BRAZIL SHOULD NOT BE DECEIVED WITH TEMPORARY GAIN RESULTING FROM US-CHINA CONFLICT

BRAZIL SHOULD NOT BE DECEIVED WITH TEMPORARY GAIN RESULTING FROM US-CHINA CONFLICT

05/09/2019 10h32

A “citizen of the world” is at the head of the World Trade Organization (WTO) Division of Agriculture and Commodities at one of the most troubled times in economic relations between the countries that lead the global production of wealth. From Ghana, Edwini Kessie holds an Australian passport, has negotiated trade agreements in the Pacific, earned a master's degree in law in Canada and a doctorate in Belgium.

At the WTO for 24 years, Kessie estimates that in the current clash of the world's two largest economies all other countries could be hurt. The tug-of-war between the largest consumer of agricultural goods (China) and the largest exporter (USA) should be closely observed and Brazil, temporarily benefited, should not be deceived. "So far, the countries of Mercosur have benefited (...) but there is a risk that the environment will deteriorate further and jeopardize global growth,” warns Kessie, who will be in Brazil this week (5 and 6/09) opening the conference of the 7th South American Agriculture Forum, promoted by Gazeta do Povo . Before coming to the country, he talked to the Gazeta do Povo Agribusiness. View below.

In the current trade war between China and the US, agriculture has been in the crossfire. Are the casualties just between the two contenders or can the negative effects eventually spread?

Edwini Kessie: Given that China's retaliatory tariffs mainly target US agricultural exports, which has led the US to provide significant subsidies to its farmers, it can be said that agriculture has been in the midst of the trade war. Obviously, the impacts of this war will be felt not only by the US and China, but by other countries not involved in the conflict. We have already seen that the IMF, WTO and OECD have revised projections for growth in trade and the global economy downward as a result of several headwinds, including the trade war between the two largest economies.

While Mercosur countries have benefited in the short term by increasing several of their agricultural shipments to China, continued tensions in the multilateral trading system, if not addressed, could negatively impact the region's growth projections, and more specifically, agricultural markets, due to increased uncertainties and the risk of an increase in subsidies and protectionist measures. Mercosur countries are among the biggest supporters of the multilateral trading system and I hope they can play a leading role in efforts to resolve tensions and enable trade to fulfill its natural role as a driver of global economic growth and poverty alleviation.

Is WTO not a hostage itself in this war, as the US has refused to endorse the members of its Appellate Body? Does this not endanger the work and role of the institution?

I need to start by emphasizing that the Appellate Body already existed before the imposition of unilateral tariffs between the United States and China. WTO members are united in the belief that a well-established conflict resolution formula is fundamental to ensuring the security and predictability of the multilateral trading system. It is in this scenario that Mercosur member countries are working hard with others such as Canada, Australia, and the European bloc, to resolve the Appellate Body crisis. Although we do not know if there will be a solution by December of this year, when there will be only one judge left on the board, I believe that everyone will continue to work tirelessly to find a solution and shut down this crisis.

Mercosur and the European Union are almost united in favor for a broad free trade agreement. The environmental issue, however, has become a point of friction. Brazil argues that it is doing its part to protect the Amazon and the environment, which is disputed by NGOs and European countries in the face of rising deforestation rates and forest fires. Could the WTO help level the bargaining ground in this clash, or can it only act if it is triggered by a member country?

This is an issue that is not directly related to WTO action. However, it is important to say that several member countries believe that environmental protection and trade liberalization are not mutually exclusive, and that these goals can be pursued simultaneously. The free trade agreement negotiated between Mercosur and the European Union fits one of the exceptions to the "most favored nation" clause within the WTO. Like other inter-block trade treaties, the parties will have to notify the WTO of the agreement, which, in turn, will examine whether everything is in accordance with the rules of the organization. Although WTO members have the prerogative, within certain limits, to restrict trade for environmental reasons, the situation is quite different in this case. In my opinion, the debate involves non-trade points that may influence the ratification or promulgation of the agreement between Mercosur and the European Union. This is an issue that is beyond the scope of the WTO.

Mercosur countries currently account for 54.6% of soy and 34% of corn traded in the international market, and 23.5% of meat shipments. Can increased protectionist measures negatively impact Mercosur numbers and affect its exports in the near future? Are current trade tensions part of a normal scenario?

So far, Mercosur countries have benefited from trade tensions between Americans and Chinese, increasing shipments to the Asian country. However, there is a risk that the business environment will deteriorate further and jeopardize global growth, affecting Mercosur's own exports. In agriculture, the continuity of such a situation can increase market uncertainties and trigger a series of additional protectionist support and measures for farmers, negatively impacting more efficient agricultural economies such as the Mercosur countries. Today we are experiencing unprecedented trade tensions in the history of GATT and then the WTO. It is important that they be resolved as soon as possible. A strengthened multilateral system can boost the global economy and allow for an increase in agricultural exports.

What do you expect should be the trend in world trade for the next few years? Do you believe that the Mercosur countries will prosper, stagnate or retreat?

Despite the lack of progress in WTO agricultural negotiations, international trade in agricultural products, excluding domestic sales in the European Union, increased from USD 750 billion in 2010 to USD 1 trillion in 2017. In the coming years, the projection is to break the record set in 2017. This keeps me optimistic about the Mercosur countries’ growth prospects. Between 2000 and 2015, Mercosur's global share in agricultural exports increased from less than 9% to 12%. In terms of value, they have quintupled and reach over USD 130 billion. Indeed, FAO and OECD, in their recent, medium-term projections study, have confirmed that the region should increase its exports, while other parts of the globe, particularly Africa and China, will buy more food products. The future, therefore, is bright for Mercosur countries, as long as they adopt the right policies and work with other countries to strengthen the multilateral trading system based on clear rules.