Export Restrictions Receive More Attention at the WTO

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As WTO Director-General Pascal Lamy and agriculture talks chair David Walker prepare for a ten-day Easter break in trade negotiations and resumption on April 29th, agricultural export restrictions are receiving increased attention. At a March 31 meeting of the Agriculture Committee and a later agriculture negotiations meeting, WTO members expressed concerns similar to ones raised three years ago in a time of high crop prices. Discussions on export restrictions could provide a spark in the talks that have drug on for the past three years with little progress.

 

The discussions on March 31 focused on three minor exporters, Macedonia, Kyrgyz Republic and Moldova, and a much larger market participant, Ukraine, which imposed export restrictions and quotas in the summer of 2010 when drought reduced crops throughout the Black Sea region. According to Bridges Weekly Trade News Digest, the issues were raised in the negotiations committee by the net food importing developing countries (NFIDC) group, a WTO recognized group including least developed countries as designated by the UN plus other countries recognized by the WTO, including the Dominican Republic, Egypt, Jordan, Kenya, Morocco, Pakistan, Peru and Venezuela. The NFIDC group proposed that export bans and restrictions of WTO members would not apply for exports to NFIDC members and other least-developed countries. UN humanitarian aid would also be exempt.

Under current rules, countries can temporarily restrict exports of agricultural products, but must comply with GATT Article 11 – General Elimination of Quantitative Restrictions, paragraph 2(a), “Export prohibitions or restrictions temporarily (can be) applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party”. They must comply with the Agriculture Agreement Article 12 – Disciplines on Export Prohibitions and Restrictions, “the Member instituting the export prohibition or restriction shall give due consideration to the effects of such prohibition or restriction on importing Members’ food security; before any Member institutes an export prohibition or restriction, it shall give notice in writing, as far in advance as practicable, to the Committee on Agriculture comprising such information as the nature and the duration of such measure, and shall consult, upon request, with any other Member having a substantial interest as an importer with respect to any matter related to the measure in question. The Member instituting such export prohibition or restriction shall provide, upon request, such a Member with necessary information.”

In April 2008, Japan and Switzerland, both major food importers, proposed that exporters contemplating restrictions give greater consideration to food security needs of importing countries and how trade would flow without restrictions. The proposal included binding arbitration if importers and exporter could not agree on a course of action. Proposed language in the Doha texts does not go as far as Japan and Switzerland proposed. Members would be required to give the WTO Agriculture Committee 90 days notice. Restrictions would normally not be for more than one year and not beyond 18 months without agreement of affected importing countries.

Other countries were generally positive about the renewed focus on export restrictions in remarks in the Agriculture Committee and in the negotiations meeting. The EU, U.S., Israel, Japan and Switzerland praised the four countries reporting their actions to the Agriculture Committee and raised concerns about the increased use of restrictions that endanger trade flows. According to the Bridges report, in the negotiations session the U.S., Australia and Brazil supported a broader review of global trade rules than just the NFIDC proposal. Japan and Switzerland were positive toward the proposal and wanted to further study it. The Philippines suggested that the new rule apply to all developing countries.

French President Nicolas Sarkozy, chairman this year of the G-20 group of major economies, has made food price volatility an issue for this summer’s meeting. Sarkozy has called for more control of speculators in agricultural markets and more information sharing to reduce market uncertainties. The G-20 could possibly endorse the NFIDC proposal or a broader review, but exempting NFIDC countries would simply push the trade adjustments to non-NFIDC countries.

This discussion puts Russia, a non-WTO member that has negotiated for years to join, in the spotlight because of its ban on grain exports after last summer’s drought. Russian wheat production in 2010 of 41.5 million metric tons (MMT) was down 33.9 percent from the previous two years and down 12.1 percent from three and four years ago. They had a cause for concern and some type of temporary restrictions would likely have been acceptable under current or proposed WTO rules. The conditions probably do not justify continuation of the ban into the next marketing year with end-of-year stocks at 4.3 MMT, down from an average of 11.4 MMT for the past two years, but up from 4.1 MMT for three and four years ago.

Ukraine, a current member of the WTO, is somewhat different. Its wheat crop was not hurt quite as much with production at 16.8 MMT, down 28.2 percent from the last two years, but up 20.9 percent from three and four years ago. They had concerns about total supply, but had a sufficient amount to have somewhat normal exports. Current marketing year exports are estimated at 3.5 MMT, down from an 11.2 MMT average for the past two years, but up from a 2.6 MMT average for three and four years ago. Both countries used export restrictions to hold down the internal market price of wheat which reduced incentives to wheat growers and input suppliers to use higher-valued production practices for the 2011 wheat crop.

The negotiators for the Doha Round definitely need to expand discussions on export prohibitions and restrictions. Agricultural trade will expand as incomes increase in developing countries, populations grow and urban areas near low-cost water transportation expand. Droughts, flood and pest problems are facts of life in production agriculture. Open trade is a natural tool to help bridge the gap between production and consumption in regions of the world and is more important in short crop years, not less important. Now is the time to begin thrashing out the new rules rather than waiting for another major exporter to have short crops.
 

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Ross Korves

Ross Korves joined Truth About Trade and Technology in 2004 as the Economic and Trade Policy Analyst. Researching and analyzing economic issues important to agricultural producers, Ross provides an intimate understanding regarding the interface of economic policy analysis and the political process. Mr. Korves served the American Farm Bureau Federation as an Economist from 1980 – 2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004. Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research have expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1986 and Germany in 1987.

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