The EU's agricultural proposal

Proposals for the EU's agricultural offer in the WTO negotiations were submitted by the European Commission to EU agricultural ministers and the Article 133 Committee on December 16th 2002. The EU proposal suggests the following actions be taken over a six-year period for developed countries and a ten-year period for developing countries: a 55% cut in trade-distorting farm subsidies; the rolling back of budget expenditures on export refunds by about 45% on average with the complete dismantling of export refunds on cereals oilseeds, olive oil and tobacco, provided that all other forms of export subsidy are also abandoned for these products (in this context the EU is calling for stronger disciplines to be introduced on export credits, state-run trading enterprises and abuses of food aid); a further opening of agricultural markets by reducing agricultural tariffs by 36% on average, with a cut of at least 15% per dutiable item. In addition the EU is proposing that: other developed economies and advanced developing countries should introduce 'Everything but Arms' style treatment for LDCS; there should be support for a 'food security box' involving a special safeguard instrument to ensure food security; there should be recognition of its right to protect the European model of agriculture and the EU position on geographical designations of origin. Securing support for the European model of agriculture includes securing acceptance of the exclusion of internal non trade-distorting rural development support measures from the support reduction commitments. It also involves an extension of the peace clause, which prevents existing support measures from being challenged in the WTO. The EU sees its proposals as a more practical way of moving the agenda forward rather than the 'extreme and unrealistic position' of the USA and the Cairns Group. In response to the EU proposals the Cairns Group felt that they contravened the Doha commitment to 'reductions of, with a view to phasing out' all forms of export subsidies. The Group also pointed out that the EU make no proposals for phasing out the 'blue box', which allows partly de-coupled payments under production limiting programmes. The Australian Trade Minister Mark Vaile described the EU offer as 'too little too late'. The US described the EU proposal as 'lacking ambition'. Comment: All of the major elements of the EU proposal demand careful scrutiny. For example what is meant by 'trade-distorting subsidies'? The OECD has raised questions as to whether all of the subsidies which the EU describes as non trade-distorting are in fact trade neutral. Second, the EU's commitments on export refunds needs to be seen against the background of the shift to direct aid payments which is allowing the gap between EU and world market prices to be closed. This is doing away with the need for export refunds. During the first round of reform EU export-refund expenditures fell by 45%. Further reductions in the EU intervention price under the Agenda 2000 reforms have further closed the gap between EU and world market prices. The depreciation of the Euro against the US$ further reduced the need for export refunds (although the recent 10% appreciation has increased the objective need for export refunds in the last year). It will require detailed calculations based on current price trends and expected exchange rates to determine whether the EU's offer will have any actual impact on the planned level of export-refund expenditures in the coming years Third, the EU's offer to reduce agricultural tariffs by 36% on average cannot be considered in isolation from the downward trend in EU agricultural market prices driven by the process of CAP reform. With the gap between EU and world market prices closing, the need for tariff protection is diminishing. Here again a detailed consideration of market prices and expected exchange rates is necessary in order to ascertain whether the EU's offer will have any material impact on the agricultural trade position of developing countries. It is possible that the EU is in fact offering very little more than the current trajectory of CAP reform will easily allow, whilst securing benefits in terms of wider recognition of the EU's right to make use of certain support instruments and to secure exclusive use for EU enterprises of some widely recognised geographical labels.Proposals for the EU's agricultural offer in the..