Global Policy Forum

By Lyle J. Bivens and Adam Hersh*

Something is afoot at the World Trade Organization (WTO) meeting in Cancún, and skeptics of the international trade body should take note. A dialogue about dismantling agricultural subsidies threatens to overshadow larger -- and more fundamental -- flaws with the WTO.

Supporters of global trade liberalization -- like the editorial boards of The New York Times and The Economist -- criticize the WTO for allowing rich member countries to skew the rules in the interest of powerful political actors in their nations at the expense of the poor. Specifically, they argue that agricultural subsidies paid to farmers in rich countries (a formidable political bloc) drive down the world price of agricultural products, impoverishing farmers in poor countries (a particularly impoverished population of about 2.5 billion people). Abolishing these subsidies, it follows, would spur economic development where it is needed most.

Critics of the WTO should not allow this dialogue to distract them from the more important problem inherent in the WTO -- that the price of admission for poor countries is the surrender of economic autonomy, even in areas wholly unrelated to international trade.

Agricultural subsidies in many developed nations are ill-conceived. They encourage overproduction and irresponsible stewardship of agricultural land. Worse, the lion's share of their benefits is gobbled up by the giants of corporate agribusiness. No doubt, small farmers in the developed world and abroad could be helped through a radical overhaul of existing subsidies. Despite all of this, the abolition of existing subsidies would offer them only modest gains.

Estimates from the International Food Policy Research Institute (IFPRI) forecast that complete agricultural liberalization (including removal of subsidies and tariffs) would add about 0.14 percent to the gross domestic product (GDP) of developing nations as a whole by the year 2020. This means, for example, that the annual per capita income of India would only rise from $480 to $480.67 over the next 17 years as a result of agricultural liberalization. It should be noted that a sizable portion of these gains, however, come not from removal of subsidies in rich nations, but from the removal of domestic trade barriers in the developing world.

Of course, if this gain (however tiny) came at no cost to developing nations, it would be worth doing. However sweet the deal, it will leave a bitter aftertaste: the current price charged to developing nations for the prospect of subsidy removal is adherence to the existing WTO agenda regarding everything from patent protections to customs procedures to government procurement. The price is too steep. It requires commitment to and codification of a policy agenda set by rich countries at the WTO, much of it wholly unrelated to international trade. A nation can do away with all barriers (tariff and other) to international trade, yet find itself in contravention of WTO rules by, for example, failing to devote sufficient resources to prosecuting street vendors selling pirated copies of Gigli. Seriously. WTO membership requires adherence to the trade-related intellectual property standards (TRIPS) agreement, which requires nations to adopt the same patent and copyright rules that developed nations enforce.

Free-trade purists who believe in knocking down all trade barriers think that this bargain is flawed only because rich nations will still be able to protect some of their own markets. So, once these protections are removed, they believe the WTO will achieve the promise of economic development. This view is deeply mistaken. Because the current premise of the WTO requires developing nations to surrender economic policymaking authority in exchange for a seat at the bargaining table, the whole game plan is fundamentally flawed. Access to rich nations' markets and technology is important for development. Equally as important, however, are a country's own specially tailored laws. The WTO rules should not take the place of these, yet they often do, sometimes even hampering the creation of a nation's own laws.

We should welcome the growing chorus that proclaims the WTO is a troubled arbiter of the world trading system. The current prescription for its improvement however -- mildly sweetening the very bad deal in place -- is far too modest. Instead, the WTO needs to give economic autonomy back to the vast majority of its member nations, not just the richest.

About the Authors: Lyle J. Bivens is an economist and Adam Hersh is a senior research assistant at the Economic Policy Institute.

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