Thursday, December 17, 2009

Dumping, Ag Subsidies and Bias in the WTO

A new paper shows that US ag subsidies allow US farmers to "dump" on Mexico by selling below per-unit production costs. Under the rules of the WTO, Mexico could theoretically raise a dispute case (although, it may not have much credibility since Mexico and the US are partners in NAFTA and that would seem like the best place to start). One interesting tangent here is that many countries' farmers are probably being harmed by the same policies. A number of studies show that there are surprisingly few disputes by developing countries against developed countries because there are some inherent asymmetries in terms of the likelihood of getting a favorable decision and the incentives for pursuing the disputes.
Smaller, developing countries are more dependent on trade than bigger, industrialized ones. Because of economies of scale a small country naturally finds it more difficult to diversify than a large one and a fair argument can be made that this is not a bad thing. But, when it comes to unfair trade practices, the only dispute-settling authority the WTO has is retaliation. I suspect that even if a small(er) country like Mexico has a gripe with the US, it has to ask itself "what's gained?" When the roles are reversed, the raising of the dispute, and the lost gains from trade are not as big of an impediment to a larger, richer country. Besides, sometimes raising the case will get the smaller country to change track and get in line, creating a "free lunch" for the larger country.
While we are talking superfund for climate, maybe we should think of a superfund for WTO disputes, instead of the counterproductive mechanism of retaliation.
HT: Elizabeth Malkin at Economix

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