All together now: Take the free-market plunge
WASHINGTON — If the current round of trade negotiations - scheduled to end next January - is successful, it could be beneficial to the US economy, and might give the world economy a welcome boost, too. Last month's proposal by US Trade Representative Robert Zoellick that the United States and other developed countries eliminate export subsidies and significantly open their agricultural markets is exactly what the US needs to help its economy.
Since they met in Doha in 2001, the 148 countries of the World Trade Organization have wrestled with a host of contentious issues on the way to a multilateral trade agreement. But negotiations stalled at September's ministerial meeting in Cancún, Mexico, and left standing the main obstacle to progress: trade barriers and subsidies in agriculture.
Agricultural tariffs today are four to eight times as high as tariffs on industrial goods. For certain products, agricultural tariffs are shockingly high: Japan's tariff on rice has been as high as 1,364 percent and the European Union's tariff on sugar beets as high as 540 percent; US tobacco tariffs have reached 350 percent.
Developed countries also heavily subsidize their farmers: The US slips them about $30 billion annually and the EU pays out some $45 billion. In the US, more than one-quarter of farm income can come from subsidies and higher prices due to trade barriers, in the EU more than one-third of income results from subsidies and trade barriers, and in Japan an impressive 60 percent of income results from these distortions.
Faced with these high tariffs and enormous subsidies, many developing countries question the American belief in free trade and free markets. The current trade round stalled at Cancún because developed countries failed to make far-reaching proposals to open their agricultural markets.
But the US often overlooks the fact that addressing the demands of developing countries is in America's best interests: Its own agricultural trade barriers damage its own economy, as well as that of developing countries. High US tariffs drain the wallets of American consumers, raising prices not only at the grocery store, but also at the mall. Keeping out low-priced cotton imports hurts the hard-pressed American textile industry, and US sugar tariffs hurt domestic producers of soft drinks and processed foods.
The billions spent on agricultural subsidies could be used to strengthen social security, fund Iraqi reconstruction, or reduce taxes for the average American. It would be nice to think that all this money is helping small family farms in the heartland. But in reality, more than 15 Fortune 500 companies receive subsidies and at least 100 large US farms receive more than $2 million in subsidies each.
While US barriers raise domestic prices, US subsidies artificially lower prices in the world's markets. Without these subsidies, the world price for many agricultural products would be significantly higher, and the small family farmers in Africa would earn substantially more for their labors.
How can the US free its economy of these damaging barriers and subsidies? While bilateral or regional trade agreements are easier to negotiate, agricultural subsidies - the core problem - cannot be addressed in bilateral agreements. The new US-Australia free-trade agreement, which excludes sugar and other key agricultural products, is only the latest example. Developed countries must reduce subsidies together: If the US agreed to eliminate subsidies in a bilateral agreement, Europe would flood US markets with subsidized products. To take the free-market plunge, everyone must jump in at the same time.
Bilateral agreements divide the world economically and politically. The least-developed countries, with their small markets, are not considered valuable trade partners and are generally excluded from bilateral negotiations. And yet, lesser-developed countries are the ones most desperately in need of improved access to other markets. Also, US trade rules for bilateral agreements differ from the EU's in many ways, which can limit the benefits for countries that belong to several trade blocs.
Only a successful multilateral agreement can free trade for all countries and simplify trade rules across the globe. Ambassador Zoellick begins this week to visit foreign capitals in an attempt to reenergize negotiations in the next stage of the Doha round. And when the US, the EU, and other developed countries return to the table, they should be prepared to open their agricultural markets as part of a comprehensive trade liberalization.
• William Krist is a senior policy scholar at the Woodrow Wilson International Center.