World trade talks fail … again

The Doha round of world trade talks have collapsed once again.

The latest gathering saw India and Brazil vs the US and EU in Germany. The conflict is straightforward:

  • Developed countries: subsidise their agriculture industry with direct payments to prop up inefficient farmers; this draws more farmers into the industry to receive subsidies and causes even more marginal land to be farmed – US subsidies on cotton have resulted in a global excess and low prices, EU support for wine, grain … hell, everything … has resulted in massive oversupply and plummeting prices. This disadvantages developing countries who cannot compete and have no access to rich countries’ markets.
  • Developing countries: have sought revenge by applying punitive taxes on imported manufactures (industrial products) from rich countries; many of these products aren’t even made locally; these trade tariffs result in large incomes for governments but make it impossible for developed countries to sell their wares in developing countries.

Why should you care?

A global trade agreement will lift millions out of poverty by increasing the amount of goods bought and sold internationally. Certainly, marginal farmers would lose their jobs in the US and EU; the question being why should they receive subsidies at all? Would you give taxpayers’ cash to a small restaurant in your town that no-one frequents on the political reasoning that restaurateurs are an important lobby group and you don’t want restaurant owners to be unemployed?

Brazil and India are large and important growing industrial powers. The US and EU are clearly concerned that these countries are hiding behind tariffs to protect local industrial manufacturers and compete directly with US and EU manufacturers. Brazil and India are still largely agricultural economies and are angry that their most important export (employing the bulk of their people) is agricultural and is not competitive on international markets – or even excluded entirely in the case of Brazilian sugar – by protectionist subsidies in US and EU markets.

The sad part is that any country that unilaterally broke ranks and simply stopped their own subsidies (or dropped tariffs) would benefit. Countries that drop subsidies to local industries can either reduce taxes overall or use those taxes on social development policies (like health for the aged, free education for the young, etc.). Countries that drop tariffs on imports automatically reduce the cost of their local industry and allow them to be more competitive. In other words, everyone wins.

Why won’t they do this? Because politicians want to be re-elected and giving taxpayers money to local companies or taxing imports from foreign ones is a guaranteed vote-getter. The general public can’t see “opportunity cost”; what that money could have been used for, jobs that could have been created, opportunities that may have happened. But they can see happy farmers rejoicing in cash from on high.

The trouble of the World Trade Organisation is not – as the anti-demonstrators would have you believe – that the WTO is all-powerful and can impose a rule on everyone. The trouble is that the WTO is so weak. Every single country has to agree or there is no agreement. In other words, every single country has a veto.

This means that every single country has an incentive to negotiate, not for the common good, but to hold any agreement to ransom to extract concessions for their own benefit.

And, when that happens, we all lose.

Categories: Economy

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2 replies »

  1. I never thought of the WTO as being weak…this is an interesting argument. But I have to disagree.

    You have a set of politicians sitting around making decisions about the large masses of people in their respective nations. This upper crust is certainly pandering to others within their country–but they are not as concerned with the large body of lower class farmers and laborers. They are more concerned with the middle and upper middle class of people that have the money. For example, the farm lobby in the US is pretty powerful, and is run by people holding huge tracts of land. Politicians are more interested in them. Not the Joe Schmoe who owns a few acres and trying to sell is goods on the corner (indeed this guy does not get subsidies).

    Those people protesting at the WTO are probably concerned about those lowerclass people who have no say so in how their lives are being tossed around.

  2. Rod, the WTO, like the UN and other international bodies, is comprised of people nominated by their respective governments to be there. If people have a problem with the people who represent them on these bodies then, by derivation, they have a problem with their own governments.

    Sort it out at the next elections, not by rioting, destroying private property (frequently owned by small-businessmen, not corporations) and beating up policemen. That’s just petty bigotry and wilful ignorance.

    Your argument about the farm lobby calls for a removal of subsidies (which, as you point out, benefit large companies rather than small ones). The middle class in the US, Canada, EU, Australia, Japan, etc ARE the majority in their respective countries and so their interests are represented by their governments. Developing countries frequently have unrepresentative governments. Again, not something that the WTO was designed to sort out.