Last November, when corn was selling on the world market for $97 a metric ton, European farmers were getting $212, courtesy of European taxpayers. For soybeans, it was $577, compared to $267 on the world market.
Uncle Sam doesn't like that. European consumers wouldn't like it either—if they could price-shop. But the European Community keeps out cheap agricultural imports with trade barriers. Meanwhile, European farmers sow and reap at the pace of multiplying rabbits. Their output of oil seeds such as soybeans, for example, has more than quadrupled since 1980. Why not, when the EC buys up crops at inflated prices, then dumps them on the world market?
This is not good for U.S. farmers. They (and Canadians and Australians and Argentinians) are more productive than their European counterparts, but all those surpluses depress world prices. Growing more crops for export isn't a very good deal, then. So the U.S. government, anxious to help a trade-balance-in-deficit, is putting pressure on the Europeans to undertake radical reform.
For the first time in 30 years, all agricultural trade barriers are on the international negotiating table. The member nations of the General Agreement on Tariffs and Trade (GATT) agreed to this much in 1986. But now that the United States has gotten down to brass tacks, the EC is resisting.
What the United States wants, as a condition for negotiating specifics, is an agreement in principle to end all trade-distorting farm subsidies over a defined period. The year 2000 has been suggested, but U.S. negotiators consider the date open to talk. What they won't give in on is the commitment all around to what's been dubbed the "zero option."
Agricultural subsidies now require a daunting 60 percent of the EC's $54-billion annual budget. The tab can only go higher without reform. But the EC will only consider a freeze, and then a scaling back, of subsidies.
December's GATT talks in Montreal broke down over the issue, and now the United States is under fire for being "extreme." Even the 13-member Cairns group of Pacific trading nations led by Australia, which has been highly critical of worldwide farm subsidies, has lined up against the United States. "We're staring down the barrel of an all-out trade war," fumed Michael J. Duffy, Australian delegate to the Montreal talks. The Economist figures the U.S. position is "a ploy to stall reform while putting the blame for failure on Europe."
The fact is that the U.S. solution would be just as hot a political potato at home as in Europe. The only beneficiaries of any farm subsidy are domestic farmers. Home consumers lose. Foreign consumers lose. Foreign producers lose. Taxpayers everywhere lose. The environment loses. Debt-ridden Third World countries lose. Pleasing farmers—and satisfying a vague need for "food self-sufficiency"—is the only reason for agricultural subsidies. And in the United States there are 2.5 million farmers and $30 billion a year in subsidies; in the EC, 12 million farmers and about the same subsidy payout. As Willy de Clercq, the EC's trade commissioner, observed, "It's not difficult to draw the conclusion which farmers are more supported."
U.S. trade policymakers seem awfully sure that the GATT focus on "trade-distorting" subsidies will fall much more heavily on the Europeans, who use trade barriers to maintain high prices for domestic farmers. The United States, in contrast, relies on an extensive scheme of price floors and production quotas. The truth is that the U.S. subsidy package is ultimately just as trade-distorting as the Europeans'.
The U.S. position isn't too "extreme" at all. In fact, we should be even more radical: unilateral subsidy slashing would prove that we're willing to take it, too, and not just dish it out. It wouldn't hurt consumers and taxpayers one bit. And it would help the Third World a lot more than billions in aid. Reagan's U.S. trade representative, Clayton K. Yeutter, has moved to Agriculture. He should put together a domestic proposal—and sell it to the American people—that would really wake up the GATT crowd.
This article originally appeared in print under the headline "The Farm Barrier".