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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