Hong Kong Phooey

Mark Engler
December 14, 2005



Mark Engler, a writer based in New York City, is an analyst with Foreign Policy In Focus. He can be reached via the web site http://www.democracyuprising.com. Research assistance provided by Kate Griffiths.

Although much is at stake at the World Trade Organization Ministerial in Hong Kong this week, the success of the talks will largely hinge upon one issue: the willingness of the U.S., Japan and the European Union to live up to their own "free trade" rhetoric and to substantially cut their agricultural subsidies. By providing nearly $1 billion dollars a day in subsidies for their own farmers, the world's wealthiest countries—which regularly preach the virtues of open markets for poorer nations—are guilty of the rankest hypocrisy.

Be that as it may, a key question remains for critics of corporate globalization based both in the first world and in the global South: Is market access really the answer to poverty?

Governments of developing nations, coming off of their victory in resisting a one-sided trade deal in Cancun in 2003, will be pushing hard in Hong Kong for countries like the United States to scale back their agricultural supports—something the Bush administration has thus far proved unwilling to do. Indeed, as his op-ed in yesterday’s LA Times makes clear, even arch neoconservative and president of the World Bank Paul Wolfowitz is arguing for an end to subsidies.

This leaves the increasing number of people that has grown skeptical of "free market" boosterism in an uncomfortable position. Certainly, the agricultural subsidies are harming developing world exports. But is removing those subsidies the best path to real economic justice for developing countries?

The idea of agricultural market access has attracted some progressive supporters. In 2002, Oxfam, a prominent anti-poverty organization, released a report entitled Rigged Rules and Double Standards and launched a campaign to "Make Trade Fair." The report presented a range of recommendations for improving the terms of international trade and development, but market access became the clear focus as the document was promoted in the media. Oxfam argued, "For [the] engine [of trade] to function, poor countries need access to rich country markets. Expanding market access can help countries to accelerate economic growth, at the same time expanding opportunities for the poor."

Yet there are good reasons not to jump on the bandwagon of ending subsidies and promoting free trade. First, it's not at all clear that basing economic development on agricultural exports will allow countries to "trade their way out of poverty," as proponents claim. Historically, many nations that have relied on export-led development have been foiled by declining agricultural prices on the world market, a problem spurred by oversupply. As a 1992 Oxfam report entitled The Trade Trap notes, "Countries that depend on the export of primary commodities like coffee, sugar, or cotton are caught in a trap: the more they produce, the lower the price falls."

Ending lavish subsidies would help this situation somewhat by reducing the "dumping" of artificially underpriced first world goods on the international market. It won't help a lot, however, even if the U.S., Europe and Japan were to eliminate their supports entirely—something that is politically out of the question. Nancy Birdsall, executive director of the Center for Global Development, along with economists Dani Rodrik and Arvind Subramanian, writes in a recent Foreign Affairs article that International Monetary Fund estimates predict, "world prices would only rise by 2 to 8 percent for rice, sugar, and wheat; 4 percent for cotton; and 7 percent for beef. The typical annual variation in the world prices of these commodities is at least one order of magnitude larger."

In other words, the famous instability of agricultural export markets would remain a bane of poor farmers struggling to survive. Likewise, the World Bank's most optimistic predictions suggest that a country with a per capita income of $100 would only boost this figure by 60 cents over the next 10 years as a result of trade liberalization. That’s hardly a panacea for development.

Small farmers are in the worst position to actually reap any such gains, which are far more likely to be siphoned off by middlemen. Put in competition against giant agribusiness corporations that dominate markets and enjoy great political influence (not to mention access to deep lines of credit and facilities in which to store their foodstuffs when prices are low), those small producers will still find themselves playing a rigged game.

Moreover, as economists from the liberal Dean Baker to Morgan Stanley’s Stephen Roach point out, with the United States running unsustainable trade and current account deficits, the overvalued dollar will almost certainly fall in coming years. This means that U.S. import markets will contract. Countries that have based their development strategies on gaining a piece of that pie will be left to fight with one another over ever-smaller slices.

But even if developing governments win concessions on agricultural subsidies, the access will come at a cost. In return, wealthy countries will demand that their trade partners open in other ways—making poor nations privatize services like water and electricity distribution, and curtailing their ability to protect infant industries. A WTO compromise would also mean cutting government safety nets that have helped protect farmers from the unforgiving fluctuations of international markets. Such a deal would leave the world’s poor worse off than they are today.

There are policies that would support small producers instead of wealthy agribusinesses in poor countries. These include using anti-trust law to curb the power of predatory agribusiness; implementing land reform that affirms the property rights of small producers; promoting regional trade; and upholding international provisions for "special and differential treatment" that allow developing countries with vulnerable populations to ensure food security for their people.

In the end, the poor will continue to lose as long as the dominant system of "free trade" economics marches forward. Given that reality, a collapse of talks in Hong Kong would be better than an unfair deal adopted in the name of development.