July 21, 2008 | posted by Michael Baxter in UK economy, global economy |

And while all around there was panic, reaction and overreaction, a nice healthy dollop of good news, real good news, emerged this morning.

The EU has agreed to reduce farm tariffs by 60 per cent.

In the early 1930s, the Smoot-Hawley Tariff Act made an economic crisis a whole lot worse. The US pulled its drawbridge up, by raising tariffs on 20,000 products. The result was that, first of all, US consumers paid more for their products. Secondly, US customers retaliated by upping tariffs on goods they were importing from the US. This made the economic depression much more serious than it would otherwise have been; World War II resulted.

In the US, some politicians, completely immune to the lessons of history, are urging the government to raise tariffs again.

In Europe, agricultural subsidies are seen by developing nations with a strong agricultural base, nations such as Brazil, as the policy of the Devil incarnate.

The EU move then is a very important step against the rising tide of protectionism.

EU trade commissioner Peter Mandelson said that this: “is a very considerable improvement on our own part.”

It is not the same thing, by the way, as cutting the EU Common Agricultural Policy, a shaming policy that has protected EU farmers at the expense of more efficient third world farmers, who find that thanks to this market-distorting subsidy they are unable to compete. As a result, investment into agricultural infrastructure has been held back, and the current surge in food prices is a direct result of this.

French President Nick Sarkozy and Peter Mandelson seem to sit on opposite sides of the free trade debate. Mandy, an outright supporter of free trade and anti just about all things that smack of subsidies and tariffs.

As we say, the move is not the same thing as reducing CAP, but, as Mandy said, the move is “… light years away from any effort we’ve previously made in a trade round.”

It seems likely that important move will be starved of the publicity it deserves. But it has been argued here before that any reaction to the credit crunch in the form of higher tariffs could spell disaster for the global economy and make things much worse. The EU move then needs to be applauded.