Agriculture in trade policy : a change is gonna come?

Trade policy and especially the fear that trade negotiations between the EU and the United States could undermine European standards on food safety was one of the most contentious issues discussed during the recent European elections campaign.

To understand the saliency of this issue, it is important to recall that the EU is currently negotiating both a multilateral trade agreement in the WTO as well as preferential trade agreements (PTAs) with several of its trading partners, especially one with the United States.

Most scholars agree that international trade is characterized by a form of agricultural exceptionalism: there is a gap between the diminishing economic importance of agriculture and the persistent stalemate over agricultural subsidies in multilateral negotiations. Indeed, despite the entry into force of the 1994 Agreement on Agriculture developed countries still apply high tariffs on agricultural imports (45% on average).

Illustration article

http://www.photo-libre.fr/agriculture_photo.htm?IDPICS=109&ORDRE=0&DESC=0&EXIFDATE_ON=0&PREVIEW=6.jpg .

I)                    The problems with liberalizing agriculture in the WTO

In the World Trade Organisation (WTO), it is possible to identify at least three groups of countries with divergent interests on agriculture. Firstly, the Cairns group is made up of agricultural exporting countries and aims at prohibiting all trade distorting measures (export subsidies, price support) that are especially used by the EU and the United States. Secondly, a second group is made up of countries seeking to preserve public support to agriculture as an instrument to pay for public goods that are made available thanks to agriculture, for instance, a more balanced spatial planning . The EU or Switzerland are strong proponent of this vision of agriculture. Thirdly, certain developing countries such as India seek to be excluded from agricultural liberalization measures on the ground that they need to ensure decent living standards for their many subsistence farmers. (This is very clear In general a reference or link would be useful)

Securing a consensual agreement between these three groups of countries will prove to be a challenge as it is worth recalling that agriculture is the very reason why the Doha negotiation were suspended by Pascal Lamy back in 2008.

It is true that for the first time a relaunch of the Doha round can be envisaged, as WTO members found a compromise in Bali last December on trade facilitation measures allowing the continuation of food products stocks in India and other developing countries. But this agreement is partial and does not clear the agriculture topic from the negotiating table. In addition, negotiations in the WTO are governed by the single undertaking principle: as the WTO website puts it, it effectively means that “Nothing is agreed until everything is agreed”[1].

II)                  Preferential trade agreements : a workable solution or a new source of contentious issues?

Given the stalemate faced at the multilateral level, preferential trade agreements (PTA) have gradually become a more attractive path for countries seeking to have better access to the markets of their principal trading partners. PTAs are often free trade agreements through which parties commit to abolish all tariffs on a substantive part of their bilateral trade. Less frequently, countries may choose to establish customs unions (CU) by agreeing on a common external tariff (CET) for foreign goods entering the CU. The European Community became a customs union by 1968 as all tariff barriers had been removed between the six founding countries.

A smaller pool of countries usually raises less difficult issues, and is easier able to set aside potential difficulties. For example, in the bilateral trade agreement between Canada and the EU several provisions concern a mutual recognition of regulatory standards regarding cars or professional qualifications. Obviously, a small number of countries is much more likely to find an agreement, not only because there are less problematic issues but also because trade-offs are much easier to find when only 2 or 3 countries may be unsatisfied. There is a whole debate among economists on whether PTA pave the way to non-discriminatory market openings at a later stage or whether they actually threaten the most favoured nation principle. This principle is based on the idea that countries are barred from discriminating between their trading partners.

But to come back to the issue of agricultural trade liberalization, it is hard to dispute that agriculture has often been considered too controversial to be included within PTA and when it did appear in agreements, very large safeguard clauses were included.

If we take the example of the Transatlantic Trade and Investment Partnership (TTIP) currently under negotiation between the United States and the European Union, agriculture may very well be absent from the final agreement (if one is agreed on).

Indeed, the controversy over agriculture in trade negotiation go beyond tariffs and trade distorting measures and also covers non-tariff barriers.   The issue of geographical indications for food products illustrates how differently Americans and Europeans conceive the protection of farmer’s know-how: for Americans the market, through brands, allow consumers to identify products with specific characteristics. Conversely, in the EU, a public system of certification has been put in pace to ensure for example that only goat cheese produced in certain parts of South West France and respecting traditional methods of production can be sold under the label « roquefort ». In December 2013, about fifty members of Congress from both parties sent a letter to President Obama stating that Congress would veto any agreement foreseeing a recognition of European style geographical identifications. Signers of this declaration assimilated geographical identification to distorting measures which would allow European food products to compete unfairly with domestic products on the American market.

The issue of food products using genetically modified organs (GMO) is another example of sensitive regulatory question on which Americans and Europeans adopt very different solutions. While American law tends in general to favour a cost benefit approach to regulation, EU law has in effect constitutionalized the precautionary principle and imposes on manufacturers the mandatory labelling of food products containing GMOs.. In the past, US authorities have regularly charged the EU with adopting restrictions lacking scientific base and limiting US export opportunities.

Americans and Europeans clearly express different collective preferences on food safety measures and it limits the capacity to achieve closer integration of agricultural markets through a bilateral PTA between the two partners.

To conclude, despite a gradual realignment of agriculture since the 1980s, agricultural exceptionalism remains a reality and still limit the possibility to liberalize agriculture.

Most probably, PTAs and multilateral negotiations are complementary solutions to achieve this goal: while the former are an appropriate framework to explore regulatory convergence and the tackling of non-tariff barriers, the latter are still the best avenue to lower tariff barriers and trade distorting support measures.

It remains to be seen whether PTAs are a better formula to achieve trade liberalization covering non-tariff measures, but the difficulties experienced over the TTIP must bring us to be careful before backing up such a claim. As far as the Doha negotiations are concerned, the divisions between three blocks of countries may make striking a compromise quite difficult despite the recent compromise achieved in Doha.

Guillaume Meynet

[1] World Trade Organization, How the negotiations are organized. Retrieved June 24 2014. http://www.wto.org/english/tratop_e/dda_e/work_organi_e.htm

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About luisbouzagarcia

I am the academic coordinator of the EG courses at the College of Europe. I am an alumnus of the CoE (Natolin campus). In 2012 I finished my PhD in Aberdeen with a thesis on the role of civil society in the discussions on participatory democracy in the EU. I am interested on the ongoing debates on the legitimacy of the EU and in how debates and different social actors contribute to the emergence of European Public sphere. Twitter profile: @luisbouzagarcia

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