Introduction

Accounts differ, but it is probably right to say that there are between 63,000 and 77,000 transnational corporations (TNCs) driving today's global economy. TNCs’ presence and influence are felt everywhere from New York to Bangalore to Nairobi, by people in all walks of life, by wealthy shareholders and assembly-line workers earning the minimum wage. TNCs dominate world production, foreign direct investment (FDI) and international distribution networks. Their assets and revenues are sometimes compared (usually incorrectly) with small nations’ gross domestic product (GDP). Such comparisons are utterly misleading because those making them usually confuse the gross sales of the companies with countries’ GDP.

Transnationals are praised by those who maintain that they are efficient at creating new employment opportunities in developing countries and at serving as the link between local businesses and overseas markets that these businesses might not otherwise access, and that they are an important source of technology transfer to host countries. TNCs are also the principal targets of anti-globalisation critics. Some argue that TNCs are associated with environmental degradation, abuse of labour rights and exploitatively low wages, and that their activities are damaging to the prospects for sustainable growth in poorer regions of the world. We have all seen the sweatshop accusations by critics of TNCs. In China, TNCs have contributed to the huge FDI flows that have powered the economy at a white-hot rate of growth, but some economists argue that manufacturing in China is a modern example of immiserising growth.

Introduction

Toward the end of its first decade, a chaotic environment shaped US farm policies for the twenty-first century. Exchange rates had realigned significantly over the past decade, yet they remained skewed globally compared to levels that might be necessary for sustainable balanced trade. There had been five years of disastrous expansion of armed conflict in the Middle East, with collateral effects on world oil prices. No one could confidently disentangle proximate short-term from longer-term supply and demand determinants to say for certain where oil prices might settle. The occurrence of global warming was broadly recognized even within resistant circles in the US, but what was to be done about it? The call for greater energy self-sufficiency (called “security”, of course) was flying high politically, but was it a viable economic strategy? Questions arose in these circumstances about the traditional assumptions in agricultural policy deliberations that farm prices will often be low and that developed-country subsidies will drive them down further.

In this chaotic environment, the US Congress wrote a new farm bill in 2008. The prospect of whether or not there would be a multilateral Doha Round WTO agreement simmered in the background, but the domestic farm bill debate paid little attention to multilateral rules or constraints. Bioenergy enthusiasm (and subsidies) fuelled market optimism. Crop prices were relatively high after 2005, as they were briefly in 1995 to 1996, then shot up in 2008, with projections for continuation of high prices through the decade.

Introduction

The Japanese economy is under restructuring to cope with globalization. Agriculture is not exempt from this process. Rather, agricultural reform should be encouraged because it has lagged behind other sectors that have been liberalized relying on international trade. Japanese agriculture, in particular rice farming, has been protected by border measures and domestic price supports, but Japan is one of the largest agricultural importers in the world. Despite the high level of agricultural protection in Japan, the Japanese food self-sufficiency ratio declined to 39 per cent on a calorie basis in 2006. It appears that the protection policy has played no role in strengthening Japanese agriculture and has impeded inter-sectoral adjustment.

According to the Basic Law on Food, Agriculture and Rural Area established in 1999, which replaced the 1961 Agricultural Basic Law, the Japanese Government revised the New Basic Plan of Food, Agriculture and Rural Areas in March 2005. This indicates guidelines for agricultural policies 10 years from now. The plan contains, among other things, the target level for Japan's food self-sufficiency ratio, policies for structural reform, stabilization schemes for agricultural income and ideas for promoting effective use of agricultural land.

In 2007, a new agricultural policy scheme was launched in Japan to introduce a direct payment for land-extensive farming under the Farm Management Stabilization Programme. This aims to guarantee large-scale farmers a certain level of income, regardless of the commodities produced.

Introduction

The objective of this chapter is to provide trade negotiators and policy-makers with insights into strategies that could be pursued to encourage the reform of green box subsidies, including through trade negotiations and litigation, in order to promote a subsidy regime that is more supportive of sustainable development goals. The analysis is based on an understanding of the political economy of agricultural trade policy-making and seeks to make sense of green box reform within the context of subsidy reform more generally.

Before engaging in this discussion, however, it must be recognized that although developing countries have the option of a wide array of domestic support exemptions in the WTO Agreement on Agriculture (AoA) as it stands now (paragraph 6.2 and higher de minimis, as well as green box), many countries cannot afford the high costs of agriculture support and do not have the necessary expertise to implement many of these programmes. It should also be noted that many developing countries, particularly those in the earlier development stages, discriminate against their own agriculture sectors. Besides export taxation – justified in many developing countries by limited resources for tax collection – industrial policies, macroeconomic factors and underinvestment in rural infrastructure, research and extension services continue to reflect an anti-agricultural bias. Concerns about food supply for poor consumers also lead governments to intervene in agricultural markets, bringing domestic prices down below international levels. This discrimination against agricultural producers can impair development efforts.

Setting the scene

According to the United Nations Framework Convention on Climate Change (UNFCCC), the principal reason for the earth's rising temperatures is a century and a half of industrialisation: the burning of ever-greater quantities of oil, gasoline and coal, the cutting down of forests, and the practice of certain farming methods. The current dependency of the global economy on fossil fuels and the rapid increase in fuel consumption are influenced by international trade.

Trade and climate change policies are currently managed under separate legal regimes, although the international trade system offers various mechanisms for promoting environment-friendly development and contributing to climate change mitigation. In particular, liberalisation of trade in environmental goods and services (EGS) can help to achieve climate change objectives through reducing the cost of access to EGS, promoting environmentally preferable products and services, and creating incentives for technology transfer.

The Doha ministerial declaration provides a distinct mandate for negotiations on environmental goods and services and calls for ‘the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services’. There are two important questions linking climate change and trade which come up in relation to the implementation of paragraph 31(iii):

• What are environmental goods and services?

• What might be a pattern for liberalisation which would not only have an influence on climate change but would also suit both developed, export-oriented countries and developing WTO Members?

Introduction

An inquiry into the potential contribution of international trade regulation and the law of the World Trade Organization (WTO) to climate change mitigation inevitably focuses attention on the basket of negotiations on environmental goods and services (EGS), mandated by paragraph 31(iii) of the Doha Ministerial Declaration (DMD). This effort stems from established insights that trade liberalisation and environmental protection are potential ‘win-win’ constellations. The same philosophy applies to policies which seek to promote investment and trade in technologies for combating emissions of greenhouse gases (GHGs). It equally applies to the promotion of renewable and alternative energy sources. Relevant goods and services may be identified and brought to the negotiating table and could result in appropriate sectoral initiatives with a view to lowering trade barriers in these fields in terms of tariff protection, discrimination in services, technical barriers to trade, intellectual property protection and technology transfer.

The EGS negotiations so far, however, have witnessed major difficulties in bringing about such results. Several reasons lie behind the stalemate in the negotiations up to the close of 2007. The definition of environmental goods and its demarcation from regular non-agricultural market access negotiations (NAMA) pose consensus problems. The proposed listings of potential goods are considered to be too broadly defined and over-inclusive, arguably leading to NAMA negotiations in disguise. Moreover, since most of these goods and advanced technologies are concentrated in developed countries, an appropriate balance of interests is difficult to achieve, even taking into account so called environmentally preferable products (EPPs) from developing countries.

Introduction

The debate on the relationship between the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol on the one hand and the World Trade Organization (WTO) on the other hand raises both old and new issues. The old issues are those which have been discussed in the General Agreement on Tariffs and Trade (GATT)/WTO trade and environment debate for the past fifteen years, in particular the relationship between multilateral environmental agreements (MEAs) and the world trading system and the treatment of process and production methods, among others. The main new elements are the sense of urgency which characterises the climate change debate, as well as the range of different policy measures which may be needed to reach carbon emissions targets; these measures may concern several WTO agreements, including the GATT, the Agreement on Technical Barriers to Trade (TBT), the Agreement on Sanitary and Phytosanitary Measures (SPS), the Agreement on Subsidies and Countervailing Measures (SCM), the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Moreover, the solutions chosen to curb emissions of greenhouse gases (GHGs) may vary from country to country, or groups of countries may get together to implement common regional solutions, thus adding to the diversity of possible scenarios.

Introduction

Presidents Ford and Carter's warnings in the 1970s on US dependence on foreign oil and Gore's warnings today on climate change have the same policy implication — move towards a low carbon economy. This is because carbon dioxide is the most important anthropogenic greenhouse gas (GHG) and its increasing concentration in the atmosphere since the pre-industrial period is primarily due to fossil fuel use. In this respect, the international climate protection regime reflected in the UN Framework Convention on Climate Change and especially its Kyoto Protocol points in two directions — discourage fossil fuel subsidies and promote energy efficiency and renewable energy (RE) sources (Inferred from Kyoto Article 2.1.a (iv) and (v)).

From a pure theoretical economic viewpoint, subsidisation might not be the best way to promote renewables. Most economists would prefer to apply a proper taxation system which takes into account all environmental externalities related to fossil fuels. On a global level, an economically plausible cap and trade system may also be a way to achieve this. The lack of political consensus behind these ‘market-based instruments’, however, has led policy-makers to devise various domestic incentive schemes to promote renewables. Such schemes include subsidies among other regulatory schemes such as feed-in tariffs. Their primary aim is to level the playing field between conventional and renewable energy sources, currently obstructed by the relatively high costs of RE technologies and also to some extent by subsidies on fossil fuels.