Global agricultural trade has seen tremendous growth since the creation of the World Trade Organization (WTO) in 1995. Since 1995, global agricultural exports have more than tripled in value and more than doubled in volume, exceeding $1.8 trillion in 2018. As one of its founding architects, and long recognized as one of its stalwart proponents, the United States has been a major beneficiary of the rules-based system. Recent shifts in U.S. trade policy could have profound adverse impacts on the global trading system.
Today, almost 25 years after the creation of the WTO, many may have forgotten the state of the trading environment facing agriculture in the 1980s. D. Gale Johnson, a prominent University of Chicago economist, referred to it as a “world in disarray.” Many markets were highly protected through high tariffs, limited quotas, or outright bans on imports. Domestic support to agriculture, particularly among the rich, developed members such as the United States, Japan, and the European Union, was large and growing. Governments propped up domestic prices by storing production in large public stockpiles, by maintaining high tariff barriers, or both. Surplus production was dumped on export markets, often through export subsidies or under the guise of humanitarian aid. Those market distortions harmed other exporters, often developing countries that had little or no means with which to protect their own producers and limited recourse within the General Agreement on Tariffs and Trade to redress trade disputes.
Through the leadership of the United States and others, countries forged a multilateral agreement that created the WTO and brought discipline to agricultural trade by increasing market access through lower tariffs, lowering trade-distorting support, and capping and reducing export subsidies. Members agreed that sanitary and phytosanitary trade rules must be science-based and not imposed arbitrarily to restrict trade. A binding dispute settlement mechanism was established for members to resolve their trade disputes without resorting to unilateral trade actions.
As a result of more open markets, imports have grown as a percent of total food consumption. Trade enhances food security and nutrition by enabling countries to diversify their food supplies to ensure adequate food when droughts or other production shortfalls occur. Trade will be even more important in the future as population and income growth increase food demand; at the same time, global food production will be challenged by climate change, water scarcity, and other environmental pressures. Meeting those challenges will require a more open trading system.
Trade will be even more important in the future as population and income gr-owth increase food dema-nd; at the same time, global food production will be ch-allenged by climate cha-nge, water scarcity, and ot-her environmental press-ures. But current trade policy actions threaten that course and could plunge the world again into disarray. Unilateral trade actions and resulting trade wars have disrupted agricultural markets, hurting U.S. producers who have lost export markets and have faced declining prices and crop receipts as a result. The Trump administration responded by providing $28 billion to farmers and ranchers adversely affected by the trade actions. Those payments, combined with payments under the price and income support program and federal crop insurance program, have significantly increased trade-distorting support reported to the WTO. As a result, U.S. trade-distorting support will likely exceed its cap under WTO rules for 2019 and 2020 and could trigger trade disputes with other exporting members.
The current impasse over appointments of new members for the WTO Appellate Body points to what many members would agree are legitimate concerns with the operation of the Appellate Body. The danger is that, without resolution, the impasse will paralyze the dispute settlement process, which, in turn, threatens the stability of the multilateral trading system. The food system is one critical place where consequences could land: disputes over food products that escalate or cause damage to the multilateral system could potentially have human costs for countries that rely on food trade, exacerbating hunger and hurting food producers’ income opportunities. To avoid such economic and human costs, it is critical that WTO members find a resolution to the current Appellate Body crisis.
The next four years will present an opportunity for the United States to again take up a leadership role in global trade policy. But this will mean abandoning its aggressive unilateralism and instead working with its trading partners to find solutions to those problems. The challenges of meeting future food needs will require a concerted effort from governments to improve the functioning of food and agricultural markets. The WTO can play an enormous role by reducing trade-distorting support, improving market access, ending distortions caused by export restrictions and subsidies and—perhaps most importantly—continuing to provide a forum to which members can bring and hopefully resolve trade disputes rather than engaging in unilateral trade actions that can quickly escalate trade tensions. The United States has the responsibility to take up that mantle and lead the world to a more open and fair trading system.
The writer is a senior research fellow with the International Food Policy Research Institute and visiting scholar at the American Enterprise In-stitute . Commentary is p-roduced by the Center for Strategic and Inte-rnational Studies, a private, tax-exempt institution focusing on international public policy issues.