January 28, 2015 10:15AM

Putting Agriculture Subsidies Back on the Table

Yesterday, my colleague Bill Watson made the following point on this blog: "Perhaps China’s growing use of subsidies can change the dynamic, making it finally possible for international negotiations to take on U.S. agriculture subsidies."  I've been thinking the same thing.  When it was just a few rich countries subsidizing, the political dynamic of subsidy reduction was challenging.  But if we are all subsidizing now, can't we all just agree to stop?  Unfortunately, I fear the reality is going to be less promising than we might hope.

I confess that I did get a little excited and optimistic when I read a recent piece from U.S. Trade Representative Michael Froman, in which he said:

Take the example of agriculture, the subsidies for which have proven one of the toughest issues to tackle. In 2008, the proposed solution was that developed countries would cut their agricultural subsidies while developing countries would not.

But much has changed since that time. Just last year, a group representing agriculture-exporting countries, developed and developing alike, published a report listing the top four users of trade-distorting agricultural subsidies in today’s world, with India first, followed by China, the European Union, and the United States.

In a global commodities market, this double-standard makes no economic sense. In reality, trade-distorting subsidies from emerging economies have the same impact on global commodity prices as trade-distorting subsidies from developed countries. The United States is willing to wade back into the complex thicket of agricultural trade negotiations, but only if the discussion reflects today’s reality.

Parsing his words, he says the United States is "willing to wade back" in to these issues.  That's slightly positive, suggesting the possibility of action.  But it's going to take a bit more than this.  At some point, someone has to make an actual concrete proposal to eliminate or reduce agriculture subsidies.  That is, someone has to lay out specific details of a proposal for everyone to rein in subsidies.  It would be great if it were the United States, but it could be any of the big subsdizers.  However, it's not going to happen unless and until someone takes this initiative.

Does the political will exist in Washington right now?  Ambassador Froman's op-ed notwithstanding, it doesn't seem like it.  When there is talk of agriculture subsidies in trade negotiations, it is very limited.  In the context of the Trans Pacific Partnership, the current talk is going like this (subscription only): 

The United States has indicated it is willing to agree to an unconditional and complete ban on agricultural export subsidies in the Trans-Pacific Partnership (TPP) region as part of a final deal if other negotiating partners drop their demands for new disciplines for export credits, according to informed sources. 


The new U.S. position on export subsidies represents a concession from its previous position, under which the U.S. was willing to accept a ban on the use of agricultural export subsidies within the TPP region only if there was an escape clause. 


The new position also appears to represent a broader shift for the U.S., which had previously insisted that export subsidies be addressed in a multilateral rather than regional context in order to capture the EU's subsidies.

That all sounds good for agriculture subsidies (although not so good for export credits), BUT, keep in mind that export subsidies can be tweaked in small ways to turn them into just regular old domestic subsidies.  In this way, governments can keep offering the same money, but in a manner that is permitted under international trade obligations.

So, while I'm happy to hear talk of bringing down agriculture subsidies, I'm not going to get too excited until someone makes an actual proposal to bring down agriculture subsidies.