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Stephen Olson at Chinese Development Institute Conference


 Clyde Prestowitz giving presentation to CDI...


Steve Olson teaching trade negotiations at the Mekong Institute...


Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.


(9/29/2003 - Prestowitz) Cut the Farm Subsidies

Cut the Farm Subsidies?
By Clyde Prestowitz
7 Sept. 29, 2003
The Washington Post
Page A19
(Copyright (c) 2002, The Washington Post Company)

The Bush administration has been much criticized for its unilateralist approach to foreign policy, but in the wake of the collapse of the World Trade Organization's Doha round of trade liberalization talks in Cancun there is one unilateral step the president could take that would not only recoup enormous global goodwill for the United States but also provide critical support for the troubled global trading system. That would be to announce that the United States is moving immediately and unconditionally to phase out subsidies for agricultural production and export.

The collapse of the talks not only undermines the chances of success of the Doha round, it also throws into question the whole future of the World Trade Organization and the global trading system that has been the main engine of growth of the world economy for the past 50 years. For some time now there has been a growing trend toward bilateral and regional trade agreements that inevitably create preferential arrangements between the parties similar to those that prevailed and were so troublesome before World War II. As a result of the failure in Cancun, this trend is likely to accelerate rapidly. Indeed, U.S. Trade Representative Robert Zoellick has already announced his intention to adopt such a strategy.

This is ironic, because it is the United States that has, since 1948, led the effort to create a global economic system based on nondiscriminatory free-trade principles. In many respects the results have been spectacular. Average tariffs levied by developed countries on industrial products have fallen to negligible levels, and soaring world trade has powered first the Japanese and then the other Asian miracles (including now China's), lifting hundreds of millions out of poverty. But despite this success, free trade has not always been the win-win proposition it is supposed to be. Too frequently, trade has redounded to the benefit of the richest countries while actually making the poor poorer.

At the heart of this paradox is agriculture. While the United States and other developed countries of Europe and Asia have preached free trade, in the area of agriculture, where 70 percent of developing countries make their living, they have practiced protectionism and subsidization. For example, the North American Free Trade Agreement (NAFTA) was supposed to open U.S. markets to Mexican products so that Mexican people would not find it so necessary to enter the United States themselves. Yet as a low-cost sugar producer, Mexico still finds itself virtually locked out of the U.S. sugar market.

Even more egregious is the case of cotton. In Muslim West Africa it costs 23 cents to produce a pound of cotton, while in the Mississippi Delta of the United States the cost is 60 to 80 cents. Yet the U.S. growers are driving down world prices and literally killing the West Africans by dumping huge amounts of cotton on world markets at prices far below their cost of production. How do they do this? By receiving $3.5 billion in subsidies from the U.S. taxpayer. (Is it any wonder that extremist Islamic clerics preaching jihad against America are finding an increasingly warm reception in West Africa?)

The Doha round of trade talks was specifically labeled the "development round" to emphasize the necessity of addressing this problem, which primarily afflicts the developing countries. Both the European Union and the United States expressed a desire to solve the problem and indicated readiness to make some cuts in agricultural subsidies. At the same time, however, the administration undercut its own position by passing a farm bill that dramatically increased the subsidies, and in the Cancun talks, both the European Union and the United States made their proposed subsidy reductions conditional on a substantial lowering of industrial tariffs by the developing countries. In the end, a bloc of 22 developing countries insisted that the rich countries go first in making concessions, and when that demand was rejected, the talks collapsed.

As a former U.S. negotiator in the Reagan administration who was sometimes labeled a trade hawk, I understand the need as well as the desire to bargain hard. Moreover, while lowering of developing-country tariffs on industrial goods would be good for the United States, it would be even better for the developing countries themselves, which currently pay far more than necessary for many critical imported items and whose policies lock their own industries out of trade with one another while detracting from their desirability as destinations for foreign investment. Nevertheless, in this case, at this time, the United States should forget about being a shrewd Yankee trader and just cut the subsidies unilaterally. Doing so would not only help U.S. consumers, it would also set a tremendous example that would break the logjam holding up the Doha round. And it would help preserve the principles and framework of nondiscriminatory global trade, to which this country has long been committed.

Clyde Prestowitz, president of the Economic Strategy Institute, was a trade negotiator in the Reagan administration. He is the author of "Rogue Nation: American Unilateralism and the Failure of Good Intentions."

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