Sunday, July 09, 2006

WTO failure and my farm...

Although some observers think negotiators will still pull an agreement out of the fire at the last minute, I am not as sanguine. I think the Doha Round is on life support, and more importantly, I think the WTO is in danger of slipping into irrelevancy.

The developing country giants like India are not going to be cowed by the wealth and power of the First World this time. Since few American producers evince care about the poor of the world, or if they do, fail to connect the dots between free trade and raising the lowest from poverty, the safest position for a low-population state Congressdude is protectionism.

It is also remarkably short-sighted.

Farmers often forget our dependence on government subsidy is not just about us and the US Treasury. This largess has been made possible by an economic boom of unprecedented measure - to which US agriculture contributed a little bit. I don't mean this as derisive, but look at the numbers - farms contribute less than 1% to our GDP.

To put it bluntly short-circuiting our national economy to protect agriculture would be killing the Golden Goose. And nothing represents a larger threat to our business future than the rise of protectionism in the world's fastest growing markets.

Furthermore, a collapse of the Doha Round would eviscerate the WTO as a meaningful arbiter of trade, in my view. No more teacher to take our schoolyard quarrels to - like EU hormone beef bans or Chinese corn export subsidies. In its place will arise a patchwork of bilateral trade agreements universally proclaimed less efficient compared to global accords.

Yet the most important issue is not the economic gains from success in these specific negotiations but the potentially devastating consequences of failure. For that might well undermine the WTO itself.

This would, in turn, carry at least three negative consequences; first, it would stimulate a further rush toward preferential trade agreements of all kinds, but particularly bilateral ones; second, this would increase the role of power in determining opportunities to trade, not least because hegemonic powers tend to create “hub and spoke” trade agreements with weaker partners; third, it would undermine a highly successful dispute settlement system, which has brought the rule of law into the heart of the world economy.

The WTO is no mere talking shop. It is far more potent than that. It has offered an outstanding example of successful global co-operation. The current generation of leaders do not have the right to throw away the legacy they inherited, particularly when the negotiating gaps between their countries is, in truth, modest.

[More here]

Add in our energy consumption and suddenly, without the ability to export our best products - services, hi-tech, entertainment, etc. we leave way too many dollars overseas. As they pile up, our dollar could weaken dramatically.

Whoopee! A weak dollar means increased ag exports, right? It might, but one thing for sure - it means sharply higher interest rates and slower growth. Besides we are slowly throwing in the towel on exports because we're all going to be growing fuel - remember?

The preservation of our Big 8 commodity programs would be a paltry gain for the enormous damage to the entire US economy. While I don't think many producers worry about much past the farm gate, indifference could land them in the worst of both worlds - fewer government dollars and closed export markets.

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