Protectionism, Brazil and Doha

Matias Vernengo and Timothy A. Wise

Ask a TripleCrisis Economist: Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. post your questions at Ask a TripleCrisis Economist. Here are two responses to an earlier posted question:

Q: Will Brazil’s recent threats of retaliatory protectionist measures motivate the US to institute more conciliatory agricultural policies and trade practices? And is there any hope that those sanctions or a US response might spur some talk of energizing the Doha talks?

VERNENGO: As it turns out, Brazil agreed to temporarily suspend the imposition of sanctions allowed by the World Trade Organization (WTO).  It is important to note, however, that the Brazilian measures should not be represented as protectionist.  One must remember that they are a retaliation authorized by the WTO, resulting from the American cotton subsidies.  In other words, the protectionist policies are the original subsidies provided by the US government.  Peripheral countries are often referred to as protectionist, but more often then not they pursue more open policies than their more developed trading partners.

The agreement basically implies that Brazil will delay the imposition of tariff restrictions on American products, in exchange for technical assistance and financing for the Brazilian cotton sector, and perhaps reevaluate current banning on imports of Brazilian beef.  However, the agreement is only a temporary solution until the next farm bill is voted in the United States in 2012.  In other words, it buys time but does not solve the main issues raised by agricultural subsidies in the US.

On a deeper level I am a bit troubled by the use of the term protectionist in general.  Notice that at the extremes of the trade debate one might have free traders and protectionists, but in between one has those who favor some sort of managed trade.  Yet, in the policy debate anybody that is between extreme protectionism and extreme free trade is labeled a protectionist (and, hence against trade), when the more accurate description would be that they are for trade, provided certain issues associated with fairness are taken into consideration.

Having said that, I don’t think there is a significant probability that the US will change its agricultural subsidy policies in the next bill in 2012.  Bill Clinton recognized recently that his policies regarding rice subsidies had a terrible effect in Haiti, and are partly responsible for the vulnerability to natural crises, such as the earthquake, since the country now imports the vast majority of its food supply.  Incumbents cannot, given the political pressures on Congress, change significantly the neoliberal pro-corporation trade policies.  For example, Obama has already backtracked on his campaign promise to revise the North American Free Trade Agreement (NAFTA).

Regarding Doha, the question is not so much if it is going to be revived, which seems unlikely, but why would we want that.  There is nothing on the table that would favor labor groups (in the center or the periphery) and, hence, muddling through with limited results is not necessarily a bad situation from a progressive point of view.

WISE: In light of President Barack Obama’s clearly stated policy of enforcing the trade agreements to which the United States is party, U.S. cotton policies have become the litmus test for whether the United States is equally committed to complying with rulings that go against the country. The answer thus far is no, and there is no doubt that has had a chilling effect on the Doha negotiations. The tentative agreement with Brazil does little to warm things up in Geneva. Cotton isn’t the only litmus test for Obama. More chilling still are Obama Administration statements that for Doha to move forward developing countries will need to open their markets more to U.S. exports. As Kevin Gallagher has pointed out on this blog and on Politico.com, Obama’s commitment to multilateralism is hollow if his administration does not enter those negotiations with a willingness to play by the rules and compromise. The demand for greater market opening from large developing countries explicitly violates several of the underlying principles that launched Doha as a so-called “development round.” “Special and differentiated treatment” for developing countries means “less than full reciprocity” in opening markets.

One can argue that Obama does not have the political space to negotiate on that basis, nor to implement an end to illegal U.S. cotton subsidies, but that leaves the world waiting for true multilateralism from the United States. In the meantime, Doha stays on life support and Brazil has apparently decided not to ratchet up the pressure on the U.S. For Brazil, the agreement may open up the U.S. market to some Brazilian beef. But the $147 million/year fund for technical assistance to the cotton market is, from the perspective of African cotton farmers who hoped for fairer prices for their cotton, a further subsidy to highly competitive producers, which further distorts the market and makes their lives more difficult.