U.S. and EU Farm Subsidies Scuttle WTO Trade Talks
September 18, 2003
The Cancun world trade talks have collapsed-in large part because of agriculture. The United States and the European Union waited one trade round too long to give up their now-counterproductive farm subsidies. As a result, U.S. farmers may see their export sales stagnate in the coming decade, even as their government subsidies are swamped by rising federal deficits.
As delegates packed for home, anti-trade activists wearing Marx and Mao t-shirts literally danced in hotel hallways-along with First World sugar lobbyists. The densely populated developing countries that should be increasingly affluent customers for America’s high-yield farms were once again hidden behind near-impenetrable import barriers. And delegates from Africa and South Asia wondered how to explain at home why their countries would remain mired in poverty and disease.
(A much-quoted study by Harvard’s Jeffrey Sachs and Andrew Warner found that developing countries with economies open to trade grew by a strong 4.5 percent a year in the 1970s and 80s, while those closed to trade grew a pitiful 0.7 percent.)
“We would have gained, all of us. We have lost, all of us,” lamented Pascal Lamy, the EU’s chief negotiator.
Ironically, Europe’s farm subsidies are doomed anyway, because the EU is adding 10 new members and it cannot afford to extend its current lavish farm subsidies to the millions of Polish and Romanian farmers. U.S. farmers have far more to gain in export sales than they have to fear from import competition in America.
At Cancun, however, the Third World coalesced into the Group of 21, which includes countries with 3 billion people, led by China, India and South Africa. The Group of 21 believes First World farm subsidies depress prices for their own farmers, and are none too eager to let American and European farmers sell corn, meat, and frozen French fries to their consumers in the years ahead.
Lamy said the talks could have found agreement “if we had been allowed to negotiate.” But the EU has stalled farm trade liberalization for nearly 50 years. This time, flush in their new numbers and egged on by the anti-trade activists, the Group of 21 announced that the First World would have to give up its farm subsidies completely-while they should be allowed to retain high tariffs on politically sensitive commodities.
A timely offer to end the First World farm subsidies might well have swept the whole world toward lower trade barriers before the Group of 21 coalesced. Now it’s too late.
We were warned. India’s farm minister said in January, “There is no way we can reduce tariffs on agricultural products unless the rich nations cut their domestic supports and subsidies as well as the export subsidies.” The United States offered only a slow, partial subsidy phase-out. The European Union said it could not even eliminate farm export subsidies, the most hated type of subsidy.
Carlos Ball, a Latin American journalist wrote in the Washington Times on Sept. 12, “Few can trust the good intentions of the United States . . . proclaiming free trade while imposing labor and environmental standards that extinguish the competitive advantages of small nations . . . And the Republican call for “trade rather than aid” sounds hollow when trade does not include agriculture in a backward, agricultural hemisphere. Sugar and Florida votes are considered more important than hunger in the Dominican Republic.”
Sugar, of course, is a commodity where U.S. production costs are perhaps double those of tropical countries, and only a few U.S. farmers grow it. So U.S. farmers profit only modestly from U.S. import barriers-at taxpayer expense-while tropical farmers lose hugely.
The WTO collapse means American and European farmers remain locked in farm policies designed for 1870. That’s when the steam locomotive and steam ship brought 500 million acres of new farmland into the world market, overwhelming the demand from the few affluent customers in New York and Paris. Farm surpluses have dominated the world from that day to this.
But today’s farm surpluses aren’t created by too much land. They’re created by farm import barriers in land-short countries with rising food demand, especially China and India. A billion Chinese are currently getting rapid income gains, and doubling their pork consumption, but they’re not buying the additional meat from the U.S. Instead, they’re clearing highly erodable hillsides for additional cropland.
We all lose: U.S. farmers, Third World farmers, consumers everywhere-and the environment.
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