WorldCity Business Magazine

Back to the farm

by Jeffrey Sparshott

Agricultural subsidies by both rich and poor nations are setting the stage for diluted results at trade talks in Hong Kong.

Seattle.

The word the city pains trade negotiators. The implosion of trade talks in 1999 is usually accompanied by images of protestors, stories about tear gas, memories of lockdowns inside hotel lobbies.

But the protestors are like the rooster who says cock-a-doodle-do, watches the sun rise and then imagines that he caused the phenomenon. The upheaval in Seattle was

incidental. The root cause of the implosion came from the fundamental differences between countries about how to write the rules for global commerce. A similar failure happened in 2003 in Cancn, Mexico. Those protestors were easily held at bay (who wants to spend a night in Mexican jail?) but the negotiations collapsed dramatically as Kenya’s delegation declared failure and walked out of the city’s convention center, taking other developing countries with it.

This brings us to Hong Kong and the mid-December meeting of the world’s trade ministers. Since Seattle and even Cancn, the issues have only become more

complicated. It’s no longer simply rich versus poor, but an intricate web of policy differences and alliances that cut across the North-South divide. If the World Trade Organization’s 148 members can bridge the chasm, everyone should benefit through higher incomes and lower costs.

But now it is looking like the meeting in Hong Kong won’t measure up to the promise of Doha, the 2001 meeting in Qatar’s capital that launched the current round of negotiations. Dubbed the Doha Development Agenda, that round promised a new set of trade rules

tilted toward the poorest countries. Part of the equation included massive cuts to the subsidies that the United States, Europe, Japan and other rich nations pay their farmers. The Congressional Budget Office estimates global domestic support totals more than

$200 billion.

The United States has led the rich-country pack with a proposal to cut farm payouts, and the reception from some developing countries was warm. But not everyone was satisfied.

“This is undeniably complicated, but the bottom line is that claims of big cuts in subsidies are seriously overstated. Under the current proposals, very little will change in reality and developing countries will continue to be harmed by unfair competition,” says Celine Charveriat, head of Oxfam International’s Make Trade Fair Campaign. Oxfam stakes out a position that is sometimes too harsh on the United States and others, but its statements often reflect the thinking of poorer countries.

On top of subsidies, rich and poor nations block some products from their market by imposing high tariffs. And at the end of the day, market access offers the greatest potential benefits. The World Bank estimates that world income would increase by $300 billion with the elimination of bad subsidy and tariff policies with some 93 percent of the benefits coming from deeply cutting tariffs.

“If you express it as a percent of national incomes, then developing countries would be the major beneficiaries. They would gain about a third more on average than would the rich countries,” said Kym Anderson, lead economist for the World Bank’s Development Research Group.

But the rich countries aren’t the only bad guys here. Poor countries do themselves no favors by protecting marginal farming operations, using tariffs to generate revenue and other policies that keep foreign farm goods out.

“The second point is that half of those benefits to developing countries would come from reforms by developing countries themselves. That’s because they have high protection rates, higher than in rich countries, and so they could gain hugely by reforming

amongst themselves,” Anderson says.

These poor countries don’t necessarily want to lower their tariffs though. And they have a handy ally and fall guy in the European Union. Europe too is hesitant to open up its markets to unfettered competition, seeing its farm agenda as a combination of economic, agricultural, development, ecological and cultural programs, rather than just market policy where the best product at the lowest cost should win.

That means that talks have stalled around market access.

“It does appear to me that we will not make as much progress in Hong Kong as we had hoped for. But having said that, this round does extend through 2006. It would be a grave mistake to declare this round at an end at the Hong Kong meeting,” Mike Johanns, the U.S. secretary of agriculture, said in early November.

But just as it would be a grave mistake to have high expectations for Hong Kong, it would also be a mistake to have high expectations for the Doha round all together. Perhaps trade officials will achieve a watered down outcome which

will do some good, but not nearly as much as imagined back in Doha in 2001.