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Corn+Soybean Digest

World Trade Talks Fail

After five years of negotiations, the worldwide round of trade talks collapsed. For U.S. farmers, the failure of the World Trade Organization (WTO) talks means fewer opportunities for foreign sales. But it also means American farmers can hang on to a wide range of subsidies designed to protect them from hard times.

The Doha talks failed because too many interest groups in too many nations felt they stood to lose more than they were likely to gain from expanded trade. That left the WTO short of the broad consensus needed to reach agreement, and left many parties looking for a scapegoat.

“There is a lot of finger pointing,” says Philip Paarlberg, a foreign trade specialist and agricultural economist at Purdue University. “The U.S. is blaming the European Union. The European Union is blaming the U.S. Everybody is pointing their fingers at India.”

One key sticking point was the insistence by developing nations that the U.S. and other developed countries scrap many subsidies given to farmers. Countries such as India, where three out of five workers are involved in farming, contended their farmers couldn't compete in global commerce against subsidized U.S. farmers.

A similar situation existed in West Africa, where cotton is produced by many small growers. “They believe they could compete in global commerce if they didn't have to compete with subsidies,” Paarlberg says.

The U.S. subsidies at issue included low-interest farm loans, revenue insurance and counter-cyclical payments. “The U.S. offered to cut subsidies by 60%,” says Luther Tweeten, a trade specialist and professor emeritus of agricultural economics at Ohio State University.

This offer satisfied no one. “Developing nations said we structured the cuts in such a way that they didn't really cut anything,” says Tweeten. “There is some truth to that.”

The proposed cuts were not going to bind in most years, says Paarlberg, “only in years when prices were really low.”

That was the sticking point for American farmers. The proposal would leave them with less of a safety net at the time they needed it the most — during sharp drops in commodity prices.

“Many farmers were concerned that they would fail in a bad year without subsidies,” says Tweeten. “And if prices fell and interest rates rose as they did in the 1980s, many of them would be in trouble.”

So there was a stalemate. Of course there's a chance that the talks could be revived. “But I don't see it happening soon,” says Tweeten. “Trade negotiating authority expires in July 2007. Then you have the presidential election in 2008.”

The failure of the talks held in Doha, Qatar, raises the question of whether American enthusiasm for free trade is slipping and the decades-long expansion of world trade slowing. Not only did the Doha trade talks fail, but the Central American Free Trade Agreement, or CAFTA, only narrowly passed Congress.

“I think the mood in this country is shifting in the direction of isolationism in terms of trade,” says Tweeten. “There are enough people who have lost their jobs, or could lose them, that the politicians are paying attention to them.”

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