What “Really” Happened In Geneva

Wednesday, July 30, 2008 18:50
Posted in category Uncategorized

In another example of just how blogs are growing as a medium, Peter Mendelson has posted his view of what was going on behind the scenes at the recent WTO negotiations on the EU Trade Issues site.

As one of my friends put it when describing their thoughts on the post, he commented “that was more honestly than I typically would expect”

The heart of the issue, in Mendelson’s view is:

The basic problem is that the Indians, the Chinese and other defensive developing countries want the safeguard to be triggered at a level that the US thinks is too low. (These kinds of safeguards are usually in the form of a clause that only allows imports to rise at a set rate from one year to the next). Nath and the Chinese argue subsistence farmers cannot be expected to compete with large-scale commodity exporters – especially with subsidized commodity farmers in the developed world. The US counters that the Indian and Chinese notion of a safeguard is so low as to effectively block significant expansion of commodity exports. What should be relatively easy to resolve as a technical argument about the precise ‘trigger’ levels for the safeguard clause rapidly escalates into a political argument about the protection of subsistence farmers from trade competition and the rights and wrongs of trade distorting farm subsidies in the US. Despite attempts by the other big agricultural exporters Australia and Brazil to pull the US and India towards a compromise, by the middle of the afternoon negotiators have ground into deadlock.

Looking into the issue a little more, I am inclined to continue with my initial reactions that I put forward in the earlier post China Stands Up at Trade Talks, however I was corrected by a friend on #3 where I thought China may be looking to use this as a means to develop more investment in the area.

According to my friend, a knowledgeable source on policies in China, China actually downgraded agriculture in the last years investment catalog.

Everyone I have spoken to thus far though has agreed that the role of inflation, the recent USD devaluation, and the fear of hurting farmers have created a higher hurdle rate for BEijing.. and that these three things are likely to have played a large factor in their desire to change their terms now.

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8 Responses to “What “Really” Happened In Geneva”

  1. Chris Devonshire-Ellis says:

    July 30th, 2008 at 9:36 pm

    Rich: More on the issue here from 2point6billion:
    Countries Face Off Against Each Other As Trade Talks Crumble:
    http://www.2point6billion.com/2008/07/31/countries-face-off-against-eachother-as-trade-talks-crumble/
    China & India Bring The World Onto It’s Heels:
    http://www.2point6billion.com/2008/07/30/how-china-and-india-brought-the-world-on-its-heels/

    I would agree however with Mendelson’s assessment. The US has been too greedy, and with a lame duck President is not going to be in a position to negotiate this right now. It’ll raise it’s head again and a deal get done I suspect in a couple of years – as long as India can keep it’s own government coallition together in it’s current format – they too have elections coming up. If you get a sweeping government change in India this deal is totally dead. As it is, it stands the possibility of being resurrected later.

  2. Stephan says:

    July 31st, 2008 at 7:14 am

    What do you mean by downgraded? Downgraded in the catalogue of foreign investment or downgraded as an investment in general? These are two very different things as you know.

  3. Rich says:

    July 31st, 2008 at 7:53 am

    Stephan.

    It was downgraded from an encouraged area of investment to a discouraged area.

    R

  4. Conor says:

    August 1st, 2008 at 3:07 am

    It’s a shame that trade talks always boil down to inter-trading between countries as it should not need to be a tit-for- tat situation.

    The U.S and Europe should go ahead and reduce their subsidies regardless of developing countries, for the benefit of their own consumers. Despite half hearted reform their subsidies are still structured in a way that allow most of the benefits to go to a very small group of larger, richer producers at the expense of a large group of consumers and the majority of farmers who are far from well off.

    I still find it hard to understand why there is not more domestic backlash in European countries (except U.K who openly detest the CAP) and the U.S. I think this may change due to more trying economic times. (and soaring food prices)

    For developing countries the most pressing issues are social.

    For countries like China and India who have huge numbers of farmers living on a subsistence level the main issues are social. If new tariffs adversely affect them the knock on effects include large scale migration to cities and the inevitable follow on problems of crime, insufficient social services etc.

    As such given the much different positions and concerns of the developed and developing countries, agreement was always going to be extremely difficult if not impossible.

  5. Conor says:

    August 1st, 2008 at 3:11 am

    p.s.
    Apologies for drifting a little but of topic on that post

  6. Craig says:

    August 2nd, 2008 at 8:17 am

    You can’t blame the developed countries for subsidizing agriculture – it’s a vital national interest. Look at all the terrible things that have happened in search of energy, another vital interest. Now imagine that developed countries put all their farmers out of work and become fully dependent on food imports…

  7. Conor says:

    August 3rd, 2008 at 8:47 pm

    I don’t really think that the argument that agricultural products are different to other globabally traded products/vital national interest really rings through.

    Most of the arguments for protecting agriculture e.g. potential food shortages, helps the enviroment, food safety standards, farms are scenic areas, curbs rampant urbanization etc. are valid concerns but should not be pursued through agricultural trade policy. They are usually just protectionism under a different name.

    Ultimately consumers should be allowed to decide themselves wether they want to support/buy locally produced, safer and more expensive produce or imported, cheaper produce. The benefits to consumers of all sectors but especially those on lower incomes are potentially huge. Domestic farmers will need to adapt and look for new niche markets, e.g. agricultural tourism, organic food etc.

    I come from a farming background and I known that the above will not be easy or populor, especially given the reverence for farms that is so strong in Europe and the U.S. However we live in a globalbized world and protectionism is not a long term option. The most sensible move is to start adapting now.

  8. Rich says:

    August 3rd, 2008 at 9:17 pm

    Conor.

    I am going to have to dis/agree with you on a few points.

    I would agree that competition is a good thing, and would certainly catalyze the industry to up their game

    however

    The system here is not set up to compete, on any level, and China’s agricultural machine would probably be crushed very quickly as (1) farmers here till on average 1MU of land (2) farmers rarely work with each other to develop large tracks of land in a consistent manner (3) farming technologies are also far behind – seed quality, fertilizers, equipment, etc

    and the ensuring slaughter of farmers would not only cause unrest, it would force China to rely on foreign growers to produce for them. Neither is a + for China, and if the 200 barrel of oil came true, that would increase a lot of costs/ risks to feeding their people.

    so… I would expect more resistance, and I would expect that in the end it will be the US/ UK that bend.

    R