Commentary

Trade Talk Keys in Hong Kong

By Daniel Griswold
Washington Times on December 13, 2005>
Rich-country farm subsidies and trade barriers will command center stage at the World Trade Organization ministerial meeting in Hong Kong that opens today, and for good reason. Protected farm markets are a glaring exception to the free-trade rhetoric and generally open policies pursued by the United States and other developed countries.

For its own benefit as well as the success of the WTO negotiations, the U.S. should aggressively pursue deep cuts in global farm subsidies and trade barriers, beginning with our own failed farm policies. Without real agriculture reform, the WTO talks will be a colossal waste of time.

The best spin on current U.S. agricultural policies is that they are not the most trade-distorting in the world. According to the Organization for Economic Cooperation and Development, the Paris-based organization representing 30 developed countries, its members lavished $279 billion on their farmers in 2004 through direct taxpayer subsides and protective trade barriers. The U.S. share amounts to $46.5 billion.

For U.S. farmers, government support accounted for 18 percent of all farm income last year. In Canada, it accounted for 21 percent, in the European Union 33 percent, in Japan 56 percent, and in South Korea, Switzerland and Norway, more than 60 percent. Such support accounts for only 4 percent of farm income in Australia and 3 percent in New Zealand.

According to a new Cato Institute study, America’s anti-market farm policies artificially drive up food costs at home for tens of millions of American families, amounting to an annual “food tax” at the grocery store for a family of four of about $221. That tax is regressive, falling hardest on lower-income families that spend a relatively higher share of their budget on food.

U.S. farm policies also drive up costs for U.S. companies — such as restaurants, candy makers, bakeries and other food processors — that use agricultural commodities to produce their final products. Those higher costs lead to lower sales, less investment, fewer jobs and lower wages in affected industries.

Our farm policies also cost taxpayers more than $20 billion a year for payments mostly to a small minority of farmers. They encourage farming of marginal land, which promotes overusing pesticides and fertilizers and increases soil erosion, compromising water quality in our lakes and rivers.

U.S. farm programs exact a toll beyond our borders. By promoting overproduction at home and restricting imports, they depress global prices for such key commodities as corn, cotton, rice and sugar. This deprives millions of poor farmers around the world of money from exports to the United States.

Developing countries and nongovernmental organizations (NGOs) are right to criticize such an obvious deviation from free trade principles and to demand real farm trade reform be central to any final Doha Round agreement.

The Bush administration’s chief trade negotiator, Rob Portman, deserves credit for forwarding an aggressive U.S. agriculture proposal that would end farm export subsidies and sharply reduce domestic subsidies and trade barriers in the U.S., the EU, Japan and other WTO members.

The U.S. initiative has put the European Union on the defensive because of its even higher subsidies and barriers and its own timid and inadequate offer. U.S. negotiators should press for the deepest cuts possible in Hong Kong and beyond.

The European Union’s own trade negotiator, Peter Mandelson, tried just last week to deflect attention from the EU’s more protectionist policies, arguing deep cuts in rich-country trade barriers would hurt poor farmers by denying them preferential access to the high-priced EU market. His argument applies to certain producers in certain countries, but not to most farmers in most poor countries. The EU’s preferential access to its protected market benefits a minority of poor farmers lucky enough to be allowed to do most of their selling within the EU’s quotas. But this drives down global prices and negatively affects a majority of the world’s farmers in poor countries.

As WTO negotiators gather in Hong Kong, the U.S. proposal on agriculture has generated more positive buzz than the EU’s pale imitation. Our chief motivation for reforming U.S. farm programs, though, should not be to win applause or to make “concessions” to gain market access abroad, but to benefit ourselves as Americans.

U.S. farm programs are not an asset to be carefully guarded and traded away only when the price is right, but a ball and chain around our nation’s neck. By reducing U.S. farm subsidies and trade barriers, we can promote our own economic interests while promoting progress on a global trade deal that will benefit all members of the WTO, rich and poor alike.

Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute.