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Texas Agriculture Archive

December 2, 2005

Editorial unveils trade subsidies

A Wall Street Journal editorial (Nov. 21) tries to clear up the "Fuzzy Trade Math." As the editorial, written by Arvind Panagariya explains, to measure the magnitude of agricultural subsidies and their effect in driving down world prices only requires looking at those subsidies contingent on exports or output.

Panagariya says subsidies contingent on output are much smaller than commonly believed. "Subsidies made in the Uruguay Round Agreement on Agriculture, WTO (World Trade Organization) members have achieved substantial reductions in these subsidies," he says. "We can conclude that rich country domestic subsidies that encourage production and lower world prices are substantially below $100 billion." This is in contrast to numbers such as $1 billion a day that are routinely thrown around.

"By focusing exclusively on subsidies, the media has distracted attention from the critical fact that the most important obstacle to agricultural trade comes from border barriers, also called market access measures," Panagariya notes. Border barriers by developing countries, in many cases, more than match developed countries, he reports. Trade-weighted average tariff percentages in 2001, which are the latest figures available, include: South Korea, 94; India, 44; China, 39; Japan, 36; Pakistan, 30; European Free Trade Area, 29; Argentina and Brazil, 13; European Union, 12; Malaysia, Thailand and Indonesia, 11; and the United States, 3.

Panagariya is professor of economics and Bhagwati Professor of Indian Political Economy at Columbia University.