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Don’t Cry for Doha

CAMBRIDGE – Will they or won’t they? Will the world’s trade ministers eventually sign a new multilateral trade agreement that reduces agricultural subsidies and industrial tariffs, or will they walk away empty-handed? The saga has been ongoing since November 2001, when the current round of negotiations was launched in Doha, Qatar, with numerous subsequent ups and downs, near-collapses, and extensions.

The latest round of talks in Geneva has once again failed to produce an agreement.  Judging by what the financial press and some economists say, the stakes could not be higher.

Conclude this so-called “development round” successfully, and you will lift hundreds of millions of farmers in poor countries out of poverty and ensure that globalization remains alive. Fail, and you will deal the world trading system a near-fatal blow, fostering disillusionment in the South and protectionism in the North. And, as the editorialists hasten to remind us, the downside is especially large at a time when the world’s financial system is reeling under the sub-prime mortgage crisis and the United States is entering a recession.  

But look at the Doha agenda with a more detached set of eyes, and you wonder what all the fuss is about. True, farm-support policies in rich countries tend to depress world prices, along with the incomes of agricultural producers in developing countries. But for most farm products, the phasing out of these subsidies is likely to have only modest effects on world prices – at most a few percentage points. This is small potatoes compared to the significant run-up in prices that world markets have been experiencing recently, and it would in any case be swamped by the high volatility to which these markets are normally subject.