Chapter 10. WTO Leaders Agree to End Farm Subsidies as Doha...

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Chapter 10 HEADLINE: WTO Leaders Agree to End Farm Subsidies as Doha Unresolved

This article describes the agreements that were reached at a 2015 meeting of the WTO, and especially the agreement to remove export subsidies in agriculture. The 2015 meeting was part of the Doha Round of WTO negotiations, but the participants at this meeting failed to reaffirm the broader development goals of the Doha Round.

Negotiators at the World Trade Organization’s ministerial conference in Nairobi agreed to end direct export subsidies on farm produce even as 14-year-old talks on trade development remain unresolved.

Developed countries will immediately eliminate export-subsidy entitlements while developing nations must end direct support by the end of 2018, according to the ministerial declaration accepted on Saturday in the Kenyan capital. The declaration gives developing countries the right to use a special safeguard mechanism that allows them to raise tariffs temporarily to deal with a surge in imports or falling prices. It will also make it easier for so-called least-developed countries to benefit from preferential market access for their goods.

“Our work to secure a global ban on export subsidies will help level the playing field for American farmers and ranchers,” U.S. Trade Representative Michael Froman said in an e-mailed statement. “The WTO’s actions in this area will put an end to some of the most tradedistorting subsidies in existence.” Agricultural subsidies in the rich world have been a key stumbling block in trade talks over 15 years. Trade leaders agreed to end cotton subsidies in developed countries immediately and in developing countries by the start of 2017. African producers threatened earlier to open a case under the WTO’s dispute-settlement mechanism as early as January, in the event rich nations don’t significantly reduce or eliminate trade-distorting support to their farmers.

The outcome is “better than I expected, it does something for cotton, it does something for export competition,” Andrew Crosby, managing director for operations and strategy at the Geneva-based International Centre for Trade and Sustainable Development, said in an interview in Nairobi. “It does some things that are important, but they are agreeing to disagree on Doha.”

Source: Excerpted from Rene Vollgraaff and David Malingha Doya, “WTO Leaders Agree to End Farm Subsidies as Doha Unresolved,” December 19, 2015, www.bloomberg.com.

Question 1

Question

Why are agricultural subsidies such a major sticking point in trade negotiations when other types of trade restrictions, such as quotas, were much easier to abolish?

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One answer would be that agricultural subsidies have a much stronger advocacy group in the form of wealthy farmers in the developed world. Non-agricultural trade restrictions have a less vocal and concentrated advocate, politically. Another answer would be that developing countries have a clear advantage in production of many agricultural goods. They were left behind in previous rounds of negotiations. The developed world may only now acknowledge that advances in trade liberalization can only come from the liberalization of developing world markets and that could only come through compromising on trade in agricultural goods.

Question 2

Question

Who benefits most from eliminating cotton subsidies? Who potentially loses?

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Developing countries have the most to benefit from the elimination of cotton subsidies. Developing nations often concentrate on the production of a few commodity goods. By removing subsidies to those goods in developed nations, developing nations will benefit from higher prices and less relative variation in prices of those goods. Producers in the developed world lose the subsidies they had been granted over the years. These subsidies artificially reduce the cost of production of these goods, increasing production and squeezing out producers in the developing world.

Question 3

Question

What might the long run effect on development be for the developing world by removing farm subsidies in the developed world?

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The developed world is often associated with low cost labor, high cost capital, and the production of commodities. Over time, developing countries may begin to diversify their economies away from commodity goods, investing in capital – human and physical – and eventually developing out of low income to high incomes, out of commodities and into more diversified export goods. The developed world may observe declines in income of producers of these commodity goods, but also the diversification of production into other types of commodities, or the conversion of land to other uses.