US hits the poor

Observations on trade

George Bush has just signed away $190bn to America's farmers, no doubt pleasing them but angering his Republican colleagues, who reportedly begged him to veto the farm bill right up to the signing ceremony. They were offended partly by the sheer cost of the bill - up to $19bn a year for the next ten years - and partly at the idea of such heavy government support for a lame-duck sector.

It would be good to think they were also anxious about the highly detrimental impact the bill will have on the farmers of poor countries, or troubled at the hypocrisy of the richest nation in the world showing such blatant disregard for its own free-trade rhetoric, most recently declaimed in March at the UN summit in Monterrey, Mexico. Here, Bush pledged $5bn a year for three years to vanquish third-world poverty, with a reminder that future prosperity for all depended more on free trade than on aid.

The $15bn is now looking rather paltry, but he was right about trade. The use of agricultural subsidies by rich countries to protect farmers' prices quite literally keeps the developing world in poverty. Last year, at the global trade summit in Doha, Qatar, the rich nations recognised this and pledged to work towards reducing them. Currently running at around $350bn a year (or a billion a day), agricultural subsidies equal the entire GDP of sub-Saharan Africa, and seven times as much as the rich countries give in development aid. In Europe alone, the Common Agricultural Policy hands out $36.8bn to its farmers to help them compete with some of the poorest people in the world. Despite the Doha pledges, only optimists now expect the EU to reduce this level of subsidy.

Paying rich farmers to overproduce has an immediate impact on poor-country farmers. Their traditional export crops, such as cotton or groundnuts, cannot compete with artificially low prices, yet the income they can earn from crops for local consumption is forced down by competition with the produce dumped by the rich world, as organisations such as Oxfam and World Development Movement have consistently argued.

Two traditionally harder-nosed institutions, the World Bank and International Monetary Fund, recently calculated that if world prices were not depressed by subsidies, millions of poor cotton producers could be lifted out of poverty. In Burkina Faso (where the average income is less than a dollar a day), this simple move would reduce the number of people living in poverty by half within six years.

Halving the number of people living in poverty by 2015 was, you may recall, the first of the so-called "millennium aims" in pursuit of which President Bush pledged his $15bn in Monterrey.

The farm bill has been described in the US as the death of the free-trade ideal. But free trade has never been much of an ideal for poor countries: IMF and World Bank loan conditions have generally forced them to play the rich countries' game.

The poorest countries have been rightly cynical of the benefits to them of a free trade in agriculture, recognising that the rules of international trade are written by the rich for the benefit of the rich. None the less, they have every right to demand that the lawmakers stop making a mockery of the rules.