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Rethinking world trade

By John Stencel

In September I had the privilege of traveling to Cancun as part of National Farmers Union’s delegation to the World Trade Organization (WTO) negotiations. Agriculture was a major part of these discussions, and disagreement over WTO policy on agriculture is what ultimately caused the talks to end.

In a nutshell, the WTO talks stalled because industrialized nations—most notably the United States and the European Union—would not agree to the developing countries’ demands for drastic reductions in import tariffs and farm supports.

Since the large-scale globalization of trade, which began approximately two decades ago, U.S. trade negotiators have been trying to get other countries to reduce their farm subsidies and import tariffs. For the same amount of time, U.S. negotiators, commodity groups and some farm organizations have asked producers to support these objectives.

They promised that prosperity for farmers, ranchers and other workers was just around the bend if only they could persuade the Europeans to lower their farm supports or force Japan to relax its sanitary regulations on imports, etc., etc. The Americans and the Europeans HAVE reduced farm subsidies. Many countries HAVE reduced or eliminated tariffs on imported food. Yet, the promised increase in profitability eludes us.

Producers’ incomes from agriculture are actually less today than they were when trade was not so free and the playing field was not so level. A recent U.S. Department of Agriculture survey showed that farm incomes are rising at about the same rate as the average American household income. What the survey did not spell out was that less and less of this income is coming from farming and ranching and more and more of it, around 90 percent on average, comes from off-farm work.

The other area that has suffered dramatically is the U.S. balance of trade. “Free trade” is resulting in the U.S. agricultural sector—which until a few years ago had a robust trade surplus—to losing its status as a net exporter. The latest data show the U.S. agricultural surplus has fallen19 percent in the last 12 months.

The losses experienced in recent years by the U.S. agricultural sector does not appear to mean producers in developing countries can expect to benefit from them. A study recently conducted by the University of Tennessee’s International Food Policy Research Institute used a model to test the oft-assumed theory that eliminating trade-distorting subsidies and other protectionist measures in industrialized countries would benefit producers in developing countries.

The study eliminated all subsidies in industrialized countries by 2000, which is more extreme than currently WTO proposals. No changes were made in subsidies for producers in developed countries. The result was that by 2020, corn producers in developing countries could be expected to have a price increase of 2.9 percent, while U.S. farmers would experience a 9.5 percent decline in corn prices. Do you think producers in developing countries are really going to jump up and down about a less than 3 percent, or 5-6 cent increase per bushel, after 14 years?

I believe it is fortunate the most recent WTO negotiations broke down. Otherwise, we might be stuck with a scenario similar to that outlined above. However, we cannot be complacent. World trade—whether it is negotiated under the auspices of WTO or as bilateral (country-to-country) agreements—is ongoing.

As we contemplate the objectives we wish to accomplish in world trade, perhaps we should quit looking for prosperity around the bend and start asking whether or not we are traveling the right path!