Stiglitz: Arrested development

Starting with the collapse of the Doha Round, Joseph Stiglitz beats up on US agriculture subsidies that distort world trade and undermine the position of farmers in the South. From The Guardian:

The failure hardly comes as a surprise: the United States and the European Union had long ago reneged on the promises they made in 2001 at Doha to rectify the imbalances of the last round of trade negotiations – a round so unfair that the world’s poorest countries were actually made worse off.

Once again, America’s lack of commitment to multilateralism, its obstinacy, and its willingness to put political expediency above principles – and even its own national interests – has triumphed. With elections looming in November, President George W Bush could not “sacrifice” the 25,000 wealthy cotton farmers or the 10,000 prosperous rice farmers and their campaign contributions. Seldom have so many had to give up so much to protect the interests of so few.

The talks bogged down over agriculture, where subsidies and trade restrictions remain so much higher than in manufacturing. With 70% or so of people in developing countries depending directly or indirectly on agriculture, they are the losers under the current regime. But the focus on agriculture diverted attention from a far broader agenda that could have been pursued in ways that would have benefited both the north and the south.

For example, so-called “escalating tariffs,” which tax processed goods at a far higher rate than unprocessed products mean that manufacturing tariffs discourage developing countries from undertaking the higher value-added activities that create jobs and boost incomes.

Perhaps the most outrageous example is America’s $0.54 (28p) per gallon import tariff on ethanol, whereas there is no tariff on oil, and only a $0.50 per gallon tax on gasoline. This contrasts with the $0.51 per gallon subsidy that US companies (a huge portion of which goes to a single firm) receive on ethanol. Thus, foreign producers can’t compete unless their costs are $1.05 per gallon lower than those of American producers.

The huge subsidies have meant that the US has become the largest producer of ethanol in the world. Yet, despite this huge advantage, some foreign firms can still make it in the American market.

Brazilian sugar-based ethanol costs far less to produce than American corn-based ethanol. Brazil’s firms are far more efficient than America’s subsidized industry, which puts more energy into getting subsidies out of Congress than in improving efficiency. Some studies suggest that it requires more energy to produce America’s ethanol than is contained in it.

If America eliminated these unfair trade barriers, it would buy more energy from Brazil and less from the Middle East. Evidently, the Bush administration would rather help Middle East oil producers, whose interests so often seem at variance with those of the US, than Brazil. Of course, the administration never puts it that way; with an energy policy forged by the oil companies, Archer Daniels Midland and other ethanol producers are just playing along in a corrupt system of campaign-contributions-for-subsidies.

In the trade talks, America said that it would cut subsidies only if others reciprocated by opening their markets. But, as one developing country minister put it, “Our farmers can compete with America’s farmers; we just can’t compete with America’s treasury.” Developing countries cannot, and should not, open up their markets fully to America’s agricultural goods unless US subsidies are fully eliminated. To compete on a level playing field would force these countries to subsidise their farmers, diverting scarce funds that are needed for education, health, and infrastructure.

…There remains one further concern: America has rushed to sign a series of bilateral trade agreements that are even more one-sided and unfair to developing countries, which may prompt Europe and others to do likewise. This divide-and-conquer strategy undermines the multilateral trade system, which is based on the principle of non-discrimination. Countries that sign these agreements get preferential treatment over all others. But developing countries have little to gain and much to lose by signing these agreements, which almost never deliver the promised benefits.

Indeed, the entire world is the loser if the multilateral trade system is weakened. The rest of the world must not embrace America’s unilateral approach: the multilateral trade system is too precious to allow it to be destroyed by a US president who has repeatedly shown his contempt for global democracy and multilateralism.