Nobody likes protectionism. We’re all believers in free trade now.
That’s the idea anyway. But the collapse of the Doha trade talks shows that it’s far from the reality. And it’s here in the capitalist West, that the biggest obstacles to global free trade exist.
Last week, after seven years of protracted wrangling between the World Trade Organisation’s 150 member states, the Doha talks ground to a halt. The collapse came as US was unable to reach a compromise with India and China over the terms of what is called the ‘special safeguard mechanism’ (SSM).
The SSM is pure protectionism. It allows developing countries to protect their fledging industries against a surge in imports, which would otherwise destroy subsistence farmers and other up-and-coming companies. They do this by raising tariffs on these imported goods, whenever the surge in imports reaches a certain level.
All sides are happy enough with the existence of the SSM. What they don’t see eye-to-eye on is how high imports should be allowed to rise, before the SSM can kick in. India and China, along with other developing nations, want the safeguard to come in after a 10 -15% rise in imports above the previous three-year average. The U.S. said 40%. And it was on this point that both sides disagreed. Hence the failure of the talks.
Why are China and India being so unreasonable, you might ask? But all of this came before anyone had even got around to talking about the West’s perverse system of agricultural subsidies. The trouble is, the US and EU want cheap and easy access to developing world markets for their agricultural industries – free trade is fine and dandy then. But they aren’t happy to afford emerging farmers the same access to their own.
This makes no economic sense. The point behind free trade is that it makes the best use of everyone’s resources. If one country is good at growing oranges, and another good at growing potatoes, it makes more sense for each to stick to their respective specialties, and then trade with each other when the orange growers want potatoes, or vice versa. If each country tries to grow everything it needs by itself, it leads to massive inefficiency. You don’t get the economies of scale, cold countries have to shell out on extra energy bills for artificially creating an environment for growing warm climate foods – you get the picture.
So regardless of where the talks go from here (if anywhere), it’s clear that governments have to stand up to the farming lobby and end the agricultural subsidy regime.
It would be a far better way to help developing countries for a start, than all the Live Aid-style stunts in the world. There is no point in dishing out development aid to poor countries with one hand, while with the other you are taking away any assistance by continuing to subsidise your own agricultural industry. Consider this. According to a 2006 paper from the OECD, cutting agricultural tariffs and subsidies by 50% would add an extra $26bn to annual world income.
What’s more, it wouldn’t cost us anything. As Danial A. Sumner, former assistant secretary for economics at the US Department of Agriculture pointed out in a paper last year, the US is extending $286bn in crop-related subsidies to American farmers and agribusiness over the current five-year farm bill. Yet the agricultural sector accounts for less than 1% of GDP. The subsidies themselves only cut about 10% off the price of grain and oil seeds, which in turn account for less than 10% of the retail price of goods.
And this is ignoring the fact that we would find cheaper food imports from abroad, as more efficient producers grow more and export the excess. So cutting subsidies might even have a beneficial effect on your food bill, and certainly on the world economy.
Getting rid of them is something we should all be working on – regardless of what happens to Doha.