Regulating or manipulating agricultural trade: The shoddy practice of non-tariff barriers
A central proposition of this analysis of rapidly rising food prices globally, is that the only long-term sustainable solution to this is the reconstitution of global trade along lines that allow for comparative and competitive advantages to be the main determinants of what and which countries export food products. With the coming on-stream of the WTO in 1994 and its later effort at a reform programme as embodied in the Doha Declaration of 2001, for the first time in history a serious global effort is underway to achieve this. That effort, however, has faltered badly. Originally scheduled for completion in 2005, the Doha Development Round of global negotiations is still underway. Last month’s WTO Mini-Ministerial had hoped to clear outstanding hurdles so that the Round could be completed by December 2008. This has since ignominiously collapsed.
Recap
Previously, I had indicated that agricultural trade, and in particular three issues related to it, were the main stumbling blocks to progress. Thus far I have considered two of these and in today’s article I shall discuss the third, as a prelude to wrapping up this analysis.
To recap, I had identified the first stumbling block as the massive subsidies given by governments in rich countries to their farmers. These are technically termed as Official Trade-Distorting Domestic Support Measures and they give to farmers in rich countries an unfair and artificial competitiveness to their agricultural exports. The tragedy of this situation is that, while most of the world’s subsidies are paid to farmers in rich countries, most of the world’s farmers in fact live in poor countries. As I pointed out, despite formidable constraints, the axis of global production and exports of food is tilting towards the poor countries.
The poor countries’ response to this situation of massive subsidies in the rich countries creates the second stumbling block. If they were to allow access to their markets for food produced on this basis, they risk serious injury and disturbances to their own domestic producers. Why is this the case?
For one, if the prices of food imports are made artificially cheap, domestic producers in poor countries would suffer from competition, imports would surge, disrupting national markets and national production of these items. There might even be cases of predatory behaviour, where such imports are deliberately sold at prices below the cost of production in order to capture markets. Once captured, prices would then rise. It would be very difficult for domestic food producers in poor countries to go out of farming when prices fall and then return to it when prices rise.
These are among the many reasons why governments in the poor countries require legal safeguard measures to be in place before they liberalise their markets. Safeguards may take many forms, from anti-dumping provisions, to countries having lists of Sensitive Products, for which they are not prepared to liberalise trade at all, to Special Products. In the list of Special Products, some items offer no liberalisation at all and some phase in liberalisation up to pre-established ceilings, which are lower than for normal products. As we noted last week, very major disputes also centre around these safeguard measures at the WTO.
These two stumbling blocks are closely linked. The call for safeguards in poor countries rises as fears of subsidized imports from rich countries rise. The third stumbling block is also related to the other two, but not quite so explicitly. That stumbling block is how to treat, in the context of trade reform, with non-tariff barriers to agricultural trade.
Non-tariff barriers to trade
This is a generic term, which covers all restrictions placed on imports other than tariffs or their monetary equivalent. As worldwide countries/regions enter into formal trade agreements with each other to cut tariffs, whether bilaterally (as with the Economic Partnership Agreement (EPA)) or multilaterally (through the WTO), there has been a discernible rise in the level of non-tariff barriers on agricultural trade.
To be sure some of these barriers are not deliberately designed to prohibit trade per se. They seek to regulate trade in the interest of public safety, national security or environmental protection. These barriers refer particularly to health and sanitation regulations specifying that products do not contain hazardous substances. For example, they do not contain excessive pesticides and other chemicals, or disease agents and harmful bacteria. Countries may also seek to regulate the rate of depletion of their natural resources in order to protect future generations of citizens by producing at a sustainable rate. Thus they may, for example, regulate the rate of fishing, wild life sales, or forest depletion in order to conserve their natural resources.
Most readers, however, would be aware that several of these protective regulations have been contested as being scientifically unsound and therefore discriminatory. The best known example is the EU prohibition of imported food utilizing genetically modified organisms (GMOs). Countries producing such foods, however, have contested the EU prohibitions as discriminatory and favouring their own domestic farmers. Another good example is beef, where countries like Japan and Korea have prohibited the importation of beef from countries like Europe and the United States that have had outbreaks of “mad cow disease” and now claim exported beef is “disease-free.”
Uneven burdens
While technical specifications and standards apply to imports from poor and rich countries alike, it is the case that poor ones seem to suffer from them disproportionately. For example, rich countries may apply high standards to processed food imports, which “cottage industries” in many poor countries find hard to meet, while remaining cost effective. At the same time, however, poor countries do not possess the regulatory capacity to enforce high standards on their imports of foodstuffs from the rich countries. This creates uneven burdens.
Some of the ways in which non-tariff barriers are used not just to regulate trade, but to in fact ‘protect’ the domestic market against foreign competition are very creative. This is often seen with packaging and labelling requirements, technical guidelines to be followed in the production of imported products, and administrative measures, for example, direction by the governments to “buy local” when procuring items for state entities.
Under the WTO rules countries commit to what is known as National Treatment. This requires that imported products are treated no differently from national products. Indeed, if the aim of the WTO is to promote the formation of a truly single global market for food, this is an indispensable requirement.
Next week I shall conclude this discussion of non-tariff barriers by looking at the concrete example of their treatment in the Economic Partnership Agreement (EPA).