USA / Bus. Week. Farm Subsidies: A Blight on the Economy
- Business Week
SEPTEMBER 9, 2002
NEWS: ANALYSIS & COMMENTARY
By Paul Magnusson
Commentary: Farm Subsidies: A Blight on the Economy
The trouble started just three months after President George W. Bush
signed the 10-year, $182 billion farm bill. On Aug. 8, Mexican
President Vicente Fox went tit for tat by promising to "armor plate"
Mexico's farm sector against a flood of cheap U.S. imports next
January when, under the North American Free Trade Agreement, duties
on most food trade will be eliminated. To fight back, Fox will use
hefty taxpayer subsidies to boost production and add high
"anti-dumping" tariffs to keep out subsidized imports. Mexico's first
target for retaliatory tariffs: American apples.
Don't blame Mexico, though, when American farmers suddenly face
stiffer barriers abroad. The big crop production subsidies in the
U.S. farm bill will certainly invite similar retaliation from trading
partners. Even worse, Washington's payouts to politically powerful
farmers and big agribusiness threaten to derail the Administration's
ambitious plans to extend NAFTA throughout the Western Hemisphere and
to craft bilateral free trade deals around the globe.
That should come as no surprise. After all, creating a free-trade
zone of the Americas depends on convincing fragile,
agriculture-dependent economies such as Brazil, Argentina, and
Uruguay that they won't be overwhelmed by U.S. farm exports
artificially priced low. In addition, Administration plans to cut
free-trade deals directly with nations such as Chile, Morocco,
Honduras, and South Africa rely on promises of fair treatment.
The ag-subsidy dispute isn't just about food trade. Unless the
agriculture-based economies of the world can market their food to the
industrialized world, they'll never be able to afford U.S.-made
goods. "When we make it harder for a Zambian farmer to sell his
peanuts in the U.S., we also make it harder for Caterpillar to export
the excavators our people build in Aurora, Ill.," says Cat Chairman
and CEO Glen Barton.
The U.S. is not alone in coddling farmers and food processors. Rich
countries spend more than $311 billion a year in ag subsidies, twice
the amount of total farm exports from developing nations, according
to a study by the Paris-based Organization for Economic Cooperation &
Development. U.S. farmers, on average, receive a fifth of their
income from Washington. European and Japanese farm sectors are even
more pampered. Their subsidies run to 31% and 59% of farm income,
respectively. That results in overproduction, which artificially cuts
prices around the globe.
Poorer nations' only defense is high import duties. Their average
farm tariff, 17%, is more than twice the average among industrialized
nations, 6.4%, according to the World Bank. To a small Third World
farmer, a free-trade deal with the U.S. could mean being forced off
the land. "The whole system is unbelievably irrational and unjust,"
insists Martin Kohr, a Malaysian economist.
True, but there's little chance of it ending. The Bush Administration
has proposed to the 144-member World Trade Organization a formula
that would greatly reduce farm subsidies worldwide. Proponents of the
plan liken it to the Cold War strategy of boosting military spending
while pushing for arms-control talks. But America lacks credibility
on the issue in the wake of Bush's decision last March to levy
tariffs of up to 30% on steel imports. The argument in that
case--that foreign subsidies to steelmakers were creating a glut,
driving down prices and requiring the U.S. to hike its own
tariffs--sounds a lot like the spiel of farm protectionists.
U.S. Trade Representative Robert B. Zoellick likes to point out that
one in three U.S. acres of farmland is planted for export and that
U.S. farmers are 2.5 times more dependent on exports than the rest of
the economy. If so, that's all the more reason Washington should
abandon its counterproductive farm subsidy program before the rest of
the world starts "armor plating" its own farm economies.
Magnusson covers international trade and economics from Washington.
Copyright 2000-2002, by The McGraw-Hill Companies Inc.