Towards more free trade

Towards more free trade
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First Published: Thu, May 22 2008. 01 34 AM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Thu, May 22 2008. 01 34 AM IST
The two revised papers for agricultural and non-agricultural trade by the World Trade Organization have disappointed many. There is pessimism that the US and the European Union (EU) are unlikely to reduce and eliminate agricultural subsidies and let developing countries have more access to their markets. This may not be true.
Illustration: Jayachandran / Mint
Maybe things change. Plans by the EU to reform its common agricultural policy show that even politically sensitive subjects can be tackled. Under the proposals, the EU will scale down part of its annual $83 billion subsidies on agriculture. The amount of reduction is not clear at the moment. But it’s clear that there can’t be massive reductions at one go. For example, the EU expended a whopping $58 billion on “direct aids” alone in 2007. The proposed steps include an end to subsidies for big landowners, an end to payments made to farmers for leaving their land fallow and an end to milk quotas by 2015. The money saved would be spent by EU countries on environment-friendly programmes such as renewable energy and water management.
Naysayers will say that when seen in conjunction with what the US hands out to its farmers, it may well be making a mountain out of a molehill. From the mid-1990s to early 21st century, the US provided annual subsidies to the tune of $16 billion. Under the 2007 Farm Bill, the direct payment programme during 2008-17 alone accounts for $5.25 billion per year. There will be resistance by the US to give up subsidies.
This is where there is hope: Given what the EU has in mind, this is likely to result in pressure on the US to do something so that the coming trade talks are not scuttled.
The EU reform is innovative: Instead of cribbing about the death of European agriculture, it wants to focus on changing the nature of economic activity carried out by farmers. The latter will now focus on managing the picturesque countryside for tourism instead of growing crops uneconomically. The Europeans realize that their foodstuffs can come more cheaply from New Zealand, Australia and Asia. This may be good news for free trade. It should not be viewed as a cheap bargaining tactic before trade talks begin.
The question is, why can’t nations such as India and Brazil innovate along these lines? Resources are a constraint, but they are not a binding constraint. The barriers lie in imagining agriculture to be a mere plough-and-bullock activity. That has to change.
Do you think the EU plan will affect trade talks? Write to us at views@livemint.com
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First Published: Thu, May 22 2008. 01 34 AM IST