The World Trade Organization’s (WTO) ruling on US cotton subsidies invalidates the revised subsidy programme Congress introduced in 2006.
Once again, the organization has provided a useful weapon for emerging markets to battle protectionism from rich countries in goods where they have a comparative advantage. It represents their best way to push aside hurdles to their economic development.
The US and European Union (EU) protectionism against emerging market commodity production is long-standing and considerable. In ethanol, the US imposes a tariff of 54 cents a gallon, while subsidizing domestic production by 51 cents a gallon. That makes no sense, when producing ethanol from Brazilian sugar cane is eight times as energy efficient and correspondingly ecologically superior, resulting in substantially lower overall production costs. Similarly, the US protection of domestic sugar producers bars Caribbean countries and others with lower labour costs and more favourable climates from competing in that market.
In cotton, not only is the US rendered artificially competitive with Brazil in the world market, with 27 million tonnes (mt) of exports compared with Brazil’s 35mt, but lower-cost producers in Africa are prevented from competing effectively. All three programmes benefit high-cost US agriculture. They are costly to US taxpayers and consumers, and especially to lower-cost emerging market competitors.
The Doha round of trade talks was supposed to change this. However, the US and the EU offered only modest reductions in agricultural subsidies, so Brazil and India remained recalcitrant on the intellectual property liberalization that the the US wanted. The WTO thus remains the only forum through which developing countries can hope to open western markets to their exports.
Rapid recent increases in commodities prices should have brought fast growth to many such countries, diversifying their economies sufficiently to achieve self-sustaining development. This has been blocked by western subsidies, tariffs and restrictions. Studies have questioned the economic value of the World Bank and IMF lending, but the value to emerging markets of open export markets is unquestionable. The WTO should be their favourite development agency.