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Feeding a Global Trade Opportunity

Author: Lee Hudson Teslik
February 25, 2008

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Prices of foodstuffs, particularly basics like wheat and corn, are spiking worldwide (Economist), ending a three-decade trend of price decline. The shift could hold myriad consequences, including some very worrisome ones for parts of the developing world. Yet analysts detect a silver lining—rising food prices might also create an opportunity to break an international logjam on agricultural policy and reinvigorate stalled global trade talks.

Hope springs from the fact that higher food prices are forcing many countries to adjust their thinking on agricultural import tariffs to try to maintain steady food supplies. The Wall Street Journal recently reported that the European Union, long one of the world’s most protected agricultural markets, will for the first time remove import duties on cereal. Meanwhile, China and several other large emerging countries such as India, Brazil, South Korea, Nigeria, and Russia have cut import tariffs to prevent food shortages.

Both the United States and the United Nations project food prices will remain high, at least for the next year. Should these predictions hold true, economists say food prices may well continue to prompt tariff reductions, which are seen as the best way to promote increased production (Marketplace). Countries scrambling to fill grocery shelves may be willing to bend where they haven’t previously. If major exporters start exporting less, this in turn could make farm industries in developed countries like the United States feel less threatened by imports. In the Journal article cited above, Peter Mandelson, the EU trade minister, notes a shift already afoot: “There’s much less of a need for protectionism than when we started [the Doha Round of global trade talks] in 2001.”

It remains to be seen whether this dynamic could revive multilateral trade talks like the Doha Round, which has been stalled by the unwillingness of crucial states to substantially reduce agricultural tariffs. Trade officials from the major parties to Doha, including Mandelson and U.S. Trade Representative Susan Schwab, say they will meet in Geneva before June. But many obstacles stand in the way of rapid progress on the Doha talks. For starters, the U.S. Congress is working on a new farm bill that seems unlikely to produce major cuts (The Hill) in farm subsidies. But Jake Caldwell of the Center for American Progress calls it an opportunity for the United States “to boost its economic leadership and increase international market access for competitive U.S. farmers.”

Yet opinion in Washington remains starkly divided. One trade expert and one representative from the American Farm Bureau discuss whether the United States should cut its farm subsidies in a recent CFR.org Online Debate. More basically, discussion of the merits of free trade itself remains highly politicized on Capitol Hill, and the recent expiration of President Bush’s “fast-track” trade promotion authority means any potential multilateral trade deal would be subject to congressional markups. None of this would prevent trade deals from proliferating in the developing world. The question raised by experts like CFR’s Jagdish Bhagwati is whether the United States will be a part of these deals.

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