The failure of the developed countries to work out a way to satisfy the rest of the world on agricultural subsidies is the key reason why the Doha round failed.

But some of the key arguments hurled by one side against the other are dubious. India claims that rich country farm subsidies are hurting its farmers. Theoretically, yes. But I would argue that the Indian state’s stranglehold over agriculture, and labour laws that block the transition from farm to factory are the real elephants in the room. Indian farmers (and consumers) stand to gain much more by further economic reform, than by getting the West to stop subsidising rich world farmers.

On the other hand, the arguments that rich world subsidies don’t affect African farmers, because Africa lacks infrastructure is dubious. European foodgrain, subsidised by EU taxpayers, may be cheap. But how’s the poor African to pay for it, if he can’t make an income?

I dont think Gordons use of the 1% here is appropriate. As has been pointed out, this round focused primarily on Agriculture – in which case India commands more than a measly 1% cited. Further, the stake holders are not just going to look at this in $ terms – but also how many people it affects. After all isn’t one of the objectives to bring up the standard of living of people all around ?

Another way for the developing countries to get out of this mess is to industrialize faster. While I’m a huge fan of India’s services economy, manufacturing has not caught up (even though our motorbikes, scooters, ball bearings, auto components, pharmaceuticals etc.) are all world-beating. We grow our way out of this problem, and not by kow-towing to the US/Europe.

We can do one better. Far more than 5 million american consumers gain from the elimination of subsidies. Both in fiscal savings (and taxes), and in consumer prices. It’s good unilateral policy, too.

But looking at the whole issue, I dont know where the half way point really is. And no country is willing to budge. And the cotton belt is (I believe) hardcore Republican territory. These guys are producing so much excess cotton that it is causing them to dump their products on other countries thus causing losses to farmers from developing lands.

“IsnÂ’t it possible that the potential benefit to 650 million Indians outweighs the potential losses to 5 million Americans?”

Thats far too easy to say. Every leader will have to protect the interests of his own people. I am pretty certain we would do the same.

http://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100962.html

“No von Mises” LOL!

Davies argues that subsidies for staples doesn’t hurt and might even help the economies of poorer African nations:

The trouble is that the truth is a little bit too simple to be credible. Farm subsidies in the EU and USA mean that we sell some kinds of foodstuffs (mainly grains, milk products and sugar) to Africa and other countries cheap. So cheap, in fact, that the Africans etc can buy our imported goods cheaper than they can produce them for themselves. This is good news. No, stop, yes it is. If you can buy something for cheap, then that is good news. Food being cheap is good news for Africa. It isn’t bad news. I promise you it is as simple as that. [...] So bearing in mind that there are no good roads or railways on the continent of Africa, that foodstuffs degenerate with transport and that grain, milk and sugar are bulky, low-value commodities, did it ever make sense to think that a viable development strategy for Africa involved the export of milk, wheat or sugar to the USA and EU? No it didn’t. You cannot base a development strategy on low value-added commodity production. It makes sense to produce some grain and milk locally for local consumption and food security, but not for the export trade. For export, you need to produce higher valued-added goods in order to create a marketable surplus and to make the freight economics work better. That is why Africa does in fact export a lot of food to the EU and USA; it exports value-added prepared vegetables, cocoa, palm oil and other commodities in which it has a comparative advantage. Believe it or not, David Ricardo’s trade theory works.

Interesting argument… Am still chewing on it…

Here’s a short and slightly contrarian view by Dani Rodrik at Harvard’s KSG regarding the Doha round and the ag subsidies that get a lot of publicity.