a compelling case for developing countries to work more intensively so that their core development interests can be protected.

(Roshan Kishore of RIS contributed to this article)

The author is director general, Research and Information System for Developing Countries (RIS), New Delhi