Capping US Farm Subsidies
America Blinks in WTO Stalemate on Agricultural Subsidies & Tariffs
If the U.S. agrees to reduce US$23 billion in annual farm subsidies, the World Trade Organization will regain credibility as a mediator of international trade disputes.
Global trade talks in Qatar’s capital city of Doha have continually failed since 2001.
The principal reason that agricultural negotiations remain unresolved is the fact that richer countries like the United States heavily subsidize domestic farmers.
Agricultural subsidies are considered as unfair advantages that prevent farmers in developing countries from competing effectively in international markets. Others see subsidies as under-the-table payments that enable agricultural businesses in wealthier nations to export farm products at much lower prices than the smaller and unsponsored farms in poorer countries.
For years, the World Trade Organization has been striving to broker a deal that would reduce farm subsidies particularly in the U.S. and in Europe. Recent agricultural negotiations in Geneva, Switzerland aspire to bridge the differences between rich and poor nations over proposed subsidy and tariff cuts.
The stakes are high. America exported US$68.7 billion worth of agricultural commodities including wheat and imported $64 billion in farm products from its trade partners in fiscal year 2005-6.
Top Importers of American Farm Products
Listed below are the 15 leading export destinations for U.S. agricultural products in 2005-6.
- Canada … US$11.6 billion worth of American farm exports
- Mexico … $10.4 billion
- Japan … $8.2 billion
- European Union .. $7.1 billion
- Mainland China … $6.7 billion
- South Korea … $2.7 billion
- Taiwan … $2.4 billion
- Indonesia … $1.04 billion
- Turkey … $1 billion
- Egypt … $955 million
- Russia … $921 million
- Hong Kong … $912 million
- Philippines … $828 million
- Colombia … $794 million
- Thailand … $640 million.
Top Farm Product Exporters to America
Listed below are the 15 countries that generated the most American agricultural imports in 2005-6.
- European Union .. $14 billion
- Canada … US$13.2 billion worth of American farm exports
- Mexico … $9.3 billion
- Australia … $2.4 billion
- Brazil … $2.2 billion
- Mainland China … $2.1 billion
- Indonesia … $2 billion
- Chile … $1.71 billion
- New Zealand … $1.7 billion
- Colombia … $1.5 billion
- Thailand … $1.3 billion
- Costa Rica … $1.2 billion
- India … $1 billion
- Guatemala ... $936 million
- Argentina … $908 million.
Lower Cap on U.S. Agricultural Subsidies
Up until now, the U.S. has never said publicly that it would agree to an annual limit of under US$23 billion on American farm subsidies. That all changed at the Geneva meeting attended by WTO diplomats in mid-September. Chief U.S. farm negotiator Joe Glauber reportedly said that Washington was willing to reduce American farm subsidies by over 70% to a range of between US$13 billion and $16.4 billion.
Like most international trade negotiations, there is a catch. The U.S. will only lower its maximum for domestic farm subsidies provided that nations cut tariffs on farm products that they import. Many countries have imposed these tariffs as a way to fight back against lower American farm product prices that they see as unfairly subsidized by the U.S. government.
A lower American dollar actually helps the U.S. cushion price increases to its farm product exports that surely result in an effort to compensate for reduced subsidies. A weak American dollar effectively lowers prices for U.S. farm products in global markets, since other countries can buy more with their stronger currencies.
If agricultural trade barriers arising from subsidies and tariffs can be satisfactorily resolved, the WTO will regain much needed credibility and respect in the international trade marketplace.
Sources for this Article
This article presents independent calculations and insights based on data drawn from the United States Department of Agriculture (USDA) Economic Research Service and Bradley Klapper’s article ‘Move on subsidy revives stalled world trade talks’ (Toronto Star; September 20, 2007).
