Global Trade and Water: Lessons from China and the WTO

Article excerpt

Agricultural trade and water use are intrinsically linked. The case of China illustrates how (1) trade liberalization may impact water use; and (2) failure to consider water resources may distort analysis of trade liberalization. This article incorporates water constraints into forecasts of future agriculture in China and there by creates a new set of scenarios that explicitly examine linkages between agriculture, water, and global trade. These new assessments show that many existing projections regarding agriculture in China are unrealistic due to water scarcity. For instance, China may import more wheat and export fewer vegetables and fruits than has typically been predicted. The findings also indicate that WTO accession provides China with opportunities to better manage demand for water in its agricultural sector while still addressing key food security concerns. The article emphasizes that it is crucial to include water as a factor of production when analyzing global agricultural trade. Global governance mechanisms of trade, such as the WTO, need to fulfill their key role in the design of effective water resources policy. KEYWORDS: China irrigation, WTO accession, agricultural trade, water management.

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Because food production requires large quantities of water, trade in agricultural commodities has implications for water use on local, national, regional, and global scales. In addition, agricultural trade can be seen as a policy option with regard to water. For example, by importing food, a country could use less of its water resources. (1) Hence, food trade has been proposed as an active policy tool to mitigate water scarcity, with water-abundant countries exporting water-intensive crops to water-short countries. (2) While the environmental logic of this argument is compelling, various economic and political interests work against the idea. (3) In fact, around 80 percent of present food trade is estimated to transpire between pairs of water-abundant countries and is therefore not driven by water resource considerations. (4)

Still, agricultural policy and trade do have significant impacts on water resource use. Trade regimes and domestic subsidies (and other policies behind them) and resulting world market prices deeply affect patterns of agricultural production. Since agriculture is the largest consumer of water resources in almost all countries, global agricultural trade potentially plays a large role in water demand. By changing incentives to farmers, international trade regimes such as the World Trade Organization (WTO) and international agricultural regimes such as the Common Agricultural Policy (CAP) of the European Union (EU) affect crop choice and cropped area and hence water use.

A large body of literature examines the impact of trade barriers on agricultural production. However, little research has addressed the impact of trade policy on water use. (5) As a step in filling this gap, we examine in this article the interactions between agricultural trade policies and water resources management. The analysis centers on China, the world's largest producer and consumer of many agricultural commodities.

We argue here that because trade may impact agricultural water use, impact assessment of trade liberalization needs to consider the limitations posed by water availability. Further, opportunities opened up by the WTO accession need to play a role in the design of water policies.

China's WTO Accession and Agriculture

When joining the WTO Protocol in 2001, China made several commitments on agriculture. (6) First, it undertook to replace its agricultural import quota and licensing system with a tariff rate quota (TRQ) system for bulk commodities such as rice, wheat, and maize. Second, it committed to cut tariff rates in the agricultural sector. Third, it promised to reduce market distortions in both the domestic and foreign trade of agricultural products and inputs. …