Commentary

How to Get WTO Talks Moving: Take on Agriculture Subsidies

As mentioned in my last piece here, there has been much hand-wringing in recent years over the inability of the WTO to achieve new trade liberalization. The modest success of the recent Trade Facilitation Agreement was a small victory, but it is not liberalization in the traditional sense, where countries agree to rein in their protectionist impulses. The failure of trade talks at the multilateral level has led many governments to pursue regional or plurilateral initiatives, even though such approaches have fundamental flaws in economic and political terms.

But perhaps there is now an opportunity to get WTO talks moving again. In a recent speech at a WTO “mini-Ministerial” meeting, U.S. Trade Representative Mike Froman addressed the issue of agriculture subsidies. He seemed a bit defensive, starting out with: “I have listened to many of my colleagues around the table in previous meetings talk about the centrality of agriculture.” This seems like an expression of annoyance that the U.S. is always getting badgered about this issue. He said he hopes to “avoid a tired debate focused more on scoring political points than by making meaningful progress.”

He also noted that farm subsidies have evolved over the years, and that “the nature of who subsidizes has transformed dramatically in the 13 years since the Doha Round was established.” He said:

The largest emerging economies now subsidize their farmers at levels as high or higher than the United States and Europe. Moreover, developed country subsidies have been decreasing, while emerging country subsidies have risen dramatically.

In the area of domestic subsidies, a discussion that ignores emerging economies is not politically or economically serious, and it cannot be the basis for the kind of progress we also want to see in areas like NAMA and services.

At first glance, these developments may make it seem more challenging than ever to constrain farm subsidies, as the constituency of those using them has grown. If everyone is doing it, no one will agree to stop. Special interests have now entrenched themselves all around the world, and will fight hard to maintain their government favors.

Paradoxically, however, the proliferation of farm subsidies might present a great opportunity for liberalization. If it is only the U.S., EU, Japan and other rich countries offering these subsidies, they might be reluctant to liberalize on their own. Reducing their subsidies in such circumstances would require a complex trade-off, in which farm subsidy reductions by rich countries would have to be balanced against liberalization by other countries in other areas. This balancing process is always difficult.

But now that the practice has spread to the developing world, a balanced reduction is easier to achieve. A diverse group of countries offering subsidies means that imposing limits should be less controversial. Some trade-offs with other sectors may still be required, but it is no longer a “North-South” battle. Conflict between the developed and developing world has held up WTO talks in the past, and taking this element out of the agriculture subsidies debate is helpful.

In terms of the substance of the issue, the scope of an agreement is simple enough to envision. A negotiation on farm subsidies should cover proper reporting of subsidies, reduction commitments, and general rules and principles that prohibit the worst kinds of subsidies.

The main problem with this idea is how to achieve liftoff. It will not happen by itself. Some government or governments have to step up and propose liberalization. The good news is that, with the proliferation of these subsidies, there are now more potential candidates than before: The U.S., the EU, Brazil and India, among others, could come forward and express dismay at how farm subsidies have distorted markets, interfered with trade, drained government coffers, and favored big corporations.

Everyone says that they cannot stop agriculture subsidies unilaterally, because of the advantages this would give to trading partners. But that is not an argument for doing nothing; rather, it’s an argument for a coordinated multilateral reduction of these subsidies.

There has been a lot of talk about how “ambitious” the TPP and TTIP are. But without covering farm subsidies, they are not as ambitious as some claim. It almost seems like we have chosen to focus on these initiatives in order to avoid the sensitive issue of farm subsidies. An attempt to address farm subsidies at the WTO would constitute real ambition in trade talks, and could also help revive multilateralism.

Simon Lester is a trade-policy analyst at the Cato Institute.