WTO debate

While I was blog-hopping today, I came across this blog by Pasi. This is a debate on the recent WTO talks, where the developed and developing countries are having a face-off, since Doha meet in 2001. He talks about reducing agricultural subsidies by EU and USA to which I agree. But he goes on to write

“On the other hand, I wouldn’t feel too proud for being from sub-Saharan Africa, Latin America or some other area in which countries rely heavily on protectionism either. Some of those countries are even worse than the EU, they blatantly refuse to even talk about lowering their own trade barriers because we won’t cut ours. It’s almost like mercantilism never died! The poorest countries in the world raise their trade barriers on average three to four times as high as we do here in the prosperous West. In India some import tariffs are even way over four hundred per cent! It’s like forcing people to have to either buy expensive goods or no goods at all instead of buying cheap goods would make them more prosperous, what the… I’d be really ashamed if I were from one of those countries and didn’t move out already.”

The gist is this, he believes that protectionism by developing countries is equally to blame.
I disagree here, so I present some facts.

I won’t term the support by EU and USA as subsidy, this actually reduces the real extent, it should be termed as “trade-distorting support”.

USA pays its cotton farmers 72cents per lb, no matter what is the price on the world market, whereas a farmer in Africa gets 32cents per lb. The total figure of agriculture subsidy by USA is $12 bn and $53 bn by EU. This encourages the farmer from these countries to grow more, thereby dragging down the international market price.

West African nations produces high quality cotton at a cost of 31cents per lb, whereas the cost of production of same cotton in USA is 68cents per lb. Still, USA is the largest exporter of cotton due to its export subsidy.At a minimum, it requires 119% of subsidy ! If the richer nations are giving subsidy to sell products (which are most costly to produce) at a cheaper rate, then the other countries have to put up import tariff to protect their produce.

In a free market theory, the one which has lesser cost of production will be the gainer. So if the developed countries does stop the export subsidy, we will drop down the import tariff. Let the market decide whose product is going to be sold.

These subsidies most of the time drop the international price to less than the cost of production. According to Oxfam, when US export of cotton went up from 17% to 43%, the international price of cotton has fallen by half. So what shall African farmers do? their government does not have that much of money to subsidise them, hence import tariff.

The International Cotton Advisory committee says that developing nations have lost $23 billion over past four years due to western subsidies.

Take this example:-

30 years ago Europe was net importer of Sugar and today it is second largest exporter, considering the fact that sugar in Europe is produced in cold countries like Finland from sugar beets. The tropical countries which are better suited to produce sugar such as Haiti, Mozambique and Thailand lose out in price war.

What next? Banana, it can be grown artificially in greenhouse, so EU can pay the farmers in Finland to grow Banana, and then subsidise it to be sold at a cheaper rate than Caribbean countries. And when those countries support their production by restrictions, they are to blame.

Some raw facts:-

World Bank chief economist Nicholas Stern estimates that a European cow receives $2.50 a day in subsidies while 75% of African live on less than $ 2 a day.
Burkina Faso received $10mn in US aid in 2002 and lost an estimated $13.7 million in exports because of US cotton subsidies.

Pasi further writes as

“No, no one can choose their place of birth. But they can try to influence it while they are there. Ultimately it’s the fault of the local government that a country and its people are poor.”

I agree, we should influence.
Agriculture in India support about 70% of our population and comprises 21 % of our GDP.

But why don’t the Americans ask their government which spends tax payers money to subsidies farm sector which employs 4% of American population and comprise 4% of US GDP ?

It is clear, developed countries are using revenue from Industrial and services sector to prop up their agricultural sector. So we are controlling the non-agriculture market to support our Farm sector.

Everything in world is ‘quid pro quo’ , you don’t distort the trade in agriculture and we won’t distort it in non-agricultural trade.

P.S.
1.All the data and facts, are compiled from authoritative sources,yet, if anyone wants to know about the source, please drop a comment to this effect.
2.The term 'We', wherever used, refers to developing countries.