Bhagwati on Doha

A nice piece. His perspective is often the opposite of, say, Rodrik's: Bhagwati still sees large gains from trade on the table, while Rodrik thinks that further liberalization will have a smallish effect on rich countries, but could have a harsh effect on (certain) poor countries. I tend to side with Bhagwati, although I'm not sure I'm as much of a true believer as he. Either way, a great, concise round-up of the issues stalling Doha, and how the U.S. and E.U. are primarily to blame.

The essential outlines of the deal among the G-4 were clear. The EU had to give on agriculture where its barriers and subsidies were huge. With negligible comparative advantage in agriculture, it did not seek concessions in this sector from India and Brazil, but rather wanted reciprocal concessions in manufactures and services. The problem with the US was that it had a strong farm lobby that would not permit meaningful reduction in the substantial US subsidies simply in exchange for concessions in manufactures and services; it sought “sectoral reciprocity” in agriculture itself.

But the problem is that the USTR, reflecting successful lobbying, has wound up making maximalist demands and minimalist concessions: a situation that is properly unacceptable to India and Brazil.

Regarding concessions, the US negotiating position is almost pathetic. Just recall that, even as the G-4 talks were in progress at Potsdam, the agriculture subcommittee of the US House of Representatives voted to retain the subsidy portion of the 2002 Farm Bill for another five years. At Potsdam, Ms. Schwab did not budge from her past hard-line position but insisted, even as she could not offer any ready concessions on US agricultural subsidies, that the poorer countries must offer more!

The problem that Ms. Schwab cannot ignore is that it is politically impossible for a democratic developing country such as India to persuade an aroused public opinion that its farmers, often at the margin of subsistence, should agree to competition from rich-country farmers who are being heavily subsidized. Unless the US, and also the EU, address this issue meaningfully, there is no prospect of movement on Doha.

So there is hope. But only if the U.S. farm lobby steps out of the way, or legislators finally grow some balls (and common sense) and oppose renewal of the 2002 Farm Bill. Which is, essentially, welfare for rich people.