Tuesday, 5 August 2008

Doha and the Price of Failure - can there be progress outside of Doha?

Price of failure.
In the context of high global agricultural prices, a potential Doha agreement would have had little near-term effect. Banning export subsidies and other domestic price supports would have done little, since the amounts governments currently spend on trade-distorting subsidies are well below the proposed WTO limits -- even after the expiration of a proposed five-year phase-in period.However, over the medium-term the agreement that was almost within reach would have transformed the nature of agricultural trade and policy:

- Preventing backsliding.
The broad reform of domestic farm policies in developed countries that began in the mid-1980s, and gathered steam in the 1990s, switched the focus from supporting commodity prices towards paying farmers direct income subsidies. Controversy still exists as to whether these payments are trade-neutral, but they are certainly superior to the purchase of surplus products by governments, and their subsidised disposal on world markets. These changes enabled countries to agree to key WTO principles on the nature and extent of subsidies; the Doha Round was supposed to tighten the screw and prevent backsliding.
- Softening hard times.
Trade agreements are most beneficial when economic conditions are weak. They reduce the inherent uncertainty of trade by constraining the ability of governments to use trade restrictions to shelter domestic producers in hard times. When the economy is buoyant they are less visible: exporters, who usually drive trade policy, are less concerned about protectionism. The WTO Agreement on Agriculture is at its most relevant when world food prices are declining -- as they eventually must.

- Reduced uncertainty.
As every farmer knows, periods of low prices inevitably follow boom periods. There is little evidence to show that this current boom is different. Demand from China and other emerging markets could cool if their frenetic growth rates slow, and supply is likely to respond to higher prices. What governments will do when prices start to slide, in particular if costs are still high, is uncertain. However, it would be remarkable if some governments did not revert to supporting domestic prices.

Progress outside Doha?
Frustration with the unwieldiness of a negotiating forum of 153 countries, each with a veto, is likely to simmer for some months. Therefore, other options for pushing trade liberalisation outside of Doha may need to be explored:

- Regional moves?
One such alternative is to negotiate limits on domestic support and export subsidies in the context of new or existing regional agreements -- although the problem of giving a 'free ride' to other exporters makes this unattractive,

- Seeking 'critical mass'.
More promising is the negotiation of 'plurilateral agreements' among those with most at stake. (Such trade pacts are often called 'critical mass' agreements.) However, in order to conform to WTO rules, the benefits would have to apply equally to other countries so as to avoid discrimination.

What is clear is that the Doha deadlock does not remove urgency of reforming global agricultural trade. However, whereas a comprehensive agreement was once thought necessary to secure complex trade-offs, future progress may have to proceed in smaller steps.


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