Saturday, August 30, 2014
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The Tyranny of King Cotton

Americans like to think that if poor countries simply open up their markets, greater prosperity will follow. Unfortunately, where agriculture is concerned, this is mere rhetoric. The United States pays only lip service to free market principles, favoring Washington lobbyists and campaign contributors who demand just the opposite. Indeed, it is America’s own agricultural subsidies that helped kill, at least for now, the so-called Doha Development Round of trade negotiations that were supposed to give poor countries new opportunities to enhance their growth.

Subsidies hurt developing country farmers because they lead to higher output – and lower global prices. The Bush administration – supposedly committed to free markets around the world – has actually almost doubled the level of agricultural subsidies in the US.

Cotton illustrates the problem. Without subsidies, it would not pay for Americans to produce much cotton; with them, the US is the world’s largest cotton exporter. Some 25,000 rich American cotton farmers divide $3 to $4 billion in subsidies among themselves – with most of the money going to a small fraction of the recipients. The increased supply depresses cotton prices, hurting some 10 million farmers in sub-Saharan Africa alone.

Seldom have so few done so much damage to so many. That damage is all the greater when we consider how America’s trade subsidies contributed to the demise of the Doha Round.

Rather than offering to do away with its cotton subsidies, America offered to open up American markets to cotton imports – an essentially meaningless public-relations move that quickly backfired. Owing to its huge subsidies, America exports cotton, and it would import little even if formal barriers are removed.

Thus, recent trade negotiations have a surreal air about them, because, whatever their outcome, ultimately cotton subsidies will have to go. Brazil, frustrated with America’s intransigence, brought a case against US cotton subsidies before the WTO, which ruled as almost any economist would: the subsidies distort world trade and are therefore prohibited.

Faced with the WTO order, the US will try to comply with the letter of the law and avoid its spirit, making changes in the subsidy program to ensure “technical” compliance. But these attempts will almost surely fail; in the end – though it may take years – cotton subsidies will be eliminated.

Of course, the European Union’s subsidies are far larger, but, in contrast to the US, Europe has made some effort to reduce them, especially export subsidies. While export subsidies appear more obviously “trade distorting,” America’s cotton and other subsidies are in fact almost as bad. When subsidies lead to increased production with little increase in consumption, as is typical with agricultural commodities, higher output translates directly into higher exports, which translate directly into lower prices for producers, lower incomes for farmers, and more poverty in the Third world, including millions of cotton farmers eking out subsistence incomes in semi-arid conditions.

America and other advanced countries are the real losers from the demise of the Doha Round. Had the Bush administration fulfilled its commitments, Americans taxpayers would have benefited from the elimination of huge agricultural subsidies – a real boon in this era of yawning budget deficits. Americans would have been better off as consumers, too, with increased access to a variety of low-cost goods from poor countries.

Likewise, migration pressure would have been reduced, because it is the huge disparity in incomes more than anything else that leads people to leave their homes and families to immigrate to the US. A fair trade regime would have helped reduce that disparity.

Indeed, citizens throughout the rich developed world all stand to benefit from a more prosperous globe – especially a world in which there is less poverty, with fewer people facing despair. For we all suffer from the political instability to which such despair gives rise.

But it is America that perhaps now stands to gain the most by reviving the Doha talks with a more credible and generous offer. America’s influence in the world has suffered greatly in the last few years; the Bush administration’s hypocritical use of free-market rhetoric while pursuing protectionist policies has made matters worse.

America’s national interests thus dictate a change of policy. But there is also another powerful rationale for doing so: treating fairly those who are poorer and less powerful is the morally right thing to do.

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