Delivering on Doha: Why Agriculture Matters
Agricultural market liberalization is the linchpin for a successful conclusion to the Doha Round of World Trade Organization (WTO) negotiations because these are the most protected markets remaining in most rich countries. But the implications for developing countries, especially the poorest, are more complex than the current debate suggests. In her new book, Delivering on Doha: Farm Trade and the Poor, Kimberly Ann Elliott, a joint senior fellow at CGD and the Peterson Institute for International Economics, examines the structure of agricultural support in rich countries and the challenges and opportunities for reviving and completing the Doha Round of trade negotiations. She outlines key findings from her book, including how the results of the U.S. midterm elections may affect the negotiations.
Q: When we spoke last July, Doha Round trade talks had just collapsed and India's Trade and Industry Minister had described them as "somewhere between intensive care and the crematorium." Where do things stand now and what can we expect in the next 6 to 12 months?
A: Unfortunately, not much has changed. It is now nearly a month since the U.S. election and neither U.S. Trade Representative Susan Schwab nor any other negotiator has offered anything new to break the logjam. Low-level talks have resumed in Geneva but it seems that nothing much of substance is likely until, at best, early next year, after Schwab has had a chance to consult with the new Democratic leadership in Congress. It makes no sense for her to make an improved offer unless she has the chairs of the key trade and agriculture committees behind her. One of the other parties could make the first move. But the European Union may not be able to do anything until France gets past its presidential elections next spring; Brazil seems unwilling to risk developing-country solidarity with a bold offer on manufacturing market access; and India and China seem to have little interest in the round. Thus, my conclusion last July that we could be in for a long delay in resuming the negotiations seems even more apt today.
Q: Why is agriculture seen as critical to breaking the deadlock?
A: Agriculture is the major piece of unfinished business from previous trade rounds. It is the sector with the highest remaining barriers in rich countries and the greatest potential gains from further opening of goods markets around the world. Tariffs on agricultural products entering high-income countries are roughly five times higher than the average for merchandise overall, and eight times higher than for manufactured goods other than textiles and apparel. In addition, members of the Organization for Economic Cooperation and Development (OECD) provided annual direct subsidies to their own farmers equal to roughly $100 billion on average in 2002-04. The OECD estimates that market price support provided to farmers by tariffs and quotas is worth another $150 billion to them. On average, this support accounts for nearly $1 of every $3 that farmers receive. So, agricultural liberalization is much of what the rich countries have left to contribute to a reciprocal trade deal.
Q: What should U.S. policymakers do to resolve agriculture disputes in the current trade negotiations and how will the results of the U.S. midterm elections affect the negotiations?
A: As I said back in July, U.S. negotiators are on the defensive. I believe that Schwab should kick-start the talks by offering to lower the U.S. ceiling for overall trade-distorting domestic support, including the subsidies to cotton farmers that have become such a cause célèbre in the trade talks, from $22 billion to around $17 billion. To get an agreement, however, U.S. negotiators would need to accept additional limits on farm subsidies so that actual spending in the future is reduced. That, in turn, would require that Congress approve a new farm bill next year that cuts the price targets for so-called "program commodities," including corn, rice, cotton, wheat and soybeans.
Support for agriculture tends to be driven more by regional concerns than party affiliation. Regardless of which party controls Congress, legislators face mounting pressure to reform farm policy. In addition to the trade negotiations and budget-cutting pressures, a growing number and variety of constituents are dissatisfied with existing trade policy. More than half of American farmers, mainly those growing fruits and vegetables, do not receive traditional subsidies and want changes; environmentalists want more money for conservation; and Bread for the World argues that reforms are needed to truly address rural poverty and hunger in the United States, as well as abroad (see a recent blog exchange on this topic).
On the Doha Round, some have argued that Democratic control of Congress means that any positive steps on trade in the United States will be stymied. But multilateral trade negotiations have never been as controversial or as politically polarizing as the free trade agreements such as NAFTA. I expect that the congressional leadership will work with the administration to pass a Doha agreement, if it can be completed.
Q: What other moves will be needed to bring the agriculture component of the trade negotiations to a successful conclusion?
A: The European Union will have to eliminate the export subsidies that it uses to dump surplus commodities on world markets; it will also have to improve access for farm imports more than it has thus far offered to do. Japan, Korea, Switzerland and other non-EU European states will have to agree to cap their tariffs, which are in a few cases equal to several times the value of the imported product on which they are applied. These countries also need to allow increased access for even the most sensitive items, including rice, beef and dairy products. To clinch the overall trade bargain, and to improve their own competitiveness, the more advanced developing countries also need to open their markets to manufactured goods and services.
Q: What else is required to deliver on the promises of the Doha Development Agenda?
A: The benefits of an agreement will not be evenly distributed. Middle-income countries in Latin America, such as Brazil and Argentina, are likely to be the biggest winners among exporters from agricultural reforms in rich countries. Some poor countries could lose if lower farm subsidies lead to higher food prices or if preferential access to European and American markets for their exports is eroded due to the generalized improvements in access arising from a multilateral agreement. Completely duty-free, quota-free access for exports from least-developed countries, especially if provided expeditiously by both industrialized and the more advanced developing countries would be helpful. U.S. negotiators offered a year ago in Hong Kong to provide increased access for least developed countries, but only on 97 percent of tariff lines and only at the conclusion of the round, rather than immediately. Greater generosity on this issue would contribute to both poverty reduction and completion of the round and would cost the U.S. very little.
Finally, in many low-income countries, poor farmers in remote rural areas will see few gains if inadequate infrastructure and inputs and perverse government policies prevent their taking advantage of new opportunities. For them, a credible and effective package of aid for trade, especially investments in roads, ports, and other infrastructure, is needed to ensure that they are able to grasp new opportunities arising from the round.
Meet the author: Kimberly Ann Elliott will present the main findings of her book at a launch event on Monday, December 18, 4:00 to 6:00, reception to follow. The event will include keynote remarks by Ernesto Zedillo, former president of Mexico, and will be followed by a reception. Complementary copies of Delivering on Doha will be provided.
