U.S. Unprepared To Limit Swings in Food Prices

Kevin Gallagher

Cross-posted at The Globalist.

The United States has left the world’s poor at the global trade negotiating table.

After more than a decade in gridlock, world trade negotiators had high hopes of closing a final deal at the World Trade Organization (WTO), which is to hold a ministerial in Bali, Indonesia, Dec. 6-13.

But the U.S. is not prepared to let developing countries protect their poor from the harmful swings in world food prices. That is all the more unfortunate as these price swings are increasingly caused by U.S. policy in the first place.

Now, negotiations have collapsed. This is all the more regrettable not only because the WTO serves as a global rules-based system where nation-states monitor each other’s policies to make sure they are not too trade-distorting.

More specifically, the WTO can also be praised for helping to prevent nations from putting up major protectionist barriers in the wake of the global financial crisis.

The new director general of the WTO, Brazil’s Roberto Azevedo, was trying to seek this momentum by moving forward to declare a pivotal victory for the WTO. His proposal had two main components: First, agree on a deal to streamline global customs rules; and second, allow developing countries to buffer their poor from volatile food prices until a more comprehensive deal on food and agriculture could be reached in a future round of negotiation.

The reasoning behind this package was sound. Food price volatility has wracked the world’s poor in recent years.

A global food price spike in 2007-08 triggered the Arab Spring movement and took a bite out of the food budgets of the world’s poorest urban consumers. Low prices a decade earlier had squeezed many small farmers off the land who today comprise much of the urban poor.

Much of this upward pressure on food prices can be traced back to the U.S. The U.S. is home to massive subsidies to its agricultural sector, the World Bank estimates that these cost poor countries $12 billion on an annual basis.

What’s more, the U.S. financial industry “financialized” food by creating commodity index funds that speculators have feasted on since the global financial crisis. The Dodd-Frank bill the financial reform legislation in the U.S. was to put limits on such speculation.

However, big U.S. agribusinesses are trying to see to it that such limits are dropped from the rule-making.

So it does not come as a real surprise that it was the U.S. that rejected a proposal by India and other countries to buffer their poor farmers and consumers from food price swings. The U.S. government claimed that measures to protect farmers and consumers from food price volatility were a violation of WTO rules.

Instead, the U.S. offered a peace clause whereby the U.S. and other nations would not file claims against poor countries for these measures for three to four years.

The U.S. claimed that allowing India to support farmers and consumers who live on less than $1.25 a day from food price volatility would distort global markets. That claim is jarring to the world’s poor.

Given that it takes three to four years to settle a dispute in the WTO, a three-to-four-year grace period adds little benefit. Moreover, agreeing to a peace clause would essentially make poor countries admit that their measures are in violation of WTO rules, which shouldn’t be the case.

The United Nations’ Special Rapporteur for food has just noted how the WTO is incompatible with food security measures. It is a scandal that the world’s countries had a golden opportunity to fix a fundamental distortion in the global trading system that causes impoverishment – and that the U.S. has flatly blocked it at the WTO.

By dumping the WTO unless it accedes in full to U.S. demands, the U.S., despite all its rhetoric in favor of multilateral approaches, makes plain its intention to focus on trade treaties like the Trans-Pacific Partnership.

In such deals structured by the U.S., food is largely off the negotiating table. This further underscores that regional trade deals distort the world economy and put developing countries at an unfair negotiating disadvantage relative to the U.S.

The WTO, with its one-country-one-vote negotiating structure, can yield far more equal outcomes. There will be a last chance to salvage global trade talks in Bali. The U.S. should do right by the world’s poor and grant them food security.

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