The final agreement in the current WTO trade negotiations will be shaped, in part, by the agricultural trade policy concerns of China, Brazil and India as well as U.S., EU and Japanese responses to their concerns. These three countries are major food producers and are considered developing countries based on measures of income per capita. They have major urban centers that are economically and culturally developed, while also having rural areas that are much less developed. Despite good economic growth over the last 10 years, significant problems with poverty remain in all three countries.
Each country has displayed an interest in playing a major role in agricultural trade policy issues, and each has the potential to attract other countries to form a bloc of countries that could pursue policies of mutual concern. Despite their common features, they have differences that will result in each taking an independent course in trade policy.
The trade policy concerns of Brazil will likely be the easiest to deal with on a commercial basis. While Brazil is considered a developing country because its per capita gross national income of $3000 per year, compared to $35,000 for the United States and $34,000 for Japan, Brazil’s agriculture is similar to those of developed, exporting countries. From cotton, soybeans, sugar and orange juice to poultry, cattle and hogs, Brazil has attracted capital and modern technology and competes directly with developed countries. With a population of only 180 million people, they are clearly increasing production for export markets. While there are low incomes in some rural areas, their major problems of the poor are in urban areas.
The United States, Australia and other major exporters need to encourage Brazil to see its interests as more aligned with other exporting countries. Over the last couple of years Brazil at times has aligned itself with groups that include India and other countries that maintain import restrictions to protect producers who are at the edge of the market economy. That is inconsistent with the reality of an export-oriented Brazilian agriculture. If Brazil wants a major place at the trade policy table, it will have to be as a country with a highly developed agriculture seeking more access to other markets, not as a developing country seeking protection from market reality.
India and China are in much different situations. While both of them have some agricultural producers who can compete with other countries, China much more so than India, they also have large portions of their citizens that live in rural areas at the edge of the market economy. Analysts estimate that 600 million of India’s one billion people rely on agriculture for the majority of their income and 800 million of China’s 1.3 billion people depend on agriculture for part of their income. The elections in India this past spring showed the importance of the concerns of rural voters. Chinese political leaders have recognized for centuries the importance of economic and political stability in rural areas. That will not change.
The WTO framework negotiating agreement reached this past summer at least recognized this issue. Under the category of aggregate measures of support (AMS), countries would be exempt from payment cuts in “de minimis” programs if almost all of the payments went to subsistence and resource-poor farmers. While India and China are the two biggest countries with that concern, other countries in Asia and Africa have similar situations. They could form a bloc of countries and prevent progress in opening markets unless this issue is addressed.
For most of the developed world, the economic solution for small agricultural producers has been migration to industrial jobs in the cities or making huge payments to keep them on the farm. Given the sheer number of producers at the edge of the market economy in China and India, moving to cities or paying large subsidies do not appear to be logical policy choices.
Any trade policy approach that attempts to separate a country’s agriculture into competitive and noncompetitive segments is fraught with potential for errors and abuse. It is only natural for farmers and ranchers to lobby to be part of the protected group, even when the rules have to be bent to make the case. As is true in our country, tight political campaigns can lead to blurring of what were clear lines at an earlier time.
Ignoring the reality of rural populations in India and China is probably not an option. While all portions of the economy benefit from freer trade in the long run, in the short run there are losers. Trying to force reforms would surely cause a backlash, either overtly or covertly, that could result in no opening of market for U.S. produced agricultural products.
While China and India have many similar conditions in agriculture, they have not traditionally been allies. They have had boundary disputes over territory. They also compete for some of the same lower skilled manufacturing jobs that have left developed countries in recent years. They are both large enough to want to organize and lead their own bloc of countries in the WTO.
The goal of the WTO negotiations should be to move toward free trade at the earliest opportunity based on a set of rules that treats all countries alike. The negotiating reality is that countries like Brazil, China and India are at different stages of development in agriculture. Some transition programs unique to their individual country needs will likely be part of the final outcome of the negotiations.