World Trade Talks & Agricultural Subsidy

Recently in Sangati we started discussions on World Trade Policy, especially how it impacts developing and third world countries. Its a very interesting topic and one of great importance to almost everyone as these talks have the potential of changing livelihood options for millions (maybe billions).

Brief History:
After the second world war numerous world-wide institutions came into existence. The important ones relating to trade/finance were the World Bank, IMF and GATT. All these institutions were set up by the developed nations with different objectives. The objectives varied from funding post-war recovery to opening up trade among nations. GATT (General Agreement on Trade and Tariffs) was designed to provide an international forum that encouraged free trade between member states by regulating and reducing tariffs on traded goods and by providing a common mechanism for resolving trade disputes. Intially only developed countries were part of GATT. By 1980's most of the developing countries were members of GATT but the discussion agenda was dominated by developed countries. Developed countries wanted developing countries to lower tariffs and other barriers so that their corporations could trade in develping countries more easily. GATT's intial agenda dealt only with trade in goods The last round for GATT talks - the Uruguray round - increased the scope of GATT by signing an agreement on Intellectual Property Rights at the behest of the developed nations. By mid-1990's GATT gave away to WTO (World Trade Organization). WTO covers trade in goods, services, IPR and almost everything. Almost all countries in the world - barring few are part of WTO. As per WTO site its a platform for multi-lateral trade talks and its goal is to improve welfare of people pf member countries.

More detailes about GATT can be found at http://www.ciesin.org/TG/PI/TRADE/gatt.html

Developed vs Developing Countries

Developed countries are interested in opening up services like financial services, goods trade and in imposing intellectual property rights through WTO. The developing world has a nascent or almost non-existent services industry + they are technological disadvantage to developed world. So they are opposed to opening up services, because developed world corporations will crush the local industry. Developing world wants that developed countries open up agriculture and low end manufacturing trade for them. These are sectors where developing countries have an advantage and most of their population is involved in. But developed nations have maintained very high argiculture tariffs making it almost impossible to export to them. But they are more bigger issues in agriculture trade as explained below.

WTO Round of Talks:

The Doha round of talks seem to be stuck on agriculture. In its last few meetings WTO members havent being able to come up with an agreement on this issue because of strong disagreements between developed and developing world. So whats the crux of the problem?

In short, a farmer in developed world gets huge subsides through their respective gevernements and can afford to sell their products in international market at substantially low rates. A farmer in developing country or under-developed countries doesnt get these level of subsidies and is unable to sell their produce in international market at rates offered by developed countries farmers. So their produce is not competetive to be sold in international market. So they are forced to sell at very low profits or below their production costs.

Plus, developed countries have very high barriers in form of tariffs for imported agricultural produce. So these markets are virtually closed for many agricultural goods for the entire world.

In addition, import tarrifs for agricultural goods in many developing countries are not high. So local farmers have to compete with imported subsidized produce from developed countries.
This means farmers lose out on their local markets also.

Why is this a BIG problem?

In developing countries and especially the under-developed countries agriculture is one of the main occupations and more than 50% of the population is dependent on that. These farmers have very few alternate livelihood options and lack of social security incentives. Subsides offered in developed world kill the only area of trade where they have more expertise as compared to developed world.

In upcoming blogs I will go in detail on specific case studies like, EU & Sugar Subsidy, US & Cotton Subsidy, Japan & Rice Subsidy. The issue is far more intricate than the above explanation implies and hopefully details will try to clear those. Once its clear how the subsidies impact poor in the developing world, we will try to look at reasons why developed world govt are so opposed to removing them.