The $128 billion question

The US-EU ‘joint text'[⇒ related story] on agriculture has come in for a lot of well-justified criticism: most of it along the lines that the two industrialized majors have not lived up to the expectation that they would provide leadership in the world trading system by making the hard choices on their own domestic policies and encouraging others to do the same. The “NY Times”: spells it out for the two industrialized majors: bq. The European Union and the United States are the world’s two trading superpowers, but they cannot dictate World Trade Organization rules to suit their own interests. The Bush administration must now play the pivotal role of mediator at Cancún rather than digging in its heels at Europe’s side — an alternative that would thrill some of our domestic farm lobbies that live off their subsidies. Washington has shown that it can exert enough pressure to prod the Europeans into agreeing to some concessions. It will have to do a lot more of that before a fair deal on agricultural trade is within reach. But is it really likely that the US Trade Reprsentative—who apparently spent most of day on the phone to his EU counterpart negotiating this text—will reverse himself? Or will it now be up to other groups to point the way forward? That’s “the $128 billion question(link to Ch2 of IMF World Economic Outlook 2002, pdf file)”: (the net global value, according to the IMF, of liberalizing world agricultural markets). The NY Times editorial points out that the EU-US agreement appears to dump some of the crucial objectives of the United States’ own proposals bq. “…For instance, the deal’s failure to call for a total elimination of export subsidies, long an American proposal, is alarming. Such subsidies, and American loan programs that amount to their functional equivalent, need to be phased out. Farmers in poor countries already struggle with poor transportion and primitive technology. It is outrageous that rich countries compound their advantages by subsidizing their own agricultural products with public money. bq. On tariffs, the agreement also fudges trans-Atlantic differences. Washington has rightly advocated that tariffs be capped at reasonably low levels, while Japan and the European Union prefer an “across the board” cut that would leave excessively high barriers in place. Of what use is a one-third reduction of Japan’s 500 percent tax on imported rice? bq. Both poor countries and the bloc of major agricultural exporters that include Australia and Brazil were quick to express an understandable wariness about the agreement reached between the United States and Europe. Their concerns must be heeded. This agreement simply does not go far enough.” There has been plenty of criticism, too, from Africa and South Asia.

” India today said developing countries would press for phased elimination of farm subsidies, which hindered market access. Commerce and Industry Minister Arun Jaitley said … “There must be gradual reduction and eventual elimination of such subsidies as our farmers cannot compete with the heavily subsidised products of the developed world. We will need comfort levels both in terms of tariff protection and special safeguards against surge in imports,” he said. “

Perhaps the only good thing to be said about the the US-EU proposals is that at least they have upset the absurdly protectionist Japanese agricultural lobby. bq. Tokyo opposes their calls for lowering tariffs on farm products, such as rice—on which Japan imposes a tariff rate of 490 percent for imported rice, extremely high by global standards. bq. “Considering the reality of our current agriculture (sector), we have problems with setting a ceiling on tariffs and expanding tariff allocations aimed at improved market access for sensitive products,” Kamei said. bq. “We are going to strongly insist that our country’s stance be reflected in the negotiation results,” he said.

Despite the widespread criticism—and, unfortunately because it is coming from all sides—the US-EU text might not go away anytime soon. So we may have several weeks, between now and the Cancún Ministerial Meeting of WTO to figure out what brought about this “rush to the bottom”. Here’s what I consider one of the biggest puzzles. The USA has been ‘facing off’ with the EU for nearly two years in these negotiations. Despite adopting a Farm Bill that was widely seen as contributing to world trade distortions, the US had put one of the strongest liberalization proposals on the table. It was by no means isolated: the Cairns Group of agricultural exporting developing and developed countries went still further in their calls for opening of markets and reductions in trade-distorting domestic subsidies. The Chairman of the Agriculture Negotiating Group (Stuart Harbinson) had picked up elements of the US proposals in his ‘compromise’ suggestions for reforms, tabled while the EU was still dithering about its own contributions. The EU, faced with a negotiating mandate—the ‘Doha declaration’—that prejudiced its use of export subsidies (even if it said something different) and foreshadowed significant liberalization of market access, had difficulty coming up with any suggestions for the agreement. Criticism was mounting over the ‘missed deadlines’ in the negotiations but the criticism was distributed between the two majors with the EU probably coming in for the biggest hiding over it’s use of export subsidies. Nevertheless, as the NY Times and others point out, the US moved from its own position towards the EU, at least on access and subsidies. In fact, it underbid even the Chairman’s ‘compromise’ proposal in its deal with Europe (for example in dropping the prospect of elimination of export subsidies). Why did the US “blink” first? Why did it fall forward so far?

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