Note to Brazil and India: Blame France!

Trade negotiations are tough between nations.  World trade negotiations are extremely difficult, painful, and often very public.  The Doha round of trade talks began in Qatar in November 2001 and is set for another meeting in Hong Kong in December.  The trade talks have not produced substantial results in reducing barriers.  However, the US, in a Zurich meeting of five trade members -- the US, Australia, Brazil, the EU, and India -- proposed a massive cut in trade tariff ceilings.  The Economist reports:

"America can currently spend up to $19.1 billion on farm-production subsidies, which heavily distort trade. The EU can spend over $75 billion. Robert Portman, America's trade representative, offered to cut his country's limit by 60%, if the EU agreed to cut its permitted subsidies by 80%. Mr Portman also suggested limiting other subsidies, which do not distort trade as heavily, to 2.5% of the value of agricultural production. These two limits provide plenty of scope for creative accounting. Even as America lowers the ceiling on the most trade-distorting subsidies, some of this money will be reclassified as something else.

To the big agricultural exporters, such as Brazil, handouts to rich-world farmers, however galling, matter less than access to rich-world consumers. The trade powers appear to have settled on how to cut farm tariffs, if not by how much. Following a scheme outlined in July, tariffs will be divided into four “tiers”, according to their height. Those in the top tiers will be cut by more than those in the bottom. This week, Mr Portman proposed that rich countries should cut any tariff over 60% by as much as 90%, and any under 20% by more than half. No rich country should impose a tariff above 75%, he said."

This proposal woke up the trade negotiations and required a global response.  The US approach definitely supports a more liberal economic view of trade, and it is encouraging to see the US champion an approach that can help the developing world improve its economic lot while making a major American concession.

Background on Trade and the Developing World

It is common knowledge that the US, Japan and Europe have massive farm subsidies that are politically dear to the governments in power.  These subsidies greatly distort the ability of the developing nations to compete with their crops.  Additionally, it applies negative pressure on developing nation farmers as they cannot make their farms profitable, which, of course, does not benefit the developing nations.  The US, Japan and Europe then provide large subsidies, loans and grants to the developing world in attempting to move them out of their economically poor condition.  DEL understands this is a simplified argument and that it doesn't take into account other large inefficiencies in the developing world, like corruption and other policies and practices that keep the poorest people from rising out of their predicament.

Brazil and India wait on Europe

Brazil and India have much to gain by seeing the US proposal advanced.  This left first the potential for Japanese obstruction.  But given Koizumi's September electoral victory, which depended far more on urban support than rural support, it is likely that Japan can find some room for compromise.

The European Union responded with a proposal that is about half of what the US was proposing.  The Financial Times writes:

"The EU said its offer would cut European farm tariffs by an average of 46 per cent and reduce its highest tariffs by 60 per cent, against the 50 per cent cut tabled earlier this month.

However, the US said the average tariff cut would actually amount to 39 per cent and concluded: 'If the final Doha agreement on agriculture were to go no further than this, other areas would also be weak and the Doha round would not approach its potential for promoting development, opportunity and global economic growth.'

The US criticised in particular the EU's continued demand to maintain steeper tariffs on 8 per cent of its 'sensitive' imports. The US and others have called on the EU to reduce the list of sensitive products to only 1 per cent of the total and have also set 54 per cent as the minimum average tariff cut that the EU should offer."

While the EU proposal is not strong enough, the irony is that France's Chirac has vowed to veto even the EU proposal now on the table. FinFacts of Ireland reports:

"'It is totally out of the question for us to go a single step further,' Chirac told a news conference after the EU's informal summit at Hampton Court Palace, near London today. France would have a veto over any agreement, he added."

For background and analysis on Chirac and EU trade negotiator Mandelson's political maneuvers with each other, see this Financial Times piece.

So the EU response yesterday was to table the entire agriculture portion of the debate and move directly towards industry and services, an area of concern more to the developed world and less to the developing world. 

Blame France

The European Union, by French veto power, is the stumbling block in making major agriculture trade reform.  This apparent arrogance directly impacts Brazilian and Indian farmers and should be a good reminder of where French interests lie:  with Chirac's short-term best interests.  France's actions are like a spoiled child who has been indulged for far too long.  The US, Eastern European farming nations, Brazil and India, along with the African nations, should continue to apply pressure on France to reform its farm policies and rightfully link other issues of international relations to produce change.