The standard argument raised by protesters at last week's World Trade Organization conference in Cancun was that the WTO's insistence on free trade threatens the livelihood of the Third World. This position forms the ideological core of the anti-globalization movement. And yet, the real flaw --and it is a fundamental one--in international trade is quite the opposite. Free trade, as it stands, is just not free enough. And this is what makes it so grossly unfair to the world's poor.
To be sure, commerce among developed nations is about as free as it gets. The WTO (and GATT, which preceded it) ensure that the U.S. can ship computers to Germany and import luxury cars from Japan with practically no tariffs or quotas. Unfettered trade in manufactured products is one of the great achievements of the post-1945 "Washington consensus," and there is no doubt that it dramatically enhanced economic growth throughout the West. But these same countries, who threw open their doors to each other's goods with such success, have kept them firmly shut when it comes to agricultural imports from the developing world.
This enormous hypocrisy, for which the U.S., Europe and Japan are responsible, represents the single greatest challenge to the future of the WTO.
A staggering $300 billion is spent on farm subsidies each year by the industrialized world. No other sector of the economy even comes close to getting this kind of government aid. Lest you think there is some noble purpose for such a system of continuous free handouts, there isn't. This is pure protectionism, plain and simple, and it's making it impossible for farmers from Africa to Latin America to compete in the global economy.
Indulge me while I clarify some long-standing myths. First, the image of a struggling farmer who depends on government aid to make a living is the exception rather than the rule. The vast majority of government subsidies go to owners of vast agribusinesses, who would enjoy economies of scale and low unit costs without any subsidies whatsoever. In Europe, for instance, the largest 2 percent of farms receive 24 percent of the direct payments.
Second, although subsidies are aimed at the domestic economy, they clearly distort prices worldwide. By incentivizing overproduction, they result in a global glut of commodities like cotton and sugar, depressing prices to the point that Third World farmers are priced out of the market.
Finally, subsidies offer absolutely zero advantages to western consumers and taxpayers. On the contrary, the $300 billion spent on farm aid translates to $1,000 per household. On top of that, subsidies often make it more profitable to export farm products overseas rather than sell domestically, which raises food prices for the same people who are already stuck with the tax bill.
This is not market economics--it is more akin to the worst kind of Soviet-era price fixing. But while the inefficiency of subsidies is itself indefensible, it pales to the human cost that is forced upon some of the poorest countries in the world. This is a clear instance of unfair trade practices that worsen poverty. It is morally wrong, as the charity Oxfam points out, that the $3.9 billion handout to U.S. cotton farmers in 2001-02 is greater than the entire GDP of cotton producer Burkino Faso.
Farmers in that country and neighboring Benin, who could effectively compete due to low labor costs, are finding their competitive advantage eroded by the U.S. farming subsidies. They are unfairly being forced out of business by policies that are absent in any other sector of the economy.
The United States is not the worst offender when it comes to this issue. In nominal terms, this honor undoubtedly belongs to Japan, where the average subsidy to a cattle farmer is over $2,500 per cow, or 2.5 times greater than in the U.S. Overall, however, it is the European Union that is fighting tooth and nail to make sure that its largesse keeps flowing to the tiny percentage of its citizens who farm. Half the EU's entire budget is now consumed by its Common Agricultural Policy, and this percentage will only rise as Eastern European nations with large rural populations join the club next year. In Cancun, the arm-twisting by the EU delegation would make a Washington lobbyist blush.
President George W. Bush's administration, like all those that preceded it, has a decidedly mixed record on trade. While paying lip service to the principle of a tariff-free world, exceptions were always made when politically expedient.
It was the Bush administration that helped broker a deal to give developing countries access to cheap medicines--a deal that is far from perfect but is a clear step in the right direction. Critics would point out the 2002 imposition of steep tariffs on steel as a counter-argument.
Regardless of what happened in the past, the question of farm subsidies represents a unique opportunity for America to lead on a matter of enormous importance to billions of farmers in over a hundred developing nations.
These people, who were told that trade will lift them out of poverty, are still denied the opportunity to compete on a level playing field. It's time for Washington to put its stated commitment to free trade into practice and unilaterally lift all trade-distorting agricultural measures.
Pavel Molchanov, Trinity '03 is a guest columnist, and a former regular columnist.
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