http://www.commondreams.org/views03/0725-02.htm
False Promises on Trade
by Dean Baker and Mark Weisbrot
The New York Times editorial (7-20-03) on the developed countries'
agricultural subsidies and trade barriers massively overstates the
potential gains that developing countries might get from their
elimination. While many of the agricultural subsidies in rich
countries are poorly targeted, and in some cases hurt farmers in
developing nations, it is important not to exaggerate these impacts.
The risk of doing so is that it encourages policymakers and concerned
NGOs to focus their energies on an issue that is largely peripheral
to economic development, and ignore much more important matters.
To put the problem in perspective: the World Bank, one of the world's
most powerful advocates of removing most trade barriers, has
estimated the gains from removing all the rich countries' remaining
barriers to merchandise trade -- including manufacturing as well as
agricultural products -- and removing agricultural subsidies. The
total estimated gain to low and middle income countries, when the
changes are phased in by 2015, is an extra 0.6 percent of GDP. In
other words, an African country with an annual income of $500 per
person would then have $503, as a result of removing these barriers
and subsidies.
The Times editorial misrepresents current economic research on this
topic in a number of ways. For example, the $320 billion in annual
agricultural subsidies in rich nations is a highly misleading figure.
This is not the amount of money paid by governments to farmers that
would be less than one-third this size. The $320 billion figure is an
estimate of the excess cost to consumers in rich nations that results
from all market barriers in agriculture. Most of this cost is
attributable to higher food prices that result from planting
restrictions, import tariffs and quotas.
This distinction is important, because not all of the $320 billion
ends up in the pockets of farmers in rich nations. Some of it goes to
exporters in developing nations, as when sugar producers in Brazil or
Nicaragua are able to sell their sugar in the United States for an
amount that is close to three times the world price. The higher price
that U.S. consumers pay for this sugar is part of the $320 billion in
subsidies to which the Times editorial referred.
Another important misrepresentation is the idea that cheap exports
from the rich nations are always bad for developing countries. When
subsides from rich countries lower the price of agricultural exports
to developing countries, this will benefit consumers in the
developing countries. This is one reason why a recent World Bank
study found that the removal of all trade barriers and subsidies in
the United States would have no net effect on growth in sub-Saharan
Africa ("Unrestricted Market Access for Sub-Saharan Africa: How Much
Is It Worth and Who Pays," [
http://econ.worldbank.org/files/1715_wps2595.pdf ].
There is also a very important issue concerning the displacement of
people employed in domestic agriculture but this issue does not
arise in the standard economic models used by multinational
institutions such as the World Bank and the International Monetary
Fund, or generally accepted by the editorial board at the New York
Times. It took the United States 100 years -- from 1870 to 1970 -- to
reduce our employment in agriculture from 53 to 4.6 percent of the
labor force, and the transition nonetheless caused considerable
social unrest. To compress such a process into a period of a few
years or even a decade, by removing remaining agricultural trade
barriers in poor countries, is a recipe for social explosion.
Removing the rich countries' subsidies or barriers will not level the
playing field -- since there will still often be large differences in
productivity -- and therefore will not save developing countries from
the economic and social upheavals that such "free trade" agreements
as the WTO have in store for them.
Insofar as cheap food imports are viewed as negatively impacting a
developing country's economy, the problem can be easily remedied by
an import tariff. In this situation, developing countries would
benefit far more if the ones that want cheap subsidized food have
access to it, whereas the ones that are better served by protecting
their domestic agricultural sector are allowed to impose tariffs
without fear of retaliation from rich nations.
This would make much more sense, and cause much less harm, than
simply removing all trade barriers and subsidies on both sides of the
North-South economic divide. It is of course good that such
institutions as the New York Times are pointing out the hypocrisy of
governments such as the United States, Europe, and Japan, for their
insistence that developing countries remove trade barriers and
subsidies while keeping some of their own. But their proposed remedy
will not save developing countries from most of the harm caused by
current policies.
It is important to realize that from the standpoint of developing
countries, low agricultural prices due to subsidies have the exact
same impact as low agricultural prices attributable to productivity
gains. If the Times considers the former to be harmful to the
developing countries, then it should be equally concerned about the
potentially harmful impact of productivity gains in the agricultural
sectors of rich countries.
While reducing agricultural protection and subsidies in rich
countries might in general be a good thing for developing countries,
the gross exaggeration of its importance has real consequences,
because it can divert attention from issues of far more pressing
concern. For example, the IMF continues to play the role of an
enforcer of a creditors' cartel in the developing world, threatening
any country that defies its edicts with a cutoff of access to
international credit.
One of the most devastated recent victims of the IMF's measures has
been Argentina, which saw its economy thrown into a depression, after
the failure of a decade of IMF-supported economic policies.
Argentina's fate is widely viewed in the developing world as a
warning to other countries that might diverge from the IMF's
recommendations. One result is that Brazil's new president, elected
with an overwhelming mandate for change, must struggle to promote
growth in the face of 26 percent interest rates demanded by the IMF's
monetary experts.
Similarly, most of sub-Saharan Africa is suffering from an un-payable
debt burden. While there has been some limited relief offered in
recent years, the remaining debt burden is still more than the debtor
countries spend on health care and education. The list of problems
imposed on developing countries can be extended at length bans on
the industrial policies that led to successful development in the
west, the imposition of patents on drugs and copyrights on computer
software and recorded material, inappropriate macro-economic policies
imposed by the IMF and the World Bank. All of these factors are
likely to have far more severe consequences for the development
prospects of low and middle-income countries than the agricultural
policies of rich countries.
Dean Baker and Mark Weisbrot are Co-Directors of the Center for
Economic and Policy Research , in Washington D.C.
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