Agricultural trade

6.Agricultural trade

Wyn Grant



INTRODUCTION
Agricultural trade represents both a site of considerable resistance to globalisation in agriculture and an indication of the progress that it has made. Agricultural markets are still highly protected relative to those in industry and distorted by domestic agricultural subsidies. Nevertheless, agriculture has been brought within the scope of the World Trade Organization (WTO) regime and some progress has been made towards liberalisation. Moreover, global supply chains have developed between developing countries and retailers in the developed world.
It is always important to bear in mind that most food is consumed relatively near to where it is produced and that agricultural trade is a small proportion of all international trade. Nevertheless, its centrality in the political process is disproportionate to its economic weight. It has been a major obstacle to the conclusion of international trade negotiations and continued to be a source of difficulty in the Doha Development Round. At the risk of some oversimplification we can discern four different types of national interest that can come into conflict in international trade negotiations:

Developed countries that have capital-intensive and highly sophisticated agricultures that use a range of inputs from equipment to agri-chemicals, and veterinary medicine to finance. These agricultural sectors form a small portion of national output but their political displacement is much greater. The industries are generally subsidised and protected in different ways. Some commodities may be particularly sensitive in specific settings, for example dairy products in the European Union (EU), cotton in the southern United States and rice in Japan and South Korea. There may be some internal tensions between export-oriented agribusiness industries and more domestically oriented 'family farms', and these can play out in international negotiating stances. In general, however, these countries want to retain subsidies and market protection.
Countries that have highly export-oriented agricultures, largely because they have favourable climatic conditions and the knowledge base, technical sophistication and access to capital to take advantage of them. Although smaller enterprises may survive, these countries are characterised by relatively large-scale agriculture. They include both developed countries such as Australia and New Zealand and emerging countries such as Brazil and Argentina. Many of them have largely eliminated subsidies and protection and favour greater liberalisation of agricultural trade.
Countries that have large sections of their agriculture made up of semi-subsistence farmers. These farmers may coexist with larger-scale and more modern farm enterprises, but they are often oriented primarily to meeting the needs of the domestic markets. These countries want to avoid any combination of circumstances that would impoverish or displace small-scale farmers, leading them to relocate to already overcrowded cities. They therefore favour the maintenance of substantial import protection for their domestic agriculture. India and China are classic examples.
Least developed countries that may be highly dependent on one primary crop for which they are largely price takers. The commodity may be vulnerable to fluctuations in its price and affected by subsidies offered by developed countries to their producers. Examples include the 'Cotton Club' countries of Sub-Saharan Africa and the cocoa producers of West Africa. US cotton subsidies have totalled USD31 billion over the past ten years, and have been found by the WTO to distort the global cotton market and damage the livelihoods of millions of poorer cotton farmers, especially in Africa.
THE DOMESTIC POLITICS OF SUBSIDY
Why do most developed countries, especially those in the EU, continue to pay substantial subsidies to agriculture? These subsidies involve a transfer from the population at large in the form of consumers and taxpayers to a small minority of citizens, often corporations. Agricultural protection raises the cost of products for consumers. Subsidies often encourage forms of intensification that are environmentally damaging. They disadvantage farmers in the Global South, which runs counter to the efforts of developed countries to stimulate economic development there. Often the subsidies go largely to better-off farmers. Given the size of the subsidies, particularly in the EU, the opportunity cost is high. There are two types of answers to this apparent paradox. One is to look at the calculus of interest that is involved. The other is to examine the discourses that surround agriculture that lead to the framing of debates about agricultural subsidy and protection in particular ways. For a long time agricultural interests have been losing ground in the debate about subsidy and protection, but more recently there has been something of a reversal in their favour.
The underlying calculus of interest involved in agricultural lobbying has been discussed in the work of Olson (1965) and others. The benefits of subsidies and protection are concentrated on a relatively small number of beneficiaries and it is worth them investing some time and money to protect them. The costs are diffused much more widely across taxpayers and consumers. Even if they may be aware of the extent to which agricultural subsidies increase their taxes and the cost of their purchases of food, and they may well not be, the impact is unlikely to be so great as to incentivise them to organise to reduce the level of subsidy and protection.
Institutional arrangements tend to reinforce these biases. Most countries have a government department that is solely concerned with agriculture (or at least with primary industries). It is unusual for other industries to have such a privilege: there is, for example, usually no ministry for the motor industry or the steel industry. Such departments are rarely dispassionate assessors of what might constitute a socially optimal agricultural policy. They tend to have close links to the lobbies representing the clients they serve. Moreover, they are often involved in trade policy. For example, the United States Department of Agriculture is responsible for the conduct of agricultural trade negotiations.
There is also a whole series of input industries whose well-being is dependent on the continued prosperity of agriculture and that therefore have an interest in ensuring that agricultural incomes are not reduced by the withdrawal of subsidies and protection. Many of these industries are dominated by a relatively small number of multinational companies and therefore have considerable resources at their disposal. They include the seed industry, the fertiliser industry, the agri-chemicals industry, the equipment industry, ranging from milking parlours to tractors and combine harvesters, the veterinary medicine industry, and specialist providers of agricultural finance. Agricultural traders benefit considerably from the availability of export subsidies. First-stage processing industries, such as the dairy sector, also have a considerable interest in the prosperity of agriculture. All this additional lobbying power can be placed at the disposal of agricultural interests.
It might seem that, given the small proportion of the population engaged in agriculture, even if one includes those employed in allied professions and industries, they are unlikely to have an influence on electoral outcomes that might prompt politicians to pay heed to their concerns. However, this may be offset by their propensity to switch their votes and their concentration in relatively marginal electoral areas. In the United States, '[a]gricultural programs often survived because at key moments, legislators from rural areas were able to leverage continued support for farm subsidies by their votes on other issues' (Wilson, 2005, p. 184). In Ireland, '[t]he Single Transferable Vote (STV) election system and local political culture ensure that agricultural issues remain influential in agricultural politics' (Greer, 2005, p. 53). Some of these relationships may, however, be undermined by an erosion of the traditional rural electoral base. Purely agrarian parties have largely disappeared and have rebadged themselves as broader formations – for example, the Country Party in Australia became the National Party.
However, discussions about agricultural subsidy and protection have also been influenced by the way in which the debate has been framed. The terms of the debate have been shaped by a number of discourses that may be summed up in the term 'agricultural exceptionalism'. This argues that, for a variety of reasons, agriculture is different from other industries, cannot be judged by the standards applied to them, and merits special treatment (see Skogstad, 1998; Daugbjerg and Swinbank, 2008).
Agricultural exceptionalism has a number of different dimensions. Indeed, this very diversity means that different arguments may be produced to suit particular circumstances. The strongest intellectual case for agricultural exceptionalism is rooted in agricultural economics, based on the observation that it is often more difficult than in other sectors to find a stable equilibrium position between supply and demand, producing phenomena such as 'cobweb cycles' where there is a continual rotation around an equilibrium position (Hill and Ray, 1987). Even with modern agronomy, variations in weather conditions and problems with plant and animal diseases and pests can produce unpredictable variations in the supply of commodities. Given the low elasticity of demand for farm products, market prices may fluctuate sharply. As Daugbjerg and Swinbank (2008) suggest, '[f]urthermore, farmers may collectively over-react to market price movements, with high process following a harvest failure inducing farmers to increase their plantings for the next season, when prices collapse because of over-supply etc' (p. 633). However, the existence of these problems does not justify extensive subsidies and protection. It could be dealt with by comprehensive systems of crop insurance.
Another dimension of agricultural exceptionalism is the notion of the 'family farm'. This concept enables the mobilisation of a number of broad societal values given that the family is regarded as the basic unit of social organisation. Consider the explanatory statement of the Family Farmers' Association in Britain:

[The] Family Farmers' Association has been fighting for the survival of civilised farming on family farms since 1979. Family farmers produce significant quantities of high quality food, while caring for the countryside. They enrich rural communities, because family farming involves a lot of country people. They are an endangered species. (Family Farmers' Association, 2013)

Consider the number of 'hurrah' words in these few sentences: 'civilised', 'high quality', 'caring', 'enrich'. Yet all these positive qualities are also 'endangered'. Indeed, it is argued that family farms are more environmentally friendly because they promote long-term stewardship of the land. At a certain scale of operation, family farms may be more economically efficient because family members can contribute to the household income by working off-farm while making their labour available on a flexible basis when it is required. They may also be willing to work for well below a living wage. However, it is not these economic arguments that tend to be emphasised but rather the benefits of continuity of ownership, personal commitment and an attachment of values that go beyond profit maximisation. In practice, many family farms function as corporations, while others are effectively part-time operations. Nevertheless, the imagery is powerful and has been evoked in sentimental novels and films.
However, an even more powerful discourse is that associated with food security, the affordability and availability of food. It is argued that a nation's government has a duty to ensure that its citizens have sufficient, nutritious and safe food readily available at a price that they can afford. Food security considerations were an important influence on the formation of the Common Agricultural Policy (CAP). Those formulating the policy had recent memories of the insufficient availability of food in Europe in the immediate post-war years. Even though rationing had ensured the fair distribution of food, its constraints had been deeply resented by citizens, producers and retailers. There was also a concern that the Cold War might become hot, endangering the shipping lanes that supplied Western Europe. In one sense the CAP was a great success because it made Europe more than self-sufficient in temperate foodstuffs, but this was at the expense of the distortion of agricultural trade.
With growing agricultural productivity, increasing supplies in Europe, abundant world supplies and the falling real price of food, food security arguments received less emphasis for many years. However, recently they have been revived following a spike in world food prices and greater volatility in commodity prices. It is argued that structural changes in supply and demand pose new challenges that require an interventionist approach to agricultural policy.
On the demand side, the growth of world population, but in particular the development of large middle classes in countries such as China and India, affects the pattern of demand for food. As people become prosperous they eat more meat, which in turn increases levels of demand for grain as an animal feedstuff. They also consume more beer, which also requires more grain to be grown. On the supply side, urbanisation is often taking away good agricultural land, but more importantly climate change creates greater uncertainty. It may lead to more frequent extreme weather events that are destructive of crops and disruptive of livestock production. It may also lead to periods of drought that exacerbate shortages of water supply that has already been tested by the increased use of irrigation for crop production.
The often-complex interaction between changing patterns of demand and protectionism is illustrated by the case of wine in India. With its rising middle class one might expect a growing demand in India for quality wines. But the reverse is the case. Wine volumes fell 15.7 per cent between 2009 and 2010. China offers a stark contrast. It imports 2.5 million cases of Bordeaux a year. India imports only 100 000 cases of wine a year. More is sold to the Maldives, which are, of course, a major destination for Western tourists. The biggest obstacle to more sales in India is price, which is the result of a punitive tariff on imported wines and spirits of at least 150 per cent. On top of that, individual states apply their own taxes, which range from 30 per cent to 100 per cent. Gujarat, a state with one of the fastest-growing economies, bans the sale of alcohol altogether. Labelling requirements are another obstacle to distribution. A bilateral trade agreement with the EU is supposed to tackle the issue but talks have been dragging on since 2007 and no deal is in prospect.
Given all these considerations, how has any move in the direction of the liberalisation of agricultural trade ever been possible? The impact of neoliberal ideas was less far reaching than in the financial services sector or in state-owned industries, but they had an impact nevertheless. 'Gradually, some of the core ideas of neo-liberalism were adapted to the specifics and particularities of agricultural markets' (Coleman et al., 2004, p. 20). In particular, the discipline of agricultural economics started to place less emphasis on the distinctiveness of agricultural production, reflecting changes in agriculture itself as it became more capital intensive, industrialised and linked into international trade. Thus, 'the discipline became more anchored in a normative position, consistent with the general trend toward more neoliberal thinking that promoted the efficacy of markets over state intervention in realising economic objectives' (ibid., p. 92). Neoliberal approaches to the management of the economy might appear to have been discredited by the course and consequences of the global financial crisis, but what has been noticeable is the resilience of the neoliberal paradigm and the failure of any new paradigm to emerge from the crisis (Grant and Wilson, 2012).
A rather different challenge to traditional agricultural policy formulations has come from the direction of environmental policy. It has been argued that policies of subsidy encourage the intensification of agriculture, leading to forms of agriculture that are more polluting, particularly of watercourses, but also emit more gases that contribute to global climate change. Such forms of agriculture also undermine biodiversity. Consequently, there has been an increasing emphasis on 'greening' agricultural policy, reflected in the measures taken in the second pillar of the CAP.
However, whereas there was a direct link between neoliberalism and the encouragement of trade liberalisation, the impact of environmental policy has been more ambiguous. It can be used to create new justifications for exceptionalism. Halpin (2005, p. 232) notes that farm organisations are in many cases 'responding to contemporary challenges to agricultural exceptionalism. . .by trying to tap or create new sources (some may say pretexts) for exceptionalism', including care of the environment. This might be seen as a positive development in the sense that subsidies directed at the provision of environmental benefits are normally detached from production and may even reduce it. However, some forms of 'multifunctional' policy may militate against a level playing field in international trade. For example, consumers in developed countries may demand higher standards of animal welfare. This may then be used as a justification for excluding livestock products from elsewhere in the world, given that farmers in developing countries may find it difficult to achieve high animal welfare standards.
Fiscal pressures following the global financial crisis have, however, led to renewed scrutiny of farm subsidies, for example in the debate surrounding the American Farm Bill. Given that the prices of most commodities have been increasing, it becomes more difficult to justify subsidies as a necessary mechanism to maintain profitability. Farmers would argue that input prices have been rising, but nevertheless farm incomes have generally been improving. In the USA, where subsidies form a smaller part of total income than in the EU, farmers may be more willing to relinquish them or at least see them reduced. This is more challenging in the EU where they make the difference between making a profit or a loss or are necessary for survival in the case of the many marginal farmers to be found in Europe. These farmers are often located in peripheral regions with broader economic problems, which are also either politically competitive between political parties or are strongly represented within a ruling party.
Neoliberals, but not just them, would like to see agriculture treated as a sector like any other, its shape determined by competition and the forces of supply and demand. This was not going to happen, even before the neoliberal paradigm was partially discredited by the global financial crisis and a resurgence of and a renewed interest in economic patriotism (Grant, 2010) and nationalism, linked with anti-big-business and anti-free-trade sentiment.
The rhetoric surrounding agriculture is particularly strong and distinctive in Europe and affects EU policies. Agriculture is seen as contributing something that is unique and irreplaceable and has cultural as well as economic value. Regionally distinctive landscapes and cuisines have evolved over the centuries as a result of people's interaction with the land. It is widely perceived by many that the 'family farm' and the countryside provide a stability and continuity that has real value in an increasingly urbanised and frenetic society.
However, more than one and quite distinctive policy positions can be derived from this analysis. It could justify the traditional form of the CAP in which farmers were in effect encouraged to overproduce to claim their subsidies and the resultant structural surplus had to be dumped on the world market. CAP subsidies have now largely been decoupled from production, which is not to say that they have no distorting effect on agricultural trade because they can have the effect of making marginal production viable. However, the EU has emphasised an export-oriented strategy for Europe based around high-quality products (and forms of production), which is why it has been emphasising geographical indications (GIs) as a means of protecting product and process standards in international trade negotiations.
What then emerges is a complex picture. Agricultural exceptionalism has been challenged and to some extent eroded, but has also reappeared in new forms. Intellectual and economic forces have pressed for greater trade liberalisation in agricultural trade, but there are also persisting interests in subsidy and protection. How did these contrasting forces play out in the Uruguay Round and the Doha Development Round of world trade negotiations?
THE URUGUAY ROUND
Agricultural exceptionalism was built into the General Agreement on Tariffs and Trade (GATT). As pointed out by Daugbjerg and Swinbank (2008), 'Articles XI and XVI meant that agriculture was shielded from rules regarding the use of quantitative import restrictions and export subsidies' (p. 633). Moreover, '[t]he waiver granted to the US in 1956 allowing it to place further restrictions on imports of agricultural goods, led to the EU's unchallenged use of variable import levies on agricultural products' (ibid., p. 634). In effect there was a tacit agreement between the USA and EU to keep agriculture out of the GATT as far as possible, even though there were specific disputes such as the so-called 'chicken war' (Swinbank and Tanner, 1996). The USA did not like the CAP, but in the context of the Cold War and the perceived need to strengthen the economic and political project of the European Community (EC) as a bulwark against the Soviet Union, it was prepared to tolerate it.
The position of the USA started to shift in the 1980s for a variety of reasons. One factor was the wish of the Reagan Administration to exercise greater control over the federal budget, including spiralling farm subsidies that were being forced up by a fall in world prices. There were also balance of payments considerations. Until the 1970s, US farm policy had focused on domestic stabilisation of markets, with exports arising largely as by-products of the need to dispose of surpluses. However, balance of payments problems led to a new emphasis on a commercial exports strategy that suited the interests of large-scale export-oriented producers and the multinationals that provided their inputs and traded their products. 'The United States, after a 40-year, inward-looking policy discovered that it no longer dominated world agricultural markets. . .increased market competition, lower farm prices and rural depression all succeeded in focusing American attention on foreign markets as a possible solution to farm distress' (Hillman, 1994, p. 2).
A major influence on the US approach was the determination of the influential grain lobby to regain markets lost to the EC in the early and mid-1980s. Family farmers, particularly dairy farmers, wanted the emphasis to be on the maintenance of protection, but they lost out to corporate agribusiness. The shift towards a policy that advocated liberalisation of international trade reflected the considerable displacement of food processing and trading policies in the USA, reflecting the dependence of American politicians on donations to fund their lengthy and expensive re-election campaigns. However, under the Obama administration, much less priority has been given to the liberalisation of international trade and there has been less pressure from agribusiness interests for such a policy.
The significance of the Uruguay Round (1986–94) for agricultural trade was one of process rather than game-changing substantive outcomes. It brought agriculture within the round in a way that required an agricultural deal if the negotiations as a whole were to be concluded, creating incentives for other actors such as manufacturing business to ensure that agriculture did not derail the possibility of a successful conclusion. In that sense it represented a significant break with the past. The device of a 'single undertaking' meant that 'progress on other dossiers was contingent upon an outcome on agriculture deemed satisfactory to other GATT signatories. Having signed up to a single undertaking, the EU was "forced" to make concessions if the Uruguay Round was to be concluded' (Daugbjerg and Swinbank, 2008, p. 632).
However, France was vigilant in ensuring that the EU did not concede too much on agriculture. The 'Blair House Accord' reached between the EU and the US in 1992 had to be renegotiated and weakened to meet French concerns (even if the official language referred to 'clarification'). What quickly became apparent was that the agreement reached was 'fairly modest when contrasted with the aspirations. . .held by some participants in the early stages of the negotiations' (Swinbank and Tanner, 1998, p. 141).
Under the terms of the agreement, non-tariff barriers such as the EU's variable import levies were to be converted into tariffs and cut by 36 per cent. Tariffs were thought to be more transparent and visible than the EU's complex variable import levies. Domestic support was to be reduced by 20 per cent, and the expenditure on export subsidies, which were particularly harmful to producers in the Global South because they facilitated the 'dumping' of cut-price produce into local markets, were cut by 36 per cent. However, 'the base from which to cut was an average of the years 1986–88 (1986–90 for export subsidies) in which world market prices were exceptionally low and import protection and export subsidies correspondingly high' (Daugbjerg and Swinbank, 2008, p. 634).
What the USA and EU did was to make a mutually acceptable adjustment of their positions in a bilateral deal that effectively excluded other participants, although they received side payments to address their concerns, for example on rice for Japan and Korea. This was exemplified by the creation of the 'blue box'. Measures were categorised as red, amber and green according to their distorting effect, but the 'blue box' was created to encompass the two main domestic subsidy policy instruments of the USA and EU, deficiency payments and area and headage payments respectively. These were exempted from domestic subsidy reduction commitments.
It is therefore not surprising that 'many in developing countries say they did not get a good deal out of the Uruguay Round' (Anderson and Martin, 2006, p. 5). As Clapp (2007, p. 40) points out:

[Their] share of agricultural trade has remained steady at around 36 per cent since the agreement was implemented, and their share of agricultural exports to industrialised countries. . .remained at 22.4 per cent between 1990–91 and 2000–01. Because the tariff reductions were averaged, industrialised countries were able to continue to discriminate against products exported by developing countries.

Apart from making greater tariff cuts than high-income countries, they were also faced with the costly obligations embodied in the Sanitary and Phytosanitary Agreement. All too often, trade liberalisation produced a surge in food imports in developing countries, particularly of milk powder and poultry, but no compensatory increase in exports. At the outset of the Doha Round, '[f]ood and agricultural policies [were] responsible for more than three-fifths of the global gain forgone because of merchandise trade distortions, even though agriculture and food processing account for less than 10 per cent of world trade and less than 4 per cent of global GDP' (Anderson and Martin, 2006, p. 12).
However, it would be wrong to assume that no progress was made in the Uruguay Round. In some respect the most important step forward was the creation of the dispute settlement mechanism (DSM). This provides an effective procedure for challenging trade-distorting arrangements. The EU sugar regime had been unreformed since the 1960s and it effectively privileged beet sugar producers in Europe over cane sugar producers in developing countries. The case brought in the DSM by Australia, Brazil and Thailand led to a reform of the sugar regime and significant commercial changes in European production.
THE DOHA DEVELOPMENT ROUND
The political landscape of trade negotiations had changed considerably both domestically and internationally by the time the Doha Development Round was initiated in 2001. In the EU, non-governmental organisations concerned with the Global South such as Oxfam developed a critical stance towards the way in which the CAP impacted on developing countries. On the international level, developing countries, and particularly emerging countries, were determined not to see a repetition of a US–EU deal from which they were effectively excluded.
The EU and the USA did succeed in August 2003 in reconciling their mutual differences in the hope of imposing another 'Blair House'-style accord on other WTO members. The basis of the compromise between the EU and USA was that the EU, having reformed the CAP, could give ground on trade-distorting domestic support, while the USA would give ground on market access. However, from being a bipolar system dominated by the EU and USA, the agricultural trade negotiations had become more multilateral in character.
What was significant at the ministerial meeting held in Cancún in September 2003 was the emergence of a new coalition of emerging countries led by Brazil and known as the G20. This grouping contained both agricultural exporters like Argentina, net importers such as Egypt, and countries with a protectionist orientation like India. However, the countries were united around an opposition to the protectionist agricultural stance of the EU and USA.
Following the disappointments of Cancún, it took some time for progress to be made in resuming negotiations. They were revived by an offer by the EU in May 2004 to abolish all of its agricultural export refunds, subject to parallel concessions on export credits, food aid and state trading enterprises. This offer involved political costs for the EU, provoking a split within the Farm Council and also carrying long-term policy risks for the Union. Without export subsidies, it will be difficult to offload surplus EU production, itself the result of domestic subsidy regimes, on the world market. In any event, the EU's concession on export subsidies was sufficient to kickstart the negotiations and allow the WTO to come close to meeting its self-imposed end of July deadline for a draft framework agreement on reducing agricultural subsidies.
In the face of strong opposition from France, which had had language inserted in the original Doha Round declaration that it thought would protect export subsidies, the EU agreed to phase out all export subsidies by a date that was set in Hong Kong at 2013. In return more binding language was inserted in the text to ensure that export subsidy elements within the USA's export credit and food aid programmes, and within 'single desk' export selling bodies such as the Canadian Wheat Board (CWB), are also subject to WTO disciplines. These draft agreements on export subsidies represented a substantial step forward given the size of the subsidies (almost EUR4 billion for the EU in 2004) and their damaging impact on farmers in the Global South.
Import tariffs would be reduced in accordance with a 'tiered' formula, with higher tariffs being subject to bigger cuts. The crucial issues of the number of bands, the thresholds for defining the bands and the type of tariff reduction in each band were left for further negotiation and not surprisingly these discussions have proved to be very difficult. However, the role of a 'tariff cap' (a maximum tariff for each product) was left on the table for further evaluation, that is, an attempt was made to remove it from the active agenda although it was subsequently revived by the G20 to the chagrin of Japan.
A significant and potentially difficult innovation was the idea that countries would be able to nominate certain products as 'sensitive'. These products would be subject to less exacting tariff reductions, although there would have to be some improvement in market access through a combination of tariff cuts and tariff quota increases. The actual language on 'sensitive' products says that countries may 'designate an appropriate number, to be negotiated, of tariff lines to be treated as sensitive' (WTO, 2004, A-6). What the appropriate number should be is itself a highly controversial issue, given that for sensitive one can substitute 'politically sensitive'. Given the admission of the Trojan horse of sensitive tariffs to the negotiations, this seems to be more like a hopeful aspiration than an achievable objective. As was rightly predicted, '[t]his clause has the potential – probably more than any of the others – to derail the whole trade liberalising thrust of the trade negotiations, should the definition of a "sensitive product" be drawn too broadly' (Agra Europe, 2004, p. A2).
Market access has undoubtedly been the most intractable issue in the negotiations and it is important to understand why this is the case. For the agricultural exporting countries, this is the key issue in the negotiations so that they can boost markets for their price-competitive products, whereas for the EU, how tariff reductions are implemented could make the difference between survival and extinction for many of the EU's less competitive producers. These uncompetitive producers are often situated in politically sensitive areas, for example dairy farmers in Bavaria or Brittany. They have been facing prices for their products that have been at best flat in real terms, while key input prices such as fuel, electricity, fertilisers and feed have risen sharply. What appear to be (and are) highly technical issues become very politically charged, and this mixture of real technical complexity and political passion is very difficult for even the most skilled negotiator to handle.
Agricultural tariffs average 60 per cent across the OECD area, with most OECD countries having peak tariffs of at least 200 per cent and Japan having a 500 per cent tariff for rice. 'More than 7% of the fixed-rate tariffs currently applied by the EU to protect European agricultural markets against imports are set at an equivalent level of 100% or more' (Agra Europe, 2005, p. EP1). Most of the very high tariffs are in the dairy sector. This is not surprising, given that, despite the introduction of dairy quotas, the EU has a structural surplus of milk and many dairy farmers are both economically marginal and politically vocal. Even so, it is surprising to find water in a number of tariffs; that is, the applied tariff is higher than the gap between domestic and world prices. Many of the tariff lines for dairy products have three-figure values.
The story of negotiations in the Doha Round has been one of false hopes, one step forward and two steps backward, and windows of opportunity that have closed as soon as they opened. Interventions by higher-level decision-makers, such as the G8 or the US President and the President of the European Commission, have failed to stimulate progress. Not only has the gap between participants in the negotiation been difficult to bridge, high-level commitment to success has been more lukewarm than in the Uruguay Round, notably from US Presidents George W. Bush and Barack Obama. In part this reflects the fact that American agribusiness has become less unreservedly enthusiastic about trade liberalisation.
The round had to be suspended in July 2006. The USA was blamed for the breakdown by most of the participants because of intransigence over the reform of its domestic support programme. It was felt that the USA would not bring about real cuts in subsidies and that what was being offered involved little more than shuffling support from one box to another, moving a great deal of its amber box measures to a revised blue box. It appeared that President George W. Bush was not prepared to offer further cuts before the Congressional elections in the fall, but also wanted more market access for US products in return. Subsequent hopes that there might be a window of opportunity for renegotiation between the Congressional elections and the debate on the US Farm Bill, which would have to be in place by mid-2007, proved to be ill-founded. This was in spite of the fact that the EU indicated that it was prepared to increase its offer of an average cut in farm tariffs of 39 per cent to 50 per cent.
There were hopes that the meeting of the World Economic Forum in Davos in January 2007 might provide a setting for useful informal discussions and this led to an initial flurry of hope, but little substantive progress. 'Quiet conversations' continued and in February top business executives wrote an open letter to the Financial Times urging the political leaders to grasp the final chance to conclude a Doha deal. They argued that national differences over agriculture should not be allowed to dominate the outcome. The chairman of the agriculture negotiations, Crawford Falconer from New Zealand, announced that he would draft a new paper to refocus the negotiations. In April, ministers from the so-called G4 countries (the EU, USA, Brazil and India) met in New Delhi and called for a new deadline at the end of 2007 to complete negotiations. It was felt that with 2008 being an election year in the USA no progress would be possible then.
When Falconer's paper appeared in May 2007 he called for the EU to make tariff cuts for its most sensitive farm products of more than 60 per cent, reduce its overall trade-distorting farm subsidies by as much as 80 per cent, and agree to phase out its export subsidies over just five years. He also delivered a slap across the wrist to the USA, stating that it was 'frankly inconceivable that the US will come out of this negotiation with an entitlement to spend more on overall distorting domestic support than it had when it came in' (Agra Europe, 2007, p. EP2).
Falconer's proposals were at least not shot down immediately, but five days of G4 talks in Potsdam in July 2007 ended in acrimony and mutual recriminations. As far as agriculture was concerned, there were some signs of flexibility on the part of the USA on the vexed issue of domestic support, with the possibility raised that it might be possible to move from its usual offer of a USD22 billion limit to USD17 billion. The EU denied reports that it would be prepared to increase its offer of a reduction in tariffs on products in the highest band (over 90 per cent) from 60 per cent to 70 per cent. The EU was focused on questions relating to the combination of tariff cuts and rules for sensitive products.
Crawford Falconer submitted a revised version of his paper in August 2007 in which he tried to narrow the range of numbers under discussion for various commitments. For example, he suggested that the limits for US domestic support might be set at USD13–16.4 billion compared with the USD10–11 billion demanded by India and Brazil and the USD17–18 billion offered by the USA. Market access remained the most difficult area, in particular because of a lack of precision on how the sensitive product rules would work in practice. This lack of precision reflected the importance of this issue to the EU.
Falconer produced yet another revised text in July 2008, but a nine-day mini-ministerial meeting in Geneva collapsed with no agreement in sight. This was in spite of progress on some of the issues that had bedevilled the negotiations. The talks were given a boost by a unilateral offer by the USA to cut the level of overall trade distorting support to USD15 billion, which brought it within the 'landing zone' identified by Falconer in 2007. However, sceptics pointed out those support levels had been just USD9 billion in 2007, and that the continued use of anti-cyclical payments meant that the new ceiling could easily be breached if market prices for key commodities fell below the trigger levels. The USA did eventually agree to a figure of USD14.4 billion, the equivalent figure for the EU being EUR24 billion, which would not require further reforms to the CAP.
On sensitive products it was proposed that these would be limited to 4 per cent of tariff lines for developed countries. France sent its farm minister Michel Barnier to the talks along with the junior trade minister Anne-Marie Idrac. President Sarkozy had complained that Peter Mandelson as trade commissioner had signed up to a text that would see a 20 per cent reduction in EU agricultural production, a charge denied by Commission officials. As the talks progressed, discontent built up among some member states with France claiming that nine out of 27 member states would not sign up to the draft deal that was emerging, although Germany was not among their number, which, apart from Ireland, was made up of Southern and Eastern European member states.
What brought about the collapse of the talks was a failure to agree on safeguard arrangements for farmers in developing countries. India and China wanted a stricter trigger for the special safeguard mechanism, while the USA insisted that the trigger should not be too easy and that protection should not revert to higher levels than those bound in the Uruguay Round. The idea that developing countries could temporarily increase tariffs to protect their farmers from import surges and price decline had been an element of the talks from the very start. But it had not been identified as a potential deal breaker. The proposal on the table was that if imports exceeded the average volume for the past three years by more than 5 per cent, and domestic prices fell, then developing countries would have the right to introduce an additional tariff up to 15 per cent above the bound tariff for up to 2.5 per cent of tariff lines per year. For the importers the fear is that a trigger at a 40 per cent increase in volume is far too late to protect small-scale farmers from competition from highly efficient exporters from developed countries.
In the wake of the financial crisis, there was considerable political pressure to secure a Doha deal to assist the recovery of the world economy, but WTO Director-General Pascal Lamy felt that the risk of failure was too high. Crawford Falconer circulated a new version of his text in December 2008, but it was evident that there were large divisions on the questions of the special safeguard mechanism and on cotton. Despite hopes that were expressed about the existence of a 'window of opportunity' in 2011, no real progress was made. It was evident by the end of 2011 that the Doha Round was dead but no one would sign the death certificate because 'the first country to suggest burying the round risks losing the decade-long blame game' (Beattie, 2011, paragraph 4).
Although there was talk of agreements outside the round between a more limited range of parties in areas such as services and government procurement, such agreements were unlikely in agriculture given the deep divisions that had been revealed. In the EU, more volatile and higher food prices and concerns about a structural shift in the supply and demand balance in global agriculture had given a new set of food security arguments that could be deployed by advocates of subsidies and protection.
CONCLUSIONS
Much of the impetus has gone from international negotiations to liberalise international trade and it may never return. The USA is no longer as enthusiastic as it was about the liberalisation agenda, resistance has grown in the EU, and the developing countries have become more effective in mounting their opposition. This leaves advocacy for liberalisation to Cairns Group countries such as Australia. The DSM remains intact, of course, and may be used in the future to mount significant challenges such as to the claim made by the EU that the subsidies it places in the green box are not trade distorting.
The slowdown in agricultural trade negotiations does not mean that globalisation has also been halted in the food sector. Large multinational companies continue to dominate input industries. Direct commercial relationships developed between retailers in developed countries and suppliers in developing countries may well become more significant. Standards developed by private organisations such as GlobalGAP are acquiring a greater significance. Nevertheless, 'world trade is dominated by a small number of products with highly specific trade flows' (Marsden et al., 2010, p. 295). The political heat that agricultural trade generates is often out of all proportion to its economic significance, but in politics symbolism is often everything and agriculture and food touch on questions of national identity that transcend the prosaic and arcane language of trade negotiations.
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