World Trade Organization and Globalization Help
Facilitate Growth in Agricultural Trade
Despite strong criticism
of the WTO, its membership continues to grow as
countries seek the benefits of expanding trade.
Anne Effland
Mary Anne
Normile
Donna Roberts
John Wainio
|
|
Despite
the WTO having strong critics in the
U.S. and abroad,
membership in the organization continues
to grow. |
|
WTO
member countries trade concessions to
gain access to foreign markets, benefiting
producers and consumers in the aggregate.
|
|
The
growth of the WTO has helped facilitate
the globalization of agriculture. |
|
This
article is drawn from . . . |
The
ERS Briefing Room on the World Trade Organization
|
You
may also be interested in . . . |
“Global
Agriculture and the Doha Round: Market Access
Is the Key,” by Anne Effland, Mary
Anne Normile, and John Wainio, in Amber
Waves, Vol. 4, Issue 4, USDA, Economic
Research Service, September 2006.
Agricultural
Trade Preferences and the Developing Countries,
by John Wainio, Shahla Shapouri, Michael Trueblood,
and Paul Gibson, ERR-6, USDA, Economic Research
Service, May 2005.
The
Road Ahead: Agricultural Policy Reform in
the WTO—Summary Report, by
Mary Burfisher (ed.), AER-797, USDA, Economic
Research Service, January 2001.
WTO Agricultural Trade Policy Commitments
Database
The
ERS Briefing Room on U.S. Agricultural Trade
Foreign
Agricultural Trade of the United States (FATUS)
Data |
In simple terms, globalization
refers to the closer integration of countries and
people around the world. It is the product of numerous
factors, including reduced trade barriers, lower
transportation and communication costs, and increased
movements of capital, knowledge, technology, culture,
and people across borders. To many, these changes
imply progress, but globalization is an issue of
multiple dimensions that has sparked heated debates
and protests around the world.
Proponents argue that globalization
results in increased consumer choices and access,
enables countries to use resources more efficiently,
leads to the introduction of new technologies, creates
new industries, and promotes more rapid economic
growth.
Critics maintain that globalization
has exposed vulnerable economies to economic and
financial shocks not of their making, contributed
to environmental degradation, led to unemployment
and downward pressure on wages, and strained the
ability of poor countries to adapt.
In recent years, the World Trade
Organization (WTO) has become a focal point of the
globalization controversy, largely due to its visible
role in reducing barriers to trade in goods and
services. The massive protests at the 2001 WTO meeting
in Seattle took many by surprise and thrust both
globalization and the WTO into the world spotlight.
Critics of the WTO are not limited
to anti-globalization protesters; proponents of
free trade and globalization have also criticized
the WTO. Some see the 7-year long negotiation of
a new multilateral trade agreement as evidence that
too many countries are unwilling to reach the compromises
needed. Others cite the differences in expectations
for developed and developing countries as a sign
that the WTO is not even-handed. Still others see
unacceptable threats to vulnerable industries and
even to national sovereignty resulting from the
disciplines required for membership.
Yet, since 1948, when the WTO’s
predecessor, the General Agreement on Tariffs and
Trade (GATT), was launched, membership has grown
from 23 to 151 countries. Another 30 countries hold
observer status while they wait to become members.
Given the criticism of the organization, why have
so many countries joined?
Countries Seek Gains From
Reciprocal Concessions
Countries join the WTO for many
reasons, but largely to increase trade, and, in
particular, exports. One of the key contributions
of economics has been its demonstration that countries
can mutually benefit from trade. In its simplest
form, if country A produces wheat and country B
produces coffee, both can improve citizens’
welfare by exchanging wheat for coffee. Through
the price system, which establishes values for the
exchange of multiple commodities, the process can
be extended to accommodate an infinite variety of
goods.
This simple yet powerful concept
is behind much of the trend toward globalization
and has motivated countries to negotiate trade agreements.
Trade negotiations basically involve reciprocal
concessions—exchanges of tariff cuts or other
grants of comparable value that enable this mutually
beneficial exchange of goods. A primary reason countries
engage in trade negotiations is to increase access
to foreign markets for their products. Granting
access to foreign producers is seen as a necessary
cost of gaining access to other markets. However,
reducing trade barriers also can facilitate growth
and benefit the overall economy by enabling a country
to use its resources more efficiently.
The benefits of reciprocal trade
concessions extend beyond the increased exports
valued by producers: consumers also gain from concessions
that lower the cost of imports. Trade policies,
like tariffs, that raise the cost of imports essentially
act as taxes on consumption. Lower tariffs and quotas,
for example, have reduced the cost of many clothing
items for U.S. consumers. Lower tariffs have also
helped make a wider variety of fresh produce available
to U.S. consumers during winter months. When economists
measure the benefits of trade agreements, they include
both the value of increased exports and the increase
in well-being of consumers that comes from paying
lower prices.
Countries also seek membership
in the WTO as a way to increase their potential
for achieving economic growth and increased prosperity.
For the generation of policy officials who witnessed
the effects of protectionist policies on world economies
during the Great Depression, the connection between
trade and economic growth was clear. To remedy the
policy mistakes of the 1930s and preceding decades,
trade officials negotiated the 1947 GATT to lower
barriers to international commerce and establish
a charter setting out the broad principles that
should govern trade policies.
Chief among these principles were
the Most Favored Nation (MFN) and national treatment
provisions. MFN mandated that importing countries
would not be allowed to treat the same goods from
the signatories of the GATT differently. National
treatment mandated that imported goods should face
the same regulatory standards as those imposed on
the domestic goods of a member country. Both provisions
convey powerful advantages to countries seeking
access to foreign markets. Because of the MFN provision,
a country joining the WTO today immediately qualifies
for all the tariff concessions previously negotiated
by members.
In the early years of GATT, membership
meant participating in negotiations to reduce high
tariffs that had restricted trade and led to economic
hardship. Negotiations were conducted bilaterally
and focused on the tariffs each country would like
the other to reduce. Because the bilaterally negotiated
concessions would be available to all GATT members
through the MFN provision, other countries could
balance those benefits against concessions they
might be asked to make. For example, the U.S. could
agree to cut a tariff on an import from another
country even if it was not completely offset by
an equivalent tariff cut by that country because
the U.S. already expected to benefit from a tariff
cut that country had negotiated with a third country.
As the membership in the GATT
expanded, however, negotiators found it increasingly
difficult and time consuming to complete bilateral
deals. As a result, negotiations today follow a
formula approach of across-the-board cuts. Deals
among a large number of participants still offer
countries the opportunity for balancing benefits
against concessions.
WTO Provides the Framework
for Rule Enforcement
In addition to providing a forum
for trade negotiations, multilateral trade agreements
like GATT and the WTO extend a consistent set of
rules to many countries at once. Countries agree
to rules of trade that may limit their own policy
flexibility because the rules impose discipline
on the trade policies of other members—all
countries accept some pain to realize gains.
The expectation that the rules
of trade apply to all members of the multilateral
agreement underlies reciprocal concessions. Each
member is protected from rules violations by others.
If one country raises a tariff above its agreed
(or bound) ceiling level, for example, the injured
country may be due compensation. This may come in
the form of tariff reductions on other products
or other trade concessions equal to the level of
damage from the violation. The enforceable threat
of retaliation embedded in reciprocal agreements
creates a powerful incentive for members to comply
with their obligations.
The original GATT system lacked
a strong means of enforcing rules violations. Its
dispute settlement process, which required consensus,
allowed an importing country to unilaterally block
trade complaints. Creation of the WTO provided the
institutional framework to support a more effective
dispute settlement process by providing measurable
recourse to countries whose rights have been violated.
Adding to the original GATT rules,
the WTO’s Agreement on Agriculture and Agreement
on the Application of Sanitary and Phytosanitary
(SPS) Measures set out important provisions for
governing trade in agricultural products. If issues
related to a policy’s compliance with trade
rules cannot be resolved in bilateral discussions,
countries can appeal to WTO committees that oversee
the implementation of each individual agreement.
For example, the Committee on Agriculture reviewed
155 notifications from members documenting their
policies for market access, domestic support, and
export subsidies in 2006. Likewise, the SPS Committee
has provided a forum for airing grievances and made
it easier to identify and track contentious regulations.
The committee reports that one-third of the 245
“special trade concerns” identified
by members over the past 12 years have been fully
or partially resolved through consultations. The
committee also has facilitated dispute resolutions
between countries at every level of development.
Additional WTO dispute settlement
mechanisms for resolving conflicts include adjudication
by a WTO panel and the WTO Appellate Body, if required.
If a disputed measure is found to violate WTO provisions,
the parties to the dispute may request arbitration
to determine a “reasonable period of time”
for the respondent to change its policy or, if it
does not, to determine the amount of compensation
or retaliation due to the complainant (usually in
the form of tariff adjustments on other products).
The WTO has also facilitated communication
and transparency in the trading system and helped
to resolve disputes before they reach formal settlement
proceedings. A strengthened requirement for transparency
is among the important institutional changes brought
about in the transition from GATT to WTO. Country
“notifications,” or reports to the WTO
of proposed changes in policies or regulations that
could adversely affect trade, are key to enabling
judgment about the purpose, design, or effect of
a policy or measure. WTO notification is now routine
for all member countries. For example, members submitted
more than 8,000 notifications related to SPS measures
between 1995 and 2007, compared with fewer than
80 between 1980 and 1990.
The evidence indicates that these
notifications spawned a broad-based “regulatory
review,“ as major agricultural importers and
exporters began to assess whether they and their
trading partners were complying with the SPS Agreement.
As a result, several measures restricting trade
in fruit and vegetables were unilaterally revised
following technical consultations. For example,
Japan agreed to rescind its 46-year-old ban on several
varieties of tomatoes grown in the United States
based on scientific research indicating that the
tomatoes were not afflicted with tobacco blue mold
disease. New Zealand officially recognized that
treating fruit with hot forced air was equivalent
to spraying with a prohibited fumigant, thereby
allowing several South Pacific countries to resume
exports of mangos, papaya, and eggplant.
WTO Helps Facilitate Globalization
of Agriculture
Under GATT, and more recently
through the WTO, member countries have reduced tariffs
on manufactured goods to exceptionally low levels,
facilitating a steady increase in trade in manufactured
goods since the 1950s. Global trade in agricultural
products, however, has grown much less rapidly since
then for a number of reasons, including the continued
protection of agriculture by many countries. The
body of rules established to govern merchandise
trade made numerous exceptions for agricultural
goods. One of the most important accomplishments
of the Uruguay Round (1986-94) is that it succeeded
in incorporating agriculture into the multilateral
trade rules. Yet, agricultural trade continues to
be influenced by a legacy of high protection and
government intervention (see box, “Why
Agriculture Was Treated Differently Under GATT”).
Tariffs on agricultural products remain significantly
higher, on average, than tariffs on manufactured
goods.
Despite higher protection on agricultural
trade, a number of factors have led to its growth
over the past 40 years. Improvements in transportation
and handling, such as containerization and refrigeration,
have facilitated shipments of out-of-season produce
from distant origins, something not possible 20
years earlier. Communication and logistical improvements
have enabled shippers of bulk agricultural commodities,
like grains, to respond more easily to market demands
for specific types, grades, and qualities. Greater
purchasing power among developing countries, which
tend to spend a higher share of increased income
on food, has also contributed to growth in agricultural
trade. These developments have been complemented
in recent years by the reductions in barriers to
agricultural trade brought about through the Uruguay
Round Agreement on Agriculture as well as through
bilateral and regional agreements.
Globalization of agriculture can bring positive
benefits for developing countries. Reduced global tariffs
on processed products may fuel economic development
by encouraging developing country exports of these
products, allowing them to benefit from the employment
and value-added benefits associated with domestic
processing. Greater trade opportunities also may
expand markets for their goods, making investment
more attractive. Reducing subsidies also can help
developing countries by encouraging shifts of resources
to more efficient uses, in agriculture or other
sectors.
Successive rounds of multilateral
trade liberalization, however, have revealed the
difficulties that many low-income countries face
in capturing the benefits of more open markets.
In these countries, governments, institutions, and
enterprises often lack capacities—in the form
of information, policies, procedures, and infrastructure—to
compete effectively in global markets and take full
advantage of the opportunities that are offered
through international trade. To help these countries
overcome their trade-related institutional, human
resource, and supply capacity constraints, WTO members
have agreed on steps to improve implementation of
the current agreements. These initiatives include
increased technical and financial assistance in
trade policy and regulations, trade development,
and economic infrastructure.
Furthermore, in order to ease
the adjustment pressures brought on by trade liberalization,
developing countries are granted special and differential
treatment within the WTO. In particular, developing
countries are asked to make smaller cuts in tariffs
than those for developed countries and are given
a longer period of time to phase in the cuts. In
addition, all countries have access to safeguard
measures that allow them to temporarily restrain
trade when their producers are threatened with serious
injury as a result of imports.
Critics of the WTO have pointed
to other limitations of the multilateral trading
system, including the lack of agreements on environmental
protection, labor standards, investment issues,
and e-commerce. At the same time, the WTO has been
attacked for tackling these other questions, which
some consider peripheral to an agreement on trade.
Attempts have been made to address some of these
concerns in other forums, but these issues continue
to be raised and are increasingly linked to globalization.
The WTO may be further pressed to find a balance
between what it views as its mandate to deal solely
with trade rules and some of its members’
views that through its trade rules, the WTO can
make a contribution to addressing problems in other
areas.
Why
Agriculture Was Treated Differently Under
GATT |
Prior
to the Uruguay Round of trade negotiations,
GATT agreements had largely avoided disciplining
the agricultural sector. Agriculture had been
viewed as being unique, facing price volatility
due to weather, diseases, and pests peculiar
to farming. At the same time, long-term growth
in farm income had not kept pace with income
growth in other sectors of the economy. These
factors led some governments to implement
policies aimed at increasing the stability
and level of farm incomes through a combination
of domestic supports and import restrictions.
Other governments justified trade restrictions
based on national security concerns, arguing
that it was necessary for the government to
ensure adequate supplies of food. By the time
the Uruguay Round was launched in 1986, most
countries had come to accept that, despite
its special status, agricultural trade should
be subject to the same rules as those governing
nonagricultural trade and that support and
protection for the agricultural sector should
be progressively reduced.
Both in the lead-up to and
during the Uruguay Round, numerous studies,
including some conducted by ERS, demonstrated
that the costs of countries’ agricultural
policies on consumers and taxpayers outweighed
the benefits they conveyed to producers. The
studies also quantified the extent to which
the costs of these policies went beyond the
imposing country to impact other countries
by depressing international prices and diminishing
competing exports. In the end, the Uruguay
Round succeeded in incorporating agriculture
into the multilateral trade rules and in taking
the first steps toward decreasing government
support and protection for the sector. |
|