Thursday, October 18, 2007
The Doha Round of global trade talks is once again at risk, with U.S. officials blaming several developing countries—namely India, Brazil, and South Africa—for demanding more opt-outs from proposed tariff reductions on industrial goods. The Americans have a point: without real concessions from such emerging economies, it’s hard to see how the industrialized nations will make good on their promises to slash agricultural subsidies.
But the United States and the European Union must shoulder some of the blame, as well. From the very beginning, a major obstacle to trade liberalization has been the agricultural subsidies given to domestic farmers in the developed world. As Cato Institute trade policy analysts Sallie James and Daniel Griswold have noted, “U.S. subsidies hurt Third World farmers by encouraging U.S. production and therefore depressing world prices for commodities.” Likewise, EU subsidies do not help. They are so extensive that in 2003, the United Nations Development Program complained that subsidies allotted for dairy cows actually exceeded total per capita EU aid to sub-Saharan Africa.
Given the relationship between First World agricultural subsidies and Third World poverty, it is hardly surprising that developing countries are playing hardball. In June, the Indian trade minister, Kamal Nath, argued that America’s proposed limits on these subsidies were still too high. In fact, the figures Nath cited suggested that the U.S. could actually increase its farm subsidies above their current level and still be within the target range.
Yet Congress seems unwilling to slash subsidies by more than a token amount. In July, the House of Representatives passed a new farm bill—due to be taken up by the Senate this month—that, much like its 2002 predecessor, was bloated with largesse. The bill continues to make federal subsidies available to farmers earning up to $2 million a year. It also raises sugar price supports and places new restrictions on imports. Sugar subsidies have been an especially stubborn hindrance to the Doha Round. The 2007 farm bill only makes the problem worse.
Given the relationship between First World agricultural subsidies and Third World poverty, it is hardly surprising that developing countries are playing hardball.
But the farm bill is not the only obstacle to trade liberalization. Both Congress and the American public seem increasingly skeptical of free trade generally. Earlier this year, Democrats allowed George Bush’s Trade Promotion Authority to expire. They are now delaying approval of several bilateral agreements, including deals with Colombia and South Korea.
Meanwhile, a recent NBC News/Wall Street Journal poll found that nearly 60 percent of Republicans believe “foreign trade has been bad” for the United States, compared with just 32 percent of Republicans who reckon it has been “good.” In a similar poll conducted this past March, the Journal noted, “54 percent of Democratic voters said free-trade agreements have hurt the U.S., compared with 21 percent who said they have helped.”
The leading Democratic presidential candidates have all expressed varying degrees of hostility to free trade. Last week, Senator Hillary Clinton—who has evidently decided to break with her husband’s free-trade legacy—called for a review of all trade agreements every five years. It was music to the ears of labor unions, but a worrisome development for advocates of trade liberalization, since Clinton is now the odds-on favorite to succeed Bush in the White House.
If Clinton and her Senate colleagues pass the 2007 farm bill in the same form as the House did, it will be bad news not only for Third World farmers, but also for American consumers, since subsidies drive up the prices of common food products. For example, sugar subsidies have been blamed for making U.S. sugar prices roughly twice as high as those in the rest of the world.
In terms of salvaging the global trade talks, Washington could demonstrate its good faith this month by working to reduce subsidies in the Senate version of the farm bill. Ideally, the Doha Round would conclude on a positive note before the end of 2008. But given the sway of America’s agriculture lobby—along with the recent obstinacy of India, Brazil, and South Africa—don’t hold your breath.
Liz Mair is a recovering corporate finance lawyer, and a columnist, commentator, and political consultant operating out of Arlington, Virginia. She writes daily at www.lizmair.com.
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