The Bali WTO Ministerial Conference’s decision on public stockholding for food security and the impact on others

By An Hertogen

The WTO 9th Ministerial Conference in Bali was billed in the media as the WTO’s last chance saloon to demonstrate its relevance in an era where the spotlight shines brightest on high-profile regional trade liberalization negotiations such as the TPPA and the TTIP. With the stakes raised, WTO Members agreed on December 7–one day past the original deadline as is so often the case at international negotiations–on the Bali Package that included, amongst others, a decision on public stockholding by developing countries for food security purposes.

The central question on public stockholding is whether developing countries can, in a WTO compatible way, stockpile food staples such as rice and wheat to ensure stable incomes for their farmers while at the same time guaranteeing those on low incomes access to basic foods at affordable prices. Lurking beneath the surface is the tension between trade liberalization commitments with the right to food.

Although theoretically available and on the table earlier, WTO Members did not amend the treatment of subsidies in the Agreement on Agriculture to allow for public stockholding. Instead, they adopted an interim solution, and agreed to negotiate a permanent solution that specifically addresses public stockholding by the 11th Ministerial Conference in 2017. They also agreed to a “peace clause” according to which existing public stockholding measures will not be challenged before the WTO Dispute Settlement Body while the negotiations are ongoing and as long as the measures meet certain conditions.

These conditions include notification and transparency requirements to enable monitoring by the WTO’s Committee on Agriculture (para 3), which have been easy to obtain. In addition, to benefit from the peace clause, developing members must ensure that the stockholding does not distort trade nor adversely affects the food security of other Members.

The meaning of this substantive requirement in practice is, however, far from clear. As the Chair of the Committee on Agriculture, New Zealand’s Ambassador John Adank, summed up two months ago the “discussions on safeguards have at times been rather conceptual”. A crucial question that WTO Members will need to flesh out in the negotiations on a permanent solution is which spillovers are acceptable.

The potential spillovers of public stockholding on other Members’ food security are manifold. The increased demand for food due to stockholding will increase prices and divert supplies away from immediate consumption needs in other states. When food stocks are ultimately released for consumption, imports can be crowded out of the market, affecting competitiveness of foreign farmers. The competitiveness problems compound when stockpiling was excessive and surpluses are dumped on export markets. While such competitiveness problems could be seen as a short-term commercial injury, the line between commercial injury and long-term food security can be a fine one when economic losses reduce investments to improve future harvests or make farming altogether unattractive.

This then raises further questions on what the consequences are when public stockholding affects, or has the potential to affect, food security in other Members. Although the conditions for the peace clause would not be met, a legal challenge would only be useful when an unexpected surplus is being dumped on export markets. In that case, however, countervailing duties offer more immediate protection than a time-consuming legal challenge.

A legal challenge is of little use to a WTO Member that experiences a food shortage because of another state’s stockholding, which is the more likely concern. Here, we tread on the difficult terrain of distribution in the face of scarcity: how should developing WTO Members weigh up their own interests against other members’ food security needs? The interim solution adopted in Bali is silent on the relevant criteria and the consequences.

The advantage of the WTO is that it at least has the institutional framework in place to assess competing interests, even outside the official dispute settlement mechanism. Operating the obligation not to adversely affect other Member’s food security therefore does not depend solely on the altruistic inclinations of the stockholding state. An option for the WTO could be to agree on a quantitative benchmark for stockpiling, based on a member’s population nutritional needs during a fixed period of, say, three months, similar to the methods used to determine the adequate level of monetary reserves before the introduction of balance-of-payments restrictions under article XII or XVIII GATT. The factual determination of adequacy could, as is the case for monetary reserves where the IMF is involved, be outsourced to the Food and Agriculture Organization. Once stockholdings exceed the quantitative benchmark, states would need to allow market mechanisms to take their effect, including the export to other states. The determination could be made by the Committee on Agriculture, similar to the role played by the Committee on Balance-of-Payments Restrictions.

The questions facing the WTO Members in the search for a permanent solution are by no means easy, but the agreement on an “other-regarding” obligation, even if still in a conceptual stage, is to be welcomed. It will be interesting to see how WTO Members tackle these issues, and what lessons the conclusions can offer for the development of “other-regarding” obligations in international law.