I welcome the opportunity to talk to you today on behalf of the World Trade Organization (WTO) at this International Business Panel Discussion, which constitutes the main event of the Global Forum for Food and Agriculture (GFFA) along with the Berlin Agriculture Ministers’ Conference, the world`s largest conference of Agriculture ministers.
At this Berlin conference, officials and farm organizations can engage with each other to explore, among other things, how best to encourage sustainable agricultural production and promote global food security.
This afternoon, I wish to convey five key points:
(1) Although we do not often think in these terms, nothing, after national defense, is as important to the welfare of the world`s peoples as fostering agriculture;
(2) Although it is something taken for granted, it must be recognized that a major proportion of world trade in agricultural products is subject to WTO rules;
(3) All would agree that as good as the rules are, they require improvement;
(4) Improvements cannot best be achieved through bilateral or regional trade agreements; and,
(5) There is a real opportunity to successfully address fundamental agricultural trade issues in the WTO starting now.
The first objective, fostering agriculture for the common good is well-stated in the second of the Sustainable Development Goals 2030 adopted by the United Nations. It reads: "End hunger, achieve food security and improved nutrition, and promote sustainable agriculture."
The WTO plays a vital role in working toward achievement of this goal.
The relevant work of the WTO in agriculture rests on five premises:
- Openness to trade increases the availability of food by enabling products to flow from surplus to deficit areas;
- Openness to trade encourages an effective allocation of resources based on comparative advantages, thus limiting inefficiencies;
- Openness to trade increases the diversity of national diets and accelerates the diffusion of sound sanitary and phytosanitary (SPS) regulations around the world reducing unnecessary barriers to trade;
- Openness to trade provides greater access to affordable and high-quality food for people everywhere; and
- Openness to trade contributes to the reduction of price volatility, a benefit for farmers, ranchers and consumers alike, as risks associated with domestic food production are much greater than those where the production of many countries is pooled worldwide.
In short, the WTO`s rules-based international trading system provides the foundation for the production, distribution and consumption of agricultural products on a global basis, promoting the food security of its members, as well as ensuring the safety of food for both humans and animals through cooperation with relevant international standard setting organizations.
WTO disciplines, which underpin the rules-based multilateral agricultural trading system, constitute an invaluable collective public good which need to be strengthened in order to widely spread around the benefits among countries. These disciplines limit and reduce the distortions generated by domestic agricultural policies and ensure that trade flows as smoothly and as predictably as possible guaranteeing the food security of Member countries and their customers. In addition, effective and broadly accepted dispute settlement can ensure that trade divergences do not spiral into larger conflicts and disrupt trade.
An illustration of this central feature of the world trading system is how one such conflict was handled. It was called "the Chicken War". When the European Common Market was formed, what had been an open market for U.S. poultry was lost. The U.S. was authorized by the GATT rules to retaliate, or more accurately, compensate itself for the loss of market access, and it did so, by raising tariffs on a number of European products -- on high quality brandy, light trucks from Germany, potato starch and dextrine. One of the private sector advisors to the U.S. government told me later that President Kennedy had called Chancellor Adenauer. The Chancellor thought that the call would probably be about the Berlin Wall going up and the tensions with the Soviet Union and the GDR with the West. It was not. It was about access for American chickens. The point is that the GATT, the predecessor to the WTO, had a means to contain the problem. Even since the founding of the GATT, disputes have been resolved, often with emotion, but without the risk of a widespread breakdown in trade relations.
As you are well aware, the global agricultural food system has been transformed as a result of globalization fostered by advances in technology all along the value chain. Horticultural products such as berries, apples and pears, that could never have been shipped over long distances now can be with refrigerated containerization. As consumers, we benefit from varieties of products during all seasons of the year. Radical improvements in farming and in world trade generally are now occurring due to a revolution in the digitalization of almost all aspects of human activity. This makes it all the more important that the WTO continues to adjust to the evolving realities of trade. The WTO provides a unique forum where the international community can agree upon and implement rules of general application to ensure a fair, robust and dynamic agricultural trading system adapted to new realities and challenges and contributing to the realization of the UN 2030 Agenda for Sustainable Development Goals.
My lifetime work has been in trade, often in trade negotiations. My nomination to be a U.S. trade negotiator was held up by the U.S. Senate, just for a few days as it turned out (and not the months that the process is taking now), until I pledged that I would give a very high priority to trade in agriculture. I consider that this pledge has now been renewed, on a global basis, by my joining the WTO as Deputy Director General with responsibility for the Agriculture Division.
It will not surprise you to hear that agricultural trade is far from an easy subject on which to negotiate. This has been proved over and over again. I learned about how difficult it was first hand some years ago -- in negotiations with the Japanese government over market access – to get a few metric tons of high quality beef, a few crates of citrus, and a very modest amount of leather into that market, and in Geneva at the GATT in seeking to deal with major price volatility in the world's grain market through a multilateral grain stocking arrangement (which in the end did not come into being).
But progress has been made, both on a bilateral and multilateral basis.
Progress was made on agriculture in the founding of the WTO 23 years ago.
Progress was made at Nairobi two years ago, at the WTO Ministerial meeting, when WTO members agreed to eliminate agricultural export subsidies.
Progress of a more limited, but nevertheless meaningful, kind was made on the issue of Public Stockholding for Food Security Purposes in the run up to the Buenos Aires Ministerial Conference. Although the members did not find a solution, they became acutely aware of the challenges posed more clearly by this issue, including where this subject fits in with their broader interests. They focused on questions of availability of data to foster transparency and on the effects on the market of disposition of public stocks. The issues presented are of interest not just to major agricultural commodity exporters but affect the food security of developing countries as well. Proposals were tabled by Russia, Brazil and the EU and others to seek to foster notifications and transparency. Intensive discussions that took place aimed to find an appropriate balance between the sovereign right of each WTO member to put in place programmes to ensure food security in its territory, while ensuring at the same time that stocks procured under such programmes do not distort trade or adversely affect the food security of other members.
The members, supported by the WTO Secretariat, face 2018 with renewed dedication to find mutually acceptable solutions to age-old problems in agriculture for the benefit of all WTO members.
Further improvements can be made to the agricultural trading system to make it more responsive to contemporary challenges. Let me illustrate this with three concrete examples:
Some domestic support measures still create significant distortions to global agricultural trade. The WTO rules provide some disciplines, including limits on trade and production distorting domestic support in the Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures. That said, since 2001, there has been an enormous increase in potentially trade-distorting domestic support. It has been estimated, for example, that for a group of nine major WTO members, the sum of their support entitlements (Bound Total Aggregate Measurement of Support and total de minimis support entitlements) increased by US$ 250 billion between 2001 and 2014 to almost US$500 billion as a result of increased production. This figure could potentially exceed US$ 1 trillion by 2030.
These figures refer to what is permitted under the WTO Agreement on Agriculture not the subsidies that are actually granted by governments. Using 2001 as a benchmark, the subsidies actually applied amount to a fraction of these amounts, namely about 25 percent of the quoted figures. But this is unacceptably large. While trade distorting support is not granted in the full amounts allowed, it can be. With such vast sums, it is necessary for new disciplines to be developed, otherwise the agricultural trading system could be greatly distorted with severe adverse effects on the economies of poor developing countries dependent on agriculture for the livelihoods and the food security of their peoples. These countries cannot and should not compete with large amounts of support provided by their competitors. Studies of potential vulnerability in this regard would be useful.
That being said, it should be remembered that the WTO allows for non-trade distorting domestic support that can be provided to help the agricultural producers in a way that does not have a negative impact on other countries. This support includes payments under environmental programmes and expenditures related to pest and disease control, inspection services, and many others just to mention those that are relevant to the topic of sustainability, responsibility and efficiency discussed in Berlin this year.
Export restrictions can also have a negative impact on the food security of countries. The need for improved rules, in particular with respect to transparency, has been called for by a number of WTO members. WTO members have the right to take appropriate measures to prevent or relieve critical shortages of foodstuffs on their domestic markets. Genuine food security depends on the adoption of common understandings and firm commitments to resist the imposition of export restrictions except where necessary as permitted by WTO disciplines.
Trade barriers: Significant tariffs are still imposed on a limited number of products of export interest to many countries, including developing countries. The worldwide average bound tariff on all goods is 6.8%, while the applied rate is 3.2%. For agricultural goods, however, the average bound rate is 54.8%, while the applied rate is 14.6%. Beyond tariffs, there is a growing impact of regulatory measures on international trade. While regulatory measures are essential for the functioning of modern economies, they can also have an adverse effect on trade in food products and can inadvertently, or worse, purposely, discriminate against imports. In fact, tariffs have been replaced by standards as the number one trade impediment.
Among the most frequent encountered measures in the case of agricultural and food trade are sanitary and phytosanitary measures, technical regulations and standards, as well as complex customs procedures. The WTO SPS Agreement strikes a careful balance between the right of countries to impose measures to promote human, animal and plant life and health while avoiding unnecessary restrictions to trade. In the same vein, the TBT Agreement aims to achieve a balance between countries' right to pursue legitimate objectives and the avoidance of unnecessary barriers to trade. There have been many cases involving SPS and TBT measures, which were resolved satisfactorily by the WTO. These include Australia-Apples, where New Zealand successfully challenged SPS measures imposed on its apples by Australia. In EC-Sardines, where the European Union banned the importation of sardines from Peru, the parties eventually managed to reach a mutually satisfactory solution. In addition, there are numerous cases where the parties have reached agreement after discussions of specific trade concerns in the SPS Committee. In 2017, members reported the partial or complete resolution of 29 specific trade concerns.
There are good examples of WTO partnerships with other organizations, including through the Standards Trade and Development Facility, to drive capacity with respect to phytosanitary and sanitary capacity for the benefit of developing countries:
- Boosting safe fruit and vegetable exports from Thailand and Viet Nam;
- Promoting safety in Nigeria`s sesame and shea exports;
- Meeting standards to support agricultural exports from Nicaragua, through technical training of small farmers, often women;
- Improving the SPS regime in Belize to improve animal health controls and facilitate live cattle exports;
- Assisting in the development of phytosanitary controls to help Uganda`s flower exports to grow; and
- Supporting producers and traders in Africa, Latin America and Southeast Asia to meet pesticide standards for export.
The fact that the multilateral trading system is good but not perfect is illustrated dramatically in the current concerns over the future of trade across the Irish border. We have all read about the consternation over whether there will be a hard border, a soft border, or no border between the two Irelands after Brexit is final. The current situation – the EU`s single market – provides a current gold standard of relatively unimpeded trade for the two Irelands. An option clearly inferior to a single market would be a high quality "free trade agreement" (FTA) between the UK and the EU under which many barriers to trade in goods and services would be substantially eliminated. The third option, which is not at all a bad one, but that may not be as good as a tailored FTA, is trade under WTO rules.
This is not to suggest that liberalization under the auspices of the WTO is inconsequential. Quite the opposite – without the WTO we would not have seen the dramatic increase in global trade in the last four decades. What it does point out is that there can be a substantial gap between the treatment of non-originating goods, services and perhaps intellectual property, and the like domestically or regionally supplied equivalent. While the Irish border issues stand out, the impact of FTAs as compared with the WTO`s general requirement of non-discrimination is far from an isolated instance of harm to trade interests caused by regional and bilateral agreements. One current example is the case of imports of beef into Japan, where Australian beef under the Trans Pacific Partnership will have greater access than U.S. beef.
Are free trade agreements the wave of the future? I think not, although there is much attention given to this mode of negotiation at present.
The three largest trading parties in the world today are the EU, the United States and China. Each of these sees advantages in concluding agreements among just a few participants. The EU is the world`s foremost practitioner of bilateralism and regionalism with nearly 100 bilateral and regional agreements in place or in various stages of negotiation but states that it is committed to multilateralism as a matter of trade philosophy. The United States embraces the superiority of bilateral agreements as a matter of philosophy but has not begun to negotiate any new bilateral agreement. And China is engaged in negotiating a large regional agreement as well as various bilateral agreements, but also at the highest level of government vocally supports the multilateral trading system. In each case, the result of these bilateral and regional trade agreements will have a potential adverse impact on the economies of non-signatories and create extra burdens for at least some of the latter’s businesses.
What is needed for world agriculture can never be achieved solely through bilateral and regional trade agreements. Pursuing multilateral liberalization is the only reliable non-discriminatory method of adopting rules and making trade more open. Sometimes these sub-global trade agreements can include innovations that can result in improvements in global trade, but that is not their primary purpose or effect.
It is very much up to those gathered here at this conference this week, and those similarly interested in making progress for the good of world agriculture, to decide whether a global approach, however difficult to achieve, is a better path to take, and then to proceed to implement that path.
Is there a practical multilateral path forward?
My primary message to you is that after the Buenos Aires Ministerial concluded just over a month ago the WTO is open for business. What it can accomplish is dependent on its members, and member governments in turn depend very heavily on private sector input for direction.
The WTO is designed to be a highly pragmatic organization. The assessments of business and other stakeholders of their needs will shape the WTO`s agenda. Those of you who are in this room, in the private sector, the businesses and associations, the farmers and ranchers that you represent, are always a full step ahead of your governments in assessing your needs. Without your input, the international trading system would be a lot less effective and relevant. You can tell us at the WTO, through your respective governments, what your needs are, what sort of world trading environment should be constructed. It is imperative for progress to be made that you in the private sector convey these points to your governments and authorities. If chief executives do not contact trade and agriculture ministers and heads of governments to press their interests for more open, rules-based trade, it is far less likely to be achieved. If heads of governments wishing this result do not reach out to other heads of governments, progress in global agricultural negotiations will be harder to achieve.
The world's population is expected to grow from 7 billion to 9.6 billion by 2050 and food supplies need to increase by 60 per cent during these next three decades in order to avert hunger in the most vulnerable countries and deliver acceptable results to all peoples. This calls for innovative and sustainable agriculture production underpinned by effective domestic policies and by commonly agreed disciplines at the international level.
By focussing on the challenges facing humanity and working closely together, the community of nations will be able to produce enough food for everyone and ensure the food security in conformity with the UN Sustainable Development Goals as well as ensuring food safety. The WTO can play an indispensable role in assisting countries to realize this overarching objective.
I return from the WTO Ministerial in Buenos Aires fully confident that there is much progress that can be made in the WTO on agriculture in 2018 and beyond. These include limitations on domestic support, improved understandings on the use of and for transparency with respect to export restrictions, and the reduction and removal of trade barriers to provide improved market access. It will not be easy, and even with strong efforts and good will on the part of all member countries, the endeavour will not bear immediate results, but the alternative is not likely just living with the status quo but witnessing an erosion of the progress that has already been made. What takes place this year and next is very largely in your hands and those who are similarly situated – those who have the strongest stake in outcomes.