The 10th World Trade Organisation Ministerial Conference concluded with an agreement of eliminate agricultural subsidies.
. . . Hailed by WTO Director General Roberto Azevêdo as “the most significant outcome on agriculture” in the history of the WTO, this decision includes a commitment to eliminate subsidies for farm exports.1 Developed countries have made a direct commitment to eliminate export subsidies immediately, with the exception of a few agricultural products; subsidies on some of the most sensitive products, such as processed foods, dairy products, and meat, must be phased out by 2020. Developing countries have been granted until 2023 to remove their subsidies, with Least Developed Countries (LDCs) and net food-importing countries having until 2030 to meet their commitments.
The decision to end agricultural export subsidies is widely supported by research from institutions such as IFPRI’s Markets, Trade and Institutions Division, which contributed several reports to this year’s discussions with the WTO Secretariat and a number of WTO member countries. In a recentFSP blog post based on a forthcoming IFPRI Working Paper, IFPRI researchers David Laborde and Eugenio Diaz-Bonilla explained the potential impacts of the full use of existing export subsidy allowances. During recent years of high global agricultural prices, export subsidies were not needed by countries to sell on the global market; thus, the subsidy levels allowed by the WTO were higher than the level of subsidies actually being used. As prices have started to fall, however, this unused portion of allowable subsidies (sometimes called “the water”) could come into play. Using a CGE model, the authors find that if global agricultural prices continue to fall, the unused portion of export subsidies allowed by the WTO could reach US$11 billion. The full use of this amount, the authors estimated, could displace agricultural production in middle- and low-income countries by about US$12 billion, negatively impacting poverty reduction and food security throughout developing regions. The decision in Nairobi to eliminate agricultural export subsidies represents an important step in the right direction to protect poor populations from these harmful effects. . .
Subsidies benefit a relatively few, generally inefficient producers at the cost of more efficient producers, consumers and taxpayers.
They reduce choice and increase costs.
They also divorce producers from market signals.
When the milk price dropped, New Zealand farmers cut back production but farmers in countries with subsidies didn’t, adding to the problem of supply outstripping demand.
Losing subsidies can cause short-term pain as New Zealand farmers found in the 1980s when we were dragged into the real world, but the medium to long term gains are worth it.
That we’ve already faced up to market realities is one of the reasons we have more to gain from the Trans Pacific Partnership Agreement (TPPA) than the USA:
New Zealand stands to reap considerably greater benefits from the Trans-Pacific Partnership trade and investment agreement (TPP) than the United States, says a new study of the controversial pact by economists at the World Bank.
However, the biggest long term benefits are likely to be in emerging economies like Vietnam and Malaysia, where a combination of manufacturers shifting production to their more competitive economies and structural economic reforms are expected to deliver more than in countries where many of those transitions have already largely occurred. . .
The World Bank study estimates an increase in economic output for New Zealand by 2030 from TPP of around 3 percent, compared to less than 1 percent for the US and Australia.
New Zealand would be the fourth largest gainer behind Malaysia, Vietnam and Brunei, roughly equal with gains estimated for Singapore.
New Zealand could expect small increases of around 2 percent in output growth, with slightly greater gains in unskilled than skilled labour-intensive industries. . .
Those opposing the TPPA are fighting against an agreement that will help developing countries and provide greater gains for unskilled workers here.
At least some of the opponents are ideologically opposed to free trade per se. They also ignore the costs of being outside this large and influential trade tent:
. . . Claims that New Zealand has given up sovereignty appear misinformed at best, highly politically-motivated at worst.
The TPPA sets the rules for more than a third of the world’s trade. More than that, it will play a large role in defining the world we live in should it be voted through by each of the 12 member states.
And for New Zealand’s part in pushing the deal through, it seems likely we’ll take the auspicious role of hosting the document’s signing by all 12 member nations, next month.
But it seems prudent to ask – of those who have done the economic modelling – what would New Zealand look like if it was left behind?
The World Bank Report is here.