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Could Cancun spin out of
control?
By Francesco Sisci
BEIJING - Professor Francesco Giavazzi has been
arguing recently that, "The amount of money spent every
year in industrialized countries to subsidize
agriculture is larger than the total GDP [gross domestic
product] of sub-Saharan Africa. Every cow raised in the
European Union receives more cash than the average
income for millions in poor countries."
Sara
Fitzgerald and Nile Gardiner at the Heritage Foundation
have pointed specifically at the European Union's Common
Agricultural Policy (CAP), which costs about US$46
billion each year and consumes more than half of the EU
budget. Therefore European consumers pay 44 percent more
for their food than they might, while the CAP accounts
for some 85 percent of world's agricultural subsidies.
This latter figure is the most astonishing,
putting the EU at the center of the present Cancun
discussions for the World Trade Organization (WTO)
summit. In fact, in percentage terms Japanese and Swiss
farmers receive even larger subsidies than their
European colleagues. In these two countries 60 percent
of income comes from the state, against 35 percent for
the Europeans and 25 percent for the Americans.
The issue of freedom of trade and subsidies can
become then a battle for the redistribution of wealth in
general between rich and poor countries. In fact if
trade must drop (or cut, in more realistic terms) its
subsidies and barriers on agriculture it must do so also
on industrial products. Here the issue is even more
complicated as developed countries impose a series of
restrictions on exports of strategic technology on some
underdeveloped countries. Rightly or wrongly the US
feels that if, say, North Korea were to get hold of some
innovative technology this could become a major risk for
everybody. The check of trade of technology thus becomes
a global security issue, a political issue.
Yet
in same way, the subsidies to Japanese farmers are an
anchor of political stability of the country (if you
wish) or, possibly, a major drag against the political
innovation the country needs to escape from its present
doldrums. Furthermore, these subsidies in Europe
guarantee the production of the "luxury foods" that many
in the world are eager to collect (not even consume),
such as French wines. And the 20 percent of the CAP
received by French farmers alone reminds the Americans
of the open wound of Iraq, where the French refused, and
still refuse, to stand by the US.
In this large
context of complex attrition among industrialized
countries themselves and between rich and poor countries
looms the question of China. Three years ago, before
China had to join the WTO, the problem was her
protectionism against invasive industrialized countries.
Now the talk of the day is how industrialized countries
can protect themselves against invasive Chinese
industries. The pressures for yuan revaluation revolve
around this: the flow of cheap Chinese goods must be
somehow stemmed.
In this sense some commentators
both in rich and poor countries have maintained that the
cheap yuan undercuts exports from other developing
countries. While this may be true in general, the yuan
issue has to be read against the backdrop of a more
general system of subsidies, especially for agriculture,
in rich countries.
It is unlikely that
de-pegging the yuan from the US dollar and floating it
would ultimately appreciate the Chinese currency (see Beijing's currency conundrum,
September 9). Quite the opposite could be true.
In any case, the tangle of reciprocal friction
among states, where no clear line can be drawn between
different groupings, reveal all the risks and political
perils of the moment. There is possibly no precedent for
this. In the past the WTO, despite the internal
frictions, was a rock-solid front before the challenge
of the anti-market forces of the Soviet Union. And even
before China accession to the organization the
contrasting pulls between Europe and US were minimized
if confronted with the differences between rich and poor
countries, between China and old WTO members.
Now, it is difficult to tell whether the issues
of farm subsidies are hotter that those of the yuan
revaluation, or vice versa. It looks like a war of
almost everybody against everybody. We are certainly
very far from the high-pitched trade and economic
strains that helped to slide the planet into World War
I, and furthermore no country has the military muscle to
even think of confronting the US.
But perhaps,
similarly with the beginning of last century, trade
disputes could become the material to flash up
trans-Atlantic political disputes on Iraq and, more
generally, on the methods and steps of the "war on
terrorism". These disputes could bring further tension
also with Asia, and the issue on how to tackle the
Chinese yuan. The US seems keener on a slow work for the
liberalization of the exchange, which would bring
complex mixed results in China and abroad. In the EU
there are stronger voices for simpler protection
measures against Chinese exports.
It is
impossible to think that there are easy solutions for
these complex trade negotiations. But could they get out
of control if they are coupled with rising tension in
Iraq, the Americans who want to involve the United
Nations in the reconstruction without losing general
control of the country and the French, for instance, who
want control in return for involvement?
Can the
position of the EU and the US vis-a-vis China trigger
new strains between the US and the EU, rather than among
the two and China or among any other country? The French
farmer might feel only irritated at the American war in
Iraq, but if the Americans also want to cut his income,
perhaps also aiding Chinese exports, what will he do? Or
will the Japanese farmer change his position on Iraq if
the US wishes to cut his subsidy or won't pressure China
for the revaluation of the yuan?
(Copyright 2003
Asia Times Online Co, Ltd. All rights reserved. Please
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