Conservative Voice WTO

Author: Michael Crowly

The events at last week's World Trade Organization (WTO) talks in Canc˙n, Mexico, highlight important issues with respect to the survival of the WTO and the pace of trade liberalization. The WTO provides a concrete framework in which countries can negotiate wide ranging trade issues. It has liberalized world trade to unprecedented levels and to the benefit of every member nation.

The failure of the Canc˙n Ministerial Conference to come to an agreement with respect to key issues such as agriculture will weigh heavily on future WTO negotiations, and we can only hope that all parties will be able to eventually reach accord, as the collapse of the multilateral trading system would be detrimental to everyone, bringing back days of closed doors, lost opportunities and economic stagnation. The crux of the failure stems from a disagreement between developed and developing nations regarding agricultural subsidies, with the argument that the subsidies that wealthy nations give to their farmers price poor farmers out of the market, destroying their livelihood.

Wealthy nations (particularly the United States, European Union, and Japan) do indeed use agricultural subsidies. These subsidies are essential to their respective domestic economies but nevertheless open to international negotiation. The fact of the matter is that many of our farmers in the United States could not compete and survive without some subsidization, bringing us to the realities of the modern nation state: national security is tied to sovereignty, and political factors shape our policy. Food production is a national security concern. If we had to rely upon other nations for the majority of our food we would find ourselves weakened at the hand of other nations - perhaps even in the same quagmire into which our reliance upon foreign oil has brought us.

Secondly, our government cannot simply put its farmers out of business by hanging them out to dry and ever hope to enjoy the support of the American people. They have to respect that they have been elected to serve their constituency. Do we really want to see our farmers - who have been farming here since the earliest days of America, our neighbors right here in Middlebury - lose their jobs and livelihoods to workers in the developing world just like the many tens of thousands of factory workers and computer programmers who watched their jobs flee to China and India?

That said, the United States has been especially eager to negotiate with developing nations in order to come to a mutually agreeable solution. We are not violating any WTO rules with our subsidies, and the WTO recognizes the plight of developing nations and awards them "special and differential treatment" which they have used to maintain their own protectionist trade policies in order to support national industries.

The WTO divides agricultural subsidies into three "boxes": amber, which are those subsidies that distort trade; blue, which are those that distort production; and green, those which have no effect (i.e. conservation). In recent years 75 percent of our subsidies have been non-trade distorting, leaving us with $24.5 billion in trade distorting subsidies (amber box), and the 2002 Farm Bill signed by President Bush lowers our trade distorting subsides by 20 percent to $20 billion, showing a commitment to WTO rules and the needs of other nations.

The European Union, on the other hand, provides over $60 billion in trade distorting subsides and Japan $33 billion, while both maintain significantly higher tariffs on agricultural goods than the United States, whose average agricultural tariff of 12 percent is among the lowest in the world.

The developing nations, despite the efforts of the United States, have been relatively unwilling to negotiate, insisting that the developed world give up all agricultural subsidies while giving nothing in return and accepting nothing less. Their stonewalling is severely crippling the process of trade liberalization and hurting both developed and other developing nations.

Developing nations maintain some of the highest tariffs on manufactured goods in the world, with the hopes of earning money and building national industries. But this comes at the expense of their consumers and manufacturers elsewhere in the world. Just as developing nations have been seeking concessions on agricultural subsidies, the industrial nations have been seeking concessions with respect to these blatantly high tariffs.

In July 2002 the United States created a proposal in which developed countries around the world would lower their trade distorting agricultural subsides 45-80 percent with the goal of eventually phasing them out, while reducing tariffs even further in order to increase market access for developing nations. Many developing nations however, were unwilling to provide similar concessions with respect to lowering their tariffs, and many demanded much more from the developed nations, showing an unwillingness to take the first step and reach a compromise.

Hopefully the failure in Canc˙n will underscore the need to reach a compromise, and will drive both sides in future negotiations to be more willing to find a middle ground and to understand that major changes in the multilateral trading system take time.