Russia’s invasion of Ukraine and the subsequent disruption of agricultural exports from both countries has had an unwelcome corollary: a surge in export restrictions on agricultural commodities around the world. This casts dark clouds over future food price developments and food supply in net-food-importing countries, especially in a context of global food prices that were at a record high already in the wake of COVID-19. Fear of famine and social unrest is starting to grip the most immediately affected economies in the Middle East, Africa and beyond.
These fears are not unfounded. Together, Russia and Ukraine annually exported 12% of the calories traded globally. The food price shock induced by Russia’s invasion of Ukraine has already resulted in export restrictions covering more than 16% of internationally traded calories, having surpassed the highest level of restrictions adopted during the food price crisis of 2007-2008 in March of this year already.
Examples of this bulk of new export measures include, for instance, India’s ban on wheat exports and a government proposal in Slovakia to implement a national export authorisation scheme for cereals and oilseeds. The Indian ban resulted in a wheat world market price increase of 6% within 24 hours of its announcement, despite India being only the eighth largest wheat exporter globally. It is an indication of the severity of the current supply crunch and market volatility.
Slovakia’s proposal, meanwhile, could spark a chain reaction involving export restrictions from other EU countries, that may disrupt EU internal market trade flows and, in turn, EU exports to third countries.
The logic behind, and pitfalls of, agricultural export restrictions
As in the food crises of 2007-2008 and 2011, governments have political incentives to restrict food and fertiliser exports to insulate domestic food prices from international price shocks. The short-term strategy is to prevent high global food prices from reaching the vulnerable, in order to avoid hunger, social unrest and political instability.
Empirical evidence suggests that these policies are effective in achieving such national objectives. During the 2007-2008 food crisis, governments that imposed export duties or bans were significantly more successful than non-intervening governments in preventing domestic prices from rising. But food and fertiliser export bans, quotas, taxes or licenses function as beggar-thy-neighbour policies: the more effective the instrument is in shielding domestic consumers, the more it will further increase world market and consumer prices in third countries, and the more similar policies will be triggered. From 2006-2008, changes in countries export restrictions caused international prices to be 40% higher for rice, 19% for wheat and 10% for maize – transforming critical contingencies into a full-scale crisis.
World Trade Organization rules on agricultural export restrictions
Effective international disciplines limiting the use of export restrictions would, all things being equal, drive international commodity prices down and increase trade volumes. Current WTO rules, however, tend to disadvantage net food-importing countries. Export restrictions remain vastly underregulated at the global level.
The WTO’s General Agreement on Tariffs and Trade (GATT) contains a general prohibition of quantitative restrictions on imports and exports (Article XI:1 GATT 1994). However, it does not apply to “export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting” member country (Article XI:2(a) GATT). Given the broad and vague scope of this exemption, it appears impracticable from the outset to challenge its invocation. In any case, exporting countries remain free to impose export duties and charges that are high enough to render exports economically unviable. The WTO Agreement on Agriculture (AoA) includes a consultation and notification requirement for WTO members that impose new export prohibitions or restrictions on foodstuffs. The imposing government, moreover, must give “due consideration to the effects of such prohibition or restriction on importing members’ food security” (Article 12 AoA). These obligations, however, do not apply to developing countries unless they are net exporters of the commodity concerned.
Export restrictions within the EU market
The EU single market is the most integrated transnational market in the world. Yet, as the moves in Slovakia suggest, EU countries have a degree of freedom to restrict exports individually. Analogous to the world market, a food or fertiliser export restriction in an EU country could trigger similar restrictions by other EU countries. As a result, supply dries up in the internal market, and, in turn, decreases EU exports to third countries.
The Treaty on the Functioning of the EU (TFEU) generally prohibits import and export restrictions among EU countries (Articles 34 and 35 TFEU). However, an exception is made for various non-economic objectives, including public security and health protection. Export bans and other restrictions pursuing such objectives must not “constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States” (Article 36 TFEU).
At the beginning of the pandemic in 2020, for instance, several EU countries imposed and justified export bans on protective personal equipment (PPE) with reference with Article 36 TFEU, temporarily jeopardising trade flows and supply within the internal market, as well as EU exports to third countries.
The Court of Justice of the EU (CJEU) has interpreted Article 36 TFEU narrowly. A member state imposing a restriction on EU-internal cross-border trade must limit the measure to what is strictly necessary to achieve the objective of human, animal or plant life protection, and must provide evidence of necessity. The European Commission response to the Slovakian export authorisation scheme proposal, calling for any measure to be “necessary and strictly proportionate”, should be understood in this context.
The criteria can lead to measures being rejected. In March 2020, the Romanian government imposed restrictions on EU-external exports of wheat and corn. The Commission objected, stating that the measures “appear to be not proportionate”, and it had not received “any information, which indicates that Romania is facing or will soon face shortages of agricultural products intended for human consumption”. In mid-April 2020, Romania’s government announced it had removed the restrictions.
Export restrictions at the EU customs border
The EU’s exclusive competence for common commercial policy (Article 207 TFEU) – the EU term for external trade and investment policy – includes export policy. The Common Rules for Exports regulation (Regulation (EU) 2015/479) stipulates that exports to third countries shall not be subject to quantitative restrictions unless otherwise permitted by the regulation (Article 1). The regulation empowers the Commission to make exports subject to authorisation in order “to prevent a critical situation from arising on account of a shortage of essential products, or to remedy such a situation” (Article 5.1). The Commission may also give EU countries the right to impose export authorisation requirements to protect human health or life (Article 5.3). As with Article 36 TFEU, however, such measures must be proportionate: a lack of evidence of an imminent or current shortage of agricultural products intended for human consumption would violate the proportionality requirement (Article 10).
To counter the detrimental dynamics of export restrictions in the area of PPE trade, in response to (legally justified, because proportional) restrictions imposed by EU countries in early 2020, the Commission decided to impose a monitoring and authorisation scheme applicable to EU exports to third countries. This was to reassure member states that the Commission would intervene in case of critical supply shortages within the single market. It convinced the governments of France, Germany, and others to dismantle their own export restrictions. The scheme effectively prevented EU internal trade and supply disruptions and, as a result, de facto led to virtually no reduction of EU external trade in PPE, once the EU authorisation measure came into force. A similar second-best solution may be suitable and in fact necessary to calm EU internal political and internal market dynamics in regard of food and fertiliser trade, too, in case member states face critical shortages and start acting upon them at the national level. To be sure, such an EU measure should remain a last resort.
The dangerous dynamic threatened by food and fertiliser export restrictions around the globe will be met with little to no legal disciplines from WTO rules and litigation. EU law, however, can prevent member state and EU governance failures induced by the prisoner’s dilemma logic of agricultural export restrictions. Monitoring and export authorisation requirements at EU level, as a last resort, can help maintain internal market functionality and EU export flows to third countries. In addition, export restrictions should be monitored, and governments that impose them should be named and shamed to raise awareness of the magnitude of the problem. Important transparency work in this field is done by the Global Trade Alert initiative and IFPRI’s food and fertiliser export restrictions tracker. From the trade policy toolkit, unilateral food tariff reduction and elimination can be highly conducive to decreasing prices for domestic consumers and enhance market functionality.
The current global food price crisis, however, will likely only be brought under control if the roots of the problem are targeted, including by taking on the herculean task of facilitating millions of tons of Ukrainian wheat exports through a large-scale and internationally coordinated operation as well as by unblocking Ukrainian ports. Logistical and infrastructural export facilitation, and supply chain and stock monitoring and surveillance initiatives have been commenced at EU level, through cooperation via the Transatlantic Trade & Technology Council (TTC) and the G7. Time will tell if these measures will provide much needed relief.