The WTO, Agriculture and Sustainable Development

Heinrich Wohlmeyer, Theodor Quendler

• Publisher: Taylor & Francis
• Year: 2017
• Print ISBN: 9781874719458
• eBook ISBN: 9781351282109
• Edition: 1
• Topic: Business
• Subtopic: Agribusiness
• Index: Business

Despite the Doha declaration of November 2001, the failure to start a new round of global trade negotiations at Seattle in December 1999 and the hostility of protesters to the trade liberalization process and growing global economic and social disparities was a wake-up call for the World Trade Organisation (WTO). The ambitious goal of this ground-breaking book is to identify the strengths and weaknesses of liberalized world trade, in particular in the agricultural sector, and to investigate to what extent the current WTO agreements provide the necessary fail-safe devices to react to trade-related negative impacts on sustainability, environmental protection and food security. The background and interrelationship between the WTO, the tenets of sustainable development and the unique features of the agriculture and forestry sectors are explored, and conclusions regarding the deficits of the world trade system and its conflicts with basic societal goals – such as sustainability – are drawn. Agriculture and forestry have a particular affinity with what the authors call "strong sustainability" and are to be among the major agenda items in forthcoming WTO negotiations. The book proposes that sustainable agricultural production techniques such as integrated and organic farming provide a series of related services to community and environment which could be severely prejudiced by wholesale trade liberalization and the imposition of the large-scale production methods of the mega-trade giants of the USA and Europe. And yet the concept of sustainability is referred to only tangentially in the existing WTO agenda. The WTO, Agriculture and Sustainable Development argues that, without a formal recognition of this failing, the premise that free trade is inherently advantageous for all countries is a falsehood. Further, unfettered liberalization is unsustainable and a social and environmental multilateral framework must be agreed to reinterpret or adapt a host of WTO regulations that are at odds with sustainable development. The core problem is that, under the current system, import duties can only be differentiated by direct goods and services and not by their means of production – sustainable or otherwise. Therefore, a range of environmental policy measures in the agricultural sector, such as the consideration of product life-cycles, the internalization of external costs and a coupling of trade liberalization with ecological obligations are proposed by the authors. In addition, they argue that unsustainable economic short-termism must be curbed and the use of the stick of trade sanctions and the carrot of financial benefits for good environmental performance be permitted to promote sustainable agricultural practices. This book will contribute greatly in addressing the lack of basic theoretical arguments at the intersection between trade and sustainable development – a failing that has already been bemoaned by trade policy-makers. It is highly recommended reading for all those involved or interested in the WTO negotiations, whether from multilateral organizations, governments, industry or civil society.

1
Preliminary Issues and Basic Considerations

Heinrich Wohlmeyer

The intellectual co-ordinates

This book is based on the problem of trade in agriculture and its contribution to the future sustainability of world development. The problems of ecologically sensitive and diverse agricultural production in Austria¹ will be given special consideration since it provides an advance warning or ‘seismograph’. Undesirable developments manifest themselves first in sensitive ecosystems and specific forms of cultivation. Furthermore, an attempt shall be made to consider a range of perspectives—old as well as new—to find concepts that might give some purchase on the problems of ecology and society (see UNDP various years; UNEP 1997). We begin by considering present development dynamics in relation to their basic paradigms and by locating the general structure of the World Trade Organisation (WTO) and current trading arrangements within the context of these.

It would be impossible to make an informed judgement of present developmental dynamics without delving into their basic paradigms. The complex phenomenon of the modern global economy requires examination from different perspectives and not only from the highly differentiated perspectives of scientific experts. While formal disciplinary approaches are necessary, not only is each disciplinary approach alone not sufficient, but neither is science in total sufficient. Of particular significance for this project is that paradigms cannot be proven but can only be mediated in the form of basic values. Values may be studied by scientists. Logical implications may be drawn from them and these may be critiqued by scientists. Nonetheless, values derive from within societies and are endogenous to them. The current world trade system arose from an almost fundamentalist belief in the capacity of the free market economy always to increase the standard of living. An Indian colleague in the banking sector expressed the latter at an international seminar in the following words: ‘The WTO is the institutionalised invisible hand.’ This unfailing belief in an invisible mechanism, which unites the egoistic tendencies of individuals to the benefit of public welfare, leads to a simplistic (reductionist) perspective of the world where important observations and even logical conclusions with the opposite outcomes are not acknowledged.² For a more satisfying understanding we therefore need to uncover and critique the assumptions of established mainstream trade theory and practice and develop alternative ‘mixed’ approaches that combine insights from philosophy, political science, human ecology, economics and ecology. Rather than accept artificial and self-imposed limits, which often function as scholarly blinkers, effort will be made to do justice to what is a complex phenomenon by highlighting it equally from the viewpoints of several different disciplines (Fig. 1.1).

Figure 1.1 An interdisciplinary perspective on the world trade system

By definition, limiting the perspective and narrowing the field of vision is a characteristic of all specialised disciplines, but the characteristic is particularly apparent in economics where it is also, perhaps, most damaging.³ The following statement by Nobel Prize laureate Erwin Schrödinger contributed towards our decision to attempt a more comprehensive view:

If we do not wish to give up our true objective for ever, there must be a way out of the dilemma: some of us must dare to consider both facts and theories, even if information therein is partially second-hand or incomplete, and they run the risk of being ridiculed (personal communication).

In this chapter, then, an effort will be made to go beyond the bounds of the usual economic limits of argumentation, in order to do justice to the task and not merely glean recognition in the mainstream. The intention is to demonstrate that the most problematic of agricultural issues are embedded in a diversity of other problems. Recognising this helps us to realise that the problems of agriculture do not lie in an insufficient adaptation of the sector to the wider economy but rather in the fact that sustainability is lacking in the design of our entire economy. It is merely that the enormous ecological and economic deficits intrinsic to the design and operation of the wider economy become apparent first in those sectors closest to nature. In this opening chapter the reader is therefore invited to view a perspective that goes beyond the usual bounds of single disciplines in order to gain a rounded judgement of the rules and regulations of foreign trade policy.

The development of foreign trade policy

Above all, current international trade policy is a response to two historical events and the processes to which these gave rise. These are the strongly negative outcomes of spiralling 1930s protectionism and the ‘re-education’ by the USA of Europe and Japan after World War 2. These events and processes called for a crusade for modernisation and globalisation, which has climaxed at today’s position.⁴ However, since the heated discussion based, for example, on the reflections of Huntington (1997), the world’s view of the intellectual, monetary, medial and military Pax Americana has been qualified. The obviously interest-bound world-view of the Western hemisphere increasingly jeopardises its universal acceptance eo ipso. The ‘holy’ cause of human rights and the connected concept of democracy are losing credibility because they are being misused.⁵ Yet it is this very combination that might gain mutual acceptance by all nations, cultures and religions (see the plea published in 1999 by Tibi, a professor of international relations born in Damascus), since it could permit a ‘humanising’ worldwide of increasingly inhuman economic dealings.

In this context it is worthwhile reflecting on the changing relationship between economic thought and ethics. While the Christian occidental tradition considered economics to be ethically founded,⁶ modern economic philosophy has succeeded for the most part in shaking off this ethical basis. Milestones in this process constitute the plutocratic interpretation of Calvin’s theory of predestination in the 16th century⁷ and the invention by Smith of his ‘invisible hand’ in the 18th century. Smith still considered economics to be ethically founded and limited by ‘well-meaning self-interest’. However, the adjective ‘well-meaning’ increasingly was superseded or interpreted egoistically. The continuation of the process of shaking the ethical foundations is reflected by the term ‘inherent necessity’, coined at the end of the 19th century. This term implies that the negative consequences of one’s own actions for a third party must be considered unavoidable in a prescribed system that each individual alone cannot change. Actions taken at the cost of a third party are thus given moral legitimacy. Since negative interpersonal feedback cannot take place in an anonymous large-scale system,⁸ less consideration is taken of others (and the rest of the world) and the rules of the game become increasingly brutal.⁹

The consequences are not foreseeable. However, there is the danger that such a system will lead not only to further disintegration of social cohesion but also to an unexpected brutalisation in economic dealings. The development of rules favouring the economic powers and the opening of markets worldwide so that everyone everywhere is exposed to those rules goes hand in hand with the development of ideologies that justify those powers. The concept of ‘unconditional free trade’ appears in another light when viewed from this angle. A world trade policy that serves only to strengthen the economic powers, to the exclusion of local physical and psychological wellbeing, cannot actually increase the level of prosperity. Quite the opposite is true—such policy requires both freedom and protection for the shaping of local social and cultural structures so that these can enter into fair competition with each other.¹⁰

There is nothing new in this insight. Thomas More clearly elaborated this latter issue for the first time at the beginning of the 16th century in his book Utopia. In this social parable, More described how, under the conditions of imperfect market information and open borders, the ideal state on peninsula Utopia comes into difficulty because of imports produced without regard for the social rules of the Utopians, which include consideration of other human beings as well as of nature. Prince Utopus and his people therefore decide to dig a channel at the isthmus of the peninsula to enable them to monitor the imports. Thus we come to highly current topics of ‘like products’ and ‘substantial equivalence’ as well as processes and production methods (PPMs). More’s statement is clear: the exchange of wares and goods must be tied to fair rules, including with regard to the method of production, if the ideal society called into being by the Utopians is not to be undermined. One of the most important rules of the game is therefore to consider each people’s right of self-determination and the related right to control the conditions under which goods and services are imported in order to uphold local prosperity and an attractive model of a successful social organisation. If this does not take place, a downward trend is likely (see Chapter 5). The goal of a world trade system, if it is to take into account cultural and social evolution, should be to secure the organised and fair competition of social systems. The best solutions should prevail because of their attractiveness.¹¹

Basic assumptions and their validity

The most important basic assumption of prevailing trade theory is that free trade has the automatic effect of increasing prosperity. In mainstream theory this assumption is no longer questioned; it has become an axiom. However, there are many reasons for qualifying this assumption:

• Traditional trade theory was formulated at a time when capital was largely immobile, modes of transportation were dangerous and expensive, and telecommunication was practically non-existent. These conditions no longer apply. Under the conditions of total free trade, the production of goods and services is therefore not concentrated at ‘relatively’ cost-efficient locations but at the ‘absolutely’ most cost-saving location; and this holds true, in particular, when the ‘advantage of location’ is achieved by distorted exchange rates and undermining social and ecological standards.
• In the 20th century the economist Friedrich List (1841) recognised that free trade increases prosperity only if the partners concerned are at a similar stage of development. This fact is taken into account by special regulations for developing countries, but not for other countries.
• Furthermore, in 1923 F.D. Graham pointed out that under the realistic assumption of non-constant costs (otherwise termed variably increasing marginal costs) specialisation can lead to decreases in both national and global prosperity (Graham’s Paradox). Graham used corn as the agricultural product and watches as the industrial good in his trade model, since the law of decreasing soil yields is clearly recognisable in the case of corn. Raffer (1994) has developed this argument.
• In addition, the classic theorem of comparative advantage is based on the assumption of constant general technological conditions. Changes in technology can turn specialisation into an economic and social catastrophe overnight. Possible examples of this, although they still remain hypothetical, are the bio-technological production of vanilla and cocoa in fermenters.¹² In the event of this, countries specialised in the original production of these goods, such as Madagascar (vanilla) and Ghana (cocoa) would face national ruin.
• It is also questionable whether traditional trade theory can be applied to the service sector without undergoing any adaptation. Since multifunctional agricultural production also provides many local services in the public interest, the transfer of industrial regulations to apply to the agricultural sector achieved by the USA and the Cairns Group during the Uruguay Round should be seriously questioned (see Raffer 1990).
• Sustainable development requires a diversified economy. Over-specialisation leads not only to dangerous dependences but also to ‘economic entropy’, since creative potential cannot flow and economic synergy cannot take effect. The fate of the cocoa and banana nations is exemplary of this phenomenon (see Myrdal 1974). A striking parallel thus becomes apparent between the economic sector and the biological sector. In the case of the biological sector, greater diversity also leads to greater stability and higher total productivity.
• The argument of power is stubbornly excluded. Modern game theory treats all partners as if they had the same influence on the market, yet this does not reflect reality. Economic and political powers are at an advantage when bargaining and can realise their own interests if no inte...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• CONTENTS
• Acknowledgements
• Introduction
• 1. Preliminary issues and basic considerations
• SECTION 1: The current performance of the world trade system and the World Trade Organisation
• SECTION 2: The theory of international trade
• SECTION 3: International trade: agricultural and environmental aspects
• SECTION 4: Theoretical propositions for harmonising sustainable agriculture and free trade
• List of abbreviations