Media  Global Economy  2022.08.17

Can the WTO Solve the Food Crisis?

The Misperception That Regulating Export Restrictions Leads to Food Security

The article was originally posted on RONZA on June 23th, 2022

Agricultural Policy/Genome

How to address the deepening food crisis in Middle East and African countries after Russia’s invasion of Ukraine stalled wheat exports topped the agenda at the 12th Ministerial Conference of the World Trade Organization (WTO) or MC12. On June 17, MC12 adopted a ministerial declaration, for the first time in about six and a half years, after it extended the session. The adoption came amid fears that it would not happen just as it did not in the past in the face of opposition from India and some other countries.

The declaration calls for, among other things, refraining from, in principle, imposing food export controls that go against WTO rules. If export controls are unavoidable in light of food security concerns, the declaration calls for making them temporary, targeted, and transparent and notifying the WTO about them.

The term “WTO rules” here refers to Article 12 of the WTO Agreement on Agriculture (AoA) on export controls, which stipulates, among other provisions, that any member country instituting any export prohibition or restriction shall give due consideration to the effects of such prohibition or restriction on importing WTO members’ food security. The above-mentioned part of the MC12 ministerial declaration is in effect a paraphrase of this article. It does not add something new. Nor does it have legally binding power as it is part of the declaration.

WTO Regulations Introduced at the Proposal of Japan

Is Article 12 of the AoA effective for addressing food crises?

The provisions in Article 12 have, in fact, been introduced at the proposal of Japanese negotiators in the final phase of the GATT Uruguay Round negotiations – a little-known fact for current officials at the Ministry of Agriculture, Forestry and Fisheries (MAFF) and the Ministry of Foreign Affairs. And I was a member of the Japanese negotiating team, who labored for the adoption of these provisions.

Why did Japan make such a proposal?

To tell the truth, the proposal was not a brainchild of MAFF or agricultural interests in Japan.

MAFF’s main objective at the GATT Uruguay Round was to make GATT members accept an exemption of rice at least from comprehensive tariffication. Comprehensive tariffication meant abolishing all non-tariff barriers, including quantitative import restrictions, and replacing them with tariffs. Politically speaking, this objective was arguably the most important goal for the entire Japanese government. Comprehensive tariffication was originally put forward by the US, which had the biggest say in the Uruguay Round. This proposal was strongly supported by Australia and New Zealand, both of which were exporters and free-trade advocates. During the negotiations, the EU, a major negotiating country, came around to supporting it as well. The term “comprehensive” meant that no exception was allowed.

A Call for Something More

Although few countries were on its side, Japan eventually seemed to have won enough support for such an exemption in the final stages of negotiations. It was around that time that an influential politician in the Liberal Democratic Party, which was in the political wilderness at the time, called for something more. He argued that winning an exemption of rice from tariffication was inadequate to prove that Japan tried hard enough for its food security. His input prompted the Japanese negotiating team to make haste arrangements to put forward a proposal that export restrictions by exporting countries must be banned from the perspective of food security.

In late October, Japan made this proposal in Geneva, Switzerland. The proposal was eventually accepted before the Uruguay Round came to a close on December 15, 1993. I was in the international conference hall in Geneva where GATT Director-General Peter Sutherland declared an end to the negotiations while bringing the gavel down. I had left Japan on October 15.

My main work in Geneva was to take part in the final drafting negotiations for the Agreement on Agriculture (AoA). The negotiations were conducted in quite a small group made up of representatives from Japan, the US, the EU, Australia, and the GATT Secretariat. An exemption of rice from tariffication was negotiated here and eventually stipulated in Annex 5 of the AoA. While the negotiations were underway, I engaged in prior consensus building for the adoption of Japan’s proposal on export controls, sounding out the representatives of other members.

Surprisingly, the US Consented

I was extremely worried that the US might not consent to this proposal. If the US, which was leading the GATT Uruguay Round, opposed, the proposal would have a slim chance of success. First and foremost, regulating export restrictions was tantamount to obliging the US, a major food exporter, to refrain from imposing export restrictions.

My worries proved to be groundless. The US simply consented. It argued that it would not resort to export restrictions because free trade is the avenue to food security.

Conversely, there was no reason for Japan to exempt rice from tariffication on the ground of food security, the US logic goes. For this very reason, a MAFF negotiator strongly opposed the proposal on export controls, saying it would make it difficult to win an exemption of rice from tariffication. On the night when I arrived in Geneva, I received a stern rebuke from my boss on the phone. I managed to soothe his anger, telling him that the government had already decided on it.

Australia and the EU, also food exporters, did not oppose, either. The EU could not afford to spare time for this issue as it had a major issue under negotiation with the US. Now Japan secured consent from three major negotiating parties, the US, the EU, and Australia. Their influence was so powerful in the negotiations that I was convinced that Japan’s proposal would be accepted.

Opposition Came from India, a minor food exporter

Surprisingly, however, Japan’s proposal was met with strong opposition from the Indian ambassador. His argument boiled down to this: “Countries like India become an exporter or an importer depending on the harvests. The country will be in big trouble if it is asked to export when it lacks food. No one can blame a country in such trouble if it goes with export restrictions in a desperate effort to feed its people.” A small man, he wielded considerable influence among the negotiating parties in Geneva. Without his consent, Japan’s proposal would fall flat.

Eventually, Japan’s proposal translated into the provision that before any Member institutes an export restriction on a foodstuff, it shall give notice to the WTO Committee on Agriculture and consult with any other member that might be affected (Article 12 of the WTO Agreement on Agriculture or AoA). It was decided, however, that this provision shall not apply to any developing country that is a net-importer of the foodstuff concerned. This provision successfully persuaded the Indian ambassador.

I have devoted much space to explaining the process of negotiations on Article 12 with good reason. Arguments by the US and India were supported by substantive grounds. Let me expound on this. Unfortunately, we, Japan’s negotiating team, were ignorant of that and convinced that regulating exporting countries’ export restrictions would lead to Japan’s food security. We were so naive. It is worth adding here that current international negotiators, including Japan’s negotiators, are no more aware than we were back then.

Why the US Refrains from Export Restrictions


Source (of both graphs): Compiled by the author from the Food and Agriculture Organization Corporate Statistical Database or FAOSTAT (in million tonnes)

Major exporters of grains and soybeans such as the US, Canada, Australia, and Brazil export substantial portions of their production of these crops.

The share of exports in production for wheat in 2020 was 43% for Russia, 53% for the US, 74% for Canada, 72% for Ukraine, 52% for Argentina, and 72% for Australia. (See the upper graph.) The share for soybeans in the same year stood at 68% for Brazil, 57% for the US, and 13% for Argentina. (See the lower graph.)

Argentina’s low share for soybeans stemmed from the country’s policy to restrict exports with export duties for promoting the domestic processing of the crop into soybean oil in order to add value before export.

The US and Australia export grains because the sale of surplus crops (the difference between production and domestic consumption) in the domestic market would result in domestic prices dropping far below international levels. It is unconceivable that these countries will become importers no matter how much international prices fall so long as production exceeds consumption. The US will not stop exporting grains or begin importing them even if international prices dwindle. If these countries stop exports, more than double the amount of the existing supply will flow into the domestic market, sending domestic prices in a tailspin. A decline in international prices is often triggered when these countries increase exports too much.

Another point to remember is that these exporters are rich developed countries. Consumers in such developed countries except for Russia and Ukraine can afford to buy foodstuffs even if the prices go up. There is no need for controlling exports. In the US and Japan, farm products account for only 10-20% of food expenditures, most of which are the costs of processing, logistics, and dining out. A substantial rise in grain prices, as happened in 2008, will have little impact on overall food expenditures.

What Will Happen If Huge Amounts of Foodstuffs Originally Destined for Export Overflow the Domestic Market?

Rising prices provide a golden opportunity to make a profit for producers in major exporting countries. If export restrictions are put in place, huge amounts of foodstuffs originally destined for export will overflow the domestic market, sending domestic prices sharply lower and driving farm households out of business. During the US-China trade war from 2018 to 2019, Chinese import restrictions rendered it impossible for the US to export its soybeans to China. American soybeans thus made redundant piled up in open farmyards and prices went down to the extent that huge bailouts by the federal government were required. A similar thing will happen if the US implements export restrictions.

It is often argued that Japan should divide up and diversify its overseas sources of food rather than limiting them to a few countries, including the US. This argument is also made in government documents. Japan needs not do so, however, because these countries will not implement export restrictions. In fact, MAFF, as a state trade enterprise, has, for more than half a century, imported wheat from almost only three countries: the US (with a share of 60%), Canada (25%), and Australia (15%).

Russia is an exception as far as wheat trade is concerned. It has been always the case that when international grain prices soared, Russia restricted its exports. If Russia exports grains without restrictions as in the case of India discussed later, its grains will be supplied to the global market. This will lower domestic supply, with the result that domestic prices will increase to international levels. This is because people in countries like Russia where people earn only a low income and spend much of it on foodstuffs can no longer cope with rising grain prices, in stark contrast to people in high-income countries like the US and Canada. Import restrictions can keep domestic prices lower than international levels.

The US Learned a Hard Lesson from Its Past Two Mistakes

The US imposed an export ban twice in the past.

The first export ban was imposed in 1973, when a poor catch of anchovies, which were used for livestock feed, off the coast of Peru increased the demand for soymeal, a substitute for the fish, in the US. Back then, the US accounted for the overwhelming majority of global soybean exports. To give priority to domestic livestock farmers in supplying soybeans, the US imposed an export ban on the crop for a period of only two months. The export ban unnerved Japan, which consumed soybean products in large quantities and depended much on the supply of soybeans from the US. To feed domestic cattle and pigs, the US imposed an export ban on soybeans, a crop the Japanese needed to consume in the form of miso (bean paste), tofu (bean curd), natto (fermented beans), and soy sauce.

fig03_sugiyama.pngCompiled by the author from the Food and Agriculture Organization Corporate Statistical Database (FAOSTAT)

Concerned about the future prospect for soybean supply, Japan assisted farmland development in the Cerrado, a vast savanna region in Brazil. As a result, Brazil’s soybean production soared, posting a 449-times increase in 2020 from the 1961 level. In 1961, Brazil accounted for only 1.0% of global soybean production, dwarfed by a whopping share of 68.7% for the US. In 2020, Brazil surpassed the US at a ratio of 37.2% to 28.8%. In a short period of time, Brazil overtook the US, which had enjoyed a monopoly in soybean exports, as a major soybean exporter. (See the graph.)

The second export ban came in 1979. The US imposed trade sanctions on the Soviet Union for its invasion of Afghanistan in the form of a ban on grain exports. The Soviet Union, however, began to source grains from Argentina and some other countries. The US agriculture industry lost the Soviet market. Flustered, the US lifted the export ban the following year. Yet the US agriculture industry saw a serious downturn and a wave of farm bankruptcies and abandonments. Any grain exporting country cannot make strategic use of grains from a diplomatic or political perspective unless it is a monopolistic exporter. (The US agriculture industry did not suffer from the 1973 ban on soybean exports at that time because the ban lasted only for a short period of time and because the US monopolized global soybean exports.) Having learnt a hard lesson from these two mistakes, the US will no longer restrict its exports.

Why India Restricts Its Exports

In 2008, the prices of grains and soybeans increased threefold. This was chiefly because corn was increasingly used as a raw material for ethanol, a substitute for gasoline. The US government promoted the production of ethanol in the belief that it was an eco-friendly fuel in the face of global warming (as it only releases carbon sequestered in plants in the form of CO2 and therefore does not add to the total amount of the greenhouse gas in the atmosphere). Rising prices of corn had spillover effects on soybeans and other grains due to corn’s fungibility in production and demand. The price pike of those products were high on the agenda at the G8 Hokkaido Toyako Summit, held in 2008. Despite international criticism that the US had precipitated the food crisis, the US did not agree to change its policy.

India and Vietnam imposed a ban on rice exports. It was not that a poor harvest occurred in India or elsewhere. It was only that the US policy on ethanol resulted in sharp rises in prices of grains, especially their international rice prices.

Nevertheless, if things are left to free trade, the supply of rice will be diverted from the domestic market in India, where the price is lower, to the international market, where the price is higher. If that happens, domestic supply will dwindle, and domestic prices will rise to international levels.

If food prices increase twofold or threefold, poor people who spend most of their income on food will not be able to afford to buy food. This will give rise to hunger. India tried to avoid this. Vietnam followed in the footsteps of India. Thailand did not follow suit as its income level was high enough, although it had earlier resorted to export restrictions.

Hunger-prone Countries Cannot Be Forced to Export

These actions by India and Vietnam reduced exports to international markets and pushed up international prices further, thus affecting the poor in the Philippines and other importing countries. Yet the international community cannot force India and other countries vulnerable to hunger to export foodstuffs they produce. On top of that, India is not to blame for surging international prices.

Media reports suggest that India’s latest export restrictions on wheat will trigger a global food crisis, citing the fact that the country is the second largest wheat producer. In all likelihood, such reports are just echoing Western media.

Indeed, India’s wheat production exceeds 100 million tonnes. However, India exports a tiny fraction of that amount, posting only 930,000 tonnes in exports in 2020. This is because a large population means large domestic consumption. Meanwhile, the US and Canada export 26 million tonnes of wheat each. Japan imports about five million tonnes of wheat. India’s export ban will not significantly affect the global supply-demand situation of wheat.

Media reports emphasize that twenty countries are restricting their exports. But none is affecting the global supply-demand situation of grains and other farm products. Like India, these countries are just taking a defensive position to avoid the impact of surging international prices on consumers. Media outlets should report based on facts.

What Matters More Than the WTO Agreement for Food Security

Major food exporting countries such as the US will not implement export restrictions. Developing countries like India may implement export restrictions. But no country can force them to export to the extent that hunger will result at home. International rules on export restrictions have this kind of limit.

In light of this state of affairs, few notifications to the Committee on Agriculture as stipulated in Article 12 of the WTO Agreement on Agriculture (AoA) have been made even though export restrictions have often been imposed. The fact that few notifications have been made is reflected in the passage contained in the MC12 ministerial declaration that stresses the need to comply with WTO notification commitments. Even the Japanese government, the original sponsor of this particular article, has not lodged a formal protest against export-restricting countries. To address global food security, it is more important to reduce poverty and boost food production.

Not only Article 12 of the AoA but also WTO rules have a flaw with regard to the act of restricting exports. As for imports, WTO rules provide for both tariffs and quantitative restrictions. Tariffs can be set freely as long as they do not exceed the agreed upper limit in the country schedule of concessions. But quantitative import restrictions have been prohibited. By contrast, Article 12 more or less provides for quantitative export restrictions. But it does not regulate export duties as imposed by the EU between 1995 and 1997, although international economists agree that export duties have the same effect as that of import tariffs (the Lerner symmetry theorem).

Export duties push down domestic prices below international levels. In that case, domestic processors can purchase raw materials at prices lower than their competitors in other countries. As in the case of Argentina’s soybeans, Indonesia and Malaysia impose export duties on logs because they want to promote exports of wood processed products. Export duties have the same effect as that of export subsidies, which are banned by the WTO. It may worth adding that the Trans-Pacific Partnership (TPP) Agreement have banned and eliminated export duties within the TPP countries.

Despite little media attention back then, the introduction of Article 12 on export controls into the WTO Agreement on Agriculture was a major achievement of Japan’s negotiating team. Yet this article is not designed to address global food crises. The current main bottleneck lies in grain transport from Ukraine, whose ports are blockaded by the Russia Navy. This is something outside the scope of Article 12 of the AoA.