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Monday, May 10, 2004

Movement on Agricultural Protection? 

Bleeding-heart hippies and soulless capitalists agree: rich countries are screwing poor people in poor countries by keeping their products out of the marketplace. To put it a bit less pointedly, one of the biggest factors in the continuing failure of so many poor economies is the high level of agricultural subsidies and tariffs in the rich world. How big are these subsidies? As the William & Flora Hewitt Foundation has explained, they're VERY BIG:
According to a recent study released by the International Food Policy Research Institute, protectionism and subsidies in rich countries cost developing nations about $24 billion annually in lost agricultural and agro-industrial incomes.

Agriculture continues to be one of the most protected sectors in the industrialized world. With generous domestic farm support policies and what amount to export subsidies, high-cost farmers in the United States, European Union, and Japan can undercut farmers in poor countries, pricing them out of world markets. (Furthermore, most agricultural subsidies and farm support payments in the United States go to large farmers and agri-business interests, often encouraging environmentally damaging farming practices.) The latest farm bill, signed into law last year, only exacerbated the situation by doling out approximately $180 billion in farm support payments and subsidies. Total support to agriculture in OECD countries amounted to $311 billion in 2001, or about $850 million per day:

* OECD support to domestic sugar producers is approximately $6.4 billion per year—roughly equal to the total value of developing country sugar exports. Moving to free trade in sugar markets could generate as much as $4.7 billion in welfare gains, with a large portion going to the benefit of poor producers in developing countries.

* A recent op-ed in the New York Times, signed by the presidents of Mali and Burkina Faso, noted that the $3 billion plus in subsidy payments to 25,000 U.S. cotton farmers was greater than “the entire economic output of Burkina Faso, where two million people depend on cotton.” In fact, U.S. cotton subsidies in the 2001-02 season were three times U.S. foreign aid to Africa over the same period of time. The World Bank estimates that for Benin alone, a one percentage point increase in the world price of cotton raises per capita income by 0.5 percentage points, and reduces poverty incidence by 1.5 percentage points. Overall, cotton subsidies depress world cotton prices by approximately 10 percent.
Of course, removing such barriers is no easy matter politically, no matter how much it might help individuals in poor countries find a way out of poverty, and regardless of the fact that it would lower food prices for people in the developed world. There are two stories here: the first is simply that agricultural interests are well-organized and very politically active in the rich world. From Japan's rice farmers to cotton producers in the US to European sugar growers, there's a long and widespread history of unusually influential lobbying by the OECD's agricultural industries. The other factor, often ignored in political economy theorizing, is that rich country voters who have never set foot on a farm often hold a very romanticized view of the value of protectionism. For many people, the narrative of "traditional ways of life under attack by impersonal global forces" that we see in the speeches of Jose Bove and his counterparts around the world is very powerful and affecting.

So what's the news? There's been a lot of cause for complaint of late. The most recent WTO summit, which was supposed to address these very issues, collapsed when a coalition of developing countries, led by Brazil, joined together to present a coherent set of demands to the EU, US and other big players. The rich countries rejected these claims, and while there has been a lot of finger-pointing, the basic fact is that no matter who one blames, no progress was made. More recently, other bloggers have commented on some prospective divide-and-conquer strategies being adopted by the EU to break this impasse without jeopardizing their protected growers.

Recent headlines, however, suggest that the current unfortunate situation may not be sustainable. First, and most importantly, the WTO seems to have ruled that the US's current cotton subsidy policy is in violation of its treaty obligations. It's still too early to tell how this will play out: the Bush administration, despite its free trade rhetoric, has cravenly chosen to appeal the case. But it actually looks as if some progress will finally be made. The WTO is also hearing a similar case against the EU's sugar-beet subsidies right now. As I've noted before, a WTO ruling doesn't directly change anything. But the prospect of costly countervailing duties and the loss of the moral high ground represented by losing a WTO case may change the cost/benefit calculus for rich country governments enough to make significant concessions possible.

A second, tougher-to-take-seriously development was reported today by the BBC:
The European Union has offered to stop subsidising farm exports in a move aimed at reigniting world trade talks.

European trade commissioner Pascal Lamy has written to members of the World Trade Organisation outlining the plan.

An agreement will depend on other WTO countries such as the US, Canada and Australia being willing to follow suit.
This sounds good, but it's tough to tell whether this is just so much cheap talk or an actual negotiating stance. A cynic might guess that Mr. Lamy is banking on the US balking, or note that actually getting EU member states to play along just got much tougher with the expansion of that body to 25 states. An even more damning critique of Lamy's stance can be found here:
Diplomats from EU trade partners welcomed the EU's offer but said it would have only a limited impact because it was simply a public announcement of something the bloc had long ago been signaling in private.

"Of course it is good news but I do not see it making an awful lot of difference," said one Geneva diplomat from a leading developing country.

The bloc insists it has already made massive strides in reducing the worst of its trade-distorting farm support -- market price guarantees and export subsidies -- in two reforms in 1992 and 1999 and also in major changes agreed last June.

On market access, Lamy said the EU was sticking to its guns for a "blended" formula, which would allow the 25-nation bloc and countries like Japan with expensive domestic farm industries to keep high tariffs on some politically sensitive goods.

But the G20 group of developing countries, led by Brazil, India and China, has rejected this as it says it would asks too much of developing nations and too little of richer states.
Finally, how seriously can we take Lamy's offer? Let's ask the French:
France distanced itself from an offer by the EU executive commission to eliminate EU agricultural export subsidies, saying the initiative exceeded the commission's negotiating mandate.

"This seems to exceed the negotiating mandate and also seems to be tactically very dangerous," French Agriculture Mimister Herve Gaymard said Monday at a meeting of European Union farm ministers.

He was speaking following an announcement by European Agriculture Commissioner Franz Fischler that the EU was prepared to abolish its agricultural export subsidies if other members of the World Trade Organization did the same.

Fischler, appearing at a press conference here, said the European Commission, the EU's executive arm, had sent a letter to its members on Friday informing them of the proposal.

The letter was signed by European Trade Commissioner Pascal Lamy.

Gaymard criticized the initiative, which he said "signalled a degree of flexibility" even though none of the EU's parters in the WTO had made a similar gesture.

"For all these reasons we are very much against the contents of this letter," Gaymard said, adding that he did not believe that all EU member states "are on the same page as the commission."
I can only imagine what the "free traders" in the White House have to say about the proposal.

NOTE: I'm actually surprised to note this, but the coverage of Lamy's proposal from UK sources tends to be very impressed by his openness, while the US coverage is far more skeptical. Maybe, MAYBE this is because the reporters are influenced by some kind of nationalist feeling. I'm guessing that if the story gets covered further in the days to come, this trend will disappear.

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