Sunday, October 23, 2005
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The EU needs to turn the key
Alan Beattie and Victor Mallet report in the Financial Times that the EU's previous trade commissioner -- and current Director-General of the World Trade Organization -- is trying to pressure the current trade commissoner to get the EU's act together on the Doha round:
The situation is clearly causing Peter Mandelson to get hot under the collar.
Why exactly is the EU acting so obdurate on this issue? Well, it's mostly the French, and according to Thomas Fuller of the International Herald Tribune, it's the power of terroir (link via Virginia Postrel)posted by Dan on 10.23.05 at 09:49 PM
I'm a bit skeptical of the rhetoric presented by the US, the G20, and developing countries in general. While it would be awesome for the EU to cut its overall farm subsidies by a significant amount, I think the main barrier to further development of the world economy are tariffs in other areas. I mean, don't developing countries have much higher tariffs than the developed ones? And also, won't a few countries that are dependent agricultural importers suffer from the loss of farm subsidies? Right now farm subsidies depress and distort the equilibrium price - won't importers need to pay more in the future?
But either way, I hope this crisis of sorts passes and we do take a chunk out of the EU subsidies. Just my two cents.
- JX, 17, student.posted by: Joshua Xiong on 10.23.05 at 09:49 PM [permalink]
Taking your questions in order:
1. They are in many cases, but this is irrelevant to the current crisis in the Doha round. Liberalization of ag. trade is crucial to several developing countries that have little else but farm products to trade, and for several others with large farming sectors. Further reduction of trade barriers and subsidies in other areas is what the developing world would be trading for cuts in farm subsidies and protection. The Americans, because some parts of their ag sector are heavily protected and others would benefit from cuts in protection elsewhere, are to some extent on both sides of the fence here.
2. No, if I understand the question correctly. Farm subsidies can depress market prices, but for many developing countries what this means is that market prices are sufficient for their own farmers to be profitable (this is apart from the case of commodities like sugar where markets are barred to producers by non-tariff barriers). For developing countries with large rural populations this is a major drawback of ag. protection in the developed world. An exception might be chronically poor countries dependent on food aid and unable to develop more than a minimal farm sector of their own for physical reasons (e.g. inadequate arable land, lack of rainfall, etc.)
3. Yes. And no. If the United States dropped its protection of sugar, for example, the market price for sugar producing countries such as Brazil and Australia would go up. The market price for sugar consumers in the United States, however, would go down, as sugar is protected primarily through import quotas and producer prices guaranteed by the government. Ag. protection raises consumer prices in developed countries, unless the government chooses (through export subsidies and direct payments to farmers) to shift the cost of protecting farmers from consumers to taxpayers. Japan places most of the burden of protecting its farmers on consumers, the United States (for the most part) on taxpayers. Europe places heavy burdens on both.posted by: Zathras on 10.23.05 at 09:49 PM [permalink]
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