Negotiations aimed at reaching a new global trade agreement collapsed here Monday, touching off a bitter new round of recriminations between the United States and Europe over farm trade barriers and dealing a blow to the Bush administration’s international economic agenda.
I think that’s a legitimate assessment but insufficient.
I am completely in favor of free trade and believe that we should eliminate our system of agricultural subsidies. However, don’t discount their usefulness as a bargaining chip.
Avoiding the subject of the merits of the WTO or the actual freedom of trade under its regime, the collapse of this round is not a bad thing. The only way that the talks could have continued is if the United States had eliminated its agricultural subsidies while other countries (particularly developing ones) retained theirs.
The most recent available data at the WTO show that the United States spent on average $16.3 billion annually in aid from 1998-2002. That is less than half of the $41.5 billion reported in national accounts for the four-year period, the WTO said.
Japan, for the same period, reported $4.2 billion to the WTO of a total $34.3 billion actually spent on aid, according to the report, while the European Union reported $96.3 billion of $109 billion.
The discussion, particularly on the part of the Europeans, is either misinformed or disingenuous. The idea that the U. S. subsidies, amounting to roughly $40 billion—a relatively small proportion of agricultural sector income constituting roughly a quarter of U. S. agricultural income, make U. S. agricultural exports unfairly competitive is nonsense.
Compare that with the $100 billion subsidies of the EU—nearly half of their agricultural income.
But the most important factor affecting the economies of developing countries is the subsidies within the countries themselves in whatever form they take. Much greater impact on them specifically than U. S. subsidies generally.
The sad reality is that most developed economies have done so by moving relatively non-productive capital and labor from agriculture to other more productive activities. As long as their own systems of subsidies remain in place developing countries will stay poor.
Here in the United States we’d be better off negotiating tough-minded bilateral trade agreements with China and India. Both countries have substantial barriers to U. S. imports and, essentially, no protections for U. S. intellectual property while millions of their own people are in poverty. Look at the stats. An enormous proportion of the world’s poorest are either Indians or Chinese.
Consequently, the most effective thing the U. S. can do to fight world poverty is to get India and China to abandon their trade policies which damage both them and us.