Farm Subsidies

Doomsday for Doha

Washington vs. free trade


It has been less than a decade since demonstrators clogged the streets of Seattle, locking arms, blocking traffic, and accusing the U.S. of shoving free trade down the Third World's throat. But as the latest round of trade talks collapses in Geneva, it's clear that the U.S. government is, in fact, one of the greatest institutional barriers to free trade. Asked to choose between freedom and the farm lobby, Washington will opt for agribusiness almost every time.

Savvy observers already know to check the fine print when politicians talk about "deregulation." Usually the rules are being revised, not removed—some stricken, some strengthened—with the details determined by what will benefit the industries with the most pull in Congress. This is just as true when the regulations in question involve international trade. For proof, examine the events that preceded the failure in Geneva:

* The original General Agreement on Tariffs and Trade, signed in 1947, didn't include agriculture at all. This was largely because the United States wanted to protect its price supports. As subsequent rounds of negotiations began to tackle farm policy, the U.S. supported freer trade when it meant greater access to foreign markets but not when it meant reducing domestic subsidies.

* With the Uruguay Round of 1986 to 1994, so called because it was launched in Punta del Este, Uruguay, Washington changed its tune: Price supports were now up for debate. This was partly because of shifts in the international market that made reciprocal agreements more appealing to many American growers, but it was also a political trade-off. In exchange for putting its subsidies on the table, the U.S. asked developing countries to accept rules that favored other American industries. Notably, new intellectual property requirements made trade significantly less free, by imposing Washington's much more restrictive copyright and patent rules on poorer countries. As the economists Jagdish Bhagwati and Arvind Panagariya noted in the Financial Times a few years back, the result was "the capture, reshaping and distortion of the WTO in the image of American lobbying interests."

The same virus infects our other trade pacts. The Central American Free Trade Agreement, for example, required member nations to match our extended copyright terms, allow patents on software, and imitate the Digital Millennium Copyright Act by banning technologies that circumvent copy protection.

• Meanwhile, the agriculture rules adopted in the Uruguay Round were still riddled with loopholes. States have been able, for example, to conceal export subsidies in other programs, such as food aid. And while countries were asked to cut farm tariffs, they were allowed to average those cuts across all their crops, preserving protections for politically powerful producers as they allowed more competition in other areas.

Now the Doha Round has collapsed without an agriculture agreement. The U.S. refused to cut subsidies unless the Europeans agreed to deeper cuts in tariffs, while the Europeans refused to cut tariffs unless the U.S. agreed to deeper cuts in subsidies. Neither had a strong incentive to reach a consensus, because the biggest beneficiary would be the developing world. (Washington prefers to push for freer trade in "services," by which it means industries such as banking and not, say, online medical consultations.)

Is there any way out of this trap? Obviously, the U.S. government is not the only party at fault here. Europe, too, has been loath to open its cultural and agricultural industries to competition. But we don't need permission from Brussels to reduce our farm subsidies and other trade-distorting policies. Indeed, most Americans would benefit from the change. Who wouldn't want cheaper food and a more fiscally sound government?

Yet it's considered almost impossible to eliminate farm welfare, thanks to the same problem that usually bedevils efforts to rein in government intervention. The benefits are concentrated in one strongly motivated, politically active segment of society, while the injuries, though greater in total, are spread throughout the population. Such a program is tough to kill—at least until another strongly motivated, politically active segment of society decides it's a problem.

Intellectual property rules present an interesting contrast. In that area, economically important interests are divided: Content companies support the current system, but technology companies see it as a barrier to potential profits. Throw in the fact that ordinary consumers face Draconian penalties for violating the law—not really an issue where dairy subsidies are concerned—and public pressure becomes more significant as well. Conclusion: IP protectionism is much more vulnerable than farm protectionism.

There is at least one reason for hope. Rising powers India and Brazil don't like the North's ag subsidies or intellectual property rules, and as they grow wealthier and more influential they will be a counterweight to American and European hegemony. It is a sad state of affairs when the demands of a foreign government carry more weight than the interests of most American citizens. In this case, though, the foreigners and the citizens share the same interests. The enemy isn't India—it's Archer Daniels Midland.