Reforming Global Finance

The U.S. Abandons the World’s Poor at the WTO

Does allowing India and other poor countries to help farmers and consumers really distort global markets?

Credit: Pratheepps - Wikimedia

Credit: Pratheepps - Wikimedia

Takeaways


  • The WTO’s director-general wants to allow developing countries to buffer their poor from volatile food prices.
  • The WTO can be praised for discouraging nations from putting up protectionist barriers after the 2008 meltdown.
  • Food price volatility in the past decade sparked uprisings like the Arab Spring and forced poor farmers into cities.
  • Upward pressure on food prices can be traced back to US farm subsidies and Wall St commodity speculators.
  • The US says measures to protect farmers and consumers from food price volatility are a violation of WTO rules.
  • The world had a golden opportunity to fix a big distortion in the global trading system that causes impoverishment.
  • The WTO, with its one-country-one vote negotiating structure, is far more equitable than US-backed regional deals.

The United States has left the world’s poor at the global trade negotiating table.

After more than a decade in gridlock, world trade negotiators had high hopes of closing a final deal at the World Trade Organization (WTO), which is to hold a ministerial in Bali, Indonesia, December 6-13.

But the United States is not prepared to let developing countries protect their poor from the harmful swings in world food prices. That is all the more unfortunate as these price swings are increasingly caused by U.S. policy in the first place.

Now, negotiations have collapsed. This is all the more regrettable not only because the WTO serves as a global rules-based system where nation-states monitor each other’s policies to make sure they are not too trade-distorting.

More specifically, the WTO can also be praised for helping to prevent nations from putting up major protectionist barriers in the wake of the global financial crisis.

The new director general of the WTO, Brazil’s Roberto Azevedo, was trying to seek this momentum by moving forward to declare a pivotal victory for the WTO.

Food prices and global unrest

His proposal had two main components: First, agree on a deal to streamline global customs rules; and second, allow developing countries to buffer their poor from volatile food prices until a more comprehensive deal on food and agriculture could be reached in a future round of negotiation.

The reasoning behind this package was sound. Food price volatility has wracked the world’s poor in recent years.

A global food price spike in 2007-08 (and wheat failures in 2010) triggered the Arab Spring movement and took a bite out of the food budgets of the world’s poorest urban consumers. Low prices a decade earlier had squeezed many small farmers off the land who today comprise much of the urban poor.

Much of this upward pressure on food prices can be traced back to the United States. The United States is home to massive subsidies to its agricultural sector, the World Bank estimates that these cost poor countries $12 billion on an annual basis.

What’s more, the U.S. financial industry “financialized” food by creating commodity index funds that speculators have feasted on since the global financial crisis. The Dodd-Frank financial reform legislation in the United States was supposed to put limits on such speculation.

However, big U.S. agribusinesses are trying to see to it that such limits are dropped from the rule-making.

U.S. veto

So it does not come as a real surprise that it was the United States that rejected a proposal by India and other countries to buffer their poor farmers and consumers from food price swings. The U.S. government claimed that measures to protect farmers and consumers from food price volatility were a violation of WTO rules.

Instead, the United States offered a peace clause whereby the United States and other nations would not file claims against poor countries for these measures for three to four years.

The United States claimed that allowing India to support farmers and consumers who live on less than $1.25 a day from food price volatility would distort global markets. That claim is jarring to the world’s poor.

Given that it takes three to four years to settle a dispute in the WTO, a three-to-four-year grace period adds little benefit. Moreover, agreeing to a peace clause would essentially make poor countries admit that their measures are in violation of WTO rules, which shouldn’t be the case.

The WTO is the place to fix this

The United Nations’ Special Rapporteur for food has just noted how the WTO is incompatible with food security measures. It is a scandal that the world’s countries had a golden opportunity to fix a fundamental distortion in the global trading system that causes impoverishment — and that the U.S. has flatly blocked it at the WTO.

By dumping the WTO unless it accedes in full to U.S. demands, the United States, despite all its rhetoric in favor of multilateral approaches, makes plain its intention to focus on trade treaties like the Trans-Pacific Partnership.

In such deals structured by the United States, food is largely off the negotiating table. This further underscores that regional trade deals distort the world economy and put developing countries at an unfair negotiating disadvantage relative to the United States.

The WTO, with its one-country-one vote negotiating structure, can yield far more equal outcomes. There will be a last chance to salvage global trade talks in Bali. The United States should do right by the world’s poor and grant them food security.

Editor’s note: This essay also appeared in the Japan Times on December 2, 2013.

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About Kevin P. Gallagher

Kevin P. Gallagher is a professor of international relations at Boston University.

  • Susan Santilena

    This is retaliation by the US government, as most poor countries are now banning Monsanto GMOs and the US government and Monsanto are trying to force feed the entire world these poisons. Monsanto continually blocks any efforts by the population in the US to ban GMOs.
    The Monsanto board and the USFDA play musical chairs with key positions among them creating a large conflict of interest issue and prefer profits over people.

  • Kathleen Stark

    As part of the view, professor Gallagher, I would like to know more specifics about US reasoning. Labels such as ‘big US agribusinesses’ don’t automatically explain current rationale. I know the plight of Indian farmers, and assume that our US negotiators do too. ‘Distort global markets,’ might be replaced by something more descriptive, more explanatory. The piece seems biased otherwise. Are all developing markets in the hands of poor small farmers?