South-Western College Publishing - Economics  
Agriculture Key to New Trade Deal
Subject World Trade Agreement
Topic International Trade
Key Words

Tariffs, Subsidies, and Trade Agreement

News Story

After a disappointing meeting in Mexico last year, new meetings of the World Trade Organization are taking place in Geneva. The WTO hopes to reach an international trade agreement aimed at bringing developing nations more fully into the world's trading system. Such integration will provide stability and growth to the global economy.

In order to succeed, international trade officials will have to satisfy developing countries that Europeans and the United States are ready to reduce domestic subsidies and artificial supports for their own farmers. These richer nations must also give smaller nations a crack at the international market. In return, third world nations will open new markets to the goods and services produced by industrial nations. If successful, the result will benefit all countries and all citizens of those countries.

The meeting is testing confidence in the fairness of global trading, with agriculture being the key issue. Given last year's walkout in Mexico led by the African delegates, the World Trade Organization's delegates will have to strike a compromise on agricultural policies that have tended to support larger nations in the past.

Europe, in a reversal of its usual position on farm subsidies, has apparently seen the writing on the wall. The European Union gave in to the poorer nations' demands this year and has offered to eliminate all export subsides for farm goods.

While the U.S. has not offered to reduce subsidies, Richard Mills, a spokesman for the U.S. position, said that the U.S., "understands and recognizes the sensitivity and importance of cotton" for the African nations. He suggested that one solution might be cutting U.S. tariffs on cotton.

Mr. Mills further stated that Mr. Zoellick, the United States trade representative, deserved credit for persuading Europeans to agree to eliminate their export subsidies. "We made it clear [that] no deal would be possible without their [European's] elimination [of European barriers]," Mills said.

Although the outcome is still in doubt, hope has arisen about gaining some kind of an agreement in Geneva. U.S. Representative Sander M. Levin, Democrat of Michigan and the ranking minority member of the House Ways and Means trade subcommittee, predicted that the world trade body would reach some kind of an agreement, however vague, if only to avoid another embarrassing failure. "The odds are good," he said, "that they'll declare some kind of victory [even] without any real success."

(Updated July, 2004)

Questions
1.

How would cutting U.S. tariffs on cotton help third world countries?

2. Define the concept of an export subsidy. How do such subsidies affect free markets?
3. Discuss how opening of new markets in third world countries will improve the global market place.
Source Elizabeth Becker, "Trade Talks in Geneva Offer More Hope This Time", New York Times Online, July 26, 2004.

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