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article imageWorld Trade Organization bounces off barriers issue, again, in Doha talks

By Paul Wallis     Sep 3, 2007 in Business
One of the oldest questions in world trade is generating a supply of toxic gases in its own greenhouse. Trade barriers are usually put in place to protect local producers against cheaper imports.
The developing world, as usual, is doing the suffocating. This Daily Telegraph article is a sort of census of what’s not transpiring, or respiring. The US and Europe are carping about cutting their agricultural subsidies, those healthy alternatives to actual production efficiency and competition. The bigger developing nations like Brazil and India are equally thrilled about the effects of lowering tariffs on imported industrial goods.
Some of this is really bleating about their existing comfort zones. There are some large political investment in subsidies, as well as corporate, so the level of resistance is high. Subsidies also form a part of the natural scheme of things in finance across the world, and cuts would have effects. A further ramification is that subsidies work to manipulate prices, often downward for consumers. They assist producers, too, providing a level of income for product,
But- they can also kill the margins other producers need to stay viable. Hence the chronic lack of enthusiasm on the part of the developing world for competing with subsidized products. It’s hard for them to compete with what are effectively the US and EU levels of capital. Subsidies of billions of dollars for wheat, for example, might not be big money in the US or EU, but they’re beyond any possible competition from the developing world. They’re in a very unfavorable trading position, and they’re heartily sick of it.
To make things somewhat worse, they also get the "buyers' cartel" effect when they do succeed in getting into export markets. They get bottom dollar, no matter who they sell to.That's another issue, but as you can see it's a pretty tough environment for them. One of the reasons the Third World loans were the gigantic mess they were was because their return on production from those loans was dismal, particularly compared to idiotic, extortionate rates of interest.
It’s agriculture where the potential for real, massive, damage exists. In fairness, the developing world is legitimately concerned about its producers, particularly agriculture, because agriculture is an economic factor underpinning staple food supplies and in many cases the livelihoods of millions of rural workers. It’s hardly a trivial issue. They need markets, and working domestic economies.
The industrial agricultural sector in the developed world, however, wants access to those markets. This works both ways. The industrialized world is capable of drowning developing countries in imports, including food. The logic is that it will increase food supplies, and help keep prices down through competition, increasing food availability in principle.
These are fundamentally opposed ideas. The Third World nations are naturally concerned about the kind of import volumes which could depress their own producers' selling prices to oblivion. There are many instances of that happening, and not only in the food production sphere. Cotton prices in India have gone so low that farmers are being buried in a negative cash flow, because they just can’t get enough for their product.
That could happen to rice, for example. Result, crashed local industry, and, coincidentally, increased demand, which can backfire as prices are increased by overseas suppliers in a sellers’ market. It happens in beef exports with a clocklike certainty. That change in the use of disposable income in turn pulls cash out of the rest of the economy as money goes to food rather than other products.
In Zimbabwe, in an extreme example of a economy hopelessly distorted by a lousy trade situation, food is mainly imported. It was once a particularly prosperous nation, and highly productive. Because local domestic production has been destroyed, food is now relatively more valuable than most domestic appliances in the West.
This is a particularly brutal process. Trade talks can get ugly, and there are potential consequences for local politics. In South Korea, farmers are among the most vocal and ferocious defenders of their industries, to the extent that more farmers protest than students.
Meanwhile, for the first time in history since the caves, Homo Sap and the food supply are a bit uncertain about each other. Loss of agricultural land due to mismanagement, land degradation, climate conditions, (like the massive droughts which have been sweeping the planet), and a growing population are adding up to a compromised food supply at some point in the future, if someone doesn’t get the act together. The sea is being fished bare, and ocean stocks would take a long time to regenerate, even if that option were being seriously considered, which it isn't.
So these talks have to achieve something to ensure the fundamentals of food distribution in a very different world. The fact is that the big populations just can’t feed themselves. By the same token crashing their local economies hardly helps, either. They’re not about to suddenly turn into a Western style suburbia with a massive, wasteful, oversupply of everything, overnight. They don’t have the capital, the infrastructure, or the basic domestic economics to do that.
Realistically, both sides have to win to achieve anything useful. The developing nations need the ability to secure their food supplies as well as their domestic production capabilities. The developed nations really must recognize that only so much blood can come out of this very anemic rock.
That said, the developing nations need some insurance for their economies. There’s the risk of an arbitrary trade regime which sets quotas but over generalizes. Meaning a “broad brush approach”, from which detail is lost and some things are painted over, which then become problems.
I don’t think they can do that. Most of the developing world’s economies are capital poor, and they just can’t afford to make mistakes. I think they need to be able to tailor their imports and barriers. If nothing else, they can see what works, what helps, and what doesn’t. Meaning a trade environment can evolve in accordance with what the local economics can handle. Might just also be a more realistic way of building real trade, too.
The developing economies aren't being hypochondriacs. The kind of damage which could be done by pulling the rug out from under the local producers could be catastrophic. There’s little or no margin for error if 30-50% of the rural population winds up broke. Nor can the domestic economies pick up the slack, because they just don't have the money. Exporters could get hurt, so could importers. Nothing like unsold goods, and customers in poor financial condition, to really trash an import/export agreement.
This is where microeconomics matters. The Doha round of trade talks is going to have to start talking turkey at some point, or become one. So far Doha's been six years' worth of nothing.
More about World trade organization, Doha talks, Trade barriers economics
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