Evaluating agriculture in the Nairobi package
This article analyses the main elements of the agriculture package from the Nairobi WTO Ministerial Conference and the related implications for developing and least developed countries.
Trade negotiators in Geneva are still trying to make sense of how farm markets will be affected by the package of measures that was agreed last December at the Tenth Ministerial Conference of the WTO in Nairobi, Kenya. The deal saw WTO members make progress on a number of long-standing questions on the global farm trade agenda—although many others remain to be resolved.
Eliminating export subsidies
Progress on agricultural export subsidies and other export competition measures with similar effects was one of the main outcomes from the ministerial. These types of policy instruments have long been blamed for harming farmers by artificially suppressing farm prices on global markets, with ministers first vowing to eliminate them over an eight-year period when they met at the Sixth WTO Ministerial Conference in Hong Kong in 2005.
Reforms to farm policy since then have seen this type of subsidy tool become largely redundant in some of the wealthy countries that previously relied on them to dispose of surplus production on markets elsewhere. In particular, the dismantling of market price support schemes in the EU made it easier for WTO members to reach the deal that was struck in December.
While the Nairobi package commits developed countries to end immediately all export subsidies, a footnote contains an exception allowing these payments to be made until 2020 for dairy products, swine meat, and processed products. Among other things, countries wishing to make use of this clause must agree not to increase the quantity of products benefiting from this support, nor to begin subsidising exports to new markets or for new products, and must also commit not to subsidise their exports to least developed countries.
Developing countries would have to phase out their own use of export subsidies by the end of 2018, with an extra five years for certain export subsidies covering transport and marketing costs. With market price support schemes becoming more important in a few large developing countries, in the long term this clause could be important in protecting farmers in the world's poorest countries from the disposal of unwanted surplus farm products originating in other parts of the developing world.
Export credits and exporting state trading enterprises
The deal also saw the US agree to new disciplines on export credits, export credit guarantees, and insurance programmes, which effectively lock in Washington's current practice of providing an 18-month maximum repayment term for export financing. Cereals and oilseeds are among the products which have most benefited from this type of subsidy to date.
The Nairobi outcome also includes new disciplines on agricultural exporting state trading enterprises, which would require WTO members not to use them to circumvent disciplines on export subsidies or other commitments in the Nairobi decision. Data from the WTO secretariat suggests that while China and India seem to operate relatively large numbers of these state-run firms, they are also active on particular commodity markets in developed countries such as Australia and New Zealand.
International food aid: In-kind aid, monetisation disciplined
The ministerial conference also led to a ministerial decision on international food aid, setting out new principles that countries must follow.
The deal builds on previous efforts at the WTO to ensure that aid is available in humanitarian emergencies, but also does not effectively serve as a disguised export subsidy.
Food aid must be needs-driven; provided in fully grant form; and not "tied" to commercial exports of other goods and services, the deal says. It should also not be linked to market development, or be re-exported.
A draft text circulated during the course of the ministerial had raised concerns among humanitarian agencies and other aid effectiveness proponents, who criticised the non-binding and "aspirational" language in which the new commitments were framed. However, changes made to the text in the final stage of negotiations might have alleviated some of these concerns.
The agreement states that governments must not provide in-kind international food aid in situations where this would adversely affect local or regional production. It also states that food aid can be "monetised"—or sold to raise cash for development projects—“only where there is a demonstrable need,” and also requires a market analysis to be completed before any food is sold in this way.
Cotton: Preferential market access for LDCs
A separate Nairobi decision set out negotiated outcomes on cotton, which in 2008 was famously described as a "litmus test" for WTO members' commitment to the development dimension of talks on trade.
The agreement commits developed countries to provide duty-free and quota-free market access to least developed countries for cotton and cotton products “to the extent provided for in their respective preferential trade arrangements.” Developing countries declaring themselves in a position to do so, including China, would provide the same concession.
While a step forward for cotton producers in least developed countries, the deal appears to leave open the possibility that this level of market access could also be revoked if preference-granting countries chose to do so.
The Nairobi cotton deal also requires developed countries to implement their cotton-related export competition commitments immediately, while developing countries would have until January 2017 to do so. Data from the WTO secretariat seems to indicate that countries have not notified the use of export subsidies on cotton, despite a ceiling of just over US$60 million for all members' combined budgetary outlays. However, delays in notifying agricultural export subsidies to the WTO could mean that the available data may not accurately reveal the full extent of support in this area.
The agreement is least specific on the one topic that cotton producing countries have consistently highlighted in recent years: the question of trade-distorting domestic support. Trade officials familiar with the talks in Nairobi have indicated that differences between developed countries and large developing countries prevented progress on the issue.
An ICTSD study in 2015 found that the US Farm Bill could depress world cotton prices by almost seven percent, while support schemes in China have led to massive stocks accumulating, raising fears that a sudden release could also push down prices and penalise producers in poorer countries.
Public stockholding: A permanent solution?
The Nairobi conference also saw ministers reaffirm their commitment to negotiate a 'permanent solution' on public stockholding for food security purposes, as well as previous decisions which commit members to refrain from bringing trade disputes under WTO rules on farm subsidies until a lasting agreement is reached.
Developing countries in the G33 coalition, coordinated by Indonesia but with strong support from New Delhi, have argued that the way in which farm subsidies are currently calculated at the WTO fails to take into account the impact of price inflation that has occurred since reference prices were set at the global trade body over two decades ago.
Exporting countries, meanwhile, have been reluctant to exclude food purchases made at administered prices from counting towards the WTO's "amber box," fearing that doing so could open the way for countries to provide unlimited amounts of trade-distorting support to agriculture.
The compromise has been an uneasy truce which in reality seems to satisfy none of the members concerned, and arguably does little to provide more equitable and predictable future basis for determining the extent to which subsidies can be said to distort trade and markets in agriculture. The negotiations to date have sought to address this issue under a separate negotiating track, although so far without bearing any fruit.
Special safeguard mechanism
Another G33 demand—for a "special safeguard mechanism" that developing countries could use to raise tariffs temporarily in the event of a sudden surge in import volumes or a price depression—also led to a commitment to further negotiations in dedicated negotiating sessions of the WTO committee on agriculture. G33 members recalled that, unlike many developed countries, they have faced difficulties in taking advantage of an existing safeguard under Article 5 of the WTO Agreement on Agriculture.
Agricultural exporting countries, on the other hand, insisted that a special safeguard mechanism could only be negotiated in the context of a broader deal on market access. Due to deep-seated differences between WTO members in this area, this was not on the table at Nairobi.
Since trade talks at the WTO hit a snag in 2008, many of the world's biggest trading nations have pursued market access primarily through preferential bilateral and regional talks, most recently in the so-called "mega-regionals," such as the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP). The nature of the market access concessions enshrined in these deals, as well as new regulatory norms, is likely to inform the parameters of future multilateral talks on trade, including potentially in areas such as safeguard provisions that poorer countries can invoke to protect domestic producers from volatility on global markets.
Arguably, the Nairobi conference allowed governments to take a meaningful bite out of the far bigger global trade agenda on food and agriculture, even though many issues remain unresolved. In particular, negotiators managed to obtain concrete concessions that could contribute towards more equitable and sustainable global markets for food and farm goods, including on long-standing farm trade issues such as export subsidies, food aid, and cotton. How governments now implement the commitments that have been made could be key to determining their actual impact around the world.
At the same time, WTO members have a large and growing agenda of unresolved issues that still need to be tackled, including on questions such as domestic support and market access. As trade officials seek to navigate their way forward in the new negotiating environment, a sound understanding of the evolving landscape of farm trade will be critical in helping them find their bearings.
Author: Jonathan Hepburn, Agriculture Programme Manager at ICTSD.