Wednesday, December 10, 2003

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My chic strategy of providing links

Looking for more on the global southern strategy? Look no further!

Previous posts: my round-up on the World Summit on the Information Society can be found here and here. My post on FTAA "lite" is here.

Documentation: The Fischler quote comes from this story in the Guardian. The Goldman Sachs study mentioned in the piece is available online. Here's a link to the joint IMF-World Bank-WTO statement. For good measure here's a follow-up joint Bank-Fund statement post-Cancun.

Background: For more info on the old-school New International Economic Order, check out this entry in the Routledge Encyclopedia of International Political Economy. On the developed country response, the best source is Stephen D. Krasner's Structural Conflict, about which I've posted previously.

For more on the G22/G20+, there's this story. Another piece by the same journalist in the Asian Times provides further background on the emergent grouping.

I discussed developing country opposition to the "Singapore issues" in the WTO talks in a Tech Central Station column. For a mildly contrary take, Jeffrey Schott provides engaging analysis of the post-Cancun state of negotiations.

posted by Dan on 12.10.03 at 01:36 PM


I asked this question over on crooked timber a while back and never really get a satisifactory answer: why doesn't the third world just freeload on the first world's agriculture subsidies?

posted by: Jason McCullough on 12.10.03 at 01:36 PM [permalink]

“I asked this question over on crooked timber a while back and never really get a satisifactory answer: why doesn't the third world just freeload on the first world's agriculture subsidies?”

I’ve got a better question. Why did the liberal "elite” doom millions to hunger and starvation by their childish scare mongering over genetically modified food?

posted by: David Thomson on 12.10.03 at 01:36 PM [permalink]

Another interesting dynamic emboldening the G-20+'s stance on farm subsidies is that the expiry of "the Peace Clause" from the Uruguay agreement.

posted by: Sean on 12.10.03 at 01:36 PM [permalink]

When the Peace Ends: The Vulnerability of EC and US Agricultural Subsidies to WTO Legal Challenge

University of California, Los Angeles - School of Law
Stanford University - The European Forum, Institute for International Studies


UCLA, School of Law Research Paper Series No. 03-10; Stanford Law School, Public Law Research Paper No. 58
Journal of International Economic Law, Vol. 6, No. 2, July 2003

Article 13 of the WTO Agreement on Agriculture, known as the "Peace Clause," precludes most WTO dispute settlement challenges against a country that is complying with the Agreement's liberalization commitments - until 1 January 2004, when the Peace Clause will expire. This article evaluates the strength of the main legal theories likely to be used in challenges to EC and US agricultural subsidies after expiry of the Peace Clause, and then employs economic techniques (regression analysis and equilibrium modeling) to meaningfully apply the soundest legal theories to economic data about agriculture trade. We conclude that when the Peace Clause expires, many commodity-specific EC and US agricultural subsidies will be vulnerable to legal challenges under Article 6.3(a)-(c) and 6.4 of the WTO Agreement on Subsidies and Countervailing Measures. The remedy would require that such subsidies be withdrawn or that appropriate steps be taken to remove their adverse effects. Non-subsidizing developing countries can be expected to bargain in the shadow of this legal vulnerability, demanding that the Community and the United States commit to further subsidy reductions and a shift toward tariff-and-decoupled-payments systems, in exchange for extension of the Peace Clause.

posted by: Sean on 12.10.03 at 01:36 PM [permalink]

Good question, Jason. I suspect the answer is somewhat similar to why the US doesn't just accept subsidized steel, for example, when they allege that that's happening. Interest groups, fear of economic dislocation over what could be a temporary tactic by the other countries. Hard to say, though.

posted by: John Thacker on 12.10.03 at 01:36 PM [permalink]

What confuses me is that there doesn't seem to be much in common with US steel protectionism on closer inspection.

On the political side, rural farmers aren't politically wired - all the political power in the third world is with the city workers. I know in the US farm supports have a bit to do with nostaglia, but is that really the case in Mexico?

On the development side, you can't really industralize or do the demographic transition by focusing on food production, can you? What's the point?

posted by: Jason McCullough on 12.10.03 at 01:36 PM [permalink]

Mr. Thomson,

Possibly because those people are starving anyway. First, GM food is not necessarily any worse or better than a unmodified food. Some people are not thrilled about "Franken-foods", but the real issue is that they aren't necessarily any better producing than traditional crops. Just because you stick a moth gene in a tomato to make the skin tougher, doesn't necessarily mean that more people will end up eating - indeed the yeilds may be less because more metabolic energy is devoted to the new trait rather than simple growth and reproduction.

Second, GM foods as now formulated reflect a wealth transfer from poor countries to rich ones. Why is this? Because unlike traditional crops for which anyone can get stock and grow, GM foods by their nature are not "naturally abundant". The firms who create them own all the seed stock, and only they can sell you more. So poor countries if they wanted to grow GM foods would have to pay rich ones more to do so, and they would pay them more since right now they can grow the unmodified versions for free.

The improverishment of the poor countries, from further wealth transfer would be a "reverse-trickle-down effect". Simple supply-side economic theory would predict that more people would get poorer in those countries, and less people would be able to afford to buy food, and therefore more people would end up starving or malnourished.

And considering basic supply-side economic theory and the present ownership structuring of GM foods, this would be an inevitable result of the adoption of GM crops.

So there's your answer Mr. Thomson, that's why liberal elites oppose GM foods. It would make even more people starve, ironically. Of course, liberal elites are usually incapable of arguing it in such clear terms which is why a conservative old-timer like myself must do so for their inarticulate selves. Not that this will make any difference to your dim-witted mind.

posted by: Oldman on 12.10.03 at 01:36 PM [permalink]

Mr. Jason,

Your question reflects a basic lack of knowledge about the nature of developing economies. Most people in a traditional culture are farmers or in an agricultural related field. When cheap subsidized imports come in though, they destroy the livlihood of these farmers. Because such a large percentage of the economy is depressed, it depresses the whole economy as aggregate demand falls. Because the economy contracts, people do not have enough money to become educated or start many businesses. Because of this, they cannot industrialize as long as their economy is bleeding money to somebody else. A developing economy often only has agricultural exports to trade for hard currency and buy foreign goods, services, machines, etc. Since a developing country rarely has a developed social infrastructure including education system, there is no way to transfer these dislocated workers and farmers into new fields. Without workers and with currency balance problems as well as likely internal political instability from large unemployment, foreign investors rarely are interested in stepping in to fund development. This leads to a catch-22. The developing country can't develop with an infusion of foreign investment, but without foreign investment the developing country isn't able to become stable enough to become inviting to foreign investment.

If we substitute oil for the role of agricultural exports, this problem is basically the one that Iraq is in now. It can't stabilize enough to get development aid, and without development aid it has a very hard time stabilizing ... in fact it will succeed only if it does with the help of a very large foreign military deployment to provide stabilization security.

This is why China who is importing ever more food, is still dead-set against first world agricultural subsidies. They know that they have to balance the conversion of their farm economy to an industrial one, but it can't happen overnight or the whole process will seize up and stop working. Notice that they peg their currency despite US political pressure for the same reason - to create sufficient currency stability for internal and imported development financing - as well as the obvious export advantages.

Here endeth the lesson in basic development economics. Hopefully John Thacker will have been listening too, as he has shown ignorance on economic matters he has opined upon as well.

posted by: Oldman on 12.10.03 at 01:36 PM [permalink]

Dear all,

One more post linking the starving hordes to first world agricultural policy. Studies have shown that most third world countries have the agricultural capacity to grow enough food to feed their people. Indeed the number one reason for starvation is political and military instability. There are many reasons for third world political and military instability, but among them it cannot be discounted as agricultural subsidies of the first world that disrupt their domestic economies and produce large unemployment which leads to domestic unrest that despots can take advantage of.

It is not always the fault of the first world however. A primary example is Mugabe of Zimbabwe. There the rich agricultural capacity of Zimbabwe was managed by white farmers. In order to cultivate popular sentiment for his ailing regime, Mugabe ordered the seizing of white farms to be turned over to some black former soldiers who didn't know how to farm very well or his cronies and supporting elitist cabal. The result was mass disruption of the agricultural economy and impoverishment of all as basic food costs rose, and then as Zimbabwe's currency plumetted fuel costs and import costs. Instability now makes foreign investment possible. When agricultural subsidies wipe out the native agricultural capacity of a country however, pretty much the same thing happens. So it is still a relevant example.

posted by: Oldman on 12.10.03 at 01:36 PM [permalink]

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