Forbes
Joshua Zumbrun
Original Publish Date: July 21, 2008
Can't we all just agree?
Finance ministers of World Trade Organization (WTO) members countries will meet in Geneva this week to try--again--to reach an agreement opening up trade between its members.
The talks, known as the Doha Development Round, have dragged on for seven years--hampered largely by developed countries unwilling to reduce agriculture subsidies.
What makes the issue more urgent this time--and may ultimately make a deal more palatable--is the recent surge in food prices, caused in part by trade restrictions in global agriculture markets.
Negotiations a year ago collapsed over a rift between rich nations and the developing world. Members such as the U.S. and European Union nations want developing countries to reduce their tariffs on imports, opening the markets for American and European farmers.
The developing world wants the Americans and Europeans to reduce their subsidies to these farmers. Neither side has been willing to move far enough to make the other happy. Since meeting a year ago, the WTO has drafted a new agreement, which sets levels for these cuts. Finance ministers will attempt to refine this agreement to something agreeable for all 152 WTO members.
Is a deal now within reach? WTO Director-General Pascal Lamy thinks it could be. Higher food prices have already reduced the subsidies paid to rich country farmers. The U.S. would be able to meet its commitments under the deal with relatively minor changes in agriculture policy, says David Blandford, a professor of agricultural economics at Penn State University.
The draft agreement, through the use of numerous complicated formulas, would limit the overall level of farm subsidies and also put caps on the amount of support that can be received by any one crop. Limits would gradually be lowered between 2009 and 2013.
A study of the draft agreement by Blandford, David Laborde of the International Food Policy Research Institute and Will Martin of the World Bank projected that by 2014 the overall level of U.S. support would be capped at around $13 billion annually, but the U.S. would be providing only $7 billion of subsidies if current programs remain in place, meeting its obligation with $6 billion to spare.
The obligation can be met thanks to high food prices. Many subsidies in the U.S. are countercyclical--meaning that when prices are high, the level of subsidy is low. The limit for such countercyclical subsidies under the WTO agreement is $5 billion. But with current prices, the U.S. would be paying only $1 billion to $1.5 billion in these payments.
But the limits on specific crops are a potential deal breaker: Support for sugar and cotton would have to be cut under the draft agreement. The cut would be most dramatic for cotton, which would lose $2 billion in annual payments, reducing support to $1 billion from a projected $3 billion. Sugar too would face substantial cuts, to $1.1 billion from a projected $1.5 billion.
The agreement would not be a totally raw deal for cotton and sugar. Though their level of support would be reduced, developing countries would be required to reduce their tariffs against the crops. Look for heavy resistance from Beltway cotton and sugar lobbyists.
Two of the most contentious topics in agriculture policy--biofuels and export controls--won't be on the table at all in Geneva.
If a deal is accepted now, it would be harder for WTO members to backslide on their commitments down the road.
Is this the Doha round's last, best chance? Stay tuned.
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