WTO struggles endlessly to reinvent
the trade wheel
By Alan Guebert
Article re-printed from Agri News
Tuesday, March 9, 2004
Behold the wheel.
In form and function, the wheel -- save perhaps the
lever -- is unmatched. Despite being as old as dirt
and the lowest of low tech, its design is so pure
and purpose so simple that the most cutting remark
anyone can make of an idea or plan is, "Hey,
why reinvent the wheel?"
And yet negotiators in global ag trade talks need
to ask themselves that very question, according to
a provocative working paper by Tufts University researcher
Tim Wise. The paper, titled "The Paradox of Agricultural
Subsidies," argues that today's global farm subsidies
-- an estimated $300 billion per year and the killing
fields of the World Trade Organization's ag trade
talks -- have been miscalculated and often misapplied
More importantly, argues Wise, these errors have
led world ag trade talkers into the blind alley. If
the $300 billion subsidy math was corrected, WTO negotiators
could find the way to their free-trade, spread-the-wealth
goals through policies as simple and as proven as
the good old wheel.
"The paradox," explains Wise from his Massachusetts
office, "is that if trade talks continue on their
current path, developing nations with major ag exporting
potential, like China and Brazil, will gain, but their
farmers won't. Their 'end-all-subsidies' approach"
-- the developing world's new rallying cry -- "isn't
Instead, if ag subsidies were more accurately calculated
and more closely assigned, it becomes evident that
what's being counted as farm subsidies often includes
other "market supports" such as tariffs,
import quotas and price supports.
The benefits of these supports don't fall just to
producers, Wise offers, but also to consumers. However,
they often are tied to the farmer's tail and left
Another indirect big winner in today's (and likely
tomorrow's) ag support game is global agribusiness.
Wise quotes a 1998 study that notes "there is
concern not only that oligopolistic retailing and
processing structures will lead to abuse of market
power but that the lion's share of benefits of any
future reforms in the farming sector may be captured
by the processors and retailers ...."
It's crucial to differentiate between ag subsidies
and supports, Wise argues, because today's WTO ag
talks are focused almost entirely on subsidies. If
the facts guiding the talks are wrong, he surmises,
then the final deal will be wrong.
For example, when discussing the use of "reference
prices" in trade talks, Wise points out that
trade yakkers love to use New Zealand as the ideal
for the global dairy trade. This example, however,
is flawed because of the nation's grass-based "unusually
low production costs" and its contrived dairy
"Reference price," he correctly notes,
"does not equal market price."
In short, any WTO dairy deal that uses New Zealand
as its reference price will crush dairy farmers the
All this bad math has led trade talks badly astray.
How far can be seen in the World Bank's own estimate
of what trade liberalization will deliver. The world
bank estimates that freer trade will push developing-country
income up by a tiny 1.5 percent throughout the next
10 years while rich-nation income will climb by an
even tinier 0.5 percent.
And we're all busting our guts for this, Wise seems
Whatever global ag subsidies truly are -- and Wise
reckons they're well under the accepted, and wrong,
$300 billion per year -- eliminating them "will
not alone have the price impacts its proponents suggest
A far better trade deal for all farmers is one that
includes other, easier negotiated elements. Key components
would be limits to price-flattening export dumping
by major producers, some form of international supply
management and ways to limit the market power of agribusiness
Daniel de la Torre Ugarte, a researcher at the University
of Tennessee's Agricultural Policy Analysis Center,
has read the Wise paper and says he believes it is
on the right track.
"Free trade talks for agriculture must include
tools like some form of supply management that we
know work," says the APAC researcher. "The
WTO doesn't need to reinvent the wheel. It only has
to use it differently."
Alan Guebert is a syndicated columnist from Delavan,