It is time for me to disagree with myself -- we need both Doha and a trade standstill agreement

In other fora, here and on VoxEU, I have argued that we need to stop focusing on the Doha Round, and move on to real dangers -- like rising protectionism outside the bounds we have placed on MFN tariffs. Times have changed. It is still true that the substance of the Doha Round will not impact the current crisis. A successful agreement would take years to implement, and it does not address the discretionary protection now threatening trade. However, in the present climate, it could serve as a potent symbol of commitment. So, for its value as a symbol, we should conclude it now, even if in a truncated form. To silence the darker voices urging our leaders to shift shared burdens onto others -- the EU has now reintroduced dairy export subsidies for example -- concluding Doha would be a sign that we choose to ignore those dark voices. Even this is not enough. There should be more. The OECD should collectively declare a temporary standstill (24 months?) on discretionary protection. This would mean no antidumping, countervailing, or safeguard actions involving partners (including non-OECD partners) that also adhere to the standstill agreement, as well as a suspension of reintroduced export subsidies, until calmer heads and markets again prevail.


In the absence of a Trade Standstill Agreement, or something of the sort, things will get nasty. Indeed, they already are, judging from headlines just this week. The EU has started to introduce export subsidies, which means they are forcing other countries (including poor producers) to carry their share of the burden linked to depressed agricultural prices. At the same time, the United States Congress is gunning for a weakened China for maintaining an undervalued currency, even though China's exports are falling and the Chinese are needed to buy U.S. bonds and so fund Obama's new initiatives. Antidumping actions will undoubtably surge as the global economy grows worse, as evidenced by India's recent antidumping assault on China. The U.S. Congress is also trying to redirect subsidies linked to antidumping duties back to firms, even though they have been found to violate U.S. treaties. Exporters know this is a losing game. They need to press for a collective cool down period.

Ignore the dark voices. We are in this together. Just say no....

Further reading:

"Producers brace for tariff pain," AUSTRALIAN dairy farmers are under attack after the European Commission launched a barrage of export subsidies on to the world market...., Weekly Times Now, 28 January 2008.

"China slams EU anti-dumping move, threatens WTO action," China Wednesday blasted an EU decision to slap hefty anti-dumping duties on Chinese-made screws and bolts and said it may take the issue to the World Trade Organisation..., AFP 29 January 2009.

"ECONOMIC STIMULUS INCLUDES ANTI-DUMPING RELIEF FOR DOMESTIC LUMBER, STEEL & CEMENT FIRMS," Domestic lumber, steel and cement firms now required to pay back anti-dumping funds they received earlier this decade could seek their bills covered under a provision senators have included in the Finance Committee’s $455 billion economic stimulus measure...,Rotor News 27 January 2009.

"Beware trade wars," The threat to world trade comes from the Omnibus Trade and Competitiveness Act of 1988. Should the Treasury officially determine China to be a currency manipulator, itcould unleash a range of remedies, including antidumping measures, countervailing duties and safeguards..., Willem Buiter FT blog, Published: January 27 2009.

"India begins anti-subsidy probe against China," After setting off an avalanche of anti-dumping probes into a diverse range of manufactured products against China by responding to the domestic industry’s concerns in recent months, the Commerce Ministry has for the first time begun an anti-subsidy probe into imported sodium nitrite from China..., Business Line 29 January 2009.

Prizes for Everyone [1]

The motor vehicle industry is playing an interesting game. General Motors produces in Europe under various names (Opel, Vauxhall) [2], produces as Holden in Australia, and has plants scattered elsewhere across the globe as well. As the economic downturn forces rationalization of the global capacity glut in motor vehicles, this places GM in a position to play off local governments against each other. GM announced plans to reduce production in Thailand, [3,4] while holding this as an example in extracting subsidies from the Australian government. GM is not the only one playing this game. Indeed, U.S. automakers (GM and Ford), together with Toyota, have already extracted 4.3 billion US dollars in subsidies (to be stretched out over the next decade) [4], even as they lobby Washington for more assistance. [5] In the U.S., we have the same mix of players lobbying against each other rather than cooperating, as Japanese MNEs (multinational enterprises) in the Southern United States try to block assistance to their U.S. based competitors. Not surprisingly, this is also shaping up as an inter-state game within the Federal system to support various local producers across the United States.

There have been worries surfacing in the policy research community about the death of the Doha Round, and the risk of rising protectionism. Narrowly read, the dominant risk is not really old fashioned protectionism -- higher import tariffs (see my VoxEU column on this. [6] ) Yes, we are seeing some of this (so far at the margins). Far more interseting is tax competition, seen through a lens darkly. There has been an emerging literature on competition between jurisdications to attract MNEs. [7,8,10,11,13,14] Emphasis is on new plants, and the tendency for firms to extract extra tax payer largesse by locating in multiple locations. Much of this literature is theoretical, though the empirical evidence already shows that global firms make local taxation difficult. We are learning much more as the current economic crisis causes a game of industrial musical chairs. Everyone is circling, and when the music stops, not all motor vehicle MNEs will be sitting comfortably. [2,3] As some go, some local jurisdictions will see their factories close as well. This reveals more elements to the tax competition game. Multiple plants mean more degrees of flexibility for extracting rents (i.e. Blackmailing) local tax payers. In addition, the game can be run in reverse. Open plants (creating a local constituency of suppliers and labor and government), threaten to close some, and demand compensation. In such a game, it may even make sense to build far too much capacity, if the losses from excess plants are covered by an increased expected taxpayer financed subsidy.

There is another important element to this game as well. In the U.S. for example, the rhetoric has become predictably nationalistic.[5] U.S. firms vs. European firms vs. Japanese firms. Yet, if we look closely at the set of automakers, where they operate, and who owns them, the national labels make less and less sense. European pension funds own American firms, Japanese firms are listed on the American stock exchanges, and American firms lobby in Europe as European producers and ask Australia for R&D subsidies. Capital markets are global, ownership of the corporate world is global, and the challenges posed are therefore global as well. U.S. subsidies to GM will be a subsidy for European pension funds, and the Australians are hoping the American taxpayer will subsidize their industry as well.

The European Union has taken steps to limit tax competition [9] -- hence the intervention the the European Commission against the GM subsidy game in Europe. The OECD has also flagged this as a problem issue. It may be time to take this global. [12] In a world with global firms and local tax authorities, WTO discussions limiting public assistance would help level the paying field for local taxpayers against blackmail by global firms.

References

[1] Lewis Carroll (1865), Alice in Wonderland, "Everybody has won, and all must have prizes," in CHAPTER III: A Caucus-Race and a Long Tale

[2] "EU warns against car subsidy race," BBC 21 November 2008.

[3] "Isuzu aims to avoid Thai layoffs," Bankok Post, 18 December 2008.

[4] "Car sales crash in Australia," The Earth Times, Thu, 04 Dec 2008.

[5] "Tax Fairness for U.S. Auto Makers," editorial letter, Wall Street Journal, 16 December 2008. (from Stephen Collins, President, Automotive Trade Policy Council Washington.

[6] "The economic crisis, Doha completion, and protectionist pressure," 17 December 2008 VoxEU column.

[7] Baldwin, R.E. and P. Krugman (2004), "Agglomeration, integration and tax harmonisation," European Economic Review, Volume 48, Issue 1, February 2004, Pages 1-23.

[8] Davies, R.B. (2005), "State tax competition for foreign direct investment: a winnable war?," Journal of International Economics, Elsevier, vol. 67(2), pages 498-512, December.

[9] European Commission, "Harmful tax competition," Europe website.

[10] Hauflera, A. and I. Wooton (1999), "Country size and tax competition for foreign direct investment, Journal of Public Economics," Volume 71, Issue 1, 1 January 1999, Pages 121-139.

[11] King,I., R.P. McAfee & L. Welling, (1993), "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.

[12] OECD, "Harmful Tax Competition: An Emerging Global Issue," 1998.

[13] Ottavianoa, G.I.P and T. van Ypersel (2005) "Market size and tax competition," Journal of International Economics, Volume 67, Issue 1, September: Pages 25-46.

[14] Winner, H. (2005) "Has Tax Competition Emerged in OECD Countries? Evidence from Panel Data," International Tax and Public Finance, Volume 12, Number 5/September.

The GATT (aka the WTO) works

There has been a dispute in the academic literature about the impact of the GATT on trade liberalization. The first shot was a set of papers by Andrew Rose. [1]. His papers have since been savaged by follow-up literature. [2]

The ongoing financial crisis has rendered this literature, quite literally, academic. What I mean is that, basically, the real test is what has just (not) happened. As Doug Irwin noted in his review of the GATT and its transition to the WTO, the first part of the 20th Century -- World War I and the early years of the Great Depression -- were characterized by savagely competitive tariff wars. [3] The framers of the Bretton Woods system had this firmly in mind when they set up the post-War system. [4] We may wonder at times exactly what the IMF and World Bank are doing at the moment. We no longer have to wonder about the GATT (aka the WTO). It is a systemic safeguard, and it seems to be working. Notice the deafening sounds of silence along Smoot-Hawley lines. Indeed, we have calls for further trade liberalization in the WTO. Recent events may also shed a new light on regionalism. In the academic literature, regional agreements have been seen as potential stumbling blocks to the multilateral system. Yet, as safeguards against protectionism in a big global crisis, the EU and NAFTA appear to be complementary safeguards. We have been focused, in much of the literature on the GATT and on regional trade negotiations, on the process of marginal concessions and terms-of-trade manipulation. Aside from all this academic analysis, in the real world the multilateral trading system is doing what it was actually meant to. There will be rising protectionist responses as we sink further into recession. However, as long as the system holds, this will not be broad based.

[1] A.K. Rose (2003), "Do WTO members have more liberal trade policy?" Journal of International Economics Volume 63, Issue 2, July 2004, Pages 209-235.

[2] A. Subramaniana and S-J Wei, "The WTO promotes trade, strongly but unevenly," Journal of International Economics, Volume 72, Issue 1, May 2007, Pages 151-175.

[3] D. Irwin (1995), "The GATT in Historical Perspective," The American Economic Review, Vol. 85, No. 2, pp. 323-328.

[4] J. Toye and R. Toye (2005), "From Multilateralism to Modernisation," Forum for Development Studies, No. 1, pp. 127-150.

[5] K. Bagwell and R. Staiger (1999), "An Economic Theory of the GATT," The American Economic Review, Vol. 89, No. 1, pp. 215-248.

It is time to declare victory and go home

We have been here before

We are still negotiating the Uruguay Round. This may come as a surprise to casual observers and negotiators alike. After all, documents were signed in Marrakech in 1994 concluding the Round.


As the Uruguay Round drew to a close, US and EU negotiators were unable to make substantive progress on agriculture, middle-income countries were demanding credit for unilateral liberalisation undertaken outside the GATT, and LDCs were demanding one-sided concession from the OECD. The unelected leaders of the nascent anti-globalisation movement, flush from their first kill with the death of the Multilateral Agreement on Investment, demanded that the representatives of elected governments either give them some control over the process (a “seat at the table”) or end the process entirely. Lester Thurow declared the GATT dead, and....


You can read the rest of this posting on VoxEU.

Time for crazy ideas -- part 2 (spaghetti or spiderwebs?)

In a previous post, I suggested that we give up on agriculture in order to complete the Doha Round. I want to focus here on the bread-and-butter business of the World Trade Organization -- prospects for negotiations to reduce merchandise tariffs. For the impatient, the punch line is a call for either zero manufacturing tariffs by the OECD on an MFN basis, or else an OECD-based plurilateral agreement in the WTO for zero tariffs in manufactured goods. For the more patient, read on.

In the run-up to the NAFTA in the 1980s, the word on the street was that multilateralism was in trouble. More bluntly, the catchphrase was "GATT is dead." Unable to win sufficient points with the EC on agriculture, and the developing world on services, the U.S. focused instead on a bilateral strategy. An important added ingredient in the policy mix was the belief that a major Asian trading partner (Japan) was unfair and kept its currency low to promote exports. So the U.S. turned to its neighbors -- Canada and Mexico. Intellectually, we had Jagdish Bhagwati condemning NAFTA and Paul Krugman selling the idea of strategic trade policy. In fact, this does not sound so different from the present day. Yes, the EC was smaller than the EU. And yes the U.S. Congress is railing against China instead of Japan. Yet multilateral trade negotiations in Geneva are again stuck, and impatient negotiators are working on relatively easy bilateral agreements to take their minds off the impasse in Geneva. The U.S. has signed a deal with Korea, while the EU is busy negotiating with Korea as well. Asian parties are also talking (again) of regional solutions --though so far this has been dominated by bilateral agreements. The web of bilateral and regional agreements grows increasingly complex.

There are important differences between the previous dance of regional agreements on the grave of multilateralism, and the current one. The spider's web of regional agreements now in place has done serious damage to the basic non-discrimination principle of the trading system. (This is commonly referred to as a spaghetti bowl rather than a web, usually as in "Prof. Jagdish Bhagwati has called this the Spagheti bowl..." Sorry, but I do not think a bowl of pasta sounds sufficiently sinister. So, since this is my space, I will use the spiderweb metaphor...) When the GATT was set up, a founding principle was the idea that small countries should be treated as equal to big ones, so that there would be no side deals that might lead to a repeat of colonial trading empires or to unbalanced (and unfair) negotiations between unequal partners. Any pretension that this is still the case is gone. The EU now actively uses preferential trading arrangements (can we call this a neo-colonial trading system yet?) to push its agenda in developing Africa, while the U.S. now routinely incorporates trade deals in its geopolitical maneuvers. In this way the US tries to tie Jordan and Egypt and Central America with commercial bindings. With the exception of a few of these agreements, none, individually, really matter much for the U.S. and EU. Trade agreements with Botswana and Jordan and Costa Rica and Israel are not going give a big boost to the economies of Europe and North America. Rather, the logic is geopolitical. In the Cold War era, the OECD Members all saw a global trading system as an important strategic asset in keeping the west united against the communist threat. Clearly, this no longer holds. The result is the use of free trade agreements to cement bilateral political deals. This has led, predictably, to FTA burnout. The U.S. Congress is tired of the recent string of regional trade agreements. They cost political capital to support, and the economic benefits are not all that big. Similarly, while the European Commission pushes ahead with regional agreements, the European electorate also appears to suffer from globalization burnout. And we clearly do not have a Bill Clinton to drive the GATT/WTO negotiating round home this time around.

In a sense, the irony of trade as a geopolitical tool in the Cold War was that trade was removed in an important way from the political arena. I do not mean that it was not a political issue. Rather, the push for a broad multilateral system coincided with post-World War II efforts to dismantle bilateral trading systems that were an offspring of old colonial empires. It also meant that the U.S. perceived its foreign policy interest to include promoting liberal trade regimes. So trade was less bilateral (and so less a tool of bilateral and partisan dealings.) The non-discrimination clause of the GATT was important here. It helped to prevent a slide back into the economic underpinnings of centuries of trade-based military conflict involving European commercial empires. (Just think of the Dutch and British wars in the Indies, the Opium War, the British and French Wars, everyone looting the Spanish empire, Japan and its East Asian Co-prosperity Sphere vs the West, England in the Indian subcontinent, &tc &tc). Given the apparent long-run historical implications of bilateralism, we should be worried by its vigorous revival.

The Doha Round is supposed to promote the interests of developing countries. Negotiators have tried to follow past GATT negotiating rounds, with the adoption of a tariff cutting formula. Yet, it is proving almost impossible to fit a formula to the varied tariffs of developed and developing countries. In addition, our spider's web of regional agreements (ok, you can call it a spaghetti bowl) has created conflicting incentives for developing countries. This system helps some countries by discriminating against others. In many cases it helps the poor by hurting the not-quite-as-poor. It also confuses matters with complex requirements for rules of origin. These are necessary because, given an FTA, there is otherwise a risk of transshipment. There is evidence that rules of origin prevent takeup up notional trade preferences, or at least impose costs that eat significantly into their benefits.

There may be a simpler way to move forward, without the need to balance formula coefficients across North and South. It is time for the high-income countries to simply declare zero tariffs for all manufactured goods. In one step, this would present a maximum concession to developing countries, eliminate entirely the need for rules of origin, and greatly simplify the administrative costs of doing trade. It would also undo recent damage linked to FTAs, preferential North-South deals, and the return of bilateralism. Most multinational firms in the OECD (computer manufacturers, motor vehicle manufacturers, &tc) would embrace such a simplifiction of the rules they face. Indeed this is exactly what happened with the Information Technology Agreement. It started with 29 members, and now has 70, covering 97% of trade in information technololgy products. A similar approach could be followed collectively across the OECD either simply as binding commitments, or perhaps as a plurilateral agreement. (A plurilateral agreement would be one that applied to all signatories.) The advantage of a plurilateral is that simple conditions could be set for developing countries (such as flat tariffs in a band of 8 to 10 percent, for example, with a schedule for reduction) to immediately sign on, and to realize benefits today from a concrete commitment to rationalize their own policies tomorrow. It would also take the wind out of the sails of conspiracy theorists that argue that poor countries are poor because of OECD protection. (As an aside, most import protection against developing countries is imposed by other developing countries.) Such an approach could set in motion a tremendous, relatively automatic rationalization of trade rules. Unlike bilateral agreements with small countries and city-states, such an agreement would be worth spending political capital in Washington or Brussels to promote.

But what about all the fans of FTAs? How would they feel about such a WTO-based approach. In a sense, this is one logical path mapped out by the intra-OECD FTAs that now include, in various combinations, the U.S., Canada, Mexico, Korea, Australia, and New Zealand. Indeed, one could pitch this when necessary as a super-FTA, with pre-defined membership criteria. They could have their FTAs and the WTO too.

Further reading:

• "Comments in the Financial Times on the U.S.-Korea FTA.," M. Wolf, J. Bhagwati, F. Bergsten, A. Sapir, D. Vines, and more leading characters in this drama. There is even a bit of he-said she-said between Bhagwati and Bergsten. This is good stuff!


• "America's Bilateral Battle Against Free Trade," J. Bhagwati on the real risks posed by the emphasis on regionalism instead of multilateralism, Financial Times, April 2007.


• "Who's Afraid of an All-Out Trade War? We'll Do Okay if Push Comes to 'Shove Off'," P. Krugman on the joys of trade wars circa 1990 (or as Peter Sellers would say, "how I learned to love trade wars...")


• "The Regionalism Debate: An Overview," A. Panagariya, published in World Economy, June 1999, 477-511.


• "Liberalizing Trade in the Developing Countries," A. Panagariya, takes apart the neo-protectionist arguments in the antiglobalization/NGO school of thought, published in Foreign Policy, September/October 2005.


• "Preference Erosion and Multilateral Trade Liberalization," J. Francois, B. Hoekman and M. Manchin, final version published in The World Bank Economic Review 2006 20(2):197-216. Takes a critical look at how much scope there really is for preference erosion, and quantifies rules of origin costs in the context of EU preference schemes.


• "Clothes Without an Emperor: Analysis of the Preferential Tariffs in ASEAN," M. Manchin and A. Pelkmans, 2007. Offers evidence that Asian tariff preferences have largely been a farce, eroded almost completely by rules or origin and related compliance costs.

Time for crazy ideas: part 1

Albert Einstein defined insanity as "doing the same thing over and over again and expecting different results." One gets the feeling, looking at the progress of multilateral trade negotiations in Geneva, that we are borderline crazy. There are two issues where this seems to be the case -- repeated negotiations circling around the same intractable issues. One set of intractrables involves the importance of agriculture to the overall success of the negotiations, and the other is the role of OECD tariff reductions in determining likely benefits to developing countries from the current set of negotiations at the World Trade Organization (WTO). In both areas, we keep repeating ourselves and expecting a different outcome. Maybe it is time for a change, or at least time to step back from these issues. I will focus on agriculture here, and on OECD tariff concessions in a later posting.

Agriculture has been a thorn in the side of the modern trading system since its inception. Following pressure from the United States in the 1950s, agriculture was largely cut out of the system of rules and disciplines defined by the predecessor to the WTO -- the GATT (General Agreement on Tariffs and Trade). Indeed, until the creation of the WTO at the conclusion of the Uruguay Round of trade negotiations, agriculture remained outside the system. Ironically, it was the EU that exploited these exclusions most, and the U.S. that later regretted their introduction. This exclusion was largely an intra-OECD issue, with high profile disputes between the U.S. and Europe ranging from broiler chickens in the 1960s to soybeans in the 1970s and 1980s. The developing countries did not participate actively in the GATT, and so until the Uruguay Round, launched in the 1980s, this remained largely a source of intra-OECD conflict.

The effort to bring agriculture into the GATT/WTO system almost caused the collapse of the Uruguay Round, as the French threatened to bring the whole temple down around them if the European system of agricultural protection and subsidies (the Common Agricultural Policy or CAP) was compromised by the negotiations. The solution, in the end, involved lying and obfuscation. Commitments were made that were not really commitments, and liberalization was implemented that was not really liberalization. Everyone declared victory and went home. The basic process involved converting non-tariff barriers (licenses, quotas, inspection delays, import bans...) into tariffs that were supposed to reflect the then current level of protection. In reality, in politically sensitive areas the rates set were far above the rates needed, and the process became known as "dirty tariffication." (A good place to start reading on dirty tariffication is here: "WTO: Uruguay Round Agreement on Agriculture".) Indeed, there were worries that the "liberalization" undertaken as part of the Uruguay Round Agreement on Agriculture (known in the land of trade-related acronyms as the URAA) would lead to less trade.

At the time, estimates of the benefits of the Uruguay Round were dominated by agricultural liberalization. I was at the GATT at the time, and agriculture was indeed a large part of our initial assessment of the projected benefits of a successful conclusion to the global trade round. In the end though, as we learned more and more about actual commitments in agriculture (agriculture negotiations had been somewhat secretive even with respect to the rest of the GATT negotiating bodies at the time), our estimates linked to agriculture were dramatically reduced and eventually dropped from the calculus, and in the end trade ministries were reduced to statements like: "we have set the groundwork for future liberalization in agriculture."

In the end, the Uruguay Round did have important implications for agricultural liberalization and developing countries. However, the mechanism was not what was anticipated. In recent years, the new dispute settlement body (the DSB) (the legal underpinnings of the WTO) has led to successful cases against the U.S. and EU (led by Brazil) on cotton and sugar. At the same time, under different dispute mechanisms in the WTO, developing Latin American countries recently won a high-profile case against the EU on bananas. The most difficult issues are being handled through the legal machinery in Geneva, and developing countries are even winning. As it turned out, none of this really hinged on the agriculture negotiations themselves. (A good place to read up on the state of play at the WTO in Geneva on development issues is the Bridges Weekly Digest.)

So where are we now? Not surprisingly, we are now, again, at an impasse. If one looks ahead though, it is not clear to me that we should be stuck here, or that this is even the right road to be on anyway. Maybe it is time to change tack completely. (Warning: for those vested in the last several years of policy negotiations and the supporting policy research industry, the next line may be disturbing.) Maybe we should ignore agriculture for now, drop it as a negotiating issue, and move on to other things in a more streamlined Doha Round. How can I say this? I offer three reasons.

The first reason relates to medium-term policy sustainability in the OECD. The current set of agricultural policies in the U.S. and EU is not sustainable. In the case of the EU, the combination of (i) aging populations and (ii) an Eastern Enlargement that has taken in poor, agricultural economies means that the CAP as we know it is doomed. The European Commission knows this, and EU Members have already launched on a policy reform process that recognizes that future agricultural policy will have to be very different (and much cheaper) if it is to survive the budget constraints brought on by aging populations, and the demands for structural funds from new members. The EU has made a commitment to reform (necessary regardless of how events unfold in Geneva), and we can expect the process to continue. So, why not just wait? We can probably get the same results we would from active negotiation. In the case of the U.S., the budget hole is now so deep, and the looming costs for Medicaid and Medicare with retiring baby boomers is so large, that large farm outlays are likely to be a victim of the storm of budget rationalization that will arrive with the next White House team. So again, why not just wait? We will get rationalization anyway, regardless of whether or not we push this through Geneva.

The second reason also relates to medium-term changes, only in the middle-income and rapidly developing low-income countries. India and China (aka 2.2 BILLION consumers) represent economies growing at 8% to 10% per year. At these rates, changes in consumer demand for foodstuffs will move rapidly toward more expensive (and more grain and soybean intensive) meats and processed food products. This will put rising pressure on food prices. Recent baseline projections from the OECD and FAO build in assumptions about ongoing technical change sufficient to neutralize these demand-side pressures on agricultural prices. Reading between the lines, these technical changes are needed to avoid projections of substantial food price increases. Technical change notwithstanding, it is hard to believe that prices will not rise. Rising prices will make it easier for the U.S. and EU to back off of price and income support programs for farmers, and indeed will change the South-South policy calculus as a wedge is driven between food importers and food exporters.

The third reason involves the toxic soup of oil -- economics, politics, terrorism, and security. A surprise victim of events has been agricultural commodity prices. For reasons that will not go away, the U.S. and EU are both pushing their respective biofuel industries. (The EU just announced a target to replace 10% of vehicle fossil fuel use with biofuels.) This follows Brazil, which has been relying for years on its sugar industry for the same reason. The result has been a surge in prices. In mid-December, the European food industry press was noting that prices had reached highs not seen for ten years. ("Cereal Prices at Highest Levels for a Decade") . The President of Mexico is now making promises to keep tortilla prices low, after price hikes for corn driven by U.S. biofuel demands. And in scenario analysis, the International Food Policy Institute (IFPRI) has projected that an “aggressive biofuel growth scenario shows dramatic increases in world prices for feedstock crops." In addition, "the strong price increases for root crops like cassava in the first aggressive scenario suggest that without the necessary productivity improvements, aggressive growth in biofuels could have adverse effects on well-being in regions like Sub-Saharan Africa, where a large proportion of cassava consumption is for food..." ("Bioenergy and Agriculture: Promises and Challenges"). If global security trends continue, and if the U.S. and EU are on a permanent bent to achieve energy security through renewable energy, then the rules of the game have been rewritten substantially. The poor should probably start worrying about rising food prices, rather than demanding them.

On net, it looks to me like agricultural prices will be rising anyway, and U.S. and EU agricultural support programs will be contracting anyway, whether or not we make a big push on these issues is Geneva. The real problem areas for the poorest producers (sugar, bananas, cotton) are being managed through the international court system. As for the rest, we are doing the same thing, and getting the same results. Maybe it is time to try something else.

Further reading:

A student blog spin on the Doha Round and Africa.

Kymberly Anne Alliot at the Center for Global Development on "Delivering on Doha: Why Agriculture Matters."

Another post, from Biopact, asserting that "Biofuels boom may make WTO accord possible, cut US farming subsidies". This link was supplied by an anonymous post -- thanks.

Arvind Panagariya "The tide of free trade will not float all boats."

My own quantitative paper arguing that South-South liberalization is key to the "development" component of the Doha Round."Trade liberalization in the Doha Development Round."