Towards a New Architecture of Agricultural Trade in the World Market.

By Wolfgang Sachs und Tilman Santarius

Published as: Sachs, Wolfgang/ Santarius, Tilman: Towards a New Architecture of Agricultural Trade in the World Market. In: Gottwald, Franz-Theo/ Ingensiep, Hans Werner/ Meinhardt, Marc (Eds): Food Ethics. New York, 2010, p. 185-203.

A multilateral framework for trade is indispensable. However the WTO in its present institutional shape fails to meet the requirements for such a framework. As a consequence, the WTO faces the challenge to reinvent itself or to leave the institutionalization of trade rules to other settings in the context of the United Nations. We set out below a number of preliminary suggestions for new agriculture trade architecture based on the key issues and recommendations set out in this report.

On principles

The GATT and WTO have been established on the basis of the principles of ‘Most Favored Nation’ and ‘National Treatment’, both expressions of the general principle of Non-Discrimination. In our view, non-discrimination should continue to be an underlying principle so long as it is properly qualified by the principle of Democratic Sovereignty. Yet we suggest to eliminate the National Treatment rule, at least in the context of agriculture. We believe that the ethos of global solidarity and the principle of Extra-territorial Responsibility require that nations should not be discriminated against, either in a positive or negative sense. However, they justify protection of domestic producers over foreign competitors at the border. In this light, we concur with the principle expressed in the 2004 Draft Peoples’ Convention on Food Sovereignty that: “Food sovereignty becomes the right of people and communities to decide and implement their agricultural and food policies and strategies for sustainable production and distribution of food” (§1.2, quoted in Windfuhr/Jonsen 2005). Indeed, the proposed policies to govern imports are grounded in the principles of Democratic Sovereignty and Economic Subsidiarity, which themselves are incompatible with the National Treatment principle.

Furthermore, the concept of ‘non-tariff barriers’ is difficult to reconcile with the principle of Democratic Sovereignty. The concept was introduced during the transition from the GATT to the WTO. It has led to major interventions in subsidy policies, patenting rules, basic services, and property laws, extending the influence of trade rules into domestic politics far behind borders. But the weight given to the concept of ‘non-tariff barriers’ undermines the right of people and communities to organize their affairs – e.g. support to farmers, intellectual property rights, and land tenure laws – according to their preferences. The language of ‘non-tariff barriers’ has a reductionist effect; it boils down complex and diverse political arrangements to mere obstacles to trade. In accordance with the principle of Democratic Sovereignty, trade policy rule-making should not interfere with domestic politics, but should concentrate instead on market access issues and on quality criteria for international exchanges.

However the principle of Democratic Sovereignty is circumscribed by the right of other people and communities to their own right to sovereignty. In other words, the freedom of a nation ends where the freedom of another nation begins. This is where the principle of Extra-territorial Responsibility comes into play i.e. nations have to be held accountable for the external trans-border effects of their policies that might harm other countries. The most obvious examples are export subsidies, domestic support influencing export prices, food aid etc. that lead to dumping on international and foreign markets. It is on the basis Extra-territorial Responsibility that such policies must be abolished, and not on the grounds of establishing a global level-playing field.

Moreover, the principle of Democratic Sovereignty is also circumscribed by the principle of Trade Justice. The latter principle, especially if understood as a systemic differential treatment of countries, seeks to address the drastic inequalities among nations in the world; it systematically privileges less powerful nations over more powerful ones and requires that rights and duties must be distributed unequally, i.e. according to respective needs and capacities.

Finally, any new multilateral institution on agricultural trade would have to be established under the auspices of the United Nations. Therefore the foundational principles enshrined in the UN Charter would naturally govern the new trade institution.. As a result, all of the UN instruments on human rights, most notably the UN Declaration on Human Rights would underpin the new trade institution as well. By contrast with the goal of economic efficiency that is currently the dominant objective of the WTO, the new multilateral trade institution would be governed by the principles of Human Rights, Environmental Integrity, Trade Justice and Economic Subsidiarity. The goal of economic efficiency would step back to become one among other means available to maximize employment opportunities and to achieve decent livelihoods, as well as environmental security and social justice.

On functions

The WTO currently performs three functions. It is the central forum for intergovernmental negotiations, it promulgates legally-binding rules, and it settles trade disputes. Any new institutional arrangement will have to fulfill these functions as well, adding, however, some more while changing the overall objectives as well. At least three additional functions would have to be developed. These include the control of international market prices through a cooperative mechanism based on supply management, the quality control of trade flows based on multilateral meta-standards, and the supervision of competition through anti-trust measures. While the current objective of the WTO is the removal of tariffs and non-tariff barriers to trade for the sake of creating a unified global market place, any new institution would have to prioritize reconciling of competing interests among nations. Its primary objective would be to manage and not deregulate international trade.

We propose that the new institution would at least be comprised of five branches: the Coordination Branch, the Quality Branch, the Price Management Branch, the Anti-trust Branch, and the Dispute Settlement Branch.

The primary task of the Coordination Branch would be to balance domestic preferences and international interests. The branch would have to oversee the restoration of national policy space in trade. Furthermore, it would have to evaluate the international effects of domestic policies especially with regard to possible harmful effects in international and foreign markets. For example, the coordination branch would host the ‘Dumping Alert Mechanism’. In this context, it will have to establish measures to ensure that the exercise of democratic sovereignty will not negatively affect the legitimate interests of other nations. It will, therefore, be mandated to host the ‘Centre for Dispute Mediation in Conflicts Over Standards’, a body that would mediate conflicts between different sets of national quality standards before a complaint would be brought to the dispute settlement branch. The body would also ensure that countries did not use national quality standards as a disguised form of trade discrimination. Furthermore, the Coordination Branch would support the negotiations on ‘Systemic Differential Treatment’, to ensure that the special needs and considerations of weaker countries were addressed. It would also monitor trade flows with a view to upholding the Trade Justice principle.

The objective of the Quality Branch would be to ensure a minimum quality standard in global markets. The branch would support negotiations on a set of ‘Meta-standards’ that would provide the overarching framework for domestic sustainability process and production standards to prevent the destruction of social and environmental commons. The Quality Branch will also have to establish monitoring and verification mechanisms. Additionally, it would host a number of ‘Development Contract Boards’ to supervise quality standards in trans-border business contracts along specific commodity chains. Accreditation of these contracts by these boards would be the key condition that companies would have to meet in order to participate in world trade. Since all of these functions described above could not be discharged by the trade policy body alone, collaboration would be essential with key United Nations bodies, such as the UN Food and Agriculture Organization, the UN Environment Programme, the respective multilateral environmental treaty regimes, as well as the World Health Organization, the International Labor Organization, and, finally, bodies such as the proposed ‘Sustainable Rural Development Fund’, which would channel revenues from qualified market access schemes at the national border to support marginal producers to transition to sustainable farming practices. As well, the Quality Branch would be responsible for ensuring systematic consultation with NGOs and the private sector, in addition to facilitating their participation in decision-making.

The task of the Price Management Branch would be to control the swings between price peaks and price declines on the world market by coordinating supply management of agricultural goods. More specifically, the branch will support the negotiations on the ‘Multilateral Cooperative Framework for Balancing the World Market Supply’ to manage the use of production capacity in the North and in the agricultural export nations of the South. This will help to control radical swing prices. The observation of price fluctuations, the negotiation among partners concerned, the definition of price bands, and the identification of suitable instruments for influencing production capacity will be other areas of focus for the Price Management Branch. In addition, the Price Management Branch will collaborate with the Quality Branch to oversee fair producer prices in ‘Development Contracts’ throughout the entire commodity chain.

The Anti-Trust Branch will be responsible for negotiating and deciding competition policies at the global level. In particular, it will have to address market concentration in the input production, processing, trading, and retailing sector. The branch will maintain a publicly accessible databank containing information on the size and activities of transnational businesses, including mergers and acquisitions. With the ‘Anti-trust Body’ at its core, the branch will – similar to national anti-trust policies – monitor the market power of corporations, define market shares beyond which oligopolistic conditions are assumed to exist, implement measures to curb the disappearance of competition in particular markets, and scrutinize mergers and acquisitions. Its activity will have to be linked to some juridical body like the dispute settlement mechanism or an international court for trade law.

Finally the Dispute Settlement Branch will be responsible for the settlement of disputes among member states, and between member states and third parties such as corporations and NGOs. Overall, this branch will continue establishing panels on trade disputes, as is currently the case within the WTO. If one of the panels is unable to secure agreement acceptable to all parties, then there would have to be recourse for appeal to an independent judicial body Ensuring the impartiality of the dispute settlement mechanism will be essential since it will be adjudicating conflicts between social, environmental, and commercial values. For this reason it is advisable to move the appeal body – equivalent to the standing Appellate Body in the WTO – out of the institution mainly concerned with trade. In addition, this will be necessary to ensure that non-state actors will be able to exercise their to right to complaint.