Trading Up


By Susan Sechler and Ann Tutwiler*

New York Times
June 26, 2006

After protests, walk-outs, missed deadlines and deadlock, trade negotiators in Geneva have been moving toward a deal on agricultural subsidies and tariffs that could clear the way for a world trade agreement. The deal negotiators are discussing goes much further than the last round of trade talks. But it will not spur significant growth in low-income economies, the ostensible intended beneficiaries of negotiations known, after all, as the Doha Development Round.

However, a study completed this month by the International Food Policy Research Institute argues that, with two modest changes, the deal on the table in Geneva could bring about greater global economic growth and greater benefits for poor countries.

The United States and Europe oppose these changes. But instead of defending narrow commercial interests at exorbitant expense, they should embrace this opportunity to advance their larger strategic goals of promoting prosperity and stability among the world's poorest nations.

According to the study, a deal similar to what is now on the table — modest cuts in real tariffs, limited cuts in domestic support payments, full elimination of export subsidies and 97 percent duty- and quota-free access for exports from the poorest countries — would create global gains of $54 billion per year. High-income countries, which have about 80 percent of world income, would get almost 60 percent of the $54 billion. Middle-income countries, which have almost 20 percent of world income, would get about 40 percent. Low-income countries, which have only 1.2 percent of world income, would get 1.9 percent of the gain.

In other words, years from now when the agreement is in full force, the low-income countries would still account for only a tiny percentage of growing global markets. But the study went on to model two adjustments that would make the deal more meaningful for poor countries. The first was to exempt from duties and quotas all exports from the least developed countries to the richest countries. If such exports were exempted, the benefits from the deal increase to $70 billion — with nearly half of that gain going to the poorest countries.

The United States is justifiably proud that with an average applied tariff rate of 1.4 percent (in 2005), our economy is among the most open. But Washington wants still to exclude various items of clothing, footwear and agricultural products — the very products that poor countries have to sell — from any big cuts in duties, even for the poorest countries. The United States fears a surge of textile imports from places like Bangladesh and Cambodia. But isn't that the very point of a development round?

American politicians will argue that these protections are needed so that American workers are not asked to bear the brunt of bringing the world's poor into global markets. But the cost of protecting jobs in uncompetitive sectors through tariffs is foolishly high, with little of the benefits accruing to workers. The Federal Reserve Bank of Dallas reported in 2002 that saving a job in the sugar industry cost American consumers $826,000 in higher prices a year, saving a dairy industry job cost $685,000 per year and saving a job in the manufacturing of women's handbags cost $263,000. Wouldn't these workers choose not to hold an insecure job for another year or two if they had the option instead of getting more education and more training, which would enable them to find work in a growth industry, or health care, retirement and even a college education for their children?

The second change proposed by the International Food Policy Research Institute lowers the percentage of "sensitive and special" agricultural products that can carry high tariffs from 5 percent to 1 percent. This modification increases world income by $7.5 billion beyond the $54 billion. Because it applies to all countries, the benefits of this change are spread more evenly. But such a step would be particularly good for developing countries like Thailand, Vietnam and Zimbabwe for which agriculture is an important source of export revenue. Here Europe and Japan are fighting the change; they originally pushed for exemptions on 8 percent and 15 percent respectively of agricultural products.

By not showing more altruistic leadership in the trade talks, the United States and Europe are in serious danger of missing the chance to lead the world closer to a rules-based global system of markets, trade and finance built on the democratic norms and values both continents profess to support. And in particular, the United States is forgoing an opportunity to restore some luster to its public image overseas.

But making the trade deal truly benefit the world's poorest is not simply an act of charity or a public relations gesture. The extra increase in market potential could also enable the poorest countries to attract more investment in roads, ports and training, helping their businesses to grow and opening more opportunities for American and European companies. That's why two weeks ago more than 200 leading American companies, business associations and organizations sent a letter urging American trade negotiators not to accept a "Doha-lite" agreement.

Conversely, an unwillingness to make the hard decisions required for a successful Doha Round not only takes those economic benefits off the table, but sends a clear message that rich countries are unwilling to allow 90 percent of humanity access to the same opportunities they had to generate their unprecedented wealth.

About the Author: Susan Sechler, a former deputy director of economics at the Department of Agriculture, is the director of trade and development at the German Marshall Fund of the United States. Ann Tutwiler is the managing director for trade and development at the William and Flora Hewlett Foundation.

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