Professor enlisted to study trade conditions

Jennifer Nacin

An ISU professor has proposed a solution intended to improve global agricultural trade and conditions for trade negotiations.

The World Bank Group, a development bank which provides services to low- and middle-income countries to reduce poverty, recently enlisted John Beghin, professor of economics, and World Bank Consultant Ataman Aksoy to study trade conditions and compile a list of recommendations to improve them.

Together they produced a report titled “Developing Countries and Global Agricultural Trade.” The report recommends agricultural trade policy changes and discusses agricultural trade protection issues.

Beghin, who holds a Marlin Cole Chair in International Agricultural Economics and is a faculty member of the Center for Agricultural and Rural Development, said agricultural trade protection continues to be an issue that affects the world market. He said he hopes this report enables government trade officials to see the negative effects of agricultural trade policies and help improve conditions for many citizens whose lives depend on the success of agriculture.

“About 57 percent of the rural population lives in developing countries,” he said. “You have this vast mass of people in rural areas who still depend on agriculture. By removing all those policies, you are going to improve their lives.”

Beghin said he suggests removing agricultural trade protection, domestic farm subsidies and border protection, to expand export markets. This will actually accelerate economic growth more than domestic trade would, he said.

He also said he found border protections and domestic subsidies actually harm developing countries because they can depress world prices and halt market entry. Domestic subsidies are also harmful because of the size of subsidies relative to the world market. These countries would receive a higher profit from global trade in comparison with these subsidies, he said.

“The impact on world markets and closing borders is much more negative than having the European Union or the United States subsidizing agriculture with direct farm subsidies,” Beghin said.

Although both trade policies and farm subsidies have a negative impact on a country, trade policies seem to be the greater negative; trade policies cause prices to be higher for users and producers while farm subsidies don’t cause price increases for consumers.

Beghin said trade policies also depress world prices; by keeping trade domestic, the demand for the commodity a country naturally produces is smaller. If the country had open trade borders and could supply to world demand, profits would increase and an improved economy would follow.

Bruce Babcock, director of the policy center and professor of economics, said he thinks this report will shed light on the misconceptions of world trade and help people see border measures and domestic subsidies hurt developing countries.

“I think that perhaps if all rich-country citizens knew how much damage their policies did to poor countries, maybe they would support the World Trade Organization more,” he said. “The report is another chance for people to better understand what the true costs are to development in poor countries and how rich countries for their agricultural centers harm poor countries.”

The report debunks myths that poor countries protecting its agricultural centers domestically will help them, he said.

Beghin said if the member countries of the World Trade Organization were to fully adopt the recommendations in his report, the changes would take decades to be implemented.

“People are still arguing about what kind of agreement they want,” Beghin said. “My guess is that it’s going to take another 30 years before agricultural trade looks like the rest of the world economy, and that’s if these recommendations are accepted.”