Saturday, November 04, 2006

How do export subsidies hurt? How did they kill the Doha round of trade talks?

Subsidies hurt the developing country farmers because they lead to higher output in developed countries – and lower global prices. When subsidies lead to increase in production with little increase in consumption, as is typical with agricultural commodities, higher output translates directly into higher exports, which translate directly into lower prices for producers, lower income for farmers, and more poverty in the Third World.

Amercia and the developed world are the real losers in the demise of the Doha round:

  1. Had the Bush administration fulfilled its commitments, American taxpayers would have benefited from the elimination of huge agricultural subsidies – a real boon in this era of yawning budget deficits.
  2. Americans would have been better off as consumers too, with increased access to a variety of low cost goods from poor countries.
  3. Migration pressure would have reduced, because it is the huge disparity in incomes more than anything else that leads people to leave their homes and families to migrate to the US.
  4. A more prosperous globe is in the interest of the rich developed world – as a less poor world would lead to less despair and thereby less political instability across the world.

Because the US played only a lip service to free market principles, favouring Washington lobbyists and campaign contributors who demand just the opposite, the Bush administration doubled the level of agricultural subsidies in the US. It is this which led to the failure of the Doha round.