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Current status of farm policy reform, compatibility with the WTO, and the role of trade disputes

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Current status of farm policy reform, compatibility with the WTO, and the role of trade disputes Tim Josling Stanford Institute for International Economics – PowerPoint PPT presentation

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Title: Current status of farm policy reform, compatibility with the WTO, and the role of trade disputes


1
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

2
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

3
Questions
  • Address five questions on policy reform
  • Has the domestic policy reform process stalled?
    If so, is it likely to start up again soon?
  • Has the WTO reform process stalled? What caused
    it to falter? How can this process be revived?

4
Questions
  • Is domestic policy change compatible with the
    trade reform process? Or is the trade process
    likely to be a constraint on domestic policies?
  • Do trade negotiations at the bilateral or
    regional level stimulate policy reform?
  • What about trade disputes in the WTO? Is this an
    alternative approach to reform?

5
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

6
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

7
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

8
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

9
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

10
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

11
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

12
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

13
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)

14
Can bilateral and regional trade talks contribute
to domestic reform?
  • If China goes regional (ASEAN3, or China-India)
    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

15
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

16
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 cant influence farm policy in US

17
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
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