Can agriculture save the WTO from ‘brain death’?
The WTO's Appellate Body will cease to function on December 11. Stefan Tangermann presents five reasons why agriculture can provide the impetus to revive the organization.
The global trade regime is in dire straits. The World Trade Organization (WTO) is close to losing its all-important capacity to settle disputes among its member countries.
To borrow the phrase French President Emmanuel Macron recently used to warn that NATO risks being unable to cooperate or coordinate its members, the WTO could soon be on the verge of suffering from ‘brain death’.
This could happen at a time when a well-functioning WTO has the potential to be more important than ever. But can agriculture, at first sight an entirely doubtful candidate, provide the impetus to revive the WTO?
The WTO is one of the most precious institutions created to organize global affairs. There is no doubt trade among nations is an effective way of creating income and reducing poverty.
But trade is also often saddled with tensions. One nation's exports are another nation's imports. Populist politicians have long considered exports beneficial and imports detrimental, irrespective of fundamental economic thought.
Trade, therefore, not only holds the promise to enrich nations, but also has the potential to lead to war; in both economic and even worse terms.
After World War II, wise men and women managed to convince governments across the globe to negotiate a set of rules that allowed to engage in peaceful international trade relations, to the benefit of all.
The resulting General Agreement on Tariffs and Trade (GATT) was a great success and allowed global trade to expand enormously as the world emerged from the wartime destructions. The architecture of the international trade regime remained, though, somewhat partial as the legal provisions of the GATT were not accompanied by an institution servicing them and bringing nations together in a permanent organizational framework.
This void was filled when the WTO sprung into life in 1995 as one of the results of the rather successful negotiations conducted in the so-called ‘Uruguay Round’.
One element of this new institutional setting was a strengthened and streamlined understanding on how to settle disputes when a WTO member country felt that another member was not playing by the legal rules. Given the potential of trade to generate tensions, its function in settling disputes was a crucial endowment of the WTO.
Like in other juridical environments, one first legal ruling is occasionally not accepted as satisfactory by the opponents. Hence an appellate instance was made part of the WTO process of settling disputes. Yet, over time many member countries, most significantly the United States, found the way the WTO's Appellate Body performed its duties not entirely satisfactory.
On those grounds the US began to block appointments of members of that body. Today, December 10, 2019, the terms of two of the remaining three members of the Appellate Body expire.
At this moment the appellate instance of the WTO ceases to function. This is the most serious threat to the viability of the WTO since it was founded 25 years ago.
The WTO is more important now than ever
This damage is inflicted on the WTO at a time when this organization is more needed than ever before. Tensions over trade policies have reached a level not known for decades.
Unilateral action, particularly by the Trump Administration, based on questionable interpretation of legal provisions in the GATT, is disrupting trade flows. In a situation like that it is vital to have a place where trade disputes can be settled in an orderly fashion and where negotiations can be conducted peacefully.
The significance of the WTO is also to some extent undermined by the rapidly growing number of bilateral and regional trade agreements such as the recent deal between the EU and Mercosur.
One fundamental tenet of the WTO is that trade liberalization is most beneficial if it is achieved and safeguarded on a multilateral level, providing an equal footing for as many nations as possible.
Bilateral agreements, unavoidably discriminating against everybody who is not participating, deviate from that principle. One reason why they are nevertheless spreading is the lack of progress in the multilateral dealings of the WTO.
This is a potentially vicious circle: bilateral agreements reduce the significance of the WTO, and that makes bilateral deals even more attractive.
A lack of progress in the WTO is particularly noticeable in the negotiations on further multilateral trade agreements. Since the creation of the GATT such negotiations have traditionally been conducted in big rounds.
The current negotiating round, dubbed the Doha Round as it was launched in the capital of Qatar, has already dragged on for 18 years, longer than any previous round of multilateral trade negotiations. Yet, there is no indication that the talks will soon be concluded successfully.
On the contrary, many observers and some WTO members consider the Doha negotiations already close to dead.
This is a huge problem. The structure and nature of global economic relations is undergoing fundamental change.
Trade in emerging economies such as China and India is growing rapidly, in absolute terms and as a share of world trade. The allocation of responsibilities for the evolution and maintenance of disciplines in trade policies has not kept pace with these structural shifts.
Technological change has also revolutionised the nature of international trade. Value chains are spreading over a growing number of countries. Trade policies and the legal framework governing them should adjust, and this can only be achieved in productive negotiations.
In agricultural trade, progress is also urgently needed. The Uruguay Round of GATT negotiations created, for the first time in history, an effective set of disciplines and commitments for national policies affecting trade in agricultural and food products.
While this was enormous progress at the time, a new effort is urgently needed to adjust the rules and commitments to the evolving landscape of trade flows and policies, to draw conclusions from the lessons learned when implementing the agricultural trade provisions agreed in the Uruguay Round, and to bring the regime governing agricultural trade more closely in line with trade in other goods.
The Doha Round negotiations in the WTO were supposed to achieve all this. In 2008, seven years after the Round had been launched, there was a moment when it looked like the negotiations were close to a successful conclusion.
However, it was not to be, and it is probably correct to say that the Doha Round is now more distant from success than it was in 2008.
Why agriculture can revive the Doha Round
Many observers feel that the difficulty of dealing with the ever-sensitive matter of agricultural trade and policies was and is one of the roadblocks preventing progress in the Doha Round. Yet, one could also argue that agriculture is a sector that could, if seen from an appropriate angle, revive the Doha Round negotiations, and through them the WTO overall. Five reasons can be advanced.
First, agricultural trade is hugely important for most developing and emerging economies. These countries, therefore, have an equally strong interest as the rich nations in making sure that unfair competition based on distortionary policies is redressed, wherever in the world such policies are pursued.
Hence the Doha negotiations on agriculture offer a unique opportunity to bridge divisions between developing and developed countries in the WTO.
Second, the Trump Administration is keen to maintain political support from the US agricultural industry. Recent trade tensions have made life difficult for export-oriented US farmers and ranchers, and the Administration has felt it necessary to respond with a multi-billion programme providing ad-hoc assistance to US producers.
Charting a way forward in the WTO towards better access for US agriculture to global markets should therefore be rather attractive for the USA.
Third, the EU is no longer confined to a defensive role in agricultural negotiations as it used to be in the Uruguay Round. The Common Agricultural Policy has been fundamentally reformed. Domestic market prices in the EU are, for many agricultural products, largely aligned with prices in international trade.
Export subsidies are gone. To be sure, there are good domestic reasons for continued reform of the CAP, such as move away from per hectare-payments and towards paying farmers for producing public goods.
The new Commission, keen to turn the promised Green Deal into concrete policies, has good reasons to go in that direction. But more to the point, when it comes to international trade talks about agriculture the EU no longer needs to sit on the fence, but can adopt an active, even progressive role.
Fourth, in many parts of the world agricultural policies face increasingly severe constraints, in budgetary, environmental and climate-related terms. Trade reforms can nudge governments in the right direction.
Fifth, after the Uruguay Round brought a step-change to the multilateral regime governing agricultural trade, what is now needed is not a revolution in agricultural trade, but further progress in terms of reducing subsidies and improving market access.
A few new rules, a fine-tuning of others and determined steps towards further liberalization can do a lot to improve the situation. Lots of experience has accumulated with implementing the agricultural provisions agreed in the Uruguay Round.
Whole libraries have been written about the insights gained in the process. It is reasonably clear where further progress is needed and which options should be considered.
If all that is the case, why has a breakthrough not yet been achieved in the agricultural component of the Doha Round? Perhaps things have been allowed to become too complex.
Agriculture is seen as just one element in the larger package of matters included in the Doha Round. Nothing is agreed until everything is agreed, this negotiating technique of the "Single Undertaking" may have been a good idea at some point but can also get in the way of fruitful progress when too many items are on the negotiating table.
Moreover, in agriculture the negotiations have, as time went on, dug into more and more detail. Hundreds of proposals and papers from virtually all countries participating in the negotiations were tabled, and it may have become increasingly difficult to see the wood for the trees.
It's time for a fresh start
Perhaps a fresh start should be made in the agricultural negotiations of the Doha Round.
A few simple options could be put on the table, and agreement on fundamental principles could be sought before negotiators get bogged down again in the details that at some point obviously have to be agreed.
The WTO's 12th Ministerial Conference, to be held in Kazakhstan in June 2020 would be a good opportunity to make such a fresh start.
Agriculture has for a long time been a big problem for the international trade order. Perhaps the moment has now come where this seemingly improbable candidate can revive the Doha Round negotiations, and in the process also the WTO overall.
Stefan Tangermann is an internationally renowned agricultural economist and a former Director for Trade and Agriculture at the Organisation for Economic Co-operation and Development (OECD).