agricultural trade

The WTO’s 12th Ministerial Conference in Late November – early December 2021 — the struggle for relevance

As the end of year 27 approaches since the WTO commenced operation, the struggle for relevance in a significantly changed world continues for the organization that is supposed to be the negotiating forum for international trade rules and for ensuring compliance with such rules. The current Director-General of the WTO has been working with Members to try to achieve positive results by the 12th Ministerial Conference scheduled to commence on November 29. The jury is out on whether WTO Members will be able to find sufficient common ground to permit a successful Ministerial.

While there has been broad agreement by WTO Members that reform is needed, there is no agreement as to what reform is needed as the 164 WTO Members have long since lost a common vision of the mission of the WTO. The lack of a common vision has been complicated by the rise of nonmarket economies like China and the abandonment of market principles by many either in sectors or more broadly.

A consensus system for decision making stifles rapid movement in addressing new challenges/opportunities and has permitted delay to characterize all aspects of the business undertaken at the WTO. For businesses, the WTO is not where pressing new issues get resolved or even addressed as a general matter.

Rules on electronic commerce are being pursued by a group of willing Members with questions and challenges presented by those not wishing strong rules to be pursued on a plurilateral basis. The same is true for other plurilateral initiatives of potential importance to updating the rule book.

The only multilateral negotiation ongoing, on fisheries subsidies, has dragged on for 20 years and remains mired in an effort by many to escape the disciplines being proposed to save marine life in the oceans.

Efforts from the Doha Development Agenda to continue reform and liberalization in agriculture have had some successes in terms of curbing export subsidies but has not been able to deliver significant liberalization through tariff reductions and have faced pressure from India and others to roll back the liberalization agreed to in the Uruguay Round through special rules on some topics. It is unclear that Members will actually find the desire to move agriculture forward by the 12th Ministerial.

The many trade challenges flowing from climate change are not yet central to the efforts of the organization but will increasingly occupy governments and companies and will complicate ensuring the relevance of the WTO moving forward.

While the COVID-19 pandemic has presented challenges to the operation of the WTO in terms of in person meetings and presented challenges and opportunities to have trade rules facilitate movement of medical goods versus compound trade problems flowing from efforts to control the pandemic, the effort by India, South Africa and others to get a broad based waiver to TRIPS obligations during the pandemic has generated little forward movement in terms of getting more vaccines to low- and middle-income countries while occupying a lot of band width in terms of Member energies at the WTO.

As is increasingly clear, while there have been production issues for some companies and while India’s need for vaccines in country led to its cutting off exports to COVAX and many countries, vaccine production in 2021 will exceed 10 billion doses (UNICEF’s COVID-19 Vaccine Market Dashboard visited on September 15, 2021 showed 6.077 billion doses as having been distributed by that point with capacity to produce vaccines at 4.5 billion in the first half of 2021 and 8.6 billion in the second half of 2021). In late June 2021, the International Federation of Pharmaceutical Manufacturers and Associations presented information at a WTO event that COVID-19 vaccine production in 2021 would likely be 10-12 billion doses. Similarly, the CEO and Founder of Airfinity prepared estimates for the WTO which showed global production could reach 11.856 billion by the end of the year. See WTO News, COVID-19 Vaccine Supply Chain and Regulatory Transparency Technical Symposium, June 29, 2021, https://www.wto.org/english/tratop_e/trips_e/technical_symposium_2906_e.htm (talking points of Ms¬†Laetitia Bigger, Vaccines Policy Director, International Federation of Pharmaceutical Manufacturers and Associations and presentation of Mr¬†Rasmus Bach Hansen, CEO and Founder, Airfinity.

Thus, the pressing issue for getting the world vaccinated is getting vaccine doses produced distributed to markets in need. That need has not and is not likely to be met through efforts at large scale waivers from TRIPS obligations which will not change the reality on the ground in 2021-2022.

The WTO along with the WHO, IMF and World Bank have held various events and issued joint statements seeking greater production, addressing production bottlenecks and getting expanded investments in areas of the world with limited supplies. Many governments and many manufacturers have provided some level of cooperation in expanding production and shipments to low- and middle-income countries. See, e,g,, International organizations, vaccine manufacturers agree to intensify cooperation to deliver COVID-19 vaccines, 16 September 2021, https://www.wto.org/english/news_e/news21_e/covid_16sep21_e.htm.

On dispute settlement, the two tier system embodied in the Dispute Settlement Understanding has unravelled as a range of important concerns raised by the United States over the last two decades have not been addressed meaningfully by WTO Members, leading to U.S. blockage of replacing Appellate Body members over recent years and the inability of the Appellate Body to consider appeals once the number of members declined below 3. While many WTO Members continue to seek a restart of the Appellate Body, it is clear that there will be no restart without serious reform. Such reform is unlikely to be achieved in the short term. The European Union which has been one of the challenges in terms of meaningful DSU reform has been making statements that they are now ready for fundamental reform. See, e.g., Financial Tribune, EU Calls for Urgent WTO Reforms, September 18, 2021 (“Dombrovskis said he was ready to consider a major shake-up of the WTO’s dispute settlement system, news outlets said.”), https://financialtribune.com/articles/international/110329/eu-calls-for-urgent-wto-reforms. So while the EU’s apparent changing view will be helpful, it is not clear if it will be sufficient to change the dynamics in Geneva.

Conclusion

There is a lot of work going on in Geneva with efforts to conclude the fisheries subsidies negotiations and achieve some resolution on the TRIPS waiver issue by the Ministerial in late November. There has also been progress made in various plurilaterals but questions have been raised as to whether plurilaterals can occur within the WTO if there is not consensus to include. The reform proposals on issues like industrial and agricultural subsidies, state owned enterprises, eligiblity for special and differential treatment and many others will not be resolved by the Ministerial and will not likely be part of an agreed agenda going forward. Agriculture and dispute settlement will be unlikely to see significant (agriculture) or any (dispute settlement) movement by the Ministerial.

Thus, while the jury is out on whether the WTO will remain relevant in a rapidly changing world, the challenges the WTO faces are daunting and the odds don’t favor success in today’s environment. Being an optimist, I am hopeful that the above analysis will prove wrong and the 12th Ministerial will start the process of a more relevant WTO. Here’s hoping.

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This is my first post since May 17. I have been taking care of personal business the last four months and had included a note in the “About” page indicating my next post would be in September.

Global agricultural trade — U.S. efforts at the WTO to expand agricultural trade

The United States has a long history of promoting expanded agricultural trade. It has been an issue of importance to many countries, though the level of protection in the agricultural space has been and remains very large. The Uruguay Round was an initial effort to tariffy various distortions restricting trade in agriculture, cap and make an initial reduction in tariffs, ensure minimum market access, cap and reduce subsidies and more. Future agricultural negotiations were built into the Uruguay Round’s Agreement on Agriculture. While elements of liberalization have been agreed since 1995(e.g., elimination of agricultural export subsidies), there has not been success on opening up agricultural markets through tariff liberalization.

For the last seven years, the United States has sought better understanding of the challenges to agricultural trade from tariff implementation issues. See Tariff Implementation Issues, Communication from the United States of America, G/AG/W/132, 4 June 2014.

Starting in the Trump Administration, the United States teed up six areas affecting market access from Members’ implementation of tariffs that need discussion and potential action. See Tariff Implementation Issues – June 2018 Update, Communication from the United States, JOB/AG/141, 25 July 2018.

“The United States of America has identified six areas within the area of market access that further analysis of Members’ current implementation of tariffs should be considered and discussed by Members in order to better understand Members’ current tariff regimes. This includes: (i) bound versus applied tariffs, (ii) complex tariffs, (iii) high tariffs (e.g., tariff peaks), (iv) issues with TRQs, (v) agricultural safeguards (SSGs), and (vi) regional/preferential trade agreements.” (page 2).

While the June 2018 submission from the U.S. looked at all six areas listed, the U.S. has since submitted more detailed papers on the first four topics during the remainder of the Trump Administration, and, on March 31, 2021, the Biden Administration submitted a paper on the fifth topic, agricultural safeguards. See Tariff Implementation Issues — Bound versus Applied Tariffs, Communication from the United States, JOB/AG/147, 9 November 2018; Tariff Implementation Issues — Complex Tariffs, Communication from the United States, JOB/AG/164, 31 July 2019; Tariff Implementation Issues — Tariff Peaks, Communication from the United States, JOB/AG/167, 24 October 2019; Tariff Implementation Issues — Issues with Tariff Rate Quotas, Communication from the United States, JOB/AG/169, 22 November 2019; Tariff Implementation Issues — Issues with Special Agricultural Safeguards, Communication from the United States, JOB/AG/192, 6 April 2021.

The 2014 submission by the United States had flagged the first three of the six issues and introduced the need for analysis. See G/AG/W/132 at 1-3.

“1.1. Market access barriers, and namely tariffs, continue to be an important obstacle to realizing the WTO’s objective of promoting trade. However, no multilateral discussions have been undertaken in this area since 2008.

“1.2. Under the various WTO agreements, tariffs are the only permitted import restriction (other than WTO-consistent non-tariff measures)1, and all agriculture tariffs are now bound. The manner in which tariffs are administered, however, can have significant effects on actual market access. In some cases, market access is facilitated, for example through the application of tariffs at levels below bound rates or through preferential access as a result of reciprocal trade agreements. In other cases, market access may be impeded, for example through the administration of complex tariff regimes or through the utilization of high tariffs and peak tariffs.

“1.3. The need for an updated understanding of the current state of Members’ tariff regimes is urgent if Members expect to have productive discussions on a possible market access result as part of the Post-Bali Work Program. In this regard, and as a start, we request that the Secretariat issue, in one compilation for the Membership, the most recent tariff and trade data available, including on Members’ average bound and applied tariff rates in agriculture, the percentage of agricultural tariffs bound at zero by Members, as well as Members’ global share of agricultural imports and exports. We also urge Members to ensure that all WTO notifications relevant to market access are up to date. This includes Integrated Data Base (IDB) notifications, as well as notifications of regional trade agreements.

“1.4. This paper identifies some of the issues associated with tariffs, supported with examples of tariff application and administration from the United States of America and other Members. The United States of America invites other Members to provide similar reports of their current administrative schemes in upcoming meetings of the Committee on Agriculture (CoA).

“2 BOUND VERSUS APPLIED TARIFF RATES (CORRESPONDING WITH EXHIBIT A)

“2.1. Many WTO Members maintain high bound rates in their WTO market access commitments. However, in practice, these Members oftentimes apply significantly lower tariffs allowing a government to modify its rates in response to domestic and international market conditions. As demonstrated in Figure 1, some Members have bindings substantially greater than applied rates, while others apply tariffs at the bound level. To illustrate this situation, it is useful to consider the situation of a diverse group of Members: Brazil, Chile, India, and Indonesia. These countries on average apply less than one-third of their average bound tariff, while Mexico applies on average less than one-half of its average bound commitment. However, a number of other Members, such as China and the United States of America, have lower bindings and tariffs for all agricultural products with tariffs applied at the bound level.

“2.2. The U.S. simple average bound agricultural tariff rate, according WTO tariff profile data, is 5% and applied tariffs also average 5%. The United States of America applies a tariff less than its bound level for three agricultural tariff lines, all of which are wool products2. Exhibit A illustrates bound and applied rates for several WTO Members to demonstrate the gap between bound and applied tariffs.

3 COMPLEX TARIFFS

“3.1. Another tariff issue concern the use of non-simple (ad valorem or specific) tariffs. These include formulaic measures (e.g. Minimum Import Prices, Price Bands, Variable Levies, Gate Price mechanisms) as well as simple discretionary tariff increases and decreases. These measures are aimed at controlling import competition and limiting competition for domestic producers. Oftentimes, this is accomplished by ensuring imports do not enter the domestic market at prices below domestic market prices. By blocking consumers’ access to price competition, these measures distort trade flows by restricting imports and allowing high-priced domestic products to be competitive. Ultimately, this reduces overall quantities imported.

“3.2. Approximately 30 Members choose to bind some tariffs at non-ad valorem (NAV) terms such as specific (a set value per quantity), compound (e.g. ad valorem and specific in same tariff), or mixed rates (e.g. either ad valorem or applied, whichever is higher). The share of NAV tariffs ranges from as low as 0.2% (Israel and Indonesia) to as high as 77% (Switzerland) of all agricultural lines. Based on the World Tariff Profiles 2013, nine countries including Canada, the
European Union, Iceland, Malaysia, Norway, Russia, Switzerland, Thailand, and the United States of America bound a significant share of their agricultural goods in NAV format.

“3.3. The United States of America applies specific duties for some agricultural products, as well as some compound duties. Specific duties have the virtue of predictability and are eroded over time with price inflation.

4 HIGH TARIFFS (CORRESPONDING WITH EXHIBIT B)

“4.1. An additional tariff issue is the use of high tariffs. High tariffs are a particular problem for trade in agriculture, as some Members that otherwise may have low average tariffs reserve “tariff peaks” for sensitive tariff lines. Tariffs in agriculture can exceed 1,000% and some Members apply tariffs at a very high level across an entire sensitive sector. Examples include: Canadian dairy and poultry tariffs (which exceed 200%); Japanese rice tariffs (which are between 500 and 700%); and most of the India’s agricultural tariff schedule (where tariffs are bound at 300%, 180%, or 100% for nearly all products).

“4.2. As displayed in Figure 2, the average tariff within various categories of agriculture is low. The United States of America has bound approximately 33% of its tariffs on agriculture at zero, approximately 43% at 1-5%, approximately 20% at 6 – 25%. Only a few tariffs exceed these tariff categories, including peanuts and sugar (with maximum rates of over 150%); dairy (140%); and some processed products (at 100%). The highest U.S. tariff is for a tobacco line, which has an ad valorem equivalent of over 400%. See Exhibit B for a summary comparison of average tariff rates by sector compared to the maximum tariff for the sector. Understanding which sectors and which countries have the most protective tariffs in place will help the Committee better understand the application of trade restrictions.

“1 See, e.g. Agreement on Agriculture, Article 4.2.

“2 USHTS 5101.21, 5101.29, and 5101.30. Bound rate of 6.5 cents/kg + 5%, applied tariff of zero.”

The 2018 effort by the United States provided additional rationale for focusing on tariff implementation issues and expanded the list of issues from three to six as noted above. See JOB/AG/141 at 1.

“1.1. In June 2018, the World Trade Organization Agriculture and Commodities Division and the Institute for Training and Technical Cooperation organized the Symposium on the Agriculture Policy Landscape to discuss the relationship between trade and agriculture. All of the various experts from around the world emphasized the need for more trade to improve global welfare, help producers, and address the challenges of sustainably feeding a growing world population. To achieve this, they stressed the importance of market-oriented trade as a means of advancing consumer and farmer welfare in all countries.

“1.2. In the agricultural sector, tariffs remain much higher than for other sectors, but have been reduced by more than one-quarter since 2001.1 Reducing tariffs, as was done through the Uruguay Round, contributes to the welfare gains from trade. However, it is important to have reciprocal reductions in tariffs. Indeed, it was shown that these welfare gains were greatest because of tariff reductions from both developed and developing countries. Reductions by only developed countries or only by developing countries resulted in suboptimal welfare gains.2 Further, locking in tariff reductions by all countries can contribute to substantial gains to global welfare going forward.3

“1.3. In June 2014, the United States of America submitted “Tariff Implementation Issues” (G/AG/W/132) to the Committee on Agriculture. In that communication, the United States of America noted that agricultural tariffs can distort global markets and make it difficult for consumers to have access to producer’s products. However, in some cases, market access is facilitated, for example, through the application of tariffs at levels below bound rates or through
preferential access as a result of reciprocal trade agreements.

“1.4. In order for Members to have productive discussions to address the challenges facing agricultural trade today, an understanding of the current state of Members’ tariff regimes, amongst other policy types, is needed. In 2014, the United States of America requested that the Secretariat issue, in one compilation for the Membership, the most recent tariff and trade data available, including on Members’ average bound and applied tariff rates in agriculture, the percentage of agricultural tariffs bound at zero by Members, as well as Members’ global share of agricultural imports and exports. While the United States of America is resubmitting this request to the Secretariat, the United States of America also urges Members to ensure that all WTO notifications relevant to market access are up to date. This includes Integrated Data Base (IDB) notifications, as well as notifications of regional trade agreements.

“1 Bureau, Guimbard and Jean, Agricultural Trade Liberalization, 2018, page 20, https://onlinelibrary.wiley.com/doi/abs/10.1111/1477-9552.12281.

“2 Caliendo, et. al., Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades, April 2017, http://www.nber.org/papers/w21768.pdf.

“3 Bureau et. al. (2018).”

In the five papers looking at individual tariff implementation issues, the U.S. provides a conclusion based on its analysis.

For “bound versus applied tariffs, the relevant conclusions are:

“1.13. Water is prevalent in all major agricultural product groups. In addition, although differences between bound and applied rates occur for both developed and developing Members and large and small trading economies, the level of water is larger for developing Members and smaller trading economies than it is for most developed Members and large trading economies.

“1.14. The United States also notes the issues of transparency specified in the beginning of the paper. The United States once again, requests the Secretariat to compile information and that Members ensure that all WTO notifications relevant to market access are up to date. The United States further urges Members to consider what other data could improve Members’ knowledge.” JOB/AG/147 at 8.

On the issue of complex tariffs, the relevant conclusions are:

“1.22. This paper constitutes the United States’ attempt to provide a deeper understanding of the tariff treatment faced by Members. In its analysis, the United States has found that complex tariffs are prevalent in all major agricultural product groups (with an exception of cotton). In addition, complex tariffs can be found in both developed and developing Members, large and small trading economies. However, complex tariffs are more prevalent in developed Members and large trading economies than most developing Members and smaller trading economies.

“1.23. Improving access to customers contributes to the likelihood that farmers get better prices for their products and in turn the more production they can undertake. Similarly, expanding access to more producers benefits consumers who have more choice and competition when seeking supplies. More open and transparent markets contribute to greater productive efficiencies, particularly for value chains, and foster competition that spurs investment and technological innovation.

“1.24. The United States again notes the issues of transparency. It requests that the Secretariat continue to compile information and that Members ensure that all WTO notifications relevant to market access are up to date and consider what other data could improve Members’ knowledge.” JOB/AG/164 at 9.

On the issue of high tariffs (tariff peaks), the U.S. conclusions are:

“1.16. In its attempt to provide a deeper understanding of the tariff treatment faced by Members, the United States of America has found that tariff peaks are prevalent in all major agricultural product groups (with an exception of cotton). In addition, tariff peaks can be found in both developed and developing Members, large and small trading economies. The tariff range is larger for developed Members and large trading economies than most developing Members and small trading economies. The same can be said in regards to the frequency of tariffs above 50%. When considering the WTO definition of “tariff peaks” however, developing Members and large agricultural trading economies have higher frequency of tariff peaks than developed Members and small trading economies.

“1.17. Improving access to customers contributes to the likelihood that farmers get better prices for their products and in turn the more production they can undertake. Similarly, expanding access to more producers benefits consumers who have more choice and competition when seeking supplies. More open markets contribute to greater productive efficiencies, particularly for value chains, and foster competition that spurs investment and technological innovation.

“1.18. The United States of America again notes the issues of transparency as specified in the beginning of the paper. It requests the Secretariat to continue compiling information noted in this submission and Members to ensure that all WTO notifications relevant to market access are up to date and consider what other data could improve Members’ knowledge.” JOB/AG/167 at 7-8.

On the question of issues with TRQs (tariff rate quotas), the U.S. conclusions are:

“1.37. The United States aims to deepen Members’ understanding of the prevalence and different methods of administration of tariff rate quotas. In its analysis, the United States has found that TRQs are used by 40 Members, both developing and developed Members alike. TRQs are prevalent in all major agricultural product groups, with dairy, sugar and animal products having a larger share of TRQs than other product groups. However, it is worth mentioning that nearly half of scheduled quotas are administered as applied tariffs.

“1.38. Although TRQs were designed as a tool of access, very high over quota and in-quota tariffs, low fill rates, and confusing operation and administration of TRQs are still prevalent today that can make TRQs a tool of protection rather than liberalization.

“1.39. The United States requests that the Secretariat continue to compile and publish information on TRQ administration, with a focus on deeper analysis of the issues identified in this submission. Likewise, the United States requests that Members ensure that all WTO notifications relevant to TRQs are up to date and incorporate data that could improve other Members’ knowledge.” JOB/AG/169 at 15.

On special agricultural safeguards, the U.S. conclusions are:

“1.27. The United States aims to share this analysis to deepen Members’ understanding of SSG utilization and notification. In its analysis, the United States has found that 33 Members have recourse to the SSG, both developing and developed Members alike, covering on average, 16% of their respective bound tariff schedules. However, less than one-third of the Members have actually taken recourse of SSGs in the last 10 years, applying the safeguard to, on average, 40% of the scheduled SSG lines. Those lines are largely made up of “animal products”, “dairy products” and “cereals and preparations”. Over the last 10 years, developing Members have utilized SSGs to a greater degree than developed Members.

“1.28. In its assessment of Member notifications, the United States has also encountered issues with Members either failing to notify SSG use or non-use, or not notifying within the timeframe specified in G/AG/2. In addition, Members that notify SSG usage lack consistency in reporting the information. These issues may cause confusion for importers and exporters of concerned products and reduces transparency for the WTO Members in reviewing utilization of the SSG in the context of the AoA. Therefore the United States encourages Members to examine these issues and discuss approaches to strengthen compliance with requirements and improve notification practices related to the SSG.

“1.29. The United States also requests that the Secretariat continue to compile and publish information on SSGs, akin to the note from January 2017 (TN/AG/S/29/Rev.1), with a focus on deeper analysis of the issues identified in this submission. Likewise, the United States requests that Members ensure that all WTO notifications relevant to SSGs are up-to-date and notified.” JOB/192 at 12.

Conclusion

There is an effort as part of preparation for the 12th Ministerial Conference to pursue a number of agriculture issues that have been pressed by various Members for a number of years. A number of the issues being pursued are looking at providing greater protections to developing countries. Of interest to many developed and developing countries are market opening measures, although it is unclear if anything will happen in this area with regard to tariffs.

For the United States, agricultural market access is a critical issue to most sectors and has broad Congressional support in both parties. The effort to develop a greater understanding of how tariffs are working in fact started in the Obama Administration following the impasse in the Doha Development Agenda in 2008 including on agricultural market access, was pursued in the Trump Administration and is being continued in the Biden Administration. The U.S. focus is useful to help flag just how distorted agricultural trade remains, the lack of transparency on many issues and the fact that greater market access for all necessarily must involve reduction in tariffs and countries handling all aspects of tariffs (including TRQs and SSGs) in a manner consistent with the obligations undertaken. The U.S. submissions are neutral in coverage and include U.S. actions as well as major agricultural exporters and importers.

What was described by the U.S. in its June 2018 on tariff implementation issues, continues to be true as the world tries to move through the COVID-19 pandemic. As was previously quoted from the U.S. communication, “All of the various
experts from around the world emphasized the need for more trade to improve global welfare, help producers, and address the challenges of sustainably feeding a growing world population. To achieve this, they stressed the importance of market-oriented trade as a means of advancing consumer and farmer welfare in all countries.”

The question for the WTO membership and the new WTO Director-General is whether in agriculture the WTO can in fact expand market access for agricultural goods as part of the 12th Ministerial Conference or whether meaningful agricultural liberalization will continue to evade the WTO.

Because of the wealth of analysis contained in the U.S. submissions, the documents referenced in this note are embedded below.

W132

JobsAG141

JobsAG147

JobsAG164

JobsAG167

JobsAG169

JobsAG192