Resource Schizophrenia: Deciding a Trade Policy for Natural Resources The Case of Agricultural Commodities in Times of Food Insecurity Ellen Terpstra International Food and Agricultural Trade Policy Council

“ Food security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life.” --- World Food Summit 1996

Trade, often a small percent of production, may significantly affect prices Wheat –World trade is 22% of production. –US: 52% of production is exported but accounts for only 4% of world production and 18% of world exports. Rice –World trade is 8% of production. –US: 55% of production is exported but accounts for less than 1% of world production and 9% of world exports. Corn –World trade is 12% of production. –US: 13% of production is exported but accounts for 5% of world production and 36% of world exports. 40% for ethanol and by-products. Source: USDA/WASDE Oct Estimates for 2011/12

Export Restrictions Take Many Forms Export tax - specific, ad valorem, mixed, variable, differential Minimum Export Price Quota Government to government sales Export ban or prohibition Source: FAO COMMODITY AND TRADE POLICY RESEARCH WORKING PAPER No. 32 “Food Export Restrictions: Review of the Experience and Considerations for Disciplining Restrictive Measures” By Ramesh Sharma, May 2011

Trade Policies Affect Wheat Prices US $/ton 6 Credit: FAO COMMODITY AND TRADE POLICY RESEARCH WORKING PAPER No. 32 “Food Export Restrictions: Review of the Experience and Considerations for Disciplining Restrictive Measures” By Ramesh Sharma, May 2011

Reasons for Export Restrictions Food security Low domestic purchasing power combined with high commodity prices Large gap between successive crops Political reasons Source of revenue WTO mandated purchases (Japanese rice stocks resulting from mandated imports) Source: “Agricultural Export Restrictions: Welfare Implications and Trade Disciplines” by S. Mitra and T. Josling, IPC Position Paper, Jan. 2009

GATT Disciplines Quantitative restrictions are banned; export taxes are not. Exemptions –Article XI 2(a) exception for quantitative restrictions “temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party.” –Article XX(h) exemption for obligations under intergovernmental commodity agreements; (i) raw materials used in domestic processing where domestic price is below world price as part of a governmental stabilization plan; (j) for products essential to the acquisition or distribution of products in general or local short supply.

Uruguay Round Agreement on Agriculture Disciplines Article 12: when new exports restrictions are imposed in accordance with GATT Article XI 2(a): –Give due consideration to the effects…on importing Members’ food security; –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 –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. Obligations do not apply to developing country members unless measure is taken by one which is a net-food exporter of the specific foodstuff concerned.

Doha’s Possible Disciplines Initially export taxes and restrictions were on the table. Cairns Group focus on differential export taxes. Importers’ ambitious proposals –Japan: tarify export prohibitions and restrictions, and bind export taxes. –Korea: prohibit arbitrary restrictions and export taxes. –Switzerland: eliminate all export restrictions and bind export tariffs at zero. –Post food crisis ( ) informal paper. Rev. 4 would require notification within 90 days after imposition of export restrictions; to last no longer than one year, with importer’s consent required for measure that lasts longer than 18 months; exemption for least-developed and net food-importing countries. G20 consideration of exempting food aid from export restrictions.

Implications of China-Raw Materials Case for Agricultural Export Restrictions “Although conventional wisdom has held that existing WTO rules on export restrictions are weak, recent WTO jurisprudence points towards a different interpretation of these rules: namely that a country may not respond to a food crisis in a manner that is indifferent to the food security impacts on import- dependent countries.” -- Robert Howse and Tim Josling, “Agricultural Export Restrictions and International Trade Law: A Way Forward”, IPC, Sept

Implications of China-Raw Materials Case for Agricultural Export Restrictions A country may not simply self-judge what constitutes a “critical” shortage. “Due consideration” (URAA Art. 12) conditions to the proper invocation of the exception; the application of export restrictions may need to be varied depending on their effect on other Members. Restrictions imposed under Art. XX(g) “even-handedness”: the burden imposed on importing countries must be accompanied by rationing to domestic producers or consumers of the finite resource. Export taxes could qualify as export restrictions.

What’s Next? Likelihood of higher commodity prices and increased volatility raises potential for more frequent use of export restrictions. Will AMIS (Agricultural Market Information System) help and reduce the use of export restrictions? Can current WTO disciplines be more effective, either through enforcement of current requirements or from “clarifications” provided by China-Raw Materials? Will the global community have the political will to expand disciplines on export restrictions?