IPE-ID first clash: Agricultural Trade

Yes, this will be the first “clash”, where there is a difference in a similar issue in both fields.

The tensions in agricultural trade aren’t something new, especially given the massive riots at the 1999 World Trade Organisation (WTO) Ministerial Meeting in Seattle and the current deadlock in the Doha Trade Round. The WTO of course is the world’s principal organisation for trade [1]. From its negotiations in 2001, came the Doha “Development” Round (DDA). “Development” is in parentheses as many of the tenets are not favourable towards developing countries. One such issue that has never been resolved is that of agriculture.

Doha of course was not the start of international discussions on agriculture but rather the first major discussion was during the Uruguay Round of talks, which led to the Agreement on Agriculture. Academics in field of IPE and International Development have noted the contradictory effects of the Uruguay Round and the AoA (see Stiglitz (2006: Chapter 3), Stiglitz and Charlton (2005: 49, 59) and Clapp (2004: 1440) for examples). That’s the similarity between both fields over the topic.

The difference came when I attended the lectures of development economists Ha-Joon Chang and Deborah Johnston. Their argument was that the developed countries agricultural subsidies actually are beneficial for developing countries, as this increase the amount of agricultural goods exported to the developing world. This is especially so given that (according to Chang, Johnston and others) that the majority of developing countries are net importers of “temperate” agricultural products such as livestock. Thus in summary, the US Farm Bill, EU agricultural policy should stay in place. To read more about this argument read the last few parts of this interview with Chang.

I was at first taken aback by their assertion, especially having read much on WTO policies and secondary literature on agricultural trade [2]. Does this mean that its ok to keep trade distorting policies in Western countries? Are US Senators and Congressmen right to keep the US Farm Bill especially for the farmers in their states? More importantly, does it mean that the years of negotiation over market access was wrong?

My queries to those academics and my own investigations intially showed that there were indeed differences in the views of IPE scholars and these development economists. The first evidence was from Stiglitz and Charlton (2005: 122) which drew material from Dimaranan, Hertel, and Keeney (2003). The argument was that trade liberalisation along Doha “Development” guidelines would mainly occurs gains to agricultural producers in middle income countries such as Brazil and India and not the Least Developed Countries (LICs). This issue was however similarly noted by IPE academics such as Taylor (2007) (see also work by Amrita Narlikar on Brazil and India in the global trading arena). Taylor in fact noted that Brazil and India’s leadership in the WTO’s G20 group was more to continue the neo-liberal advancement of trade liberalisation. Therefore, the IPE field has noted that there will be disproportionate gains in different developing countries.

The second area concerns the claim that export subsidies of the developed/Organisation for Economic Cooperation and Development (OECD) countries benefit developing countries. This however must be clarified on which sort of agricultural products are beneficial. As Stiglitz and Charlton (2005: 121) have pointed out, some countries in the developing world are net importers of “some types of crops and livestock” (though I’m not sure this is the case for all developing countries). The authors noted that such products stand the greatest risk of price increases. The Food and Agricultural Organisation report back’s up the claim that developing countries are net importers. That article also states how the effects of liberalisation in developed countries would be detrimental to some developing countries. This is probably a fact not mentioned in IPE texts.

However, this in my view does not imply that US/EU subsidies/agricultural support is pro-development. Alan Matthew (2001) noted the imbalanced nature caused by export subsidies and domestic support around the onset of the DDA. On the IPE side, Jennifer Clapp (2004: 1441-1447) noted that not only are US export credits trade distorting but US food aid has also had an adverse effect especially with the introduction of GMO food.

More importantly, it is well known that the European Common Agricultural Policy (CAP) has created a sharp imbalance in the global agricultural system. It has actually fallen under the various WTO boxes–Amber, Green and Blue. The downside to having such enormous subsidies is that of dumping surpluses in developing countries. At the same time, the high trade barriers in European countries have prevent trade flowing the other way. The result is the championing of fairtrade products which is hardly a long term solution for development. (See this Oxfam report on European double standards).

A break from what IPEians like Clapp (2007) and Young (2007) have argued? Perhaps Chang and Johnston are right, that the protection in OECD countries are on goods that developing countries aren’t exporting. Following suit, CAP and the US Farm bill benefit the consumer in the developing world and any altering of them. However, there’s not much empirical data coming form them (or is there?) that the developing world are simply exporting the “wrong” products. CAP is an overarching policy covering subsidies and barriers to entry to local European markets. The developing world has been and continues to suffer from OECD trade barriers. In fact, Stiglitz and Charlton (2005: 62 123) noted that subsidies curtailed export incomes in African nations. The authors in fact have argued for the removal of EU border protection, the trade barrier against developing world exports. This is much against the claim the OECD production subsidies benefit the developing world.

Another issue that seems to be distinct from what appears in the IPE literature is the talk about the Non Agricultural Market Access (NAMA) rule, which Chang has harped on many times. (See Paragraph 16 of the 2001 Declaration and the NAMA site). the basic idea is that developing countries reduce their agricultural tariffs and barriers in exchange for access to selling industrial exports to the developed world. Chang drums this part up as a main part of the agricultural negotiations to say that liberalisation is evil. Yes, this quid pro quo is dripping with adverse neo-liberal effects and yes it links to the trade topic of Special and Differential Treatment (SD&T). However, unlike Chang assertion, NAMA isn’t really a main part of the agricultural negotiations/deadlock. NAMA is present but the Agricultural debate is a major topic by itself altogether, as Clapp (2007) has noted.

This comes to another part of the “clash”–that according to the two development economists, the negotiations are all in the wrong direction. Continued talk on agriculture will only lock the developing world into that area for development and thus leading to little progress in the long run–such countries will be known forever as agricultural producers. Instead, Chang and especially Johnston (during her lecture) advocated the focus back on industrial goods. On the surface, this is absent (or is it?) from the IPE side. Well, yes, no country has succeeded with just agriculture, and yes Stiglitz and Charlton (2005: 122) have noted that even the focus on say cotton would have only a small change in the living standards of cotton producers.

However, this does not mean that the agricultural negotiations in the WTO should be scrapped and a sudden jump to a focus over industrial goods. Yes, there should be more SD&T towards the developing world. However, agriculture can still assist with their development in the short run. What should occur is a change of leadership in the G20 to press for a genuine global pro-development agricultural policy that works for the producers of the developing world.

There did and does seem to be a clash with the claims of Doctors Chang and Johnston over the global agricultural trade especially with the effects of subsidies. Did the IPE side forget or miss this argument? Both fields have argued that the DDA is non-developmental but the two academics have argued something else away from the mainstream regarding subsidies. Perhaps it boils down to them making their claim with a more detail line and with empirical evidence.

Your opinions or Chang and Johnston’s assertion and this article are naturally welcome.

Update: Duncan Green’s latest blog post is on the US dumping maize/corn on Mexico due to the tenets of NAFTA. If NAFTA is reformed, how will the Mexican consumer (who buys the subsidised grain) be affected? How about the Mexican maize/corn proiducer?

[1] For general reading on the WTO (especially its predecessor the General Agreement on Trade and Tariffs (GATT)), see books such as Dunkley (2001) and Hoekman and Kostecki (2001)

[2] I’m referring to the mountains of IPE/political economy texts on the WTO and agricultural trade. One excellent reading on the latter topic is Clapp (2007)

Clapp, J., 2004, “WTO agricultural trade battles and food aid”, Third World Quarterly, 25(8), pp.1439-1452

Clapp, J. 2007, “WTO agriculture negotiations and the Global South” in Lee, D. and Wilkinson, R. (eds.) The WTO after Hong Kong: Progress in, and prospects for, the Doha Development Agenda, Abingdon: Routledge, pp.37-55

Dimaranan, B., Hertel, T. and Keeney, R., 2003, OECD Domestic Support and the Developing Countries, Paper presented at the Sixth Annual Conference on Global Economic Analysis, The Hague, The Netherlands
https://www.gtap.agecon.purdue.edu/resources/download/1442.pdf

Dunkley, G., 2001, The Free Trade Adventure: The WTO, the Uruguay Round and Globalism—a critique, London, Zed Books

Hoekman, B. M. and Kostecki, M. M., 2001, The Political Economy of the World Trading System: The WTO and beyond, Second Edition, Oxford: Oxford University Press

Matthews, A., 2001, “Developing Countries Position in WTO Agricultural Trade Negotiations”, Development Policy Review, 20(1), pp.75-90

Stiglitz, J.E., 2006, Making Globalization Work, New York: W.W. Norton & Company

Stiglitz, J.E. and Charlton, A., 2005, Fair Trade for all: How trade can promote development, New York: Oxford University Press

Young, A.R., 2007, “Negotiating with diminishing expectations: The EU and the Doha Development Round” in Lee, D. and Wilkinson, R. (eds.) The WTO after Hong Kong: Progress in, and prospects for, the Doha Development Agenda, Abingdon: Routledge, pp.119-136


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