Current status of farm policy reform,
compatibility with the WTO, and the role
of trade disputes
Tim Josling
Stanford Institute for International
Economics
Silverado Workshop, January, 2004
Objectives
• Set the scene for the discussions that will
follow on detailed issues of domestic policy
reform and the current WTO trade round
• Provide some controversy in an area where
conventional wisdom is rife but has not
always been an infallible guide to policy
developments
Questions
Address five questions on policy reform:
1. Has the domestic policy reform process
stalled? If so, is it likely to start up
again soon?
2. Has the WTO reform process stalled?
What caused it to falter? How can this
process be revived?
Questions
3. Is domestic policy change compatible
with the trade reform process? Or is the
trade process likely to be a constraint on
domestic policies?
4. Do trade negotiations at the bilateral or
regional level stimulate policy reform?
5. What about trade disputes in the WTO?
Is this an alternative approach to reform?
Has the domestic policy reform
process stalled?
• Reform is alive and well and living in Brussels
• US farm policy is moribund and drifting into
incoherence
• Other countries (Japan and Switzerland) are doing
somewhat better: others are backsliding
• Issues have largely changed, making many farm
policies of dubious relevance: new aspects of
reform are coming into focus
• So answer is an unequivocal “yes” and “no”
Is domestic reform likely to
accelerate soon?
• Budget pressures are looming to force changes, in
US and in EU
• However, such changes may be in wrong direction:
reform (cash-out) costs money
• Trade agreements are taking over as a main
constraint on policy and driver of reform
• Other pressures are coming from retail sector and
consumer and environmental groups
• Long run outlook encouraging but no short run
prospects for accelerated reform
Has the WTO reform process
stalled?
• Agricultural negotiations are temporarily stalled as
a result of Cancun fiasco
• Ministerial inadequately prepared: all the missed
deadlines came home to roost
• EU-US joint proposal on August 13, 2003 failed in
objective of forging consensus
• G-20 formed as a reaction and created new and
unpredictable dynamic for Cancun
• In the end, the debate on agriculture was never
joined
What caused it to falter?
• Brazil decided to side with China and India rather
than Australia and New Zealand: developing
country CG members joined Brazil
• G-20 “single issue” group with agenda focused on
OECD subsidies had difficulty negotiating
• African Cotton initiative posed additional
problems for US, EU: response inadequate
• US and EU could not go beyond their mandates
• Singapore issues used as an excuse for breakdown
of negotiations on agriculture
How can this process be revived?
• Agreement on framework very close if major
players want it: Derbez text is useful basis
• Signal from EU on export subsidies and US on
restraining “new” blue box (countercyclicals) will
be necessary conditions
• Indication of willingness to reduce tariffs by
developing countries would clinch deal
• Main problem is timing: can one do this in early
2004? In time for a Hong Kong ministerial in late
2004?
• Looks implausible but stranger things have
happened
Is domestic policy change compatible
with the process of trade reform?
• Domestic policy change in the US is deviating
from the UR framework of decoupled policies and
direct payments
• US finds “pure” green box policies unacceptable to
farm groups: need for policies linked to market
conditions (“new” blue box)
• EU attempting to move toward UR framework but
having difficulty giving up market management
• CAP Reform with Poland as a member more
difficult, though southern crops are likely to be
brought under reform plan
Is the trade process likely to have a
significant impact on domestic reform?
• Yes, in both obvious and subtle ways
• WTO constraints on domestic support will
continue to tighten as nominal payments ceilings
are reached
• Farm policy is now top of the agenda for
developing countries and for NGOs
• Other parts of the trade agenda are being held
back: pressure will increase for farm deal
• Connection between trade and security and trade
and economic growth could raise stakes
Can bilateral and regional trade talks
contribute to domestic reform?
• Conventional wisdom concludes that cannot deal
with agriculture at a bilateral, regional or
plurilateral level
• Singapore as bilateral hub has little impact on
agricultural trade
• But NAFTA (US-Mexico part) shows that
regionals can address agriculture effectively
• EBA (plurilateral) having major impact on EU
policy on sugar, rice and bananas
Can bilateral and regional trade talks
contribute to domestic reform?
• EU-MERCOSUR deal has always got stuck on
agriculture, but some movement likely soon
• US-Chile includes some agricultural provisions,
including safeguards
• CAFTA also has some lessons for agricultural
trade, and for FTAA: likely to be extended to DR
• US-Australia could also have some impact on US
policy
• FTAA has stumbled over issue of domestic
support, but not insuperable (pace Bhagwati)
Can bilateral and regional trade talks
contribute to domestic reform?
• If China goes regional (ASEAN+3, or ChinaIndia) then agricultural issues will have to be
addressed
• India may find it easier to liberalize agriculture on
a regional basis
• Japan and Korea will resist but may also yield in
trade-off for preferred manufactured access
• Australia, New Zealand and Chile may decide that
Asian market can be opened up easier that that of
the US and the EU
Do trade disputes have any impact on
farm policy reform?
• Legal approach can be an alternative way of
opening up markets to political approach
• Negotiations have helped resolve controversial
legal conflicts (e.g. oilseeds) in the past
• Panels can interpret rules in a way that forces
policy change: e.g. “what is a subsidy?”
• So far few challenges to farm programs since 1995
• Assumption has been that Peace Clause is
effective shelter, along with schedules
Can trade disputes stimulate reform
now?
• Peace Clause has ended, though it could be revived
(at a high negotiating cost to EU, Japan, US)
• Few challenges expected this year, in particular
while WTO talks continue
• But talks will continue “in the shadow of the law”
• Canadian Dairy case gives another avenue not
dependent on Peace Clause: EU sugar case could
be the key to this approach
• US Cotton case could also change the presumption
that panels can’t influence farm policy in US
Conclusions
• Interesting year for farm policy!
• WTO will make some progress on framework but
numbers will not be put in until Spring 2005
• Bilaterals will go ahead and add to the constraints
on farm policy
• Safeguard, contingency arrangements in bilaterals
could impinge on domestic policy
• Panels will declare at least two major farm
programs in violation of WTO obligations
• Several potential cases will reach the consultation
stage