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Food Crisis Signals Need for Comprehensive Approach to Agricultural Trade Policy By Terence Stewart of Stewart & Stewart (Washington, DC)

Like a hurricane, the perfect storm that has spurred the global food crisis continues to draw strength from the open ocean of factors that generated it. Unlike a hurricane, there is no great land mass on the horizon that will cause it to break up and disappear. There is, however, an opportunity for global trading and economic institutions to respond to the current situation and prevent future catastrophes.

The factors that created the perfect storm that created global instability in agriculture are now clear. Among them are rapidly rising energy prices, resulting in rapidly rising fertilizer prices, increased demands on many core crops for biofuels, and increasing per capita incomes of fast-growing developing countries with resulting demands for more higher value added food products, and major droughts in certain key growing areas of the world.

The result has been tragically predictable. Prices have exploded – triple digit increases for many food staples. As World Bank President Robert B. Zoellick recently lamented, the development gains of recent decades could be wiped out and 100 million people could be driven back into poverty. This is not only a developing world problem. More and more working Americans have been showing up at local food banks.

With hunger and desperation has come political turmoil.There have been riots over food in countries as disparate as Haiti, Egypt, the Philippines, Indonesia, and dozens of other countries. Export bans or export taxes by a number of governments to help address price increases at home have exacerbated the crisis for other countries.

If there is no quick end to the storm in sight, there might be a bright spot on the horizon. International organizations have begun to respond to the crisis in ways all of us should hope will be harbingers of better agricultural trade policies. For example, the International Monetary Fund and the World Bank this week asked agricultural commodities exporters to scrap or at least ease their foreign sales restrictions and Ukraines decision to ease on export bans on wheat appears to have helped bring the price of that commodity down somewhat. (Although the price remains 70 percent higher than it was a year ago.). This crisis has also introduced interesting questions and challenges for those involved in the negotiations in the World Trade Organization Doha Development Round.

These negotiations are focused on eliminating various distortions in agriculture, including eliminating export subsidies, reducing trade distorting domestic supports and achieving some liberalization of tariff structures. Yet the Doha negotiations, once completed, could make food aid more difficult for traditionally large food donor countries to dispose of surplus production. While over time, the removal of the distortions should lead to improved food production around the world, such a process will take time. In a recent BBC interview, WTO Director General Pascal Lamy noted, food aid needed to be increased but, more than that, improvements in agriculture needed to be put back at the heart of development spending. Lamy acknowledged this was a complex job and that could not be done overnight.

But the current crisis necessitates efforts by the global institutions to begin tackling the job. For countries to be able to open up their agricultural markets and become import dependent on some or many agricultural commodities, security of import supplies and the ability to maintain buffer stocks is of great importance. Yet, the WTO and GATT before it have recognized the right of countries to impose export restraints or prohibitions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party. GATT 1994 Article XI:2(a).

Article 12 of the Agreement on Agriculture, provides guidance on what steps WTO members should take if they are introducing new export prohibitions or restrictions on foodstuffs as permitted by GATT Art. XI:2(a). It states that any member imposing export prohibitions and restrictions should give due consideration to the effects on food importers and to give notice to the WTO’s agriculture committee “as far in advance as practicable” regarding the nature and duration of such measures.Countries are supposed to consult with those with a substantial interest as an importer. Developing countries are excluded from these disciplines unless the country is a net-food exporter of the specific foodstuff concerned.

It is, of course, GATT provision XI:2(a) which has permitted many countries to impose export restraints on food in the last year. As noted in the Financial Times on April 14, [Precious Grains by Alan Beattie and Javier Blas], many such export prohibitions including wheat and barley from Ukraine, non-basmati rice from India, a 44% export tariff on soybeans in Argentina, just to name a few. While, as noted, there was some change in Ukraines export restraint this week, the crisis with rice could get worse before it gets better. As the FT noted April 25, Brazil, a small rice exporter, this week joined Vietnam, China, India, Egypt and Cambodia in restricting rice exports. It is unclear the extent to which any of these countries have consulted with countries dependent upon imports from those imposing restraints.

In the context of the Doha talks, there have been discussions about tightening notification requirements and imposing suggesting timelines for the duration of export prohibitions and restrictions on agricultural commodities by making modifications to Article 12 of the Agreement on Agriculture. See TN/AG/W/4/Rev.1, page 26, paras. 166-172. It is unclear that such proposed additional procedural requirements and duration suggestions, even if in place today, would make much of a difference in the current crisis.

Indeed, with no comprehensive support system in place right now to ensure reasonable buffer stocks and ensure transfers of food to those in need, agricultural exporting countries cannot expect net food importing countries to reform agricultural protections (including import barriers) that are designed to ensure self-sufficiency, inefficient as such countries may be in agriculture production.

While WTO members focus on achieving a breakthrough in the ongoing Doha trade talks, the WTO, World Bank, I.M.F. and their member governments need to be joining forces to put in place on an expedited basis the infrastructure, development programs and rules to provide greater global food security. A globalized economy which cannot provide food security to the citizens of all countries will inevitably lead to retrenchment from trade liberalization in the agricultural sector.

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