March 2019

March 2019

THE WTO

Everyone’s going to the WTO to complain these days.

Brazil is complaining about sugar.    The US is after how the Chinese calculate grain subsidies.    And yes,  Canada will be involved in a hearing this week about how India justifies government interference in our biggest specialty crop export market.   

China and India account for 36% of the world population and 18% of available farmland.   The 5% that live in North America have 11% of the farmland available worldwide.   This leaves North America with a 4:1 surplus of farmland to population compared to its counterparts in Asia.   One would expect the flow of staple agricultural goods from North America to Asia to be self-evident as both sides will have a strong need to ensure an unobstructed flow from one place to the next.     

Mike Tyson said, “everyone has a plan until you get punched in the mouth.”   When India faced droughts in 2015-2016 which rolled into China in 2017 the devastation changed everything.   North American lentil prices appreciated 225% during this period while income for 330 million people in India who work in agriculture was reduced to near zero.   It makes sense that the government is going to react in a way that puts a barrier between the world and its vulnerable population to prevent this from happening again.   Government-controlled stockpiles and duties to encourage local production are a natural reaction to such events.   Two years later North Americans are taking offense that India would take such a position which has resulted in reducing profits on this side of the Pacific to near zero.   

This week, like every week at the WTO, a bunch of suits will travel to Geneva with a basket of spreadsheets and legal documents to argue these injustices.   Each side will put forward an “America First” type argument and someone will win.  What does winning really mean?   This is not a zero-sum game.   Winning does not mean sending violators directly to jail or claiming one of their small islands in the Pacific as compensation.   

The process reminds me Robbin Williams comedy segment where he quips about British police officers trying to chase down criminals with only their baton:   “STOP, or I will say STOP again!”  In the end, the WTO cannot provide a timely remedy.   Years later, if the violating country does not comply the WTO will allow the damaged country to retaliate with sanctions of their own.   Of course,  the world being what it is will move on and the affected industries will adjust.  

Who is still talking about the USA imposing a 25% tariff on Canadian Steel and 10% on Canadian aluminum one year ago?  It is affecting 35000 people in Canada and 10 billion dollars in trade.   This is the reality of unfair trade.   Complain, adjust, and move on.  

Maybe there is not a better way of addressing trade issues.   Like the close button on an elevator,  the WTO provides us a feeling that we can at least “do something” to get this thing moving.  Maybe, at least, someone is writing it down.   I believe markets work.   They work really well where participants can trade within a sound/identifiable market structure and where there is no outside government interference on price.

What we really should be working on as market participants are improving our trading structures between countries so no one gets punched in the mouth and force governments to step in and make a mess of it all.   Then no one is pretending to solve problems by going to the WTO.  

It would be interesting to be part of a discussion where countries with symbiotic supply and demand needs are able to allow a market to move within a wide range but limit the extreme price movements that cause reactions that inevitably hurt real people on both sides.

Something to think about.

Have a great month.