Conflicting Paradigms for a Globalized Agriculture

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Conflicting Paradigms for a Globalized Agriculture

• Tim Josling,
• Institute for International Studies,
• Stanford University

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OUTLINE

• Paradigm Shifts in Agricultural Policy
• Recent US and EU policy directions divergent or
  convergent paradigms?
• Link between paradigms and trade rules
• Can different paradigms coexist?
• Implication for current WTO talks on Agriculture

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Paradigm Shifts in Agriculture

• Hall (1993) adapted Kuhns idea of a Scientific
  Paradigm to social science
• Applied to UK Macroeconomic policy changes in
  1970s
• Policy paradigm shift more than just policy
  change
• Change in hierarchy of goals, types of
  instruments and instrument settings

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Paradigm Shifts in Agriculture

• Coleman, Skogstad and Atkinson (1997) discussed
  change in agricultural policy paradigm from
  state-assisted to market-liberal
• Tweeten (1999) argued for new economic paradigm
  where (US) agriculture is no longer seen as
  uncompetitive
• Josling (2000) added alternative paradigms to
  account for different approaches to farm policy
  in different OECD countries
• Moyer and Josling (2002) used this approach to
  look at differences between the US and the EU

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Paradigm Shifts in Agriculture

• I want to extend that analysis by
• Examining the recent changes in US and EU farm
  policy in the light of these alternative new
  paradigms
• Describing in more detail the conflicts between
  these alternative paradigms in the context of a
  globalized agriculture
• Interpreting the current WTO talks on agriculture
  as the locus of a confrontation between these
  alternative views of agricultural policy

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Four Paradigms

• Dependent Agriculture
• Needs government support
• Competitive Agriculture
• Able to compete for resources
• Multifunctional Agriculture
• Provides public goods
• Globalized Agriculture
• Part of supply chain

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Policies and Paradigm Shifts in the US

• The 1985 and 1990 US Farm Bills
• Introduced direct payments
• Removed government stockpiles
• The FAIR Act of 1996 (Freedom to Farm)
• Removed acreage controls
• Allowed choice of crops
• The 2002 Farm Bill
• Re-introduced some price supports but not acreage
  controls or storage policies

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Policies and Paradigm Shifts in the US

• Competitive paradigm most evident in non-program
  crops survives but in modified form for grains,
  oilseeds
• Dependent agriculture persists for sugar, dairy
  sectors
• Elements of multicultural agriculture emerging
  with environmental and rural development programs

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Policies and Paradigm Shifts in the EU

• The MacSharry Reforms of 1992
• Introduces direct payments
• Cuts grain prices towards world market levels
• Agenda 2000 Reforms
• Reduces prices for beef, extends reform
• Introduces environmental conditions
• Mid-term Review (2003)
• Would complete decoupling for cereals
• Reduce support for rice
• But leave sugar, milk until later

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Policies and Paradigm Shifts in the EU

• Dependent agriculture still alive as policy
  paradigm, but losing ground
• Competitive agriculture paradigm emerging slowly
  in EU (supported by UK, Denmark, Sweden,
  Netherlands)
• Multifunctional agriculture still dominant
  (Germany, Austria, France, Italy)
• Globalized agriculture shows signs of emerging in
  parts of EU agriculture

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Convergence or Divergence between US and EU?

• EU agriculture still more protected but gap
  narrowing
• Sectors of EU agriculture now competitive
• Parts of US agriculture becoming uncompetitive
• Dairy and sugar sectors still out of line with
  others, both in US and EU
• EU more pressure for internal reform, but needs
  to be concerned about impact of Polish entry
• US little domestic pressure for change, except
  from budget tightening

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Links between Paradigm Shifts and the Trade Rules

• Uruguay Round featured the paradigm clash between
  Dependent and Competitive models
• US pushed for the extension of the Competitive
  Agriculture paradigm into the international
  arena, supported by Cairns Group
• EU initially defended agriculture as being
  Dependant on protection, but MacSharry reforms of
  1992 signalled shift in EU position to allow for
  such an extension
• Japan and Korea held out to the end as the
  strongest defenders of Dependent Agriculture

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Links between Paradigm Shifts and the Trade Rules

• Agreement on Agriculture paved the way for
  Competitive Agriculture rules system
• Market access rules removed scope for domestic
  market control
• Export competition rules limited scope for
  domestic stockpiles and export of surpluses
• Domestic Support rules forced switch of emphasis
  from price supports to direct payments
• Dependent agriculture still retained high levels
  of border protection

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Links between Paradigm Shifts and the Trade Rules

• Agreement on Agriculture also paved the way for
  Globalized Agriculture rules
• SPS Agreement imposes risk-assessment
• TRIPS Agreement allows for IP protection
• GATS brings rules to service sectors
• TRIMS limits foreign investment risks
• EU supported this extension of trade rules and
  now argues for the inclusion of competition

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Links between Paradigm Shifts and the Trade Rules

• Multifunctional Agriculture not fully addressed
• Rural Development programs included in green box
  but constrained by rules
• Inadequate attention to environmental policies
  and to the joint-product problem
• Issues treated under heading of non-trade
  concerns and postponed to the next round

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Links between Paradigm Shifts and the Trade Rules

• Multifunctionalism became rallying cry for
  countries and groups concerned about URAA
• picked up by environmental groups in Europe as an
  alternative farming model
• Adopted by Norway, Switzerland and others to
  counter pressure from abroad for more
  liberalization
• Embraced by Japan as including food security
• Expanded by EU Commission to include rural
  development and animal welfare

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Links between Paradigm Shifts and the Trade Rules

• Current Round of WTO talks on Agriculture (within
  the Doha Development Agenda) sees next round of
  conflicts between these paradigms
• Can these paradigms co-exist in a
  well-functioning trade system?
• Can rules be found to accommodate essential
  elements of all four paradigms?
• Or will one paradigm succeed and others have to
  adapt?

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Can these Paradigms Coexist?

• Positions taken by countries reflect their world
  market paradigm
• Cairns Group strongest proponent of Competitive
  Agriculture, as leading to a stable world market
• EU seeking to build in multifunctionality into
  WTO rules but also pressing for Globalized
  agriculture rules
• US seen as hovering between positions, leadership
  role compromised
• Developing countries split on which model to
  support, depending whether they are importers or
  exporters, confident or cautious

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Can these Paradigms Coexist?

• Traditionally, conflict has been between
  dependent and competitive agricultures
• Dependent Agriculture imposes costs on
  competitive Agriculture
• Competitive agriculture raises the cost of
  protection
• Focus has therefore been on negotiating
  constraints on support levels, subsidies, etc.
• Market access and tariff levels
• Export Competition

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Can these Paradigms Coexist?

• But conflicts also arise between Dependent and
  Multifunctional agricultures
• Dependent Agriculture imposes costs on
  Multifunctional Agriculture through low prices
  for private goods and increases cost of public
  goods
• Even Multifunctionalists are willing to negotiate
  constraints on export subsidies
• Hence split between EU and Japan, Korea
• EU is not resisting liberalization across the
  board
• Japan and Korea arguing for commodity-by-commodity
  tariff reductions

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Can these Paradigms Coexist?

• Dependence also conflicts fundamentally with
  Globalized agriculture
• Government farm policy gets in the way of a
  supply chain
• Incentives are for quantity not quality
• Identity preservation not central to dependent
  agriculture
• Government influence over markets crowds out
  private initiatives
• Main puzzle is why supply chain captains (e.g.
  Supermarkets) are not involved more actively in
  countering Dependence paradigm?

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Can these Paradigms Coexist?

• What about conflicts between Competitive
  agriculture and Multifunctional agriculture?
• Public goods become more expensive to provide
  with competitive world markets
• Transfers costs of public goods to taxpayers
• Exporters will remain suspicious of motives of
  importers
• Strict rules on subsidies may be necessary to
  reconcile these two paradigms

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Can these Paradigms Coexist?

• Can there be conflicts between Competitive and
  Globalized agriculture paradigms?
• Competitive agriculture still centered on the
  notion of national agriculture
• Global agriculture challenges notion of
  ownership, sovereignty, control
• Comparative advantage determined by investment
  flows
• Key problem is distribution of rewards from
  supply chains

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The Timetable of Agricultural Negotiations

• March 2000
• Establishment of Negotiating Committee and
  appointment of Chairman
• March 2000 March 2001
• Phase I. Initial Position papers presented
• March 2001-Feb 2002
• Phase II. Elaborations by countries on specific
  topics
• November 2001
• Doha Ministerial confirmed and elaborated
  objectives and set timetable for negotiations

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Timetable (contd.)

• March 2002 March 2003
• Modalities phase. Developing modalities for
  further trade reform steps
• March 2003-September 2003
• Preparation of draft schedules to give effect to
  modalities
• September 2003
• WTO Ministerial in Cancun to take stock and
  integrate with other aspects of the negotiations
  (single undertaking)

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Timetable (contd.)

• January 2004
• Peace Clause expires (unless renewed)
  possibility of challenges to subsidies under SCM
  Agreement
• January 2005
• Presumed end of negotiations
• New Administration in Washington?

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Implications for The Current WTO Talks on
Agriculture

• The US, backed by the Cairns Group, has argued
  for continuation of the Uruguay Round reforms
• The substantial reduction of tariff barriers by a
  formula that would in particular cut
  mega-tariffs,
• the elimination of export subsidies,
• the further disciplining of domestic support
• The removal of the Peace Clause and the special
  safeguard in place for agriculture
• This would set in place the Competitive paradigm
  and signal an end to Dependent Agriculture model

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Implications for The Current WTO Talks on
Agriculture

• At the other extreme, Japan and Korea
• are strongly against any major cuts in tariffs
  across the board (threatens Dependent
  Agriculture)
• will resist pressures to cut domestic support, on
  the grounds that agriculture plays an important
  societal role (Multifunctionality)
• Many developing countries
• will side with the Asian industrial countries in
  resisting deep tariff cuts, so as not to open up
  to competitive agriculture
• But will favor the elimination of export
  subsidies
• Dependent Agriculture will survive this round
  largely because developing countries are not
  ready for competition in agricultural markets

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Implications for The Current WTO Talks on
Agriculture

• The EU has agreed to move to more competitive
  mode
• to make significant cuts in tariffs in an across
  the board UR way
• To reduce export subsidies if other forms of
  export assistance are included
• To continue restraints on domestic support (amber
  box)
• But would like
• Environment and animal welfare programs to be
  sheltered (green)
• Protection of Geographical Indications to be
  extended
• Multifunctional agriculture and Globalized
  agriculture would be supported by EU position,
  and entrenched in the rules

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Conclusion

• US and the EU not so far apart as in previous
  negotiations.
• Both are committed to more competitive markets
  through tariff reductions (though the US will
  push for deeper cuts)
• both will be constrained by domestic pressures
  from opening up sensitive markets (dependent
  sectors)
• The EU will put a price on its agreement to
  eliminate export subsidies
• the US will have to rein in its export credit
  programs and food aid.

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Conclusion

• Domestic Support is likely to be more contentious
• both US and EU seek to redefine permissible
  domestic policies (green box) in such a way that
  their own emerging programs can be sheltered from
  challenge.
• In the case of the EU, these programs include
  rural development, environmental subsidies,
  animal welfare measures and regional aid schemes
  (multifunctional policies)
• In the US, the package will include recognition
  of income insurance and counter-cyclical measures
  as allowable
• Disagreement likely over GIs and animal welfare,
  as well as continuation of blue box and Peace
  Clause

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Conclusion

• Key is position of developing countries
• Doha Development Agenda was seen as a way of
  engaging developing countries
• Will they embrace the new paradigms?
• Will they be willing to reduce the high levels of
  protection that still obtain for manufactured
  goods (as well as for agriculture)?
• Developing countries will be looking for some
  gains in agriculture
• Better access into developed country markets
• Not clear that this will be forthcoming

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Conclusion

• This could mean a modest outcome, agreed in
  2005/6, such as
• cuts in tariffs of, say, 30 percent on average,
  with some modulation
• a modest expansion of TRQs and some disciplines
  on their administration
• continued cuts in export subsidies but not their
  elimination
• further clarification on the green box criteria
  for domestic support but relatively slack
  disciplines
• Co-existence of alternative paradigms with no
  forced convergence through WTO rules