is politics dominating economics

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Is politics dominating economics? [ FRIDAY, SEPTEMBER 15, 2006 12:53:13 AM] Sometime over the course of this month the various actors (the US, EU, G-6, G-20, etc) will meet to try to bring together the pieces of the WTO left after the disastrous meeting in Hong Kong. In particular, the WTO now has a single point agenda: how to rescue the agreement on agriculture (AoA) from the obduracy on the part of both the US and the EU. India, as part of the G-6 and the G-20, has an important role to play. Particularly, as the Hong Kong ministerial showed, since India seems to have taken up the role of an international mediator at the WTO. However, it would not be in India’s long-term interests to sacrifice economics at the altar of international politics. Consider the facts. Since 1995 developed countries have been replacing export subsidies by domestic production and income subsidies. In 2004, 80% of all domestic agricultural subsidies were accounted for by meat products, dairy products and cereals. At a more disaggregated level the main subsidised products are beef and veal, milk and wheat accounting for about 50% of subsidies. Who are the principal culprits? Apart for the US and EU we have Japan and South Korea. Japan, in fact, has the highest per unit subsidy for rice and wheat though the total value of wheat subsidies is highest for the EU. In cotton, the US accounts for 50% of all subsidies. In sugar, EU is the main culprit. And so on. It is to the credit of the WTO that at least these numbers are now well reported. The Cairns group of agricultural exporters thus has well known interests in subsidy reduction. Among developing countries the representatives are Brazil, South Africa and Argentina. Various estimates place the total value of agricultural subsides as over $250 billion — a substantial amount by any estimate. Yet, India has no offensive interests in agriculture. For India will never emerge as a significant meat exporter in coming years, it has never been a consistent wheat exporter and its share in world exports of basmati rice has already reached saturation point.