David Ricardo taught us more than a century ago that trade should be fostered because it allows nations to exploit their comparative advantages and thus boost their purchasing power – all the while making foreign nations better off as well.
Nowadays international trade is much more complex. If that prominent Englishman were living among us, he would probably observe there was a global asymmetry in the exploitation of comparative advantage. Trade and comparative advantage rule when it comes to manufactured goods, but not when it comes to agriculture goods – at least under current WTO rules. Completing the Doha Round would narrow the asymmetry.
The historical neglect of agriculture in the GATT/WTO system
Taking into account a historical overview of the evolution of the international trade rules, the deficit in agriculture is evident. Under the GATT, parties negotiated tariff reductions and disciplines for subsidies only for manufactured goods. Until 1986, when the Uruguay Round was launched, eight rounds had promoted the liberalisation of industrial products, but almost nothing was done for agricultural goods. It was just with the beginning of the Uruguay Round that states agreed on negotiating agricultural trade liberalisation. In historical terms, WTO trade rules for agricultural products lag behind the ones for manufactures products.
The Uruguay Round made some progress – notably the WTO Agricultural on Agreement signed by WTO members at the end of the Uruguay Round. Nevertheless, the shortage of commitments to liberalise agricultural markets persists. The WTO Agricultural on Agreement did not succeed in reaching the same degree of liberalisation as previous rounds had achieved for industrial products. Such a discrepancy is seen in three main pillars: market access, domestic support, and exports subsidies.
Regarding the first one – market access – some improvements were achieved in the Uruguay Round, but far less than in manufactured products. Contrary to industrial products trade, agricultural trade is still managed through tariff-rate quotas and other non-tariff measures such as safeguards. This facilitates discretionary actions of states against imported food. Notwithstanding that, agricultural tariffs remain relatively higher than those on industrial goods.
Both domestic support and exports subsidies have even larger room for improvement. For the former, there is a difference between support programmes that nurture production directly (these are deemed to be trade distorting) and those that are considered to have no direct effect. How to discern the difference? In non-agricultural products, all subsidies are potentially considered trade distorting, so they are all disputable. The direct and indirect distinction in agriculture, however, means that some trade-distorting agricultural subsidies are almost impossible to contest in the WTO.
Besides, for export subsidies there are also exceptions, such as the possibility to subsidise products that are specified in a member’s lists of commitments. On the other hand, there is no exception for export subsidies in the manufactures market. Being instruments used mainly by developed nations to protect farmers, to avoid the improvement of disciplines to domestic and export subsidies it keeps the agricultural market unequal.
The need for updated rules on agriculture
Along with these three restrictions mentioned above, it also important to remember the Uruguay Round’s so-called “Peace Clause”. In doing so, we should bear in mind its symbolism, as well as the consequences when it stopped being into force in 2003. This Clause, by limiting the access to the Dispute Settlement Body, suggested a lesser commitment of WTO members with respect to the agricultural market. Without having an arbitrary body, legal efficiency is tougher to achieve.
In legal terms, such distinction is difficult to obtain not only when there is no third party able to solve conflicts, but also when, in case it exists, it is not followed by normative extension. When the Peace Clause ceased, WTO members started going to the WTO’s court – the Dispute Settlement Mechanism, thus producing a new jurisprudence on agricultural trade.
Nevertheless, given the discrepancy between the agricultural and industrial products markets, in which the former’s exceptions allowing subsidies are commonplace, the WTO’s current juridical condition has become unstable. In order to solve this, it is necessary to extend agricultural rules while pursuing liberalisation. Under these circumstances it helps to enhance legal efficiency, helping the agricultural market catch up with the manufactured openness.
Agriculture liberalisation would benefit developed and developing nations
Furthermore, it can be strenuously asserted that both developing and developed countries would benefit from a more liberalised agriculture. In promoting the reduction of restrictions on market access, developed countries would benefit from developing countries’ more open markets, which are still more strongly protected than the developed ones. Developing countries meanwhile would benefit from exporting more agricultural goods. A more opened agricultural market would promote gains for both sides.
Concluding the Doha Round is crucial for narrowing the historical gap between agricultural and manufactured goods trade. As it is, given the three bottlenecks in the market access, domestic support and export subsidies, Doha’s negotiations draw even more attention, not least because the status quo has negative consequences to the Dispute Settlement Mechanism. In concluding the Doha Round both developing and developed countries would benefit.
Were he alive today, David Ricardo would concur, no doubt advocating the benefits of trade that follow from comparative advantage.