June 16, 2002
Consequences of the Recent Farm Bill: Does It Mean Deadlock in the Doha Round?

Yet another one of an increasing number of things I run across that suggest that this spring's farm bill was a serious mistake from the standpoint of the long-run interests of the United States. We, after all, have an enormous amount to gain from continued movement toward free trade--both in prosperity and security. Yet this White House seems to care very little.

I am kinda surprised that there have been no resignations-on-principle from the free trade wing of the administration yet. Were I a senior administration official concerned with trade at the CEA, the NEC, OSTR, or the Treasury, I would have gotten my peers together by now and drawn straws for who would resign on principal the next time the Bush administration makes a protectionist move.

Raising Farm Subsidies, U.S. Widens International Rift

June 15, 2002

WASHINGTON, June 14--Less than one month after President Bush signed the new farm bill, agriculture has leaped from the backwaters of diplomacy to near the top of the list of international complaints against the United States. Portrayed by its supporters as a necessary safety net for farmers and by its detractors as an election-year welfare program to win Midwestern votes, the huge increase in subsidies has become an overnight magnet for America-bashing. Javier Solana, Europe's foreign policy chief, declared in Madrid this week that the new American agriculture policy has created the "most profound" division between Europe and the United States, worse than disputes over steel tariffs, the Kyoto environmental treaty or the international criminal court.

In Washington, in an address to Congress, Prime Minister John Howard of Australia said on Wednesday that the only problem between these closest of friends was his country's "intense disappointment" over the $180 billion farm bill. In Rome, at a United Nations conference on hunger, developing countries pointed this week to the huge new subsidies to American farmers as one of the biggest obstacles to creating vital opportunities for their own farmers and enabling them to climb out of poverty.

With Mr. Bush pressing other countries to knock down their trade barriers and expand open markets, his approval of an 80 percent increase in farm subsidies with all the advantages that confers on American grain exports is viewed as a move in the opposite direction.

Poor countries say the subsidies also work at cross purposes to the administration's avowed desire to reduce poverty and to diminish foreign anger against the United States.

In a private letter to Congressional leaders, a group of countries known as the Cairns Group, which includes Australia, Thailand, Canada, Brazil and Argentina, wrote this month that "the sheer size of the subsidy package will inevitably hurt farmers around the world, particularly in developing countries."

"The United States should be sending a very different message," wrote Mark Vaile, the group's chairman.

The heart of the dispute is that by underwriting its largest farmers, the United States is flooding the world market with inexpensive corn, wheat, rice and soybeans, which are sold at half what it costs to produce the grain. That leads to artificially low world prices, which in turn undercut grain produced by farmers in countries that do not give subsidies. The grain market becomes distorted, domestic markets are ruined for producers overseas and their chances of making inroads into foreign markets are reduced.

"Subsidies and other measures applied by the world's richest countries continue to increase exponentially," said Navin Chandarpal, Guyana's minister of agriculture, at the Rome conference. "We continue to be pressured into further opening up our markets, without any regard being paid to the welfare of our farming and rural communities as a whole."

Development experts agree and say the effects ripple throughout developing economies. "American farm exports drive down prices paid to local farmers, reduce rural family income around the world and push farmers off the land and into overcrowded cities," said Mark Ritchie, president of the Institute for Agriculture Trade Policy, a nonprofit organization in Minneapolis.

However, some developing countries with sufficient foreign reserves prefer to import cheap American food as they build up other sectors of their economy.

Despite the complaints, the new American farm policy also conforms to the current rules of the World Trade Organization. Indeed, the United States is not alone as a wealthy country that gives generous welfare programs to farmers. The 15-nation European Union is notorious for giving lavish subsidies to its seven million farmers.

In an address in Germany this month, Robert B. Zoellick, the United States trade representative, defended the farm bill and suggested "respectfully that America-bashing will not promote the E.U.'s enlightened self-interest.

"When Europeans criticize the recent U.S. farm bill, I wonder how many are even aware that U.S. agricultural tariffs are less than half of the E.U.'s," he said.

Disputes between the world's major economies United States, Europe and Japan over farm subsidies are nothing new. But the latest American increase, European Union officials say, comes as they are trying to reduce their own payments.

With plans to admit 10 new countries including Poland, where nearly one-third of 40 million inhabitants identify themselves as full- or part-time farmers the European Union says it must slash expensive programs to support agricultural production and give more money for conservation and rural development.

Critics of the new American policy say that, by giving in to the domestic farm vote, the United States will have a difficult time persuading other countries to open their markets to American agricultural products.

"The American farmers have shot themselves in the foot," said C. Fred Bergsten, director of the Institute for International Economics. "The long term growth of U.S. agriculture is clearly in foreign markets, particularly the rapidly growing emerging markets. That requires liberalization and access to those markets. The farm bill undercuts our ability to reach those markets."

During the debate on the farm bill, lawmakers in Congress painted a different picture, arguing that American farmers needed subsidies to remain competitive in the world.

America's main competitors on the global grain markets are not the European Union countries but countries that pay few or no subsidies to farmers and indeed may even tax food exports to earn more government revenue.

During the trade negotiations at Qatar six months ago, members of the World Trade Organization agreed to remove barriers to farm trade.

Mr. Zoellick insists that the United States remains committed to the goals worked out in Qatar. But both the Bush administration and the European Union whose dispute over farming is essentially one of their many trade battles over state subsidies will be hard pressed to remove the barriers to foreign agricultural products without upsetting their powerful farmers.

"We're all free traders and we're all hypocrites," said Peter L. Scher, specialist on trade negotiations for agriculture in the Clinton administration. "I blame the Europeans as well as the Americans. If we're going to develop these poor countries, we've got to give these nations a chance to develop their own agricultures."

Posted by DeLong at June 16, 2002 08:52 AM

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Last sentence, change to: "Bush" administration

As to substance, should they resign before or after Bush wheedles a fast track bill through Congress? And I do say "wheedles", I suspect a number of hideous deals have been required.


Posted by: Tom Maguire on June 16, 2002 04:23 PM

I enjoy reading your intelligent commentary, but do you have to spell "principle" as "principal"? Ouch.

I'd have sent this little spelling gripe privately, but I didn't see any email contact information. I can't criticize that omission, though. My email address has appeared in open public fora and web pages for years, and as a result I get a constant flood of spam and viruses.

Posted by: Larry Kestenbaum on June 16, 2002 10:48 PM

>I'd have sent this little spelling gripe privately,
>but I didn't see any email contact information.
>I can't criticize that omission, though. My email address
>has appeared in open public fora and web pages for years,
>and as a result I get a constant flood of spam and viruses.

I set up a new e-mail address just last Friday and have used it nowhere but on this site. Today it received an offer for me to watch Penelope Cruz perform special celebrity sex acts.

So either the address harvesters have found Prof. DeLong's web log, or he's picking up a little money on the side ... ;-)

Posted by: Jim Glass on June 17, 2002 10:21 PM

Spammers have many ways of obtaining email addresses, including directly from the ISPs via a "dictionary attack". If your user ID is a dictionary word or name, or a combination of either of those and numbers, or is the same as any user ID ever used by anyone to post anything publicly online, and your ISP is one of the majors, the spammers will find you. No need to blame Brad for this.

Posted by: Larry Kestenbaum on June 18, 2002 06:54 AM

Oh, I don't think anyone blames the host of a web site for the actions of harvesters.

More than "dictionary" attacks, some spammers now use power computing to generate every possible combination of characters up to a good number of them, then attach them in front of major domain names and blast them out. But that kind of spam usually is sent to a name as one of a hundred on the bcc line. The few messages I've gotten now are nicely personally addressed on the to: line. Which leads one to suspect a harvester that knows it has a real address.

But it just means the Professor's site is drawing more traffic and attention! The price of success on the internet.

Posted by: Jim Glass on June 19, 2002 05:09 PM
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