No Boost for Development in World Trade Negotiations

By Mark Weisbrot

August 3, 2004, Knight-Ridder/Tribune Information Services

In trade negotiations, you have to be careful what you ask for, because you might actually get it -- or some small fraction of it. This past weekend, at World Trade Organization (WTO) talks in Geneva, developing countries got a little bit of what they had been demanding: the rich countries agreed to eliminate a small part of their agricultural subsidies. The concession was hailed as a "breakthrough," and saved the current round of negotiations from being seen as a failure.

But this latest development is hardly a victory for people in developing countries, and least of all for the poor. The WTO rules are so heavily stacked against them that they are still headed for continued net losses from the current "development agenda."

Focusing on subsidies was a clever public relations and negotiating tactic by the developing countries' negotiators, and it led to a breakdown at the big WTO ministerial meeting in Cancun last September. They highlighted the hypocrisy of the United States, Europe, Japan and other rich counties: "you want us to further open our economies to trade", they said, "yet you flood world agricultural markets with subsidized grains, cotton, and other goods."

But these latest concessions have hardly changed the picture. First, the United States has only agreed in principle to eliminate a small part -- perhaps 20 percent -- of its agricultural subsidies. And even here, the language is vague and the loopholes large enough that it is not clear how much these subsidies will actually be cut.

But even if the subsidies were altogether eliminated, it would have very little net impact on the developing world.

The importance of the subsidies themselves has been inflated beyond recognition. The "$300 billion in annual subsidies and supports" that the New York Times cited in reference to the latest agreement is a gross exaggeration, as economists recognize. The total amount of subsidies paid to farmers in the US, Europe, and other developed countries combined is less than 30 percent of this $300 billion, according to the undisputed figures from the Organization for Economic Cooperation and Development (OECD). The "supports" tacked on to inflate this figure include trade restrictions that raise the price to US consumers, and many other things that aren't subsidies and don't have any negative impact on producers in developing countries.

The World Bank has estimated the gains for the developing world if rich countries were to eliminate all of their subsidies, and open all of their markets completely to every export -- manufactured as well as agricultural goods -- from low and middle-income countries. This turns out to be an extra 0.6 percent of income: in other words, a country with an income of $1000 per capita would move up to $1006. Only a small part of this small gain would come from the elimination of subsidies, and even less would trickle down to the world's poorest. A lot of countries -- most of Latin America, for example -- would actually suffer a net loss from the elimination of agricultural subsidies.

Of course there are cotton farmers in poor countries like Mali, Burkina Faso, and Chad that have been hurt, some even wiped out, by U.S. cotton subsidies. They have every reason to demand the elimination of these subsidies.

But the tens of millions of poor farmers in developing countries that will not be able to compete with U.S. or other modern, large-scale agricultural production -- subsidized or not -- represent a much more devastating problem with WTO rules for liberalizing trade in agriculture.

And the measures that the United States and Europe are demanding in WTO negotiations are far more costly than any subsidies. Their unabashed protectionism in many areas -- especially pharmaceuticals, where access to affordable medicines can literally be a matter of life and death -- will cost developing countries much more than they can gain from freer trade in other markets.

The rich countries are currently seeking to impose a whole set of non-trade rules -- concerning investment, government purchases, and development policy -- on developing countries. If they succeed, most low-and-middle-income countries will have to overcome obstacles that the United States, when it was a developing country, never had to confront. In short, there is a long way to go before most of the members of the WTO can claim success in the current round of negotiations.