A better way to negotiate on agriculture

Next week, at the Institute for International Trade in Adelaide, Andrew Stoler (Institute Director, former Deputy Director-General of WTO) and I are presenting a conference in our project on future frameworks for WTO agriculture agreements.

In addition to our own research (some linked here) we've commissioned the help of leading agriculture and trade policy research centers in Brazil, China, India and Indonesia to help us examine the political economy of the WTO agriculture negotiations. We've also benefited from comments from several of the world's leading analysts of agricultural trade policies; summarized in our 'Work in Progress' paper produced for the conference.

We are especially interested in testing an hypothesis first raised by the Warwick Commission about the value of so-called critical mass agreements as an adjunct to—or even as one of several substitutes for—the WTO's single undertaking.

Below: an extract from our Work In Progress report that asks whether recent discoveries about the rapid growth of intra-industry trade in food products suggests that CM agreements for food might be a good bet as a road to future market-opening agreements.

We indicated in our earlier paper on alternative frameworks for agriculture negotiations (Gallagher and Stoler (2008b)) the initiative for product-oriented CMs would probably come from commercial sources because such agreements inevitably have a mercantilist cast. We showed from direction-of-trade data that there appear to be feasible concentrations of trade—where a relatively small number of markets represents a high proportion of imports and exports of an agricultural product—that would meet the requirement for a sufficient number of participants in a CM negotiation. But we thought the the challenge would be to find feasible opportunities that offered worth while results for the participants. The mercantilist market access interests of exporters and importers are diametrically opposed; they are not likely to complement each other in an agreement on a single product or even a narrow range of products. Requests are likely to be one-sided and unreciprocated.

We pointed to the potential for ‘clusters’ of products that could provide the broader base of a reciprocal agreement to be found within the data that we collected at the 4-6-digit level of the Harmonized System (HS). Within ‘cheese’ (for example), a category dominated by a small number of exporters and a large number of importers, there is a wide variety of distinguishable products (‘hard’, ‘grating’, ‘soft’, cheddar, and ‘artisanal’) that reveal a much more diverse network of exchanges. The same economy could find itself on the export side of one cheese trade and the import side of another (as Australia does with ‘cheddar’ style and soft cheeses, for example).

Our model for this suggestion is the existing, successful, CM agreements in WTO to which Peter Lloyd (and others) refer. The ITA and the Services CMs have been constructed on top of a rich network of intra-industry exchange where the same economies find themselves on both the export and import side of trades in the same four- or even six-digit sector of the HS. The significant contribution that intra-industry trade brings to trade, production and, investment growth, and to the opportunities for entrepreneurs to benefit from knowledge spillovers (spreading innovation) explains the longstanding attention of analysts.9 None of this requires a trade agreement, of course.

If any policy favors intra-industry trade then it is likely to be CM agreements focused on a product group in which there are high levels of intra-industry trade. A CM may be a the best-adapted policy framework for aligning the reduction of formal trade barriers and joint action to facilitate trade through co-operative measures on e.g. customs formalities and standards or, as Tim Josling argues, for an agreement combining both export and import barrier undertakings. Typically, primary products exhibit a low rate of intra-industry trade for obvious reasons: there is simply no point in trade within simple product group in which products have no ‘intermediate’ components. However, simply and elaborately processed primary products do undergo intra-industry trade and the intensity of this trade is increasing rapidly, especially in the food sector, according to a survey conducted for the World Bank’s World Development Report, 2009.

“Proportionally the largest rise in IIT is observed in the “Food and Live Animals” sector (SITC sector 0), which exhibits a nine-fold rise from a GL index of 0.02 in 1962 to a GL index of 0.17 in 2006. Clearly, with the increasing sophistication and differentiation of food products, even agricultural goods are now subject to considerable IIT.” (Brulhart, 2008)

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