May 6, 2006

Through the WTO Looking Glass: The Food Aid Fight

Nothing in the world of WTO negotiations is quite the way you'd expect. One startling example is the sprawling controversy over the US Food Aid program - at first sight, one of these motherhood-and-apple-pie programs only a monster could oppose. Hey, humanitarian disasters happen, people go hungry, and the US has a mechanism to make sure they get enough to eat: who could possibly be against that?

Plenty of people, it turns out, including - remarkably - many of the recipient countries. Lofty rhetoric aside, it's been clear to them for some time that the way the US operates its Food Aid program is just an agricultural surplus disposal mechanism in disguise. When a good harvest threatens to create a glut of food in the US, which could cause farm gate prices to collapse, the US government steps in to buy the excedent. Rather than storing it or letting it rot in the fields, they then package it up in nice, star-spangled banner sacks and ship them off to the third world - whether the food is needed or not. In fact, more than a few studies show that US Food Aid shipments are closely correlated with the size of the harvest in the US in any given year, and not at all related to food shortages abroad.

From an economic point of view, then, US Food Aid often amounts to an agricultural export subsidy by another name. The effect of so much cynical largesse is typically to depress prices in the recipient countries - hey, for local farmers, "free" is a tough price to compete with. Food Aid shipments thus tend to drive local producers out of the market, arguably exacerbating local poverty conditions.

The surreal outcome of all of this is that, in the Doha Round, one of the thorniest of the "second-tier deadlocks" involves very poor countries begging the US to stop giving them free food, while US negotiators manouver furiously to keep those aid flows going!

Into this fray comes the European Union, which gives its food aid mostly in the form of cash. It's true that US Food Aid works to depress food prices in recipient countries, so the program puts EU food exporters at a disadvantage in those markets. But it's hard to believe that's the real reason the EU is so fantastically worked up about the problem.

My feeling is that the EU is always looking for new issues to put on the table to divert attention from its own very high farm tariffs. Food aid offers the EU a rare chance to be seen siding with the poorest countries against the big, bad US - and a chance to argue that they're not the only ones to use agricultural export subsidies, it's just that the US calls them something else.

Now, the EU has been driving a very hard bargain on this issue - actually, a bargain entirely out of proportion to the issue's actual relevance to EU farmers. And here you start to see the way the structure of the negotiations gives ample room for tactical posturing and diversionary negotiating stances. It's hard to believe that the EU really cares all that much about US Food Aid, but it's easy to see how keeping the discussion centered on Food Aid ensures that it's the US that does the squirming, not the EU. The EU can then use the issue as leverage in the rest of the negotiations - and, of course, looking for second-tier issues to hold as bargaining chips against the first tier issue is much of what the minor sport of WTO positioning is all about.