The trade ministerial summit being held at Hong Kong holds a lot of hope for the under-developed and the developing countries. An analysis of the contemporary features of trade is necessary to understand the theory behind the WTO and the consequent series of global meetings held since its inception in 1995.
The first step in any sort of business begins with the production of the agricultural goods. The goods produced are either sold within the country of produce or are exported to foreign markets. There are some economic strategies, used by a government, which aid the economy of the home country. Domestic subsidies, export subsidies and tariffs are some of these strategies. Sometimes, success obtained using these strategies, occurs at the expense of other countries.
Domestic subsidies include financial and material help provided to the producers. There are some countries where the government decides that the produce may be sold in the local markets, at rates higher than the international rates. This helps the producers to accrue profits. In some other cases, when the rates of a produce lessens, the government makes up for the losses of the producers, giving them the money they fall short of. Such domestic strategies are made available only for some agricultural products a country deals with. Export subsidy is the aid given to organizations, which deal with the export of the locally manufactured goods. Both these approaches help sustaining a blooming economy (for the country using these), even when the world markets face turbulences.
Tariffs are the means by which the countries importing agricultural products try to protect the local markets from encroachments from outside. Tariffs include various means like import duties etc. which are a source of income to the concerned governments. Certain players increase the tariffs to such levels (by levying macro-tariffs), that the sale price of the imported goods increase substantially, thus helping the sale of the locally produced goods (which are sold at a much lower price).
This market structure weighs down on the poor and developing countries of the world. These countries do not have much to spend on subsidies. The WTO has liberalized the world trade scenario to the extent of reducing the import tariffs on certain produces. These two market features together, have forced the economically smaller countries to open their local markets for foreign players. This financially destroys the local producers. The economy of the smaller players, which had hitherto depended on their own producers, is further pushed down. A direct effect of this setting is exemplified here. It is cheaper for Chennai to import wheat from the US, than obtaining it from Punjab! Though the Indian policies may be a cause here, the ‘liberal’ markets also have a hand.
The countries can be placed into three main trading groups. One is that of the developed countries, including the US, the EU, Australia, Japan etc. The second group consists of developing countries, which are better placed than many of their counterparts (Brazil, Argentina, India and the other countries of the G 20). The third group consists of the most under-developed countries (most African nations). It’ll take a lot of sacrifices by the countries in the first two groups, to see the economies of the latter group at the same level as theirs. The Hong Kong summit has to decide these so called sacrifices. It is likely that the farmers in the richer nations would attack the decisions taken at Hong Kong, because the reduction in the subsidies (which is the only solution to the deepening crisis), would make them vulnerable to the market forces. The opposition would be mainly from the rich farmers and the large trading organizations, which were having the fruits hitherto.
The Hong Kong meeting proposes to address the issue of farm subsides given in the developed countries. Let us see whether it can help in the formation of a common level from where the farmers from both the developed as well as the developing countries can trade.