On my way back from a recent vacation, I passed by three big sugar mills. There is nothing strange with that — except for the fact that I spent the vacation in southern Sweden. That’s about as far north as Alaska. Sweden has a very short summer, the soil is frozen for several months, and the cattle have to be indoors most of the time. Not your ideal place for agriculture, you would think.
Yet Swedish farmers — as well as others who live within the European Union’s boundaries — enjoy a comfortable lifestyle, at the expense of poor countries in Eastern Europe, Africa and Latin America. That’s because of the EU’s Common Agricultural Policy (CAP), which is designed to protect European farmers from competitors in the developing world and elsewhere. (And America plays a similar game.)
The CAP uses quotas and tariffs of several hundred percent to effectively block the importation of foreign foodstuffs. The result is a huge surplus of foodstuffs piling up around Europe that must be either used or destroyed. So the EU dumps the stuff in poor countries with the help of export subsidies, further undermining the livelihood of competitors abroad.
To cite an example, the caddish CAP and subsidies for domestic production make it profitable for Swedish companies to make sugar from sugar beets. The lump in the Swedish coffee cup then costs more than twice as much as the sweetener squeezed out of sugar cane. But we dump it abroad for only a quarter of the real cost.
The EU’s protectionism isn’t unique; most rich countries have similar systems. And the barriers to imports are especially cruel to developing countries. Western duties (i.e., taxes) on manufactured goods are 30 percent above the global average.
The tariffs are not uniform but rise in proportion to how processed the product is. Partially processed products face, on average, 20 percent higher tariffs than raw resources. Finished products face almost 50 percent higher tariffs. To put it simply, developing countries can export fruits, but not the jam they make from those fruits.
Western politicians have come to understand that high marginal taxes are bad for their economies; when will they realize that the same goes for developing countries?
For a long time there have been calls for change, especially with the Cairns group of big agricultural exporters (such as Brazil, Argentina, and Canada) and the United States pressing for free trade reforms. The problem is that the United States is strikingly short on credibility when America slaps tariffs on foreign steel. All that free trade rhetoric is not taken seriously. The EU’s protectionism is the most destructive for developing countries, but U.S. protectionism is catching up quickly, which gives the EU an excuse not to change anything. With the U.S. Congress’ passage of the latest, multi-billion dollar protectionist farm bill and the dumping of food aid in countries without food shortages, American agricultural policies look a lot like the CAP.
According to the United Nations Conference on Trade and Development, EU protectionism deprives developing countries of nearly $700 billion in export income a year. That’s almost 14 times more than poor countries receive in foreign aid. EU protectionism is a continuing tragedy, causing unnecessary hunger and disease. The Cold War “iron curtain” between East and West has been replaced with a customs curtain between North and South.
EU protectionism takes a toll on Europeans, too. The rich countries’ protectionism costs their citizens almost $1 billion every day. At that rate, you could fly all the cows in the OECD, 60 million of them, around the world every year in business class. In addition, the cows could be given almost $3,000 each in pocket money to spend in tax-free shops during their stopovers.
Our protectionism may lead to greater problems in the future. We in the West used to tell the developing countries about the benefits of the free market. And we promised wealth and progress would certainly come if they changed and adopted our ways. Many did, only to find that our markets are closed to them. No wonder, then, that Western countries are seen as hypocrites, producing resentment and a fertile ground for anti-American and anti-liberal ideas in many regions at a time when the West needs friends more than ever.
The recently signed American-European plan on agricultural trade contains a lot of nice phrases, but no commitments. With no prospect of real reforms at the WTO meeting in September, the poor countries will refuse to take part in a fake “development round.” The multilateral trade system will face a collapse. American and European companies will face obstacles to their exports. Many developing countries will give up on globalization.
Now is the time for bold free trade initiatives — and sincerity. Perhaps America needs a presidential candidate like the one who in 2000, said, “I intend to work to end barriers and tariffs everywhere so that the entire world trades in freedom. It is the fearful who build walls. It is the confident who tear them down.” That candidate was George W. Bush. Where did he go?